a Agriculharc not rerely ittcludes food and grains - Agrit

for the consumption of men and animals; it also inclu

subxquent operations on land. These products, for
plantation and groves or grass or pasture for consurr
tea, spices, tobacco, etc., or commercial crops like co

trHAPTER
: T WHAT IS AGRICULTURAL
185. Section 10(1) exempts agricultural income from income-tax. By virtue of section 2(1A) the
"agricultural income ' means
Meaning of agricultu raised from the land and the term "agriculture" car
grains products for human beings but must be unde
have some utility either for consumption or for trade
such as timber, sal and piyasal ttees, casuarina planta
income and its a Some contuction tuith land not suficienl - The mere fa
way dependent on land is not sufficient to bring it r
breeding and rearing of livestock, dairy farming, chee
treatme themselves be agricultural purposes.
) Income lrom nursery operations - Any income derived
as agricultural income. In such a case, irrespective ol
canied out on land, such income is deerned as agricr
185.2 lncome derived from agriculural land by 4
gives the following three instances of agricultural in(
II{COME
n. any income derived by agriculture from land situ
b. any income derived by a cultivator or receiver of r
.
the produce raised or received by him to make it :

1. Any rent or revenue derived from land which is situated in India and is used for agricultural purposes c. any income derived by such land by the sale by a <
2(1A)(a\]. or received by him in respect of which no proces
2. Any income derived from such land bv agricultural operations including processing of the described in (b).
produce, raised or received as rent-in-kind so as to render it fit for the market or sale of such produce The aforesaid income is agricultual income, if such ir
2(1A)(b)1. is used for agricultural purposes.
3. lncome attributable to a farm house subject to certain conditions [sec. 2(1AXc)]. c lncome deiued from marketing process - Sometimes
L85.L Rent or fevenue derived from land [Sec. 2(7A)(a)] - According to section 2(1A)(n), if the harvested. In order to make the produce a commodit
three conditions are satisfied, income derived from land can be termed as "aqricultural income": kind of process on the produce. The income arisini
performing such process to make the raw Produce
t. rent or revenue should be derived from lancl (rnay be in cash or kind) ; following conditions must be satisfied :
b. the land is one which is situated in India (if the land is situated in a foreign country, this condition is n. the process must be one which is ordinarily empl
satisfied) ; and b. the process must be applied to render the produc
c. the land is used for agricultural purposes. For instance, tobacco leaves are ordinarily dried to m
The prirnary condition to claim exemption as "agricultural income" is that the land in question should tr ordinary process employed to dry the tobacco leavr
for agriculturd y.rrposes. The terms "agriculture" and "agricultural purposes" have not been defined in the income. The ordinary process employed to render I
one has, therefore, to depend upon ordinary meaning and decided cases. The following principles have winnowing, cleaning, drying, crushing, boiling ant
taken from different judicial pronouncements to serve as a guide in the determination of the scope of the upon quality of the produce and varies from time to
"agriculture" and "agricultural purposes": Moteover, if marketing process is performed on i
a Bosic operntions - Prior to germination, some basic operations are essential to constitute agriculture. The requiring any process to make it fit for marketing), it
operations would involve expenditure of human skill and labour upon the land itself and not merely on non-agricultural. For instance, if sugarcane rs genet
growth from the land. Some illustrative instances of basic operations are tilling of land, sowing of the process, the Process of converling sugarcane into 8t
planting, and similar kind of operations on the land. able to the process of converting sugarcane into gur
) Subsequutt operatiotrs - Besides the basic operations, there are certain subsequent operations which !85.3 tncome from farm building [See. 2(tANc)]-
performed after the produce sprouts from the land. Illustrative instances of subsequent operations
section 22. However, income from a house prope:
weeding, digging the soil around the growth, removal of undesirable undergrowths and all operations
would be treated as agricultural income and, consa
l0(1):

380
 INCOME FROM FARM BUILDING r P.ra 1t5.3

foster the growth and preserve the same, not only from insects and pests but also from degradation from
outside, tending, pruning, cuttinp harvesting and rendering the produce fit for the market. Mere perforrnance
of these subsequent operations on the products of the land (where such products have not been raised on the
land by the performance of the Dasic openrtions described above) would not be enough to characterise them a's
agricultural operations. Where, however, the subsequent operations are performed in conjunction with and in
continuation of the basic operations, the subsequent operations would also constitute part of the inte$ated
activity of agriculture.
a Agiculturc not nerely includes food and grains - Agriculture does not merely imply raising of food and grains
for the consumption of men and animals; it also includes all products from the performance of basic as well as
subsequent operations on land. These products, for instance, may be glain or vegetable or fruits including
plantation and groves or grass or pasture for consumption of beasts or articles of luxury such as betel, coffee,
tea, spices, tobacco, etc., or commercial crops like cotton, flax, jute, hemp, indigo etc. All these are products
raised ftom the land and the term "agdculture" cannot be confined merely to the production of food and
grains products for human beings but must be understood as comprising all the products of the land which
have some utility either for consumption or for trade and commercial asset would also include forest products
such as timber, sdl and piyasal trees, casuarina plantatiorL tendu leaves, horra nuts, etc.
a Some connection with land not suficienf - The mere fact that an activity has some connection with or is in some
way dependent on land is not sufficient to bring it within the scope of the term "agriculture". For instance,
breeding and rearing of livestock, dairy farming, cheese and butter-making and poultry farming would not by
themselves be agricultural purposes.
a Income ftom nurcery operations - Any income derived from saplings or seedlings grown in a nursery is deemed
as agricultural income. In such a case, irrespective of the fact whether (or not) the basic op€rations have been
carried out on land, such income is deemed as agricultural income.
L85.2 lncome derived from agricultural land by agricuhunl operctions [Sec. 2(tA)(b)] - kction 2(1A\(b)
gives the followhg three instances of agricultural income :
a. any income derived by agriculture from land situated in India and used for agricultural purposes;
,. any income derived by a cultivator or receiver of rent-in-kind of any process ordinarily ernployed to render
the produce raised or received by him to make it fit to be taken to marke! or
c. any income derived by such land by the sale by a cultivator or receiver of rent-in-kind of the produce raised
or received by him in respect of which no process has been performed other than a process of the natue
described in (b).
The aforesaid income is agricultural income, if such income is derived from land which is situated in India and
is used for agricultural purposes.
; Income dcioed from marketing process - Sometimes it becomes difficult to find ready market of the crop as
harvested. In order to make the produce a commodity which is saleable, it becomes necessary to perform some
kind of process on the produce. The income arising by way of enhancement of value of such produce, by
performing such process to make the raw produce fit for market, is also agricultural income, However, the
following conditions must be satisfied :
4. the process must be one which is ordinarily employed by a cultivator or receiver of rent-in-kind ; and
D. the process must be applied to render the produce fit to be taken to market.
For instance, tobacco leaves are ordinarily dried to make them suitable for sale. Therefore, the income ftom the
ordirnry process employed to dry the tobacco leaves to make them fit to be taken to markeg is agricultural
income. The ordinary process employed to render the produce fit to be taten to market includes thrashing
wirurowing cleaning; drying, crushing, boiling and decanting, etc., though the nature of process depends
upon quality of the produce and varies from time to time and place to place.
Moreover, if marketing process is performed on a produce which can be sold in is raw form (without
requiring any process to make it fit for marketing), income derived therefrom is pardy agricultural and partly
non-agricultural. For instance, if sugarcane is generally sold in a given area without being subjected to any
process, the process of converting sugarcane into gur would not be agricultural process and income attribut-
able to the process of converting sugarcane into gur would not be agricultural income.

L85., lncome from farm building [5€6. 2(tA)(c)] - Botla fde annual value of house property is taxable under
section 22. However, income from a house property which satisfies the following cumulative conditions
would be treated as agricultural income and, consequently, it would be exempt from tax by virtue of section
10(1) :
Pars 186 r MEANING OF AGRICUITURAL INCOME & ITS TAX TREATMENT

g, the building should be occupied by the cultivator (as a landlord or as a tenant) or receiver of rent-in-kind (as
a landlord) ;
b. it should be on or in the funmediate vicinity of land, situated in India and used for agricultural purposes;
c, the cultivator or receiver of rent-in-kind by reason of his cormection with the agdcultual land requires the (Nri I
building as a dwelling house or as a store house or other out-building; and I
the land is assessed to land revenue or local rate or, alternatively, the land (though not assessed to land
revenue or local rate), is situated in a rural areal.
If all the aforesaid conditions are satisfied, income from a farrr building is exemPt from tax under sectidr ss
2(1A)(c).
a LIse ofbuilding ot land for any purpox otler thnn agiculture - Income would be exemPt from tax only if land or.
building is used for agricultural purposes. In other words, if land or building is used for any other Pupos€s,
exemption is not avaiLble. For instance, if a farmer gives his building on rent for residential purposes, incotrE
is chargeable to tax.

eii r. WHAT ARE TNSTANCES OF TNCOME HEID TO BE AGRTCUITURAI/IION-AGRTCUI'

TURALINCOME
185. tn the following caseg income is held as agricultural income :
1 . If denuded parts of the forest are replanted and subsequent operations in forestry are carried out,
the
arising from the sale of rePlanted trees.
2. Profit on sale of standing crop or the produce after harvest by a cultivating owner or tenant of Land.
3. Rent for agricultural land received from sub-tenants by mortgagee-in-Posse$ion.
4. Compensation received ftom an insurance comPany for damage caused by hail storm t9 the gr-een
forming part of assessee's tea gardm (moreover, no part of such compensation consists of manufactu
income, as such compensation cannot be apportioned under rule 8 between manufacturing income
agricultural income).
5. Income from growing flowers and creepers.
5. Salary received by a partner for rendering services to a fum which is engaged in agricultural operations
agricultural income as payment of salary is only a mode of adjustment of the firm's income [it may be not
tiat share of profit from such firm is not taken as "agricultural income" as such share is exempt under
10(2A)1.
7. Interest on capital received by a partner from the firm engaged in agricultural operations.
8. If nursery is maintained by carrying out basic operations and subsequent operations are carried out in
in continuation of basic operations, then income from such nursery would be agricultural income.
a lnstances of nonagricultural income :
1 Annual annuity received by a person in consideration of transfer of agdcultual land even if it is charg€d
.
land, as source of annuiw is covenant and not land.
2. Interest on arrears of rent in respect of agricultural land as it is neither rent nor revenue derived from
3. Interest accrued on promissory notes obtatrcdby a nmindai from defaulting tenants'
4. Income from sale of forest trees, fruits and flowers growing on land naturallp spontaneously and
the intervention of human agency.
5. Incorne from sale of wild grass and reeds of sPontaneous growth

tRural area for the above purpos€ is any area which is oubide the iudsdiction of a municiPality otcantonrn€nt board
population of 10,000 or more and algo which doe6 not fall within distance (to b€ measured aerially) given below -

For the above purpose, " population" means the PoPulation according to the last Pr€c€ding census of which the
been published before the first day of the Previoua year.
 tfl ANY OTHER CASE r Para 187.1

ind (as 6. lncome of salt produced by flooding the land with sea water as it is not derived from land used for
agricultural income.
|()ses; 7. Profit accruing from the purchase of a standing crop and resale of it after harvest by a merchant, having no
res the interest in land except a mere licence to enter upon the land and gather upon the produce, as Iand is not the
direct, immediate or effective source of income.
o land 8. Remuneration received by managing agent at a fixed percentage of net profit from a companv having
agricultural income.
€ction form of agricultural produce.
9, Interest received by a money-lender in the
agricultural produce received by way of price for water supplied to land.
10. Income of sale of
and or 11. Commission eamed by the landlord for selling agricultural produce of his tenant.
?o8e8, 12. Income derived from land let out for storing crops.
ncome 13. lncome from fisheries.
14. Maintenance allowance charged on agricultural land.
15. If the assessee takes loans on hypothecation of agricultural produce cultivated by him and advances the
GUt. same to its sister concems, interest earned thereupon (is not agricultural income).
I6. Royalty income of rnines.
17. Income from butter and cheese making.
18. Income from poultry farming.
19. Income from sale of trees of forest which are of spontaneous growth and in relation to which forestry
operations alone are performed.
20. Where the assessee-company is growing various kinds of hybrid/germ plasm seeds after conducting
n leaf agdgenetic agricultural research costing crores of rupees, income earned on sale of such seeds canrot be
turing treated as'agricultural income'.
te and 21. Receipts from TV serial shooting in farm house.

iiJ T WHAT IS THE TAX TREATMENT OF INCOME WHICH IS PARTIATLY AGRICUTTURAT

ions ig
'] ' A]{D PARTIALLY FROM BUSII{ESS
noted
ection 187. For disintegrating a composite business income which is partly agricultural and partly non-agricultural,
the following rules are applicable-

Inomz* Nonagriculta|/nl Agriculturc

n Pots itcome in.,nE

a Growing and manufacturing tea in India+ 40% 601;

Fd on a Sale of centrifuged latex or cenex or latex based crepes (such as pale latex
crepe) or brown crepes (such as estate brown crepe, remilled crepe, smoked
r land. blanket crepe or flat bark crepe) or technically specified block rubbers
manufactured or processed from field latex or coagulum obtained from
rubber plants grown by the seller in India 35% 65v.
ithout o Sale of coffee grown and cured by seller 25% 757"
I Sale of coffee grown, cured, roasted and grounded by seller in India with
or without mixing chicory or other flavouring ingredients 40% 60%

L87.L Any other case- For disintegrating a composite business income which is partlv agricultural and partly
non-agricultural, the nnrket ttnlue of any agricultural produce, raised by the assessee or received by him as rent-
in-kind and utilised as raw material in his business, is deducted. No further deduction is permissible in respect
ryrng a of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.

^*" I
I

'*l 'lncome in respect of the busin€ss given above is, in the first instance, computed under the Act as if it were derived from busrness

'*l I
after making permissible deduction. 40 or 35 or 25 percentofthe incomeso arived at is treatrd as business ineome and the balance
is treated as agriculhrral income- Salary and interest received by a partner from a firm (growin[j leaves and manufacturing tea or
any other activity mentioned in the table) is taxable only to the extcrlt of 40 or 35 or 25 pr'r cent ancl thc baltnce is treated .ls
rahave agricultural income-
+lf a person directly sells green tea leaves, income therefrom is I00 per cent agricultural inconre.