The document discusses the meaning and definition of agricultural income under the Indian Income Tax Act of 1961. [1] Agricultural income includes income from agricultural land used for cultivation, processing of produce to render it fit for market, and income from farm houses meeting certain conditions. [2] It must involve human labor and skill on the land for cultivation, protection, and maintenance to qualify as agricultural income. [3] Certain incomes like dairy, poultry, livestock are not considered agricultural, while others like tree cultivation, rent from farmland, and crop insurance payouts are.

1. AGRICULTURAL
INCOME
PREPARED BY- C A ANNIE STEPHEN
- Ms. JUNITTA STEPHEN

2. INTRODUCTION
• Agricultural income earned by a taxpayer in India is
exempt under Section 10(1) of the Income Tax Act,
1961.
• Agricultural income is defined under section 2(1A) of
the Income-tax Act.

3. Meaning of Agricultural Income
• Section 2 (1A) of the Income Tax Act, 1961 defines “agricultural income”
as an income under the following three sources:
• (i) Any rent or revenue derived from land which is situated in India and is
used for agricultural purposes
• (ii) any income derived from such land by agricultural operations including
processing of the agricultural produce, raised or received as rent-in-kind so
as to render it fit for the market, or sale of such produce [sec. 2(1A)(b)];
and
• (iii) income attributable to a farm house subject to the conditions

4. Conditions-
• that the building is situated on or in the immediate vicinity of
the agricultural
• and is used as a dwelling house, storehouse, or other out-
building
• and the land is assessed to land revenue or a local rate of tax
or,
• alternatively, the building is situated on or in the immediate
vicinity of land which (though not assessed to land revenue or
local rate) is situated in a rural area [sec. 2(1A)(c)].

5. Rural area would mean the land is
situated in
• Not more than 2kms. from the local limits of any municipality
or cantonment board and which has a population of more than
10,000 but not exceeding 1,00,000; or
• not being more than 6kms. from the local limits of any
municipality or cantonment board and which has a population
of more than 1,00,000 but not exceeding 10,00,000; or
• not being more than 8kms. from the local limits of any
municipality or cantonment board and which has a population
of more than 10,00,000.

6. Agricultural operation includes efforts made
to render the produce fit to be taken to market
and also include activities such as
• Cultivation/ tilling of land of the land
• Sowing of seeds
• Planting
• Weeding
• Tending
• Pruning
• Drying
• Polishing
• chaffing
• Harvesting

7. • The revenue must not include any income
arising out of transfer of such land. Such
incomes will be taxable under the head capital
gains

8. Certain points have to be kept in mind
FOR AGRICULTURAL INCOME:
• (i) Existence of a land.
• (ii) Usage of land for agricultural operations such as sowing ,tilling,
harvesting, weeding and also includes processes undertaken to make
the produce fit for sale in the market.
• (iii) Cultivation on Land is a must: The ambit of agriculture covers
all land produce like grain, fruits, tea, coffee, spices, commercial
crops, plantations, groves, and grasslands.
• (iv) efforts must be involved as spontaneous growth will not be
included in agricultural income

9. • However, the breeding of livestock, aqua culture,
dairy farming, and poultry farming on agricultural
land cannot be construed as agricultural operations.
• (iv) Ownership of Land is not essential: In the case of
rent or revenue, it is essential that the assesse has an
interest in the land (as an owner or a mortgagee) to be
eligible for tax-free income. He could be a tenant or a
sub-tenant.

10. Exceptions:
• a. If a person sells processed produce without carrying out any
agricultural or processing operations, the income would not be
regarded as agricultural income.
• b. Likewise, in cases where the produce is subjected to substantial
processing which changes the very nature of the product (for
instance, canning of fruits), the entire operation is not considered as
an agricultural operation. Its partly business income.
• c. Income from trees OF SPONTANEOUS GROWTH is not
considered as an agricultural income since there is no operations like
cultivation and soil treatment.

11. Taxation of agricultural income
• Agricultural income is exempt from income tax.
• However, the Income-tax Act has laid down a method to
indirectly tax such income.
• This method or concept may be called as the partial
integration of agricultural income with non-agricultural
income.
• It aims at taxing the non-agricultural income at higher
rates of tax.

12. Following are some of the examples of
agricultural income:
• Income derived from sale of replanted trees.
• Income from sale of seeds.
• Rent received from agricultural land.
• Income from growing flowers and creepers.
• Profits received from a partner from a firm engaged in
agricultural produce or activities.
• Interest on capital BY a partner from a firm, engaged in
agricultural operations

13. 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.
• Income from dairy farming.
• Income from salt produced after the land has flooded with sea water.
• Royalty income from mines.
• Income from butter and cheese making.
• Receipts from TV serial shooting in farm house.

14. COMMISSIONER OF INCOME
TAX WEST BENGAL, CALCUTTA
V. RAJA BENOY KUMAR SAHAS
ROY.

15. • It is a landmark case for the understanding of agriculture
under the Income Tax Act.
• It was an interesting case wherein assesse was growing
tress on a forest land.
• Growing of trees was inter alia includes cutting of tress
and leaving the stumps to regrow. The Supreme court held
such income as agriculture income and held as under:

16. • The forest was 150 years old, and consisted of sal and piyasal trees.
• It was in parts denuded of trees from time to time by destructive
elements and the assesse had to plant fresh trees in those parts.
• Considerable amount of human labor and skill had to be applied year after
year for maintaining the 'forest, protecting the offshoots from the stumps
of the trees that had been cut and sold and in reviving its
denuded parts by fresh plantation.
• The staff employed by the assesse performed such operations as
pruning, weeding, felling, clearing, cutting of channels, guarding the
trees and sowing seeds by digging the soil in the denuded areas.

17. • The Income-tax Officer rejected -the assessee's claim of exemption
• The Assistant Commissioner of Income-tax confirmed the
assessment.
• The Appellate Tribunal held that the sowing of seeds were few and
far between and the income, derived as it was from jungle products,
was not agricultural income within the meaning of the Act.
• The High Court took a contrary view, held that tillage of the soil was
not essential, and the income was agricultural income as human
labour and skill had been expended on the land itself and answered
the question in favour of the assessee.

18. • Whether agriculture activity on urban land is exempt:
Agriculture activity carried out on agriculture land whether it is rural
or urban is exempt from tax hence profit from agricultural operation
carried out at urban land is exempt from tax.
• Whether agriculture activity carried out by company is exempt:
Section 10(1) speaks about exemption of agricultural income
irrespective to the constituent of the person be it individual, HUF,
Company, trust etc hence profit from agricultural activity carried out
by company is also exempt from tax.

19. Agricultural income ?
• Profit on sale of fruits from the trees
planted around the house/Bungalow is
agricultural income :
• As per section 2(1A) any income derived
from agriculture from land situated in India
and used for agricultural purposes
• As the land is used for residential purpose
hence profit on sale of such fruits will
though be taxable , but not as agricultural
income.

20. Income from export of
agriculture produce
• If the exporter has resorted to agricultural activities then it is
treated as agricultural income
• However if middlemen have undertaken the exports ,the same
shall be taxable and not treated as agricultural income
• Whether claim received from Insurance company for damage
of crop is agricultural income: Insurance claim received from
insurance company for loss of crop is agricultural income
because such claim is received against basic agricultural
operations.

21. • Where the assesse receives compensation for loss of
trees from a company which was laying gas pipeline
crossing his farm. The Ld. Hyderabad bench had
treated such compensation as agricultural income
being equal to sale of crop or claim from insurance
company. (Sri meela Satynarayan HUF v/s ITO,
Suryapet in ITA no 1047/Hyd/2016 and therefore
treated as agricultural income

22. Grass grown of specific quality- for
lawns
• In Hortus Consultants P Ltd case where it was granted a contract
to grow grass in soil or in peat moss with mesh to a certain height
with three mowing and then to be lifted/rolled with the roots intact
to a specific thickness and planted in a time definite seamless
manner at the Jawaharlal Nehru Stadium
• The company claimed the whole income as agricultural income
• but ITAT held that Income up to growing of the grass was held to be
agricultural income and thereafter the job of lifting/rolling/relaying
will not be agricultural income.

23. EXAMPLES
• 1. income from supplying surplus water to
other agriculturists is held to be not an
agricultural income.(Sri Ranga Vilas Ginning
& Oil Mills v CIT (1982) 133 ITR 85 ,
• 2. Income from growing of mushroom has
been held to be an agricultural activity
• 3. Income from breeding of livestock, poultry
farming, brick making, stone quarry, Dog
shelters, etc is not an agricultural income.

24. • Income from fisheries has been held in CIT v V.T.S.
Sevaga Pandia Thever (1933) 1 ITR 78 (Mad) has been
held to be not an agricultural income.
• Compensation/damages paid for loss of agricultural
income due to late payment of instalments of the
consideration price of rubber plantation site is held to be
not an agricultural income in Malabar Industrial Co.
Ltd. v CIT (2000) 243 ITR 831 (SC)
• Income derived from letting out of land/godowns for
storing crop is non-agricultural income
• Interest on arrears of rent in respect of agricultural land
is not an agricultural income and hence it will be taxable
as regular income.

25. • Income from sale of forests, trees, wild grass,
fruit and flowers of spontaneous growth
involving no human effort is non-agricultural
income.
• Rent received for use of the garden for
shooting films could not be treated as
agricultural income, as it has no nexus with the
land, except that it was carried out on the
agricultural land. So, it is held to be not an
agricultural income in B. Nagi
Reddi v CIT (2002) 258 ITR 719