Agricultural income treatment of nursery and tissue-culture plant sales upheld where basic farm operations were established.

Income derived from production and sale of nursery and tissue-culture plants was treated as agricultural income because the Tribunal found that basic agricultural operations, including rearing mother plants on land and related sowing activity, had been carried out. It applied the settled distinction between basic operations and later cultivation in controlled conditions, and accepted that greenhouse or pot-based nurturing did not by itself exclude agricultural character. The later insertion of Explanation 3 to the definition of agricultural income was also noted as supportive of nursery saplings and seedlings. The sale proceeds were therefore exempt as agricultural income, and the Revenue's appeals failed.

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Issues: Whether income derived from production and sale of nursery plants and tissue-culture plants constituted agricultural income eligible for exemption under the Income-tax Act.

Analysis: The income was claimed as agricultural income on the footing that the activity involved rearing of mother plants on land, sowing and related basic agricultural operations, followed by subsequent operations in greenhouses and soil-filled bags. The Tribunal applied the settled distinction between basic operations and subsequent operations, and relied on precedents holding that plants grown from land-based operations and then nurtured in pots, greenhouses, or similar controlled conditions can still yield agricultural income. It also noted that the later inserted Explanation (3) to section 2(1A) supported the treatment of saplings or seedlings grown in a nursery as agricultural income, though the decision was primarily rested on the finding that basic agricultural operations were in fact carried out.

Conclusion: The income from sale of plants was held to be agricultural income and was exempt under section 10(1); the Revenue's appeals were dismissed.

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