Agricultural income from seed production retained exemption where cultivation on owned and leased land remained under supervision.

Income from basic seed and hybrid seed production was treated as agricultural income exempt under section 10(1) because the activity involved basic cultivation on owned land and supervised cultivation on leased land through farmers. The reimbursed cultivation costs and contract-farming arrangement did not change the agricultural character, as the operations remained intimately connected with cultivation on land. The seeds not being fit for human consumption also did not alter that character. The earlier year's decision in the assessee's own case was followed, and a contrary case was distinguished on the basis that there the assessee merely purchased produce meeting specifications rather than taking the produce from lands leased by it.

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Issues: Whether income derived from production of basic seeds and hybrid seeds on own and leased lands through farmers under the assessee's supervision constituted agricultural income exempt under section 10(1) of the Income-tax Act, 1961.

Analysis: The assessee procured germplasm, carried out cultivation of basic seeds on its own lands, and produced hybrid seeds on leased lands through farmers whose cultivation cost was reimbursed and whose work was done under the assessee's supervision. The activity involved basic agricultural operations on land and the later stages remained intimately connected with the original cultivation. The fact that the produce was obtained through contract farming, or that the seeds were not fit for human consumption, did not alter the agricultural character of the operations. The decision in the assessee's own earlier year was followed, and the facts were distinguished from the cited contrary case because there the assessee merely purchased produce meeting specifications, whereas here the entire produce was taken by the assessee from lands leased by it.

Conclusion: The income from basic seed and hybrid seed production was held to be agricultural income and was exempt from tax.

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