Hybrid seed cultivation qualifies as agricultural activity, and tax must be computed on actual income or loss, not gross receipts.

Hybrid seed cultivation was treated as agricultural activity because the production involved sowing on land and carrying out agricultural operations with human skill and scientific methods; the Tribunal followed the binding High Court view that seed production does not lose its agricultural character merely because it is commercial. On that basis, the income was regarded as exempt under section 10(1). The Tribunal also rejected assessment of the entire gross receipts from the activity, holding that tax must be computed on the actual income or loss arising from the venture, not on turnover as such. The relief granted by the first appellate authority was therefore sustained.

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Issues: (i) Whether the activity of growing and selling hybrid seeds constituted agricultural activity and the resulting income was exempt under section 10(1) of the Income-tax Act, 1961. (ii) Whether the Revenue could be assessed on the entire gross receipts from the activity instead of the income or loss arising therefrom.

Issue (i): Whether the activity of growing and selling hybrid seeds constituted agricultural activity and the resulting income was exempt under section 10(1) of the Income-tax Act, 1961.

Analysis: The activity involved sowing seeds on land and carrying out agricultural operations with human skill and scientific methods. The jurisdictional High Court had already held that growing breeder and foundation seeds amounts to agriculture, and the same principle governed hybrid seed production. The Tribunal followed that binding view and accepted that such seed-growing activity does not lose its agricultural character merely because it is carried on commercially or with scientific assistance.

Conclusion: The activity was agricultural in nature and the income was entitled to exemption under section 10(1); the finding was in favour of the assessee.

Issue (ii): Whether the Revenue could be assessed on the entire gross receipts from the activity instead of the income or loss arising therefrom.

Analysis: The Assessing Officer had brought to tax the entire receipts from the seed-production activity, although the audited accounts disclosed a loss. The Tribunal held that tax can be levied only on the income or loss arising from the venture, not on gross receipts as such, and therefore the approach of taxing the whole turnover was erroneous.

Conclusion: The entire gross receipts could not be assessed as income and the Revenue's approach was rejected; the finding was in favour of the assessee.

Final Conclusion: The Tribunal upheld the relief granted by the first appellate authority, treated hybrid seed cultivation as agricultural activity, and sustained the exclusion of the receipts from taxation in the manner claimed by the assessee.

Ratio Decidendi: Growing hybrid or breeder seeds on land by undertaking agricultural operations is agricultural activity, and tax assessment must proceed on the actual income or loss from the activity rather than on gross receipts.

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