Chapter4

AGRICUL TURAL INCOME

SECTION 2(1A)
SECTION-WISE STUDY
Para Page
Section Particulars
4.1.a 154
2(1A)(a) Rent or Revenue from Land
4.1.b 155
2(1A)(b )(i) Any income derived from land by Agricultural
4.1.c 156
2(1A)(c) Income from Farm House
Other Sections and rules discussed 4.1 151
10(1). Agriculture Income is exempted 159
ring of tea 4.2
Rule 8 Income from growing and manufactu 159
ring of coffee 4.2
Rule 7B Income from growing and manufactu 160
Rule 7A om e from gro win g and ma nuf actu ring of Rubber 4.2
Inc 160
acturing of any 4.2
Rule 7 Income from growing and manuf
Rubber
product other than Tea , Coffee and
tion of India
er section 10(1). As under Constitu
Agricultural Income is exempted und ernment is
Agr icu ltur al Inc om e is a state matter therefore only state gov
tax on vernment is not
ltural Income. Hence, the Central Go
empowered to impose tax on Agricu er this Act.
pow ered to imp ose tax on Agr icu ltural Income and it is exempted und
em
2(1A)]: Agricultural Income means:
4.1 Agricultural Income [Section d for
ren t or revenu e der ived from land which is situated in India and is use
(a) Any
agricultural purposes;
(b) An ~-~ ~e~ d from
such land , by:

(ii) Th e·p----
(i) Agriculture; o~
- erformance - by a cultivator or receiver of rent-in-kind of any proces s
or receiver of rent-in-kind to render
the
__, ordinarily employed by a cultivator
o be taken to market; and
produce raised or received by him fi~t
duce raised or
(iii) The sale by a cultivator
or receiver of rent-in-kind of the pro
oth er
ch no process has been performed
received by him , in respect of whi ;
ed in paragraph (ii) qf this sub-clause
than a process of the nature describ
by the receiver of
(c) Any inc ome derived fro~
any building owned and occupied receiver
, or occupied by the cultivator or the
the ren t or revenue of any s~ h !and , any
-kin d, of any land wit h resp ect to which, or th_e__prQQuce of \\'.hi.£_h
of ren t-in on:-
and (iii) of sub-clause (b) is carried
process mentioned in paragraphs (ii)
- - - - - ------
152 Chap. 4
Taxation Laws
Provided that" .
. · . . vicinity of the land, and 1s a
(i) The building is on or in the immediate nue or the cultivator, or
building which the receiver of the rent or ~eveonnection with the land,
the receiver of rent-in-kind, by reason of the c or other out-building
.
reqmres as a dwelling house, or as a ·store- ouse, ,
and b. d
(ii) The land ue in India or is su ~ecte to a
is either assessed to land reven f the Government as such
local rate assessed_and collected by officersr~venue or subject to a local
or where the land 1s not so assessed to land
rate, it is not situated: . . .
. d 'thin the junsd1ct1on of a
(A) In any area which is comprise WI • · ality municipal
municipality (whether known as a mumcip ' .
corporation notified area comm1'ttee, town area comm1ttee, town .
committee or ' by any other name) or a cantonment board and which
.
f
o no t Iess than ten thousand according
. to
has a popu 1at1on fi h theblast
.
preceding census of w 1c h' h th e relevant 1gures ave een
published before the first day of the Previous Year; or
(B) In any area w1thm · · sue h d'1stance, not being more. than . . eight
kilometers, from the local limits of any mumcipahty or
cantonment board referred to in item (A), as the Central
Government may, having regard to the extent ?f, an_d scope f?r,
urbanization of that area and other relevant cons1derat1ons, specify
in this behalf by notification in the Official Gazette.
The above three types of income shall be treated as Agricultural Income if
following conditions are satisfied:
(I) Income must be derived from land: For income to be Agricultural
Income, land must be primary or immediate and effective source of
income and should not be remote source i.e. there must be proximate
and sufficient connections between income and land. And where there
is no proximate connection between income and land, income shall not
be Agricultural Income [C!Tv Kamakhya Naryan Singh (1948) 16 ITR
325 (PC)]. Therefore, following are non-Agricultural Income as there is
no proximate connection between income and land:
(a) Dividend received by a shareholder from a company carrying on
agricultural operation is not Agricultural Income in his hands. The
shareholder receives the dividend not by virtue of any activity of
agriculture carried on by him, but by virtue of the investment of his
funds in the company in buying up its shares.
(b) Loan obtained by a shareholder out of accumulated profits of a
company having only Agricultural Income, which is liable to be
tre~ted as 'deemed dividend', is not Agricultural Income in the
1,1.ands of the recipient.
_{c}-' Interest on arrears of rent payable by a tenant to his landlord is no
doubt revenue but it is not revenue derived from land and hence it
is not Agricultural Income.
·~ Co~ission _ea:ned by a broker for selling agricultural produce of
an agncultunst 1s not Agricultural Income.
 Chup. 4
Agricultum/ Income 153
(c) Salami or Nazarana paid shall noL be Agricultural Income in the
hands of the recipient unless it is a payment of rent in advance.
Basically 'Salami' is nol rent. The word 'rent ' means a payment
rnade af'ter the relationship of landlord and tenanL has come into
existence and for its continuance. Whereas, 'Sabmi' is a payrnenl
made by prospective lessees antecedenL to the constitution of the
l_andlord and tenant relationship. It is a payment made as the price
for the landlord agreeing to part with his rights in the agricultural
holding in favour of the proposed lessee. It is generally a lump sum
payment and it is a capital receipt in the hands of the lessor and is
not Agricultural lncome. 1

(l) Land must be situated in India: Second condition for income from
Agricultural Income is that the land from which income is derived must
he situated within the jurisdiction of rndia. It may be situated anywhere
(urban area or rural area) in India and may or may not be subjected to
land revenue or local rate.
Where land is situated outside the jurisdiction of India then income
from such land received by a person residing in India shall not be
Agricultural Income under section 2( IA) and would be taxable under
the head ' Income from other Sources' under Section 56(1).
(3) Land must be used for Agricultural Purposes: It is important to note
that the term "agricultural purpose" as such is not defined in this Act.
However, the Supreme Court of lndia in CIT v Raja Benoy Kumar
Sahas Roy _(1957) 32 ITR 466 (SC) has laid down that agricultural
purpose means that basic operations and subsequent operations must be
performed on such land.
Basic Operations
These are those operations which are performed on land before germination. These
operations involve expenditure of human ski ll and labour upon land, and help the seed to
sprout from the land. These operations involve cultivation of the land and some examples
are tilling of land, sowing of seeds, planting and similar operations on the land. Such
operations may be performed mechanically or manually.
Subsequent Operations
The subsequent operations are performed after the produce (crop) sprouts from the
land till harvesting. Some examples of subsequent operations are weeding, digging the
soil around the produce, removal of undesirable growths, prevention of the produce
(Crop) from insects, pests or from degradation by cattle and other factors . Basically it
involves all operations which foster the growth and preserve the produce (crop) and make
it fit for the market. Further, it also includes tending, pruning, cutting and harvesting, etc.
Important Points
► Subsequent operations alone are not sufficient for income to be Agricultural
Income. These operations must be performed in conjunction with, and in
connection basic operations. Therefore both basic and agricultural operations
must constitute integrated activity of agriculture. Where subsequent operations

l Member.for the Board of Agricultural Income Tax v Sindhurani Chaudhurani (1957) 32 ITR
163.
 Chap. 4
154
· UJWS
Taxa110 11 th (where no basic
taneous grow . /
are perfonned on the produce (crop) of sp~n . rne will not be Agncu tura/
operations
· were performed by the agncu · ltunst· mco
Income. performing basic and
► A · ~Ormed after
gnculture produce means any produce .
subsequent operations on agricultural land. It may be. . .
consumptwn,
• Food, grain, vegetables or fruit for human pti·on·
· al consum '
• Plantation and groves, grass, fodder for anun .
i spices tobacco,
• Article of luxury such as betel, tea, co f ee, ' . .a .
. t hemp md100,
• Commercial crops such as cotton, flex , JU e, ' creepers;
. . 1 such as flowers.
• Article having artistic and decorauve va ue
• Articles havinob housinob value like bamboo, timber;
• Articles having fuel value;
• Articles having medicinal and health value.
► .. . . . . .
d 10 wide1 sens
e and it als
~t 1s important to note the term agriculture is use of plants), Floriculture
o
mcludes horticulture (cultivation of eve1:Y ~ype d naaement of trees
(cultivation of flowers) , arboriculture (culuvatwn an ma ; and respond to
. h. h . . th t d of how trees gro
wit m t e landscape which mcludes e s u Y r tion of cultural
cultural practices and the environment, as well as app ic~ emoval) and
techniques such as selection, planting, care, surgery an r
sylviculture (cultivation of forest) . . d.
"' /'. .. .
~ Every activity on land ,s not agnculture:
. The term aoiiculture 1s use m the
o
/ sense that basic and subsequent operations are perfor~e~ on la nd to grow
.
agncultural .
produce (crop). Simply because some act· 1·,,1ty 1s done .on. land or
activity in some way is dependent on land does not mean that, the activity comes
within the purview of agriculture.
Example: Breeding and rearing of livestock, dairy farming, cheese and
butter making and poultry farming are non-agricultural activities.
---4.La;--Rent or Revenue from Land [Section 2(JA)(a)]
Rent from land means payment in cash or kind by one person (Tenant) to another
(landlord) in respect of right to use land. Therefore; relationship-of-a- landlord and tenant
or lessor or lessee must be there between the parties.
Example: Half of agricultural produce given by the tenant to landlord is rent in kind
and hence Agricultural Income in the hands of landlord.
Revenue from Land: It means any income derived from agricultural land, but other
than:
(i) rent; or
(ii) income under section 2(1A)(b)(c).
_ Example: Interest on arrears of rent payable by a tenant to his landlord is revenue
but it is not Agricultural Income as it is not derived from land. (There is no proximate
connection between income and land).
Receipts in the nature of tax or insurance compensation
The expression 'rent' or 'revenue ' is employed so as to obviate any discussion as to
whether what the landlord realizes should be something in the nature of rent or whether it
would include all other types of receipts (including receipts in the nature of tax) that the
landlord may realize from the land.
 Chap. 4 155
Ai ric:ultural lncunU'
Example
Thus. ' dharat. ~r weighing charges recovered from tenants in addition to rent ~a'>
bee~ held to be A~ncultura/ In come., Jt has, likewi se. been held that the compensation
received b~ an agricultural company from an insurance company fo r the loss of the cr.o~s
due to ~a!I storm would be Agricultural In come.2 It has been hcld 3 t.hat the word
·revenue . ts used _to denote an income receipt as opposed to a capital rec~ t~l and wou ld
cover all income from agricultural land other than rent and that no real d1stinct1on could
be drawn between the expressions ' rent or revenue, in 1j,e Indian Inco me Tax Ac t.
4.1.b'. ~ 11Y inco':1e derived from land by Agricultural [Section 2(/A)(b)(l)]
It includes mcome derived from land situated in India used for agriculture purpose.
Examples:
(a) inc?me f~om sale of standing crop or raw produce after harvest by the
agncultunst; ·-
(b) !ncome or value of crop used by the agriculturist in his business as raw material;
(c) mcome or value of crop used for self consumption by the agriculturalist.
Income from Agricultural Operations [Se~tion 2(1A)(b)(ii)]
Any income derived by a cultivator or receiver of rent in kind from any process
ordinarily employed to render the produce raised or received by him, marketable is
Agricultural Income. '
Som~times raw produce (crop) may not be saleable. To make it marketable or
saleable, it become necessary to perform a process on such produce which is generally
called "Marketing process" or "Agricultural process". Such "Marketing process" or
"Agricultural- Process' 1ncreases t he marKefv alue of produce -(crop), therefore , such
increased value of such produce is also Agricultural Income. However, following
conditions must be satisfied:
(i) process must be such which is ordinarily employed by the cultivator or receiver
of rent-in-kind. Such processes which are ordinarily employed include
thrashing, winnowing, cleaning, drying, crushing , boiling, decanting, etc.
However, nature of process depends upon the quality of produce and varies from
time to time and place to place. Further such processes may be performed
manually or mechanically.
(ii) The process must be performed to make the produce marketable.
Example: Tobacco leaves are saleable in the market in dried form.
Therefore the income from the ordinary process employed to dry the
tobacco leaves to make them marketable is Agricultural Income.
Therefore, where produce is already saleable in the market and some
process is performed on the produce to earn extra profit then income derived
will be partly agricultural and partly non-agricultural and such process shall not

1 Probyanand Stud Farm v Cff (1936) 4 ITR 114 (Lah.).

2 C/Tv Gupta (Tea) Pvt. Ltd. (B) (1969) 74 ITR 337 (Cal); Camellia Tea Gmup Pvt. Ltd. v CIT
(1993) 203 ITR 80 (Cal).
3 Jhalak Prasad Singh v Province of Bihar (1941) 9 ITR 386, 396 (Pat). Cf in Oxford
Dictionary 'Revenue' is the return yield or profit of any land, property or other source of
income; that which comes into one as a return from property or possession, especially of an
extensive kind ; income from any source, but specially when large and not directly earned. See
also Kil Kotagiri Tea and Coffee Estate Co. Ltd. v State (i Tamil Nadu (1998) 234 ITR 252
(Mad).
 [,rto/11111 I [ JU (
• ·· !fc, ,1.L'\ C'r. , ut' h 1t1e., ,rn,.
1I pm~ l ,
I '';J}!rt<.:U ltur.' ~ cl 11Hn J\ Rn rnll ll ro/ In, n tr, "
h: Lalk d •· m,11 h1 11w pr ou' 'h. (Ir d,q ntc prJ 1l .,
,, , II < mr1 po, 11c {,nw ,,te an<l ,, 10 rX'
l
I , the n1lc , L.i1 t 1 u<11J. n 1111<1 t,
i l l.l t <l
. . ·l(( Ofd J0 /2 '
Jll I l J tnn>m< ·
( )1t , r11r \i, ( nun a$?nrnltwJI
th l\ At t •
I'~.1r11npl<', : t,. Wh ere ,iny prn«' '-\ <n,i
"c1 n
• S a
hi c ,n the rnar 'i ll"arc;1n e 1ntn ,tJ~ Jr 1,r 1.1,
• uµa r·r,111c: ,., gen cr;i ll .> ,alr d tn cnn,..cr. l atee ,ncn rnt' f rom Ihc pr,>1.c:
c:. Jr
. c,,J ,., pcrf orrn e \
ap rit ultur;d proc , d r>ro rort1r,n -Ax nc1 1/mro/ /11((,,,1
t c'>', an . he non
w,lj lw non .J1,? multural pro . ~ugar or gur w111 ctr ( I 9-U> J I.! 11R 6! 1
c
c intn .
ot cr,n vc11ing , ugarcan 1
· ._
Illrihrm Malwr{l\hfm Suxar Sy11d1m tl' l./t
. -h ri r s·,•~\ eC.: . V. h,ch arc fcJ I11
mnm)I . by [ C ..,, \.. , " then ,nl time fr 1>rn
• W
litre 111u Iberry leave~ arc grow n .
lrom ~, 1~ \\ onn
· , obta ined i' IK /,a/....\hnw,111 , •11
·1k .
s1 wunm and sil k cocoon, nrc
.
1 11 ,com -
iuro '
sale of silk rncou n\ wo uld be non-Agncu
) ]. . , d htain ino milk from l Ov,
v Ctr ( 1999/ 2YJ !TR 597 (SC · · t LO cow an O . ::
. · 1 . ! Inco me
• S1rnil arl y, grow ing fodd er, givising
•
ncu 1,wa ·
then inrnmc lrom -,ale otmilk non-Ag
. · d f d .
In come from Sale of Cmp [Seclirm 2(/A)(h).(iii)J: . · . of rer1t -in-k1n . •o pro,1 uce ra, ~ed
• · rece iver ha s been pcrionncu .
J\ ny inco me from sale ' by a cultivator. or ess
. wh ich agn cu 1tura 1 proc · ·
or rccc ,vcd hy him in resp ect of
tion 2(/A)(c)J . . .
4.J. c. ln c:om e from Farm floU .\'e rsec ·ict · (F·ar rn Hou -se) 1·s Axnculwml lncomt! ''
,
. mg
J\ ny inco me (J\nnua l Value) from bu1 .
fo llowing conditions tt rc sa ti sfi ed: ., , .
di oru c111u o , 1 ccu picd by the cu lti vator (land lord
· n •d1n . by the Ian
(! ) nuil g mu st. he owned . .
dlord); .
or tenant) or rece iver of rent -in-kind (lan used
Bui ldin g sho u ld he on or in the imm ediate vicinity of land situated in India
(ii )
·
for ;igricu ltural purpo~c;
(iii) Buildin g mu st be used by the
culti vato r or receiver of rent -in-ki nd as:
(a) Dwellin g hou se; or
.(b) A store hou se; or
(c) Other out -buildin g. or local
The land where building is si tuat ed must be assesse d to land revenue
(iv) t
to land revenue or loca l rate then it mus
rate. Howeve r, where it is not assessed
it must be the rural area .
be situated out side the urban area i.e.,
(ii) the land is either asse ssed to
Urban area mea ns (w.e..f A. Y 2014-15):
a local rate assessed and collected by
land revenue in India or is subj ect to
where the land is not so assessed to land
officers of the Government as such or
not situated -
reve nue or subjec t to a local rate , it is ality
(A) in any area which is compris
ed wiJhin the juri sdiction of a municip
nicipal corporation, notified area
(whether known as a municipalijt, mu
n committee or by any other
com mittee, town area comm~ftee, tow
ch has a population of not less
nam e) or a cantonment board and whi
than ten thousand [ * * *J; or
2

J See para 4.2. e been

g census of which the relevant figures hav
2 The words "accordi ng to the last precedin by the Finance Act, 2013, w.e.f.
published beforethe first day of the previous year" omitted
-20 14.
Chap. 4
157
1(8)
in any area within the distance, measured aeria
lly,-
(1) not being more than two kilometres
. from the local limits of any
municipality or cantonment board referred
to in item (A) and
which has a population of more than ten
thousand but not
exceeding one lakh; or
(ll) not being more than six kilometres
. from the local limits of any
municipality or cantonment board refcned
to in item (A) and
which has a population of more tlrnn one lakh
but not exceeding
ten lakh : or
(lll) not being more than eight kilo~1etre
s. from the local limits of any
municipality or cantonment board referred
to in item (A) and
which has a population of more than ten lakh
.
"Population" means the popu lation according
to the last preceding census of
which the relevant figures have been publ
ished before the first day of the
previous year; lExplanation 4]
lmpurta11t Points
► Where farm house is situated
in the rural area. then income (Annual value)
be treated as Agricultu ral Income even if land will
on which farm house is situated is
not assessed to land revenue or loca l rate.
► Income derived from any buil
ding or land mentioned under section 2( I A)(c
arising from the use of such building or )
land for any purpose other than
agricultural shall not be treated as Agricultural
Income. [Explanation 2].
Example: Income derived from letting out
such building (farm house) for
residential purpose or for the purpose of any
business or profession or even for
sharing the agricultural produce by 3rd person
shall be non-Agricultural Income
i.e. Mr. A owner of agricultural land has let
out farm house to Mr. B (not tenant
of Mr. B to be used for residential purposes
or for storing his agricultural
produce therefore rent received by Mr. A is not
Agricultural Income.
► Any income arising from transfer of agricultu
re land shall not be treated as
revenue arising from such land and there
fore , not Agricultural Income
[faplanation I] .
► Any income derived from saplings or seed
lings grown in a nursery shall be
deemed to be Agricultural Income. lExplana
tion 3 w.e.f. 1-4-20091.
► Onus of proving that an income is Agricultural
In come is on the assessee, lCIT v
R. Venkataswamy Naidu (1956) 29 ITR 529 (SC)
; Sri Ranganatha Enterprises v
CIT(l998) 232 ITR 568 (Ker)).
Example of Agricultural Income
• where basic operations are carried out in
nursery and subsequent operations
are carried on in pots in continuation of basi
c operations then income from
such nursery is Agricultural Income [CIT v
Soundrya Nursery (2000) 241
lTR 530 (Mad)]. - - ·- · - --,

1 Substituted by the Finance Act. 2013. w.e.f. 1-4-2

014. Prior to the substitution, item (B) read
as under:
''lB) m any area within such distance, not bein
g more than eight kilometres, from the
local limits of any municipality or cantonment boar
d referred to in item (A), as the
Central Government may. having regard to the exten
t of. and scope for, urbanisation
of that area and other relevant considerations . spec
ify in this behalf by notification in
the Official Gazette."
158 Chap. 4
Taxation Laws
• Seeds are agricultural produce which are obtained on t?e acc_ount of
cultivation by the assessee. Therefore income from seeds is Agncultura/
Income [C/Tv Soundrya Nursery (2000) 241 ITR 530 (Mad)] .
• Rent from agricultural land received by Mortgagee in possession from sub-
tenant.
Example: Mr. A (mortgagor) mortgaged his agricultural land to Mr. B
(mortgagee in possession). Mr. B gives that agricultural land ?n rent to Mr.
C (sub-tenant) therefore rent received by Mr. B (mortgagee m possession)
shall be Agrirnltural Income.
• ~alary received by a partner, for rendering service to fif!TI, which is engaged
m agricultural operations and have Agricultural Irrcome. ,
• Interest on capital received by a panner from- the firm engaged in
agricultural operations. However share of profit received by a partner from
firm is exempted under section 10(2A) and it is not Agricultural In come.
• Compensation received from an insurance company for sation damage caused to
the crop is an Agricultural Income . Such compen cannot be
distributed between Agricultw·alJnC[)J1Ze.-and busines s income under rules
[C/Tv B. Gupta Tea Pvt. Ltd. (1969) 74 ITR 337 (Cal)]. ~
• J>;.ofit on saleof standing crop or prod~ after narvest by a cultivator or
receiver of rent-in-kind.
• Income from sale of grass where grass was grown by making human efforts
i.e. basic and subsequent operation.
• Income from sale of replanted trees where denuded parts of the forest were
replanted and subsequent operations were performed.
required for creating
• Income derived by ~owing special quality of grass Estates (P) Ltd. (2005) 2
golf course is Agricultural Income , [CIT v P.Z.
SOT 563 (Del)]
Example of Non-Agricultural Income
• Interest on arrears of rent regarding agricultural land as it is not revenue
derived from land.
• Interest on promissory notes received by landlord from defaulting tenants.
• Income from sale of forests , wild grass, fruits and flowers grown
spontaneously and without human effort [Mustafa Ali Khan v CIT (1948)
16 ITR 330 (PC)].
• Income from sale of wild grass and reed of spontaneous growth.
• Income from dairy farming, butter, cheese making [CIT v Venkataswamy
Naidu (R), (1956) 29 ITR 529 (SC)].
• Income from fisheries.
• Income from poultry farming.
• Income from sale of preserved potato as preservation of potatoes by
refrigeration is not a process ordinarily employed by a cultivator.
• Income from salt produced by flooding the land with sea water.
• Agricultural produce received by a moneylender as interest.
a
• Remuneration received by an agent at a fixed %age of net profit from
company having Agricultural Income.

111
 Chap. 4
Agriwltura/ Income
• Incom_e from sale of agr 159
supplied to agricultural land.icultltral \)t"c)Cllt•'.. c receiv . e d as
price for water
• Income from settin
g
• Royalty from mines.out the agricultural land or farm house for storing crops
• Income from brick making . ··
• Hire char~es receiv
e~ from !VSe
for shooting TV Sena! or film rial produ cer for use or the garden or land
ITR 719 (Mad)]. IB. Na~i Producer Reddi v
CIT (2002) 258
• Income . from ~ale
of various kinds of hybri
conducting agncultural res d/germ plasm a seeds after
earch costing crorcs of rup
Co. Ltd. v CIT (2003) 126 Ta ees lProagro Seeds
• Registration fee co.llected xman 37 (Del)(Mag.)I.
from contractor who is bid
conducted for auction of pla ding at the auction
land. ntation as fee ha s no ne xus
with agricultural
• Commission earned by
the landlord for sellin g agric
tenant as commission has no ultural produce or his
nexus with agricultural land
• Profit on sale of stand ..
ing crops/agricultural produ
[where assessee has purch ce purch ased by assessec
ased standing crops from cu
profit] [C/Tv Venkatasuhba ltivator and sold on
ya (1951)201TR 151 (Mad)
4.2 TJlX Treatment of In I.
co
Business [Rules 7, 7A, 7B, me which is partially Agricultural and partially fro
8] m
Sometimes assessee who is
carrying on bu siness , grows
and uses that crop as raw ma agricultural produce (crop)
terial in his business . Howe
the market and assessee pe ver , if such produce is saleable in
rforms any "non-agricultura
such composite income sha l process'' to earn extra pro
ll be partially agricultural and fit then
composite income is to be partially non-agricultural. Th
disintegrated into Agricult is
agricultural) income accord ural Income and business (no
ing to the following Rules : n-
1. focome from growing an
d manufacturing of tea [R
carrying on business of gro ule 8]: Where assessee is
wing tea leaves and then ma
sale of tea will be compute nu facturing tea, then income fro
d under head "profits and m
After giving permissible de gains of business and profes
duction , 60 % income shall
1 sio n".
be business income. be treated as agricultural and
40%
2. Income from growing an
d manufacturing coffee [R
carrying on business of gro ule 7B]: Where assessee is
wing coffee beans then the
(a) Where assessee is car re are two possibilities:
rying on bu siness of growi
them in India then income-w ng coffe~ beans and then curin
ill-be computed under the hea g
business or profession". d "profits and gains of
After giving permissible
income shall be treated as deduction ,2 75% of such
Agricultural Incom e and rem
income. aining 25% be business

1 Allowance shall be made in

respect of the cost of planting
that hav e died or become per bushes in replacement of bus
manently useless in an area hes
purpose of determining cos alr eady planted. However, for the
t no deduction shall be made
under section 10(30). regarding the amount of sub
. - - · · sidy
2 Allowance shall be made in - ·
respect of the cost of planting
plants that have died or becom coffee plants in replacement
e permanently usel.ess in an are of
the purpose of determining cos a already planted. How~ver , _for
t no deduction shall be made
und er sec tion 10(31 ). regarding the amount of subsid
y
 Chap. 4
160 Taxation Laws .
. ffee beans and then cunng,_
(b) Where assessee is carrying on business of grow,~~ co h. ory or other flavoring
_roasti~ grounding in India with or without mixing chic d "profi1ts or gains of
-. - . · -
mg~ed1ents then income will be c?~puted u~de_r thedeductio
ea
n, 1 60% of such
busmess or profession''. After g1vmg permissible . · 40% be business
· . e and rema1mno 0
~ncome shall be treated as Agnculw ra11ncom
income.
3 I ,rR bb
. • _11come from growing and ma,wfact1,ri11g O; u er [Rule .
7A]: Where assessee
bb from field later
is carrying on business of orowing manufacturing and processing ru er d d h d
on coaguIum obtained from rubber plants then mcome wi- 11 be. compute un er ea
O •
. d d
·•p ti d .
ro its an Gams of business or profession". After givmg
. . erm1ssib1e e uct·ion, 2 65 01to
P 01 b b ·
?f sueh .mcome shall be treated as Agricultural Income and remaining 35 10 e usmess
mcome.
4. Income from growing and manufacturing of any product oth~r tl!an Tea, ~offee
and Rubber [Rule 7]: Where assessee (cultivator or receiver of rent m kmd) carrying on
busin~ss of growing and manufacturing any product othe~ than tea,_coffee, and ru?be,~,
then mcome will be computed under head "profits and gams of busmess or profession •
However, no deduction is permissible regarding expenditure incurre_d b~ the assessee as a
cultivator or receiver of rent in kind. However the composite mcome shall be
disintegrated by deducting the Market values of agricultural produce raised by the
assessee and utilized as raw material in his business which shall be treated as Agricultural
Income and balance shall be treated as business income.
Example: Assessee is carrying on business of manufacturing chips. He is also
growing potatoes to be used for manufacturing chips. In the Assessment Year 2014-15,
composite income from sale of chips is ~9 lacs and market value of raw produce (potato)
is 6 lacs.
Therefore, Agricultural Income = 6 lacs and
business (non-Agricultural Income) income = 3 lacs [9 lacs - 6 lacs]
Income Income Agricultural Business
Tax Income (non-Agricultural) Income
Rules,
1962
I Rule 8 Income from growing 60% 40%
and manufacturing tea in
I India
\ Rule lncome from coffee 75 %
i 7B(l) 25 %
grown and cured in India
II I
Rule Income from coffee 60%
7B(1A) grown, cured roasted and 40%
grounded in India with or \

I
I
I
without mixing chicory
I or other flavourin g I

I \ ingredients !
I

I Allowance shall be made in respect of the cost of 1 ·

plants that have died or become pennanent\v usele p antmg coffee plants in replacement of
th
e purpose of de1ennmmg
. . cost J
no deduction shaUssbemmandarea already
. PIanted. However, for
under section I0(3 1). a e regarding the amount of subsidy
2 !bid.

l
 Chap. 4
Agricultural Income
161
Income Income Agricultural Business
Tax
/11come (non-Agricultural) Inco me
Rules,
1962
Rule 7A Income deriv ed from the 65% 35 %
sale of centrifuged latex
or cenex or latex based
crepes (such as pale latex
crepe) or brow n crepe s
(such as estate brown
crepe, re-milled crepe,
smoked, blanket crepe or
flat bark crepe) or
technically specified
block rubbers manufac-
tured or processed from
field latex or coagulum
obtained from rubber
plants grown by the seller
in India
Rule 7 Income from any product Market value Composite - market
other than tea, coffee and of produce mcome value of
rubber used as raw produce
material -
.,,
·-
4.3 Scheme of partial integration of non-Agricultu
ral Income with Agricultural
Income
Agricultural Incom e is exempted under section 10(1)
of Income-tax Act, 1961.
Moreover, if assessee has agricultural as well as
non-Agricultural Incom e then
Agricultural Income shall be included into his Total incom
e for computation of Income-
tax on non-Agricultural Incom e. This is known as Sche
me of partial integration of non-
Agricultural Income with Agricultural Income or taxing
Agricultural Incom e. However,
for applying this scheme following conditions must be
satisfied:
(l) , Assessee must be:
'A.;
(a) ' individual;
Jin-" A Hindu Undivided Family;
(cY AOPs/BOis
Cd> ·· Artificial juridical person
And it should not be
-- ~\
(a) Firm.
(b) tom ;any-..
(c) Co-operative society
(d) Local Authority
(ii) The assessee 's non-Agri cultural Income must
exceed Basic Exemption limit for
that Assessment Year. '
(iii) The Agricultural Inco me mus_t ~~~~ed t 5,..9QO.
 Chap. 4
162 Tararion Lairs
4·4 Computation of tax under this scheme
if it is chargeable to cax.
Step I: Compute Net Agriculrural Income as
and add net Agriculrural Income.
Step II: Compute Non-Agriculrural Income if
me [Agricultural + Non-Agricultural] as
St ep III: Calculate tax on aggregated inco
such aggregated income is Total income.
Basic Exemption limit for asse ssee anct
Step IV: Add Agricultural Income co I
ssee.
compute tax as if it is Total Income of asse
Step ll: Reduce amount of tax determined
under Step III from tax detennined under I
Step IV. I
cation cess 2% and secondary and higher I
St~p VI: Add surcharge (if applicable) edu
education cess@ 1%. if any. to balance. I
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