Income from tissue culture operations is classified as agricultural income, qualifying for tax exemption, as it involves basic agricultural operations performed on land.

JUDGMENT :

P. SAM KOSHY, J.

1. Heard Mr. A.V.A. Siva Kartikeya, learned counsel appearing on behalf of Mr. A.V. Krishna Koundinya, learned counsel for the appellant; and Ms. Bokaro Sapna Reddy, learned Senior Standing Counsel for the Income Tax Department appearing for Mr. J.V. Prasad, learned Senior Standing Counsel for the Income Tax Department, for the respondent.

2. Income Tax Tribunal Appeal No.91 of 2008 is filed by the appellant / assessee under Section 260A of the INCOME TAX ACT , 1961 (for short the ‘Act’) assailing the order passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘B’ Hyderabad (for short the ‘ITAT’) in I.T.A.No.1172/Hyd/2006, for the assessment year 2002-03, decided on 28.09.2007. Similarly, Income Tax Tribunal Appeal No.92 of 2008 is filed by the same assessee under Section 260A of the Act assailing the order passed by the ITAT, in I.T.A.No.1173/Hyd/2006, for the assessment year 2003-04, which also stands decided on 28.09.2007.

3. Since the issue involved in both the Appeals is one and the same, the parties to be dispute being the same, and the contentions raised on either side also being the same, we proceed to decided the two Appeals by this common judgment.

4. For convenience, the facts in Income Tax Tribunal Appeal No.91 of 2008 are discussed hereunder.

5. The appellant M/s.A.G. Biotech Laboratories (P) Ltd. is engaged in the business of micro-propagation of plants through tissue culture technology. The primary dispute in the instant case is classification of income earned by the assessee from the sale of tissue-cultured plants for the assessment year 2002-03. The assessee claimed that this income should be treated as agricultural income exempt from tax under Section 10(1) of the Act. The Income-tax Officer rejected this claim and treated the income as business income subject to taxation. The tissue culture process adopted by the assessee involves taking tissue samples from mother plants grown on land, culturing these tissues in a clinical laboratory under sterile conditions, multiplying the plant material through micro-propagation techniques, and subjecting the cultured plants to various processes to make them suitable for withstanding normal atmospheric conditions before finally selling these plants in the market. However, the ITAT examined the entire process undertaken by the assessee and noted that through micro- propagation, a single explant can be multiplied into several thousand plants in less than one year, representing a significant technological advancement over traditional agricultural methods. The major part of the activities was performed in a laboratory under sterile conditions using sophisticated scientific technology and research, while land was used only incidentally to grow mother plants from which tissues were extracted.

6. Thus, the ITAT held that plant were not a direct result of basic agricultural operation on land but rather the outcome of advance scientific methods.

7. Now the question that arise for consideration by this Bench is “whether the resultant product sold in the market was a direct result of basic agricultural operations carried out on land involving human skill and labour, or whether it was primarily the outcome of scientific and technological processes conducted in clinical laboratories, thereby constituting business or professional income rather than agricultural income?”

8. The pr