Concept Of Agriculture Income in Income Tax

The Income-tax Act has its own definition of agricultural income which constitutes the following 3 main activities:

I. Rent or revenue earned from agricultural land situated in India:

Rent is the amount received to grant the right to use the land. The scope of the possible sources of income that can be derived from land is many. An example would be fees received for renewal of grant of land on lease.

However, the amount received on the sale of land is not covered under the definition of agricultural income.

II.Income from agricultural land in the following ways:

1. Agriculture: The meaning of agriculture though not covered in the Act, has been laid down by the Supreme Court in the case CIT v. Raja Benoy Kumar Sahas Roy where agriculture has been explained to consist of two types of operations –basic operations and subsequent operations.
   • The basic operations would include cultivation of the land and consequently tilling of the land, sowing of seeds, planting and all such operations that require the human skill and effort directly on the land itself.
   • The subsequent operations would include operations that are carried out for growth and preservation of the produce like weeding, digging soil around the crops grown etc and also those operations which would make the product fit for use in the market like tending, pruning, cutting, harvesting, etc. Income derived from saplings or seedlings grown in a nursery would also be considered to be agricultural income whether or not the basic operations were carried out on land.
2. Through the performance of a process by the cultivator or the receiver of rent (in-kind) that results in the agricultural produce being fit to be taken to the market: Such processes involve manual or mechanical operations that are ordinarily employed to make the agricultural produce fit for the market and the original character of such produce is retained.
3. Through the sale of such agricultural produce: Where the produce does not undergo ordinary processes employed to become marketable, the income arising on sale would generally be partly agricultural (exempt) income and part of it will be non-agricultural (taxable) income.

The Income Tax has prescribed rules to make this bifurcation regarding agricultural and non-agricultural produce for products like tea, coffee, rubber, etc.

Operation	Agricultural Income	Non-Agricultural Income
Growing and Manufacturing Tea	60%	40%
Manufacturing Rubber	65%	35%
Growing and curing Coffee	75%	25%
Coffee grown, cured, roasted, and grounded with or without mixing chicory or other flavouring ingredients	60%	40%

 III. Income derived from farm building required for agricultural operations:

The conditions for classifying income derived from farm building as agricultural income are as follows:

• The building should be on or in the surrounding area of the agricultural land. Also, the rent receiver or cultivator of the land, by reason of his connection with the land, requires the building as a house to stay or as a storehouse or uses it for these kinds of situations
• Either of the two conditions should be satisfied:
  • The land is assessed by either land revenue or a local rate assessed and collected by government officers; OR
  • If the above condition is not satisfied, the land should not be located within the following region:

  • Aerial distance from municipality*	Population as per last preceding census.
    Within 2 kms	10,000 to 1,00,000
    Within 6 kms	1,00,000 to 10,00,000
    Within 8 kms	> Rs. 10,00,000

    *Municipality includes municipal corporation, notified area committee, town area committee, town committee and cantonment board.

    Note: Even where the local population is < 10,000, the land should also not be situated within the jurisdiction of the local municipality or cantonment board.

    In cases where the activities have only some distant relation to land like dairy farming, breeding, rearing of livestock, poultry farming, etc. they do not form a part of agriculture income.