Agricultural income character is preserved when guarantors actively share farming operations and receive proceeds from the produce.

Income received by guarantors under a guarantee arrangement can retain its character as agricultural income where the receipt is directly linked to agricultural operations on agricultural land. The text states that the parties were actively associated with cultivation, harvesting, sale of produce, pooling of resources and coordinated farm management, so the payment was not a mere contractual return but a share derived from farming activity. Agricultural income need not always depend on land ownership; the controlling factor is the real source and character of the receipt. If the arrangement functions as a modification of an earlier farming structure and the income springs directly from agricultural operations, exemption remains available.

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Issues: Whether the income received by the guarantors under the guarantee agreements constituted agricultural income exempt from tax.

Analysis: The land involved was agricultural land and the farming activity included cultivation, harvesting, and sale of produce. The guarantors were not mere recipients of a contractual payment; on the facts found by the appellate authority and accepted by the majority, they were actively associated with the farming operations, pooled resources and skill, and participated in the coordinated management of the farms. Agricultural income does not require ownership of land in every case, and what matters is the real source and character of the receipt. Since the guarantee arrangement operated as a modification of the earlier farming arrangement and the income continued to spring directly from agricultural operations on land used for agricultural purposes, the contractual form did not change its essential character.

Conclusion: The income received by the guarantors was agricultural income and remained exempt from tax.

Ratio Decidendi: Where guarantors are directly associated with agricultural operations on agricultural land and the receipt arises as a share of the agricultural produce or profits from such operations, the income retains its character as agricultural income despite the presence of a guarantee agreement.

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