Seed production receipts were held to be business income where the assessee did not perform basic agricultural operations on land.

Seed production receipts were held not to qualify as agricultural income because the assessee did not itself carry out basic agricultural operations or show a derivative interest in the land. The arrangement showed that farmers cultivated their own land and labour while the assessee supplied foundation or breeder seeds, technical inputs, and specifications, making the receipts compensation for inputs and related services rather than income from agricultural operations. On that basis, the income was assessable as business income and the exemption claim failed; the assessments treating the receipts as business income were sustained.

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Issues: Whether the income from seed production activity was agricultural income exempt under section 2(1A) of the Income-tax Act, 1961, or business income assessable to tax.

Analysis: The agreements showed that the assessee supplied foundation or breeder seeds and technical inputs, while the farmers undertook cultivation on their own land and labour. The assessee had no derivative interest in the land and did not itself carry out the basic agricultural operations of tilling, sowing, or cultivation. On the terms of the arrangement, the assessee's concern was obtaining seeds meeting its specifications against compensation linked to land use, services, and related expenses, which did not amount to agricultural operations carried on by the assessee. The assessee also failed to establish by evidence that it had itself carried on agricultural operations on leased lands. The principles governing agricultural income require cultivation of land and the performance of basic agricultural operations by or on behalf of the person claiming the exemption.

Conclusion: The seed production receipts were not agricultural income and were rightly assessed as business income. The Revenue's appeal succeeded and the assessee's exemption claim failed.

Final Conclusion: The order of the first appellate authority was reversed and the assessments treating the receipts from seed production as business income were sustained.

Ratio Decidendi: Income is not agricultural income unless it arises from land used for agricultural purposes through the performance of basic agricultural operations by the assessee or a person with derivative interest in the land; mere supply of inputs, technical supervision, or purchase of produce grown by farmers does not qualify for exemption.

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