The income derived from the rearing of silkworms and the sale of cocoons is not agricultural income.

ORDER

CAs Nos. 5086-97 of 1984

1. The short question which arises for consideration in this batch of appeals is whether or not the income derived from business of rearing silkworms is "agricultural income" as defined under Section 2(1) of the Income Tax Act, 1961 (for short "the Act").

2. The appellant is a partnership firm constituted for the purpose of carrying out agricultural activities. During the course of its business it indulges in the activity of growing mulberry leaves and rearing silkworms.

The assessee purchases silkworm eggs and when they are hatched the worms are principally fed on mulberry leaves. The mulberry leaves are plucked from the trees grown by the appellant and these leaves are cut into stripes which are fed to the silkworms. The worms wind around themselves the saliva which oozes from their mouth and the hardened saliva forms the protective cocoons. These cocoons are then sold in the market by the appellant.

3. Before the Income Tax Officer, the appellant claimed that the entire income which it derived from the growing of the mulberry leaves to the sale of the cocoons, was exempt from levy of income tax as it was "agricultural income" within the meaning of that expression used in Section 2(1) of the Act. The Income Tax Officer accepted the contention of the appellant only insofar as it related to the growing of the mulberry leaves but did not accept the appellants contention that the rearing of the worms and the selling of the cocoons resulted in agricultural income. He accordingly concluded that that part of the income which was attributable to growing of mulberry leaves alone constituted agricultural income and was exempt from levy of income tax but the income derived from the rearing of silkworms on the leaves and selling of the cocoons was not agricultural income. Therefore, the Income Tax Officer estimated the income derived from the process of growing silkworms and rearing of cocoons at 25 per cent of the total income and subjected the same to tax in the assessment years involved.

4. The Appellate Assistant Commissioner, in the appeals filed by the appellant, accepted its contention and came to the conclusion that income derived by it from growing mulberry leaves and from rearing of silkworms and cocoons was exempt from tax under the Act.

5. The Revenue then filed an appeal before the Income Tax Appellate Tribunal which allowed the same and came to the conclusion that even though mulberry leaves did not have a market the case would still not fall within the purview of Section 2(1) of the Act inasmuch as the agricultural produce, viz., the mulberry leaves, was not what was sold in the market and what in fact was sold were cocoons which were not the agricultural produce of the appellant. At the instance of the appellant, the Tribunal then stated the case and referred the following question of law to the High Court :

"Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the income derived by the assessee from the process, i.e., the rearing of silkworms, is not entitled to exemption under Section 2(1)(b)(ii) of the Income Tax Act, 1961 ?"

6. The High Court in the impugned judgment has answered the question of law in favour of the Revenue as it came to the conclusion that feeding of mulberry leaves to silkworms was not a process employed by cultivator of mulberry leaves to make them marketable by way of producing silk cocoons.

7. On the basis of the facts found by the Tribunal, we do not find any infirmity in the conclusion of the High Court. Section 2(1) of the Act defines the expression "agricultural income". The relevant part of the definition reads thus :

"2. In this Act, unless the context otherwise requires -

(1) agricultural income means -

(a) * * *

(b) any income derived from such land by -

(i) agriculture; or

(ii) the performance by a cultivator or receiver of rent-in kind of any process ordinarily