The Telangana High Court has held that income from the sale of tissue-cultured plants qualifies as agricultural income and is therefore exempt from income tax under the provisions governing agricultural income, even though advanced scientific techniques were used in production.
In the case before the Court, a company engaged in micro-propagation of plants through tissue culture technology claimed that profits earned on selling such plants should be treated as agricultural income. The tax authorities had rejected this claim, treating the income as business income on the ground that much of the production occurred in laboratory conditions rather than directly on agricultural land.
The High Court disagreed with the tax department, explaining that the core agricultural operations — such as maintaining mother plants on land, preparing soil, planting, nurturing, and other traditional farming activities — remained fundamentally agricultural. Use of scientific methods like tissue culture is viewed as an extension of agricultural practice and does not change the essential nature of the activity.
The Court observed that modern agricultural techniques — just like advanced irrigation, hybrid seeds, or mechanised farming — are part of the natural evolution of farming and cannot, by themselves, strip away the agricultural character of the income. Because the activity was rooted in agriculture and the income derived from the sale of plants that originated from land-based cultivation, the profit earned falls under the definition of agricultural income and is exempt from tax.
As a result, the Court allowed the appeals and confirmed that income from the sale of tissue-cultured plants should be treated as agricultural income exempt from tax.
