Seed Company on Leased Land Can Earn Exempt Agricultural Income
ITAT Rajkot Says the Character of Income Depends on Actual Agricultural Operations-not
Merely on Who Owns the Land
Can a company engaged in the seed business earn agricultural income?
The question becomes even more interesting when the company does not own the agricultural land but takes it on lease and undertakes cultivation through farmers.
At first glance, one may be tempted to say that a seed company is carrying on a commercial business and therefore everything it earns must necessarily be business income.
But tax law looks at the nature of the activity generating the income, not merely the business description of the assessee.
This distinction recently came up before the Rajkot Bench of the Income Tax Appellate Tribunal in Bombay Super Hybrid Seeds Ltd. v. DCIT/ACIT, ITA No.225/RJT/2026.
The Tribunal held that agricultural income of approximately ₹13.69 crore could not simply be treated as business income. On the facts of the case, the income qualified as agricultural income eligible for exemption under Section 10(1) read with Section 2(1A).
The Basic Question
The assessee was engaged in the seed industry.
It had taken agricultural land on lease and carried out agricultural operations for production of seed.
The Revenue’s approach effectively questioned whether income earned through such activity could retain the character of agricultural income when the assessee itself was a commercial seed company and farmers were involved in the actual cultivation.
The answer of the Tribunal was fact-dependent.
The mere involvement of farmers, the use of modern technology or the fact that the assessee was a seed company could not, by themselves, change agricultural income into business income.
But the Land Was Not Owned by the Company
This was one of the important factual aspects.
The agricultural land was taken on lease.
Does that make the resulting income non-agricultural?
The Tribunal’s approach shows that ownership of the land is not the only consideration.
What matters is whether the assessee had the requisite connection with the agricultural land and whether agricultural operations were actually carried out.
In this case, the assessee had taken the land on lease and exercised control and supervision over the agricultural activity.
Therefore, the mere fact that the land was leased rather than owned could not, by itself, change the character of the income.
This is an important distinction for businesses that undertake contract farming, seed multiplication or other organised agricultural activities.
Who Actually Conducted the Agricultural Operations?
The Revenue could point out that farmers were involved.
But the Tribunal looked beyond that fact.
The agricultural operations were carried out under the control and supervision of the assessee.
The farmers were working under the direction of the assessee.
The assessee was not merely purchasing agricultural produce from independent farmers in the open market.
That distinction was significant.
If a trader simply purchases agricultural produce from farmers and resells it, the trading profit is obviously a different proposition.
But where the assessee itself undertakes agricultural operations, through persons working under its supervision and direction, the character of the activity requires a different examination.
Who Bore the Expenses and Risks?
Another important factor was that the assessee bore the agricultural expenses and risks.
This is a very practical test.
Agriculture involves risks:
• Crop failure;
• Weather conditions;
• Pest and disease;
• Yield variations;
• Quality issues; and
• Other agricultural uncertainties.
If these risks are borne by the assessee, and the assessee incurs the expenditure necessary for cultivation, it demonstrates a much deeper involvement in agricultural operations than merely buying produce from farmers.
In the present case, these factors supported the assessee’s contention that it was actually undertaking agricultural operations.
The Produce Belonged to the Assessee
The Tribunal also considered the fact that the entire agricultural produce belonged to the assessee.
This was another important indicator of the nature of the arrangement.
The assessee was not simply receiving a commission for helping farmers grow crops.
The produce generated through the agricultural activity belonged to the assessee.
Therefore, the income arising from that produce had to be examined in the context of the agricultural operations actually undertaken.
What About Hybrid and Scientific Seed Technology?
This is perhaps the most interesting aspect for the seed industry.
Modern agriculture can look very different from traditional farming.
Seed companies may use:
• Hybrid seeds;
• Scientific cultivation methods;
• Technical supervision;
• Research-backed agricultural practices;
• Specialised seed production techniques; and
• Modern quality-control processes.
Does the use of sophisticated technology turn agriculture into manufacturing or business activity?
The Tribunal said, on the facts before it, no.
The use of scientific and hybrid seed technology did not by itself destroy the agricultural character of the activity.
Technology changes the method of cultivation.
It does not necessarily change the nature of cultivation.
A farmer using a tractor does not stop being a farmer.
Likewise, a seed company using scientific technology does not automatically stop carrying on agricultural operations.
Section 2(1A): Start With the Definition
Section 2(1A) defines agricultural income for the purposes of the Income-tax Act.
Broadly, the definition covers income derived from agricultural land situated in India and income derived from certain agricultural operations.
Section 10(1), in turn, provides exemption for agricultural income.
Therefore, once the income satisfies the statutory character of agricultural income, it receives the benefit of exemption under Section 10(1).
The important question is consequently not:
“Is the assessee a company?”
or
“Is the assessee engaged in the seed business?”
The important question is:
“What activity actually generated the income?”
A Simple Comparison
Consider two seed companies.
Company A
It purchases seeds from independent farmers at ₹100 and sells them to customers for ₹130.
The ₹30 margin arises from a commercial trading activity.
Company B
It takes agricultural land on lease, undertakes cultivation, bears agricultural expenditure and risks, supervises farmers, produces seed under its own control and owns the resulting produce.
The income generated from the agricultural operations of Company B requires examination under the agricultural-income provisions.
The two companies may both call themselves seed companies.
But the underlying activities are completely different.
Tax treatment follows the activity, not the label.
The Revenue Cannot Stop at “Farmers Were Involved”
This is an important practical lesson from the ruling.
Whenever farmers are involved in an arrangement, the tax authorities may question whether the assessee is genuinely undertaking agricultural operations or merely purchasing agricultural produce.
The answer cannot be determined simply by looking at the presence of farmers.
The following questions become relevant:
Who has control over the land?
Who directs the agricultural operations?
Who incurs the expenditure?
Who bears the agricultural risk?
Who owns the produce?
What do the agreements provide?
What is the actual conduct of the parties?
These factual elements together can determine the character of the income.
Documentation Becomes Critical
The ruling is particularly relevant for seed and agro companies because the documentation surrounding the agricultural arrangement can become extremely important.
Companies should carefully maintain:
• Lease agreements for agricultural land;
• Farmer agreements;
• Details of land and crop cultivated;
• Agricultural expenditure records;
• Evidence of payments to farmers/labour;
• Details of supervision and technical inputs;
• Crop and yield records;
• Evidence of agricultural risks borne by the company;
• Records showing ownership of produce; and
• Sale records of the agricultural produce.
A well-drafted agreement is useful.
But the actual conduct should also match the agreement.
Paper agriculture without actual agricultural operations will obviously not pass the test merely because the agreement says so.
The ₹13.69 Crore Lesson
In this case, the amount involved was not insignificant.
Agricultural income of approximately ₹13.69 crore was involved.
The Revenue’s attempt to simply characterise the amount as business income was not accepted.
The Tribunal examined the actual arrangement and the agricultural activities undertaken by the assessee.
It concluded that the facts supported the agricultural character of the income.
The income was therefore held eligible for exemption under Section 10(1) read with Section 2(1A).
What Does This Mean for Seed Companies?
The ruling should not be read as a blanket declaration that all income earned by seed companies is agricultural income.
That would be an incorrect interpretation.
A seed company may have several streams of income:
• Agricultural income from cultivation;
• Trading income;
• Sale of processed products;
• Research and development income;
• Licensing or royalty income; and
• Other business income.
Each stream needs to be examined according to the activity from which it arises.
The decision is valuable because it demonstrates that even a corporate seed business can earn agricultural income where the underlying facts establish genuine agricultural operations.
The Larger Lesson
The tax treatment of agricultural income depends on the substance of the activity.
Leasing land does not automatically make the income non-agricultural.
Engaging farmers does not automatically make it business income.
Using sophisticated technology does not automatically destroy the agricultural character.
Being a company does not automatically disqualify the income.
What matters is the factual matrix:
Land + Agricultural Operations + Control + Expenditure + Risk + Supervision + Produce
When these elements demonstrate that the assessee is genuinely undertaking agricultural operations, the income may retain its agricultural character.
The Message Is Simple
For seed and agro companies, the question should not be:
“Are we a business?”
Of course, they are.
The more relevant question is:
“Which activity generated this particular income?”
If the answer is genuine agricultural operations conducted on agricultural land under the assessee’s control and supervision, the income may qualify as agricultural income even though the assessee is a sophisticated commercial enterprise.
The Bombay Super Hybrid Seeds ruling therefore provides an important reminder:
Agriculture does not cease to be agriculture merely because the farmer is a company, the land is leased, the farmers are supervised, or the seeds are scientifically developed.
What matters is what actually happens on the land.
And in tax law, as in agriculture, the harvest depends on what was actually cultivated—not merely on what was written on the packet!
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Case at a Glance
Case: Bombay Super Hybrid Seeds Ltd. v. DCIT/ACIT
Forum: ITAT Rajkot
Appeal: ITA No.225/RJT/2026
Issue: Whether income from seed production/agricultural operations on leased agricultural land qualifies as agricultural income
Agricultural income involved: Approximately ₹13.69 crore
Key factors: Leased agricultural land, control and supervision, agricultural expenditure and risk borne by assessee, farmers working under assessee’s direction, produce belonging to assessee
Statutory provisions: Section 2(1A) read with Section 10(1)
Decision: Agricultural character of income accepted on the facts of the case.
Disclaimer: This article is intended for general information and awareness purposes and should not be construed as professional advice. The tax treatment of agricultural income depends upon the specific facts, agreements, actual agricultural operations and applicable statutory provisions.
The copy of the order is as under:
