Use of Tissue Culture Technology Does Not Bar Tax Exemption On Agricultural Income: Telangana High Court

The Telangana High Court has held that income earned from the sale of tissue-cultured plants qualifies as agricultural income and is therefore exempt from income tax, though advanced scientific techniques are used in their cultivation.

The Bench of Justices P Sam Koshy and Narsing Rao Nandikonda heard a case where the assessee (appellant), who was engaged in the business of micropropagation of plants through tissue culture technology, claimed that the income from the same was exempt from tax as it was agricultural income.

The Income-tax Officer rejected this claim and treated the income as business income subject to taxation.

Counsel for the assessee argued that the tissue extracted from these mother plants was not an independent creation but a direct derivative of the agricultural produce grown on the land. Therefore, the income from selling plants propagated from this agricultural source should be treated as agricultural income, as the entire chain of production originated from and depended upon basic agricultural operations performed on land.

The High Court framed the central question in the case as whether the employment of advanced scientific techniques and laboratory-based processes transforms what is essentially an agricultural activity into a commercial or business operation and answered in the negative:

…the essence of the assessee's activity remains rooted in agriculture, the cultivation of mother plants on land through basic agricultural operations, followed by the multiplication and propagation of plant material through tissue culture technology. The fact that sophisticated scientific methods are employed to enhance efficiency and productivity does not alter the agricultural character of the underlying operation.

The bench, therefore, held that the income derived from tissue culture operations by the assessee qualifies as agricultural income, which is exempted under Section 10(1) of the Income Tax Act and allowed the plea.