Agricultural income on leased land retains its character when receipts arise directly from cultivation and related farm operations.

Receipts derived directly from agricultural operations on leased land retained the character of agricultural income because the immediate source was cultivation activity, including crop growing, input purchases, wage payments, greenhouse use, and sale of produce. The fact that the assessee did not own the land did not change the nature of the income for income-tax purposes on these facts. The Karnataka Land Reforms Act restriction was treated as irrelevant to characterisation of the receipts. The addition treating the amounts as income from other sources was therefore not sustainable, and the assessee's treatment as agricultural income was upheld.

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Issues: Whether the income derived from agricultural operations carried on land taken on lease by the assessee was assessable as agricultural income or as income from other sources.

Analysis: The assessee did not own the land but had taken it on lease and carried on only agricultural operations during the relevant period. The record showed cultivation of crops, purchase of agricultural inputs, payment of wages, use of greenhouse equipment, and sale of produce, including exports, all of which established that the immediate source of the receipts was agricultural activity on the land. The restriction under the Karnataka Land Reforms Act was found to be irrelevant to the character of the income for income-tax purposes in the facts of the case. Following the principle that where the immediate source is agricultural operations on land, the receipt retains the character of agricultural income, the assessee's claim was accepted.

Conclusion: The income was agricultural income and not income from other sources, and the Revenue's challenge failed.

Final Conclusion: The assessment addition treating the receipts as non-agricultural income was not sustainable, and the assessee's treatment of the receipts as agricultural income was upheld.

Ratio Decidendi: Where receipts arise directly from agricultural operations actually carried on on leased land, their character is agricultural income if the land is the immediate source of the income.

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