No Income Tax Payable On Income Earned From Sale Of Tissue Cultured Plants: Telangana HC

The Telangana High Court has held that income earned from the sale of tissue-cultured plants qualifies as agricultural income exempt from income tax under Section 10(1) of the Income Tax Act, 1961. The Bench of Justice P. Sam Koshy and Justice Narsing Rao Nandikonda has observed that the statutory test is not defeated merely because scientific or technological processes are employed. The Court emphasized that agriculture cannot be confined to primitive or traditional methods and must evolve with technological advancements. The central question before the Court was whether income derived from tissue culture and micro-propagation of plants could be classified as agricultural income, or whether it constituted taxable business income due to the use of advanced laboratory-based scientific processes. The Revenue authorities had treated the income as business income on the ground that the core activity involved sophisticated laboratory techniques carried out under sterile conditions, with agricultural land being used only incidentally for growing mother plants. The ITAT had upheld this view, emphasizing that the final commercial product was the result of scientific intervention rather than direct agricultural operations on land. The assessee argued that its entire operation was fundamentally rooted in agriculture. Mother plants were grown on agricultural land through basic operations such as tilling, planting, irrigation, manuring and human labour. Tissue samples extracted from these plants were then multiplied using tissue culture technology, followed by hardening and nurturing in greenhouses and soil before sale. It was contended that tissue culture is merely a modern and scientific method of plant propagation, akin to grafting, budding or nursery cultivation, and does not sever the agricultural character of the activity. Reliance was placed on precedents including CIT v. Soundarya Nursery (Madras High Court) and Shri Puransingh M. Verma v. CIT (Gujarat High Court), where income from nursery operations was treated as agricultural income. The Income Tax Department argued that laboratory-based multiplication amounted to a commercial and industrial process, and that agricultural operations on land were only preparatory in nature. It further submitted that classifications made by State Governments or banks for subsidy or loan purposes were irrelevant for determining income tax liability. After extensively examining statutory provisions and judicial precedents, including the landmark Supreme Court ruling in Raja Benoy Kumar Sahas Roy, the Court held that the foundation of the assessee’s activity lay in basic agricultural operations on land, namely the cultivation of mother plants. Tissue culture is an advanced and efficient method of propagation, but remains intrinsically linked to agriculture. Use of laboratories and scientific processes does not transform the nature of income when the agricultural base remains intact. Modern agricultural practices, including biotechnology, fall within the evolving meaning of “agriculture” under Section 2(1A) of the Act. The Bench also relied on its own recent ruling in PCIT v. Nuziveedu Seeds Ltd., where income from hybrid seed production involving scientific research and farmer supervision was held to be agricultural in nature. The Court ruled that income from tissue culture operations constitutes agricultural income exempt under Section 10(1) of the Income Tax Act. The questions of law were answered in favour of the assessee and against the Revenue, and the ITAT’s orders were set aside. Case Details Case Title: M/s. A.G. Biotech Laboratories (India) Ltd. Versus Income Tax Officer Case No.: Income Tax Tribunal Appeal Nos.91 And 92 Of 2008 Date: 21.11.2025 Counsel For Petitioner: A.V.A. Siva Kartikeya Counsel For Respondent: Bokaro Sapna Reddy Click Here To Read Order Read More: Non-Filing of LUT Before Export Not Fatal to GST Refund Claims: Karnataka High Court

No Income Tax Payable On Income Earned From Sale Of Tissue Cultured Plants: Telangana HC

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