Complete information on Agricultural income, its kind and examples

Agricultural income [2(1A)] has not been taxed right from the beginning under the Income-tax Act. The justification for such exemption is that income from agriculture is taxed in the form of land revenue. Another reason for its being kept outside the purview of the In­come-tax Act, 1961, is that agriculture being a State subject, the Central Government is not entitled to tax this source of income. The State Governments are of course, free to tax this source. A few of them are, in fact, doing so. The position under the Income-tax Act is that section 10(1) exempts agricultural income from income-tax. Because of the exemption it enjoys, it is necessary to clearly understand the definition of the term ‘Agricultural Income’. In the exact sense, ‘Agricultural Income’ as defined u/s 2(1A) includes the various types of incomes.

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Kind of agricultural income :

According to the definition given u/s 2(1A), agricultural income can be classified into the following five kinds :

• Rent or revenue derived from land.
• Income derived from land by agriculture.
• Income by the performance of any process to render the produce fit to be marketed.
• Income by the sale of the produce raised or received by him as rent.
• Income from building owned and occupied by the cultivator or the receiver of rent-in-kind.
• provided it is in the immediate vicinity of the land and is used as a dwelling house or a store house or an out-building in connection with it. The land on which the building is situated must also fulfill the conditions already mentioned.

Following are the agricultural incomes:

Income from land leased out as grazing land for cattle required for agricultural purposes. CIT v Rai Shamsherjung Bahadur [1953] 24 ITR 1 (A11).

1. Income derived from running of a dairy, which is quite incidental to agriculture and planting bushes in replacement of bushes that have died or become per­manently useless. CIT v Kokine Dairy, Ranggon [1938] 6 ITR 502.
2. Income from the sale of dried tobacco leaves has been held to be agricultural income since tobacco leaves are ordinarily dried to make them fit for sale. CIT v Katragadda Madhusudhana Row [1944] 6 ITR (Mad.)
3. Rent for agricultural land received from sub-tenants by the mortagagee in pos­session is agricultural income. Raja Mustafa Ali Khan CIT [1948] 161 ITR 330 (P.C.).
4. Sum received from an insurance company for damage caused by hailstorm to the green leaf forming part of the assessee’s tea garden is agricultural income. CIT v Gupta (Tea) P. Ltd. [1969] 74 ITR 337.
5. When there was no market for the sugarcane produced by the assessee in its natural condition, income received by the assessee from sale of jaggery was exe­mpt from tax as agricultural income. CIT v H.G. Date [1971] 82 ITR 71 (Bom.).
6. Nazar or Salami paid by a tenant to the landlord for the recognition of a non-transferable holding is rent or revenue and is exempt from tax. Nawabzadi Mehar Bano Khanum v Secretary of State 2 ITC 99.
7. Income derived from toddy is agricultural income when it is received by the actual cultivator, whether owner or lessee of the land on which the trees grow. If the income is obtained by a person who has not produced the trees from which the toddy is tapped or has not done any agricultural operation whereby those trees have been raised, it is not agricultural income. CIT v Yagappa Nadar [1927] ILR 50 Mad 923.
8. Weighing charges levied by a landlord from his tenants in addition to the rent under agreement entered into with the tenant are agricultural income. The Probynabad stud farm, in re [1936] 4 ITR 114 (Lah).

Following incomes though connected with land are not agricultural incomes

1. Income from sale of wild grass, bamboo and tree of spontaneous growth. Rani Tara Kumari Devi v CIT [1946] 14 ITR 787.
2. Income derived from land used for stone quarries. Shib Lal Ganga Ram v CIT 2 ITC 425 (A11).
3. Income from fisheries. Raja Durga Narain v CIT [1947] 15 ITR 235.
4. Income from land used for brick making or brick kiln purposes. Maharani Janki Kuer v CIT 5 ITC 42 (Pat).
5. Income from land used for holding weekly (or other) markets. Beohar Singh v CIT [1948] 16 ITR 433 (Nag).
6. Income from land or trees let out for cultivation of lac. Prov. of Bihar v Maharaja Pratap Udai Nath [1941] 9 ITR 313.
7. Income from ferries. Maharaja of Darbhanga v CIT [1924] ILR 3 PAT.
8. Commission received by landlord for selling produce for and on behalf of the tenant Conville v CIT [1936] 4 ITR 137.
9. Income from dairying. CIT v Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466,
10. Profit earned on purchasing the standing crop. CIT v Maddi Venkata Subbayya [1951] 20 ITR 151.
11. Rent from land used as pastures for cattle not of agricultural purposes.
12. If the sugarcane is ordinarily saleable in the market without any other sub­sequent process, the process of converting it into jaggery or sugar will not be a process to render the produce fit to be taken to the market.
13. Green tea leaf is also a marketable commodity and so the manufacturing ac­tivity of tea producers will be taxable income.
14. Remuneration for managing agricultural property is not agricultural income. Ramaraj v Commr. ofAgr. IT [1969] 71 1TR 108.
15. Neither a dividend nor a deemed dividend paid out of agricultural income was itself agricultural income. S. Kumaraswami v ITO [1961] 43 ITR 423.
16. Income derived from letting land and trees for cultivation of lac is not income derived from land used for agricultural purposes. Province of Bihar v. Maharaja Pratap Udai Nath Sahi [1941] 9 ITR 313 (Pat.),
17. Compensation received for compulsory acquisition of agricultural land is neither rent nor revenue as contemplated u/s 2(1A) and the profit realised was. not agricultural income. DLF Housing Society v CIT [1983] 141 ITR 806 (Del).
18. Income derived by letting out land which is assessed to land revenue for stock­ing timber is not agricultural income and therefore not exempt. Har Prasad V Emperor [1925] AIR 1925 Lah 488.
19. Interest accrued on promissory notes executed for arrears of rent was not agricultural income, as by the new contract, the liability ceased to be one for rent and become a loan. CIT v Zemindar of Kirlampudi [1932] ILR 55 M. 830.

Partly Agricultural Income:

There are certain incomes which are neither wholly agricultural in nature nor can they be said to arise from business. On the other hand they include some elements of agriculture and some those of business. Profits of a sugar mill which grows its sugarcane can be cited as one of the examples.