Agricultural income from seed production on owned or leased land is not business income where cultivation operations are actually carried out.

Income from production of basic and hybrid seeds on owned and leased land was treated as agricultural income because the assessee carried out sowing, growing, protecting and harvesting on land under its effective cultivation control. Ownership of the land was not essential; the decisive factor was that the immediate source of the receipts was the land and the agricultural operations performed on it, including contract farming arrangements. As the income arose directly from cultivation and connected agricultural processes, it fell within section 2(1A) of the Income-tax Act, 1961 and was not taxable as business income.

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Issues: Whether income from production of basic seeds and hybrid seeds carried on through owned and leased land amounted to agricultural income within section 2(1A) of the Income-tax Act, 1961.

Analysis: The assessee's operations involved sowing, growing, protecting and harvesting crops on its own land and on land taken on lease under contract farming arrangements. The income was derived directly from agricultural operations on land, and ownership of the land was not essential so long as the assessee had a derivative interest and actually carried on the cultivation-related operations. The production process comprised basic agricultural operations followed by further operations integrally connected with the land and the crop. On these facts, the character of the income was determined by the agricultural source of the operations and not by commercial expertise or marketing arrangements.

Conclusion: The income from production of basic seeds and hybrid seeds was agricultural income and was not liable to be treated as business income.

Final Conclusion: The assessee succeeded in establishing that the impugned receipts were outside the ambit of taxable business income under the Act.

Ratio Decidendi: Income derived from cultivation and related agricultural operations on owned or leased land, including contract farming where the assessee effectively carries on the agricultural process, is agricultural income if the immediate source of the receipt is the land and the operations performed thereon.

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