Case: K. Lakshmanan and Company and Others Vs. Commissioner of Income Tax

Civil Appeals Nos.of 1984 The short question which arises for consideration in this batch of appeals is whether or not the income derived from the business of rearing silk worms is "agricultural income" as defined under section 2(1) of theAct, 1961 (for short, "the Act")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 silk worms. The assessee purchases silk worm 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 strips which are fed to the silk worms. 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 appellantBefore theOfficer, 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 ofas it was "agricultural income" within the meaning of that expression in section 2(1) of the Act. TheOfficer accepted the contention of the appellant only in so far 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 ofbut the income derived from the rearing of silk worms on the leaves and selling of the cocoons was not agricultural income. Therefore, theOfficer estimated the income derived from the process of growing silk worms and rearing of cocoons at 25 per cent. of the total income and subjected the same to tax in the assessment years involvedThe 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 silk worms and cocoons was exempt from tax under the ActThe Revenue then filed an appeal before theAppellate 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.

Court's reasoning:
We are in respectful agreement with the aforesaid observations. The High Court, as we have already observed, has rightly come to the conclusion that the income derived by the appellant from the sale of the cocoons could not in law be regarded as agricultural income. The question of law was, therefore, rightly answered in the affirmative and against the appellant