Agriculture Income Synopsis

Synopsis
Agriculture income
 Section 10(1) IT ACT states that agriculture income is tax free

 Section 2(1A) defines agriculture income.
(a) Any rent or revenue derived from land which is situated in India and is used for
agricultural purposes.
(b) Any income derived from such land by agriculture operations including processing
ordinarily employed by cultivator of agricultural produce so as to render it fit for the market
or sale of such produce.
(c) Any income attributable to a farm house subject to satisfaction of certain conditions
specified in this regard in section 2(1A). Any income derived from saplings or seedlings
grown in a nursery shall be deemed to be agricultural income.
 Judicial interpretation of term agriculture CIT v Benoy Kumar Sahas Roy AIR 1957 SC 768
Basic operation
Subsequent operation
 Process ordinarily employed to render the produce fit to be taken to market-Loofa case
(sakarlal naranlal v. CIT AIR 1965 Guj 165)
 Partly Agricultural and Partly Non-agricultural Income
Sometimes, income comprises of both agricultural as well as non-agricultural income. Such a

situation arises in case of certain ‘Agro based industries where agricultural produce is used as raw
material and it (i.e., raw material) is produced by the same person (i.e., industrialist) who
manufactures industrial product by using such raw material. Such industries (i.e., persons), earn
income by selling the industrial product manufactured from self grown agricultural raw material.
For example :
Mr. X is the owner of agricultural land in India and produces sugarcane by spending Rs. 2,00,000.
Further, X set up an industrial undertaking to manufacture sugar from sugarcane so produced.
Accordingly, he uses the whole quantity of sugarcane for producing sugar and spends Rs, 2,50,000 as
industrial expenses. He ultimately sells the sugar so produced for Rs. 7,00,000.
In this case, the total income of Mr. X shall be calculated as follows :
Total Income = Sale proceeds of sugar - Cost of cultivation - Industrial expenses
= Rs. (7,00,000 - 2,00,000 - 2,50,000) = Rs. 2,50,000
The above total income of Mr. X is the composite income comprising of agricultural income and non-
agricultural income. The income attributable to agricultural operations (i.e., raising of sugarcane) is
agricultural income and the income attributable to industrial operations (i.e., manufacturing sugar
from sugarcane) is non-agricultural income.
In such a situation, it becomes necessary to disintegrate (bifurcate) the two incomes because
agricultural income is exempt from tax and non-agricultural income is taxable.
Rules 7, 7A, 7B and 8 of Income Tax Rules, 1962 provide the method of segregating the two
incomes. These rules deal with calculation of agricultural income and non-agricultural income in
such cases of composite income.
 Income from Growing and Manufacturing of Rubber 35% liable to tax and 65% agriculture
income
 Income derived from the sale of coffee grown, cured, roasted and grounded by the seller in
India, with or without mixing chicory or other flavouring ingredients shall be computed as if
it were income derived from business, and 40% of such income shall be deemed to be
income liable to tax.
 Income derived from the sale of coffee grown and cured by the seller in India, shall be
computed as if it were income derived from business, and 25% of such income shall be
deemed to be income liable to tax.
 Income from Growing and Manufacturing of Tea 40% of such income, so arrived at, is
treated as business income.

The following are some of the examples of non-agricultural income:
Income from poultry farming.

Income from bee hiving.
Any dividend that an organization pays from its agriculture income.
Income from the sale of spontaneously grown trees.
Dividend received by shareholder from a company carrying agricultural operations
Commission earned by broker from selling agricultural produce
Income from salt produced after the land has flooded with sea water.
Purchase of standing crop.
Royalty income from mines.
Income from butter and cheese making.
Receipts from TV serial shooting in farm house.

Agriculture Income Synopsis

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Agriculture Income Synopsis

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Synopsis

 Section 10(1) IT ACT states that agriculture income is tax free

 Partly Agricultural and Partly Non-agricultural Income

Sometimes, income comprises of both agricultural as well as non-agricultural income. Such a

In this case, the total income of Mr. X shall be calculated as follows :

Total Income = Sale proceeds of sugar - Cost of cultivation - Industrial expenses

= Rs. (7,00,000 - 2,00,000 - 2,50,000) = Rs. 2,50,000

Income from poultry farming.

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