Agricultural income exemption applies to sale of tea bushes and shade trees grown as part of cultivation.

Receipts from the sale of tea bushes and shade trees planted and maintained as part of tea cultivation on agricultural land were held to arise from agricultural activity. The land had already been treated as agricultural land, and the planting, growth and nurturing of the bushes and trees formed part of the agricultural process. The resulting income therefore fell within the agricultural income exemption under the Income-tax Act and could not be taxed as business income. The addition treating the receipts as taxable business income was deleted in favour of the assessee.

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Issues: Whether the compensation received on account of sale of tea bushes and shade trees formed part of taxable business income or was exempt as agricultural income under the Income-tax Act, 1961.

Analysis: The land had already been treated as agricultural land and not a capital asset. The tea bushes were cultivated to produce tea leaves, and the shade trees were planted for protection of the tea crop. Such planting, growth, and nurturing formed part of the agricultural process. The income derived from sale of the tea bushes and shade trees therefore arose from agricultural activity and fell within the exemption for income derived from agricultural land.

Conclusion: The addition made by treating the receipts from sale of tea bushes and shade trees as business income was not justified and was deleted in favour of the assessee.

Final Conclusion: The appeal succeeded on the substantive issue concerning taxability of receipts from tea bushes and shade trees, while the remaining grounds were not pressed.

Ratio Decidendi: Income derived from the sale of tea bushes and shade trees planted and maintained as part of agricultural operations on agricultural land is exempt as agricultural income and cannot be taxed as business income.

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