Agricultural Income And Partly Agricultural Income with Examples

Contents

Agricultural Income

Sec. 2(1A) includes following incomes in agricultural income:

1. Rent or revenue income derived from land used for agriculture. The land must be situated in India; or

2. Any income derived by a cultivator or receiver of rent in kind by employing any ordinary operations to make agricultural produce marketable. The land must be situated in India on which the cultivation was done.; or

3. Income arised from farm building if following conditions are satisfied:

(a)The cultivator or receiver of rent-in-kind occupies the building;

(b)It should be on or near to the agricultural land situated in India;

(c)The building is used as dwelling house or as store house or as any out building; and

(d)The land is assessed to land revenue; or land is outside municipal area having population of 10,000 or more; or land is outside the notified area which can extend upto 8 kms. from municipal limits.

No income derived from transfer of agricultural land will be treated as agricultural income. The agricultural income may be in cash or in kind in the form of produce.

In the case of CIT vs. Raja Benoy Kumar Sahas Roy (1957) the Supreme Court held that performance of basic operations’ like tilling of land, sowing of seeds, planting etc. must be performed on land.

In addition to basic operations, performance of ‘subsequent operations’, (like weeding, digging the soil around the growth, removal of undesired plants etc.) should also be performed. The term agriculture includes all food grains, vegetables, flowers etc. produced by performing basic and subsequent operations for consumption of human or animal or for commercial purposes.

Agricultural income does not include any income from animal husbandry like breeding and rearing of live-stock dairy farming, cheese and butter making, poultry farming etc.

Partly Agricultural Income

Partly Agricultural Income Where the agricultural produce can be sold in raw form or after performing necessary operations to make the produce fit to be taken to market, but the cultivator or receiver of rent-in-kind sells produce after further processing to get more value, it becomes partly agricultural income The value so received can be segregated into two parts, first value received for produce and second value received for performing operations which increased usefulness of produce to consumer. The first part of income is agricultural income and second part is income from carrying on business.

Examples: 1. Sugar sold by a sugar factory using sugarcane grown on its land.

2. Income from growing and manufacturing tea.

To segregate income from agriculture, market value of agricultural produce used as raw material is deducted from whole sale value of the product. In case of business of growing and manufacturing tea, income is calculated as if the whole income is business income after making permissible allowances and deductions. 40% of the income so derived is treated as business income and remaining 60% is treated as agricultural income vide Rule 7 and 8 of Income-tax Rules.

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