Integrated nursery tissue culture income qualifies as agricultural income when linked to cultivation and nursery operations.

Income from tissue culture activity in a nursery was treated as agricultural income because the process formed part of integrated nursery operations carried on with agricultural land and connected cultivation activities. The Tribunal noted that the tissue culture step was preceded and followed by agricultural operations, and the income arose from the overall growing and sale of plants, seedlings and flowers. Explanation 3 to Section 2(1A) deems income from saplings or seedlings grown in a nursery to be agricultural income, so the related exemption under Section 10(1) applied. The tissue culture component could not be segregated and taxed separately as business income merely because one stage did not itself involve direct cultivation on land.

---

---

Issues: Whether income derived from tissue culture activity in a nursery, carried on with the aid of agricultural land and connected agricultural operations, is agricultural income exempt under the Income-tax Act.

Analysis: The activity was not treated as an isolated laboratory exercise; it formed part of the larger nursery operations involving growing and selling plants, seedlings and flowers. The decisive factor was that the tissue culture process was preceded and followed by agricultural operations on land, and the income arose from the overall nursery activity. Explanation 3 to Section 2(1A) deems income from saplings or seedlings grown in a nursery to be agricultural income, and the exemption under Section 10(1) follows where the income is so characterised. On that basis, the Tribunal held that the tissue culture component could not be segregated and assessed separately as business income merely because one step did not itself constitute cultivation on land.

Conclusion: The income from the nursery's tissue culture activity was held to be agricultural income and therefore exempt, in favour of the assessee.

---