Income from Sale of Tissue-Cultured Plants Is Agricultural Income; Exempt | HC

Case Details: A.G. Biotech Laboratories (India) Ltd. vs. Income-tax Officer - [2025] 180 taxmann.com 850 (Telangana)

Judiciary and Counsel Details

• P. Sam Koshy & Narsingh Rao Nandikonda, JJ.
• A.V.A. Siva Kartikeya, Ld. Counsel Appearing & A.V. Krishna Koundinya, Ld. Sr. Counsel for the Appellant.
• Ms Bokaro Sapna Reddy & J.V. Prasad, Ld. Sr. Counsels for the Respondent.

Facts of the Case

The assessee was engaged in the business of micro-propagation of plants through tissue culture technology. It earned income from the sale of tissue-cultured plants and claimed that it should be treated as agricultural income exempt from tax under section 10(1).

The Assessing Officer (AO) rejected the assessee’s claim. AO treated the income as business income subject to taxation. The CIT(A) upheld the order of the AO.

On further appeal, the Tribunal held that the majority of the activities were performed in a laboratory under sterile conditions, using sophisticated scientific equipment and research methods. In contrast, the land was used only incidentally to grow mother plants from which tissues were extracted. Thus, the plants were not a direct result of basic agricultural operations on land but rather the outcome of advanced scientific methods.

The matter reached before the High Court.

High Court Held

The High Court held that the fundamental question was whether the employment of advanced scientific techniques and laboratory-based processes necessarily transforms what is essentially an agricultural activity into a commercial or business operation.

The essence of the assessee’s activity remains rooted in agriculture: the cultivation of mother plants on land through basic agricultural operations, i.e., tilling, planting, nurturing, and harvesting, 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 legislature, in defining agricultural income, did not intend to freeze the concept of agriculture in a time warp or to restrict it to primitive cultivation methods. Agriculture, like all human endeavours, evolves with technological advancement, and the introduction of tissue culture technology serves the same purpose as traditional agricultural methods, the production of plant material for cultivation, but achieves this objective with greater efficiency, uniformity, and disease-free quality.

Therefore, income earned by the assessee from the sale of tissue-cultured plants constituted agricultural income within the meaning of section 2(1A) and was exempt from tax under section 10(1).

List of Cases Reviewed

• I.T.A. No.1172 &1173/Hyd/2006, dated 28-9-2007 [Par 29] set aside
• CIT v. Soundarya Nursery [2002] 123 Taxman 372/[2000] 241 ITR 530 (Madras) (para 21)
• CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC) (para 22)
• Puransingh M. Verma v. CIT [2015] 56 taxmann.com 218/230 Taxman 470 (Gujarat) (para 23)
• CIT v. Prabhat Agri-Biotech Ltd. [ITT Appeal No. 88 of 2014, dated 21-2-2014] (para 24)
• Pr. CIT v. Nuziveedu Seeds Ltd. [2025] 178 taxmann.com 486 (Telangana) (para 27) Followed.

List of Cases Referred to

• Puransingh M. Verma v. CIT [2015] 56 taxmann.com 218/230 Taxman 470 (Gujarat) (para 10)
• CIT v. Soundarya Nursery [2002] 123 Taxman 372/[2000] 241 ITR 530 (Madras) (para 11)
• CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 (SC) (para 22)
• CIT v. Prabhat Agri-Biotech Ltd. [ITT Appeal No. 88 of 2014, dated 21-2-2014] (para 24)
• Pr. CIT v. Nuziveedu Seeds Ltd. [2025] 178 taxmann.com 486 (Telangana) (para 27).