Agricultural income treatment for tissue-cultured plants upheld where cultivation on land remained the root activity and exemption applied.

Income from sale of tissue-cultured plants was held to be agricultural income because the activity began with mother plants cultivated on land through basic agricultural operations, and the later tissue-culture stage was treated as only an advanced method of multiplication. The Court held that scientific or laboratory techniques do not, by themselves, sever the nexus with agriculture where the enterprise remains rooted in cultivation on land. The receipts were therefore exempt under section 10(1) of the Income-tax Act, 1961.

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Issues: Whether income derived from the sale of tissue-cultured plants is agricultural income under section 2(1A) of the Income-tax Act, 1961 and exempt under section 10(1) of the Act.

Analysis: The assessee's activity began with mother plants grown on land through basic agricultural operations. The Court held that the later tissue-culture stage was only an advanced method of multiplying plant material and did not sever the nexus with agriculture. It relied on the settled distinction between basic agricultural operations on land and subsequent operations, and held that the use of scientific or laboratory techniques does not by itself convert an agricultural activity into a business activity when the enterprise remains rooted in cultivation of plants on land.

Conclusion: The income from sale of tissue-cultured plants is agricultural income and is exempt under section 10(1) of the Income-tax Act, 1961.

Final Conclusion: The assessee succeeded in both appeals, and the question of law was answered in its favour by treating the tissue-culture receipts as exempt agricultural income.

Ratio Decidendi: Where mother plants are cultivated on land through basic agricultural operations, income from further propagation by tissue culture remains agricultural income if the laboratory process is only an advanced means of multiplication and not a complete departure from cultivation of the land.

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