cHAPTER12 Meaningof agricultural

income and its tax

treatment
ection10(1)) exempts agricultural income from tax and also provides for its exclusion
computing the total income of the assessee. The reason of
exemption oT
agricultural income from Central taxation is that the Constitution gives
Ower exclusive
rto makelaws with respect to taxes on agricultural íncome to the State Legislatures.
Fomthe assessment year 1974-75, agricultural income is, however, taken into account to
etemine tax on non-agricultural income in certain cases. Thís Chapter explains the
neaninggof "agricultural income" and mode of aggregation of agricultural income with non-,
ricuilturalincome to determine tax incidence don the latter.

L, WHAT IS AGRICULTURAL INCOME

185 Section 10(1) exempts agricultural income from income-tax. By virtue of section 2(1A) the
"agricultural income" means: expression
1Any rent or revenue derived from land which is situated in India and is used for agricultural purposes
2(1A(a) see paras 185.1 and 185.1-1]. [sec.
2Any income derived from such land by agricultural operations including processing of the agricultural
roduce, raised or received as rent-in-kind so as to render it fit for the market or sale of such produce sec.
21A)Y0) see paras 185.2 and 185.1-1].
JIhcome attributable to afarm house subject to certain conditions (sec. 2(1A)() see paras 185.3 and 185.1-1].
Any income derived from saplings or seedlings grown in anursery shall be deemed to be agricultural income.
1851 Rentor revenue derived from land [Sec. 2(1A)(a))- According to section 2(1A)\(4), if the following three
conditions are satisfied, income derived from land can be termed as "agricultural income":
4Tent or revenueshould be derived from land (may be in cash or kind);
. the land is one which is situated in India (if the land is situated in a foreign country, this condition is not
satisfied); and
c the land is used for agricultural purposes.
185.1-1 LAND USED FOR AGRICULTURAL PURPOSES -The primary condition to claim exemption as "agricultural
aome" is that the land in question should be used for agricultural purposes whether exemption is sought under
Sub-clause (a) or (b) or (c) of section 2(1A).
The terms "agriculture" and "agricultural purposes" have not been defined in the Act; one has, therefore, to
depend upon ordinary
ServKgja Benoy
meaning and decided cases.
Kumar Sahas Roy [1957| 32 ITR 466 (SC), Bhagwati, J. laid down the following principles to
aguide in the determination of the scope of the terms "agriculture" and "agricultural purposes":
Basic operations - Prior to germination, some basic operations are essential to constitute agriculture. The basic
opergrowthationsfrom would involve
the land. expenditure
Some human skill
illustrative ofinstances of basic labour upon the land itself and not merely on the
and operations are tilling of land, sowing of the seeds,
planting, and similar kind offoperations on the land. which are
perSufobrsmeqeduentafterrthe produce sprouts fromthe land. Illustrative instances of subsequent operations are weeding
operations - Besides the basic operations, there are certain subsequent operations

495
 treatment
Para 185.2 income and its tax
Meaning of agricultural 497
digging the soil around the growth, removal of undesirable undergrowths and all operations which fo
degradation from
pests but also from
growthngand
cutting, harvesting
preserve andnot
the same, insectsand
renderingthe producefit for the market. Mereperiormance
only from
outside,ed
oftthesesutbe
shavenot beenraised onthe land by the
operations on the products of the land (where suchË enough to characterise them as agricult
ofWhere, however,
the basic the subsequent
operations
the
operations, subsequent
toperations
described above)
operations would
arenof
would
also
be
performed in conjunction with andinccontinuation of the y
constitute part of theintegrated
all does
Agriculture not merely imply
activity of
raising
pe rlo r n a
offoodagricutugyaire,,ns,
o pe ro A
l
the consumption
ºAgriculture of men
not merely. and animals;
includes it also-includes
food and grains products from the performance of basic and a% wel
grain or vegetable Or
products, for instance, may bearticles
subsequent operations on land. These
of beasts or ofluxury such a (ruits inudly
Spices, tobacco, etc.,
plantation and groves or commercíal
or grass or pasture
crops for consumption
like cotton, flax,jute, hemp, indigo,
bIwhíchetel,cote ,
etc, All these are products
trom the land and the term "agriculture" cannot be confined merely to the production of food and
allthe products of the land
be understood as comprising would
products for human beings but must trade
utility either for consumption or for and commercial
timber, sal and piyasal trees, casuarina plantation,
asset also include forest
tendu leaves, horra nuts, etc.
Some connection with land not sufficient - The mere
fact that an activity has someconnection with or
productahsaveswueha.
it withinthe scope of the term "agriculture". For
way dependent on land is not sufficient to bringcheese
isin
we
breeding and rearing of livestock, dairy farming,
themselves be agricultural purposes.
and butter-makingand poultry farming
º Income from nursery operations - Any income derived from saplings or seedlings grown in a nursery shall
notby would ar,
inst
deemed agricultural income. Accordingly, irrespective of whether the basic operations have been
to besuch
out on land, income is treated as agricultural income and, consequently, it is under section 10(1 cartis
185.2 Income derived from agricultural land by agricultural operations [Sec. 2(1A)(b)]- Section 21A.
gives the following three instances of agricultural income :
a. any income derived by agriculture from land situated in India and used for agricultural purposes:
b. any income derived by acultivator or receiver of rent-in-kind of any process ordinarily employed to me
the produce raised or received by him to make it fit to be taken to market; or
c. oranyreceived
income by
derived by such land by the sale by acultivator or receiver of rent-in-kind of the produce ri
him in respect of which no process has been performed other than aprocess of the natujp
described in (b).
The aforesaid income are agricultural income, if such income are derived from land which is situated in nda
and is used for agricultural purposes.
Any surplus arising on sale or transfer of agricultural land (in urban area) is not treated as rent or revenue deried
from land.
185.2-1 INCOME DERIVEDFROM MARKETING PROCESS-Sometimes it becomes
as harvested. In order to make the produce difficult to find ready market of the cop
a commodity which is saleable, it
kind of process on the produce. The income, arising by way of becomes necessary to pertorm
enhancement
performing such process to make the raw produce fit for market, is also of value of such produc.
following conditions must be satisfied: agricultural income. However,u
a. theprocess must be one which is
b. the process must be applied to ordinarily employed by a cultivator or receiver of rent-in-kind ;ad
render the produce fit to be taken to market.
For instance, tobacco leaves are
ordinary process employed to dry ordinarily driedleaves
the tobacco to make them suitable for
to make them fit tosale.
be taken incomefromte
to market,
Therefore, the 15 agricuura
income. The ordinary process employed to render the produce fit to be taken to market includes thrashing tRu
winnowing, cleaning, drying, crushing, boiling and decanting, etc.,though the nature of process dependsupt
quality of the produce and varies from time to Fror
Or n
Moreover, if marketing process is time and place to place.
any process to make it fit for performed on a produce which can be sold in its
(withoutrequírts 2
b
agricultural. For instarnce, if marketing), income derived rawform( andpartynat
therefrom partly agricultural toanypro
is
the process of converting sugarcane is generally sold in a given
6
b
sugarcane into gur would area without beingMaharashttra tot
processsof converting sugarcane into gur would not benotagricultural
be income- Brihan subjecteuattributable
agricultural process and income SugarSiyuid
Ltd. v. CIT [1946] 14 ITR 611 (Bom.). b
For
 Toard alsoDOre
and
purpose
above heüometres Alometres
from
the ometres the area
assessment and,as
annuity Imstances
Annual
tOntinuation
1. InurseryInterestagrculBural profit 5. part
6.4Compensation arising Ll186. WHAT is Lading Ii A A
before d for
Shareof Salcompenisation
ary Income of Rent 3.Profit 2. ofbuilaing le al the cultivator
the the landlord) tbuildainthe;g w uere
from denuded In
from the
INCOME chargeablexeemption th e ra ted Mtin 1853 hm
the which year
above source received
assesee's for on from the is land
revenue building should 2 , the
first the the of on from ARE used as ofs
local limits localof local 2014-15 does
2 non-agricultural income agricultural sale thefollowing is aforesaid or is be owever, lnome sale lk
day maintained of
capital
is from
cannot partsINSTANCES to n ot local
assessed agricultural and on as es e
purpose is of tea ofsale tax. fo r or as or
fromcocoons
Population" limits
basic
growing received
by standing available. land purposes;
a or in does
of limits not - annuity
received such as of agricultural conditions
exempt rate),
agricultural was
the fall Any receivedpayment a garden ofthecases, dwelling receiver should income
| farmn not
of
be land the (asbe
previous
year. of
within follows as- operations, partner replanted for to growing
area flowers
firm apportioned from forest is would
means is by any rofrent-in-kind
land immediateoccupied incomebuilding (Sec.contemplate
ifmuni
cipalityc/icpantalmuni /ccantipaloinment
itoynment ty/cantonment by
income is (moreover, received crop income For situated trom a
the distance which covenant a carrying bynot offor an are OF instance, purpose are revenuehouse
a and or purposes. not
mulberry
is person taken salary insurance trees.
replanted INCOME and,
population jurisdiction
outsidethe : then partner rendering the is satisfied, by house be
(to from ina as or What
and out
creeperS. under
no produce held other vicinity consequently, the agricultural sale
be in income if rural or
not
as"agricultural only is
basic from part
sub-tenants as a In th an local store a
shouldbycultivator(as property 2(1A)(c)]- leaves, of are
according
measured consideration company
rule and farmer income
land. services of agricultural HELD other areat. of commodityinstances
from
operations the mode a such
8 after
subsequent agriculture rate house situated land,in feeding
aerially) firm between words,
gives income -
to lakh10 If 1 10,If000 If fo r harvest TO from a reason hisof which
it annual Bona
fide
the the lakh the the of such to
ofcompensation by or,
a of income" a damage or landlord would or a
population
lastpopulation but population
but municipality
given engaged adjustment firm income: BE hi s - alternatively,
out-building; other
and satisfies different
themto income of
transfer nursery manufacturing
and mortgagee-in-possession.nL if farm
not not AGRICULTURAL/NON-AGRICULTURAL operations
by building Income land
preceding bel o w which beLakshunanan K.
more more subsequent as caused a connection
of of of agricultural of
on would
insuch cultivating or building India exempttax the silkworms from
the than the than the - or agricultural of is consists building as value
censusmunicipality/cantonment cantonment the onwould the following
municipality/cantonment
unicipality/cantonment shareengaged by in rent a
10 1 tenant) from what
lakh la kh be firm' s income hai l forestry be is land I of and
of operations of owner with used
which agricultural is manufacturingstorm for is
exempt house Co. is
board exempt residential used (thoughi the cumulative
or obtaining v.
cultivated and
land operations. income in and are CIT
the
for receiver r by
having
agricultural to or fo r eagricultural a property
relevant leven from from virtue (1999]
are under agricultural ihun
[it the tenant carried any not
income.carried greenleaf silk
board board board population a if may tax of of e
figures it section income, of out,
purposes,other tax
assessed rent-in-kindsection iscocoons, conditions 23 9
is operations be land. only under land taxable ITR
is is is charged out the processed
more more more noted income). purposes, if
have forming as income to 597 Para186
of in10(2A)]. income land section requires 10(1) income
than than than 10,000 pots that such land
been wouldunder (SC).
is or : and