- (1.) The short question which arises for consideration in this batch of appeals is whether or not the income derived from business of rearing silkworms is "agricultural income" as defined under Section 2 (1 of the income Tax Act, 1961 (for short "the Act").
(2.) 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 silkworms. The assessee purchases silkworm 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 stripes which are fed to the silkworms. 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 appellant.
(3.) Before the Income Tax Officer, 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 of income tax as it was "agricultural income" within the meaning of that expression used in Section 2 (1 of the act. The Income Tax Officer accepted the contention of the appellant only insofar as it related to the growing of the mulberry leaves but did not accept the appellant's 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 of income tax but the income derived from the rearing of silkworms on the leaves and selling of the cocoons was not agricultural income. Therefore, the Income tax Officer estimated the income derived from the process of growing silkworms and rearing of cocoons at 25 per cent of the total income and subjected the same to tax in the assessment years involved.;