1

Agriculture Income

CH ARG E ABI LI T Y

 Ac c or di ng t o s e c. 2 ( 1 A) " ag r i cu lt u ra l in c o m e" m e ans :

i. An y r e nt o r r ev e nu e , d e r i ve d fm l an d w hi c h is si t u at e d in In d i a and i s
u se d f or ag ri cu l tu r e p ur p o s es ;

RAM BAAN _AI CA VIKRAM BIYANI

 2

ii. An y i nc om e d er i v ed f m :
a. la n d s i tu at e d in I nd ia a nd u s e d for a gr ic u lt ur e o pe r at i o ns; or

b. th e pe r fo r m a nc e of s o me a gr ic u l t ur e p r o c e ss o rd in a r i l y e m pl o y ed
by a c u l t iv a t or o r r ec ei v er of r e nt in k in d t o re n d er t h e p ro d uc e f it f or
ma r k e t or s a le o f s u c h pr o d uc t .

c. th ro u g h t he s a le o f a g r ic ul t u ra l pr o duc e ( o f a ny la nd s it u at e d in I n d ia
an d us ed f or a gr icu lt ur e pu rp os es ) p r ov i de d t he pr o du c e is n o t
subj ect e d to a ny p r oc e s s e x c ep t pr o ces s o rd i n ar i ly e mp lo y e d t o m a k e
it f i t fo r t ak ing it i nto ma r ke t.


KEY POINTS

A. If m ar ke t in g proc es s is pe rf or me d on t h e pr od uc e, wh ic h c an b e
so ld in its r a w f or m i n th e mar ke t, t h e n in c o m e d er iv e d fm su c h
pr o d u ct is p ar t ly a gr ic u lt ur e & p a rt ly n on- a gr ic ul t ura l in c o m e .

RAM BAAN _AI CA VIKRAM BIYANI

 3

B. “P r o c e s s o rd in ar il y e m pl o y ed ” ma y be ma nu a l or m ec h a ni cal .
Ho wev er , it m us t b e t o r e n d er t h e p r o duc e f it t o b e t a k e n t o t h e
ma r ke t.

iii. In c om e at t ri bu t abl e t o a f ar m h ou se p ro vi ded th at:

a. th e far m ho us e s h ou ld b e occ u p ie d by th e c u lt iv a t or ( a s a lan dl ord or
as a t en a nt ) o r r ec eiv er o r r en t in k i n d ( as a l an d lo rd ) .
b. it should be immediate vicinit y of land situated in India and used for
agriculture purposes.
c. Such house is used for agriculture operations as dwelling / store house
or ot her out building.
d. Th e la nd is as s es s e d to la n d r ev e nue in I nd ia or s it u at ed o u ts i de
ur b a n ar ea .

 KEY POINTS

A. In c o me d er iv e d f m a n y f ar m bu i ld in g or l an d t he r e t o ar is in g f m
th e us e of s u c h b u il d in g o r l a nd f or a ny p ur p os e ot h e r t h an
ag r ic u lt u r e ( inc l u di ng l et t in g f or r es id en t ia l p ur p os e or f or t h e
pu r p o s e of a ny b us i n es s or pr o f e s sio n ), s ha l l n ot be a gr ic u lt ur al
in co me . { E x p l. to s e c. 2 ( 1A) }

RAM BAAN _AI CA VIKRAM BIYANI

 4

IN ST AN C E O F AGR IC U LU RA L IN COM E & N O N AG R IC U LT UR E I N C OM E

Agricultural Income Not an Agricultural Income

1. Rent for Agricultural Land received from Tenant or 1. Income from Marketing Process, Fisheries, etc.
Sub-Tenant. 2. Income from supply of water for irrigation purpose.
2. Income from growing of Flowers & Creepers. 3. Income from mining royalties.
3. Income from sale of re-planted trees. 4. Income from sale of earth for brick-making.
4. Share of Profit or Salary received by Partner, from 5. Income from sale of forest trees of spontaneous
a Firm engaged in agricultural operations. [CIT vs growth of wood bark, leaves, fruits, etc. [Maharajadhiraj
R.M. Chidambaram Pillai 106 ITR 292 (SC)] Sri Kameshwar Singh 32 ITR 587(SC)].
6. Income from Stone Quarries.
7. Income from dairy or poultry farming.

5. Interest received by Partner on his Capital, from a 8. Dividend paid by a Company out of its Agricultural
Firm which is engaged in agricultural operations. Income.
6. Fees collected for allowing cattle to graze on forest 9. Interest on Arrears of Rent payable in respect of
lands of spontaneous growth. Agricultural Land. 10.Income from sale of salt produced
7. Compensation received from Insurance Company by flooding of land with sea
due to damage of tea garden from hailstorm. water.
8. Income from growing mulberry leaves. 11. Remuneration of fixed percentage of Net Profit
9. Income from Sale of plants and seedlings grown in received by Managing Agent, from a Company earning
pots in a Nursery. [Soundarya Nursery 241 ITR 530 Agricultural Income. [Premier Construction Co. Ltd. 16
(Mad.)] ITR 380 (PC)J.
10. Income derived from Sale of Seeds. 12.Interest received by a Money-Lender in the form of
agricultural produce.
11. Income from growing of Bamboo.
13. Transfer of Urban Agricultural Land.
14. Rental Income from farmhouse given for non-
agricultural purpose.
15. Growing mulberry leaves and feeding them to
silkworms and obtaining silk cocoons.
16. Income from Breeding and Rearing of Livestock.
17.Income from Dairy Farming, Butter & Cheese making,
Poultry Farming.

RAM BAAN _AI CA VIKRAM BIYANI

 5

RULES

 Inc o m e t h at i s p a rt ia l ly a gr i cu lt ur e an d p a rti a ll y f m b u si n es s
In t he case of a n ass essee wh o is grow ing and ma nufa ctur ing t ea in Ind ia, the
inc ome de rived f m t he s ale of t ea / c offe e / r ubb er s ha ll b e compu ted a s if it wer e
inc ome der iv ed fm bus iness . In s uch co mpu tatio n, th e prov is ion c o ntained in s ec.
30 to 43-D a pplica ble to th e co mp utat io n o f bu siness inc ome s ha ll be app lied.
Ou t of suc h inco me , ratio o f a gric u ltur e and bu s in ess inc ome liab le to t ax s ha ll
be as f ol lo ws :

Ag r i cu l t u r Bu s i n e ss
Rul e P r od u c e
e In c o m e I nc o m e

7A Ce ntr ifug ed l atex or ce nex or late x 6 5% 3 5%

ba se d cr ep es or tec h nica lly spec ified
bl ock ru bber m anufac tu re d f m r ubber
pl ants .

7B Co ff e e g r own , ma n ufa c tur e d and 7 5% 2 5%

cu re d

Co ff e e gr o w n, ma n uf act u re d , c ur e d 6 0% 4 0%
an d ro a st e d

8 Tea 60 % 40 %

Not e:

1. Salary and interest received by a partner fm a firm growing and manufacturing

tea, coffee or rubber, shall be treated as partly agriculture income and partly
business income as stated above.

RAM BAAN _AI CA VIKRAM BIYANI

 6

 Any o th e r c as e { Ru le 7 }
If a g ric u l tur e p r od uc e cu lt iv at ed is us e d as r aw m a t e r ia l in t he b us i nes s o f t h e
cu lt i vat or , h e c a n d ed uc t m ar k et v al ue o f s u c h p ro d uc e in co m p u t i ng bu s in es s
in co me .
In su c h c as e, as s ess e e w il l pr e p ar e tw o s ta t em e nts o f i nc o me , i.e . o n e f o r a gr o
bus i ne ss an d a n o t h er for n o n a gr o bu s in e ss as s ho w n b el o w:
Statement show ing computation o f agriculture income and manufacturing
incom e:

P a rt i cu l a r s M an u f ac tu r i ng Agr icu ltu re

In c o m e In co m e

S a le o f a gr o p ro d uct s i n t h e m ar k e t x xx
S a le o f m an u fa c t ur e d p ro d uc t in ma rk e t xx x
No t io n al s al e o f agr o pro d uct s u s e d i n t h e a bc
pr o ces s o f m fg .

Re ve n u e XX XX

Le ss : Ex p en s e s I n cur r e d
A gr icu lt ur a l e x p en d it u r e x xx
No t io na l sa l e of a g ro pr o d uc ts us e d ab
in th e p ro c e ss o f m f g. c
Cos t of c onv e rs ion xx x

E x pe n d it u re YY YY

In c o m e ( R ev enu e – E x p en d it u re ) ZZ ZZ

Fo r e x a m p l e :
If s u g arc a n e is cul t iva t ed a nd us ed a s r aw ma te ri a l i n t h e ma nu f a c t u r e of s u g ar
or j igg e ry by t h e ass es see , t h is pr in c ip le b e com e s a p p lic a b le .

RAM BAAN _AI CA VIKRAM BIYANI

 7

AGRICULTURAL INCOME

# 1. 40 per cent of the profits of a tea company amounting to Rs. 3,00,000 is charged to Income-tax at the rate
of 30% and the balance 60%, amounting to Rs. 4,50,000 is exempt from Income-tax being agricultural income. The
company pays out of the surplus a sum of Rs. 2,25,000 as dividend. One shareholder receiving Rs. 12,250 as
dividend claims 60% thereof, i.e., Rs. 6,750 as exempt from tax in his own assessment as agricultural income.
Discuss whether the claim is correct or not.

# 2. Mr. Ashwani submits the following information regarding his income for the previous year 2022-
23:
Rs.
a. Gross salary per annum 4,46,000
b. Rent received @ Rs. 5,000 pm 60,000
c. Agricultural Income 60,000
d. NS C ( V II I I ss ue ) pu rc h ase d o n 2 5 - 3- 2 0 23 20 , 0 0 0
Compute his taxable income and tax liability for the assessment year 2023-24.

# 3. Mrs. R owns a house property in Delhi which he has let out for residential purposes at Rs 31,000 p.m. The
municipal valuation of the house property is Rs. 2,20,000. Municipal taxes are 12% of Municipal value which have
been paid during the year. Besides the above, Mrs. R is having an agricultural income of Rs. 77,000.
Compute the total income of Mrs. R for the assessment year 2023-24. Also compute income-tax payable
by her.

# 4. R has rented out his agricultural land to S who uses the same for agricultural purposes. As per the
agreement, 'S' will pay the rent in the shape of agricultural produce from the land to R. R has received during the
previous year agricultural produce valued at i.e- 60,000. He has consumed agricultural produce worth Rs. 40,000
for his own consumption and the balance has been sold by him for Rs. 20,000.
Compute the total income for the assessment year 2023-24 assuming he is getting a salary of Rs. 12,000
p.m. from Y Ltd. and has deposited Rs. 25,000 in PPF. He has no other income. Also compute the tax
payable by him.

# 5. R earns the following income during PY 2022-23

a. I nc o me fr o m fa rm b u il d ing 50 , 0 0 0
b. I nc o me fr o m s a le of st an d i n g c r op s 1, 00 , 0 0 0
c. I nc o me fr o m G in n in g o pe r at io n c ar r ied on by th e
ow n er o f lan d o n un g inn ed c ot t o n 1, 80 , 0 0 0
Co m p u te h i s ta x l i a bi lit y f or t h e a ss e ss m e nt ye a r 20 2 3 - 24

# 6. For the assessment year 2023-24 , X, an individual (age 66 years), submits the following
information.
Rs .
a. Ho us e pr o p ert y I nc o m e 2 , 7 5 , 00 0
b. I nc o me fr o m gr ow i n g a n d ma n uf ac t u r ing
co f f e e in I n d ia ( g ro ss) 4 , 0 0 , 00 0
c. E x pe n d it ur e on e ar n in g c of f e e inc o me 2 , 0 00

De t er m in e t h e t a x l i a bi li t y of X f o r th e Ass e s sm en t y e a r 2 0 23- 2 4 o n t h e
as s u m pt io n t h at h e co ntr i bu t i on R s. 2 0 , 00 0 t o w a r d s pu b li c p r o vi d en t f un d.

RAM BAAN _AI CA VIKRAM BIYANI

 8

# 7. X ltd grows sugarcane to manufacture sugar. Data of P.Y 2022-23 is as follows

a. Cost of cultivation of sugarcane 6,00,000
b. Market value of sugarcane when sugarcane is transferred to factory 9,00,000
c. Other manufacturing expenses 6,00,000
d. Sales turnover of sugar 22,00,000
e. Salary of M.D 2,00,000

# 8. From the situations given below identify income as agricultural and non-agricultural Income.
 W h e at gr o w n a nd s ol d
 Co ff e e s ee ds g r own a nd s o ld
 S o l d , s el f g ro wn t r e es
 In c o me in t h e f or m o f r e n t f o r gr an t in g r ig h ts f or t h e o the r s t o us e la n d fo r
ag r ic u lt u r e.
 In te r es t on o ut st an d in g r e nt f or g r an t in g r ig h ts f or th e o t h er s t o u s e lan d f o r
ag r ic u lt u r e.
 A c cou n t a nts ’ sa lar y wh o w o rk s i n a gr i c u lt ur a l ba s e d c o m pa ny
 X ga ve R s . 1, 0 0, 0 00 lo an t o Y , w h er e Y is a c u lt iv at or of la n d. Y ga v e 12 0 k g s
of r ice a s I n te r es t on l oa n t o X . Is it inc o m e fro m a gr ic u lt ur e f or M r X ?
 V ija y i nves t ed R s. 1 2,0 0 0 in a c o m p a ny a nd t h e c om p a n y p aid Rs . 50 0 as
d ivi d en d o u t of i ts a g r ic u ltur a l i n c o m e. Is V ijay ’s I nc o me c o nsi der e d a s
ag r ic u lt u r al In c o me ?
 Ra m re c e ive d R s . 5 , 00 0 a s in s u ra nc e d u e t o da m ag e cau s ed by he av y r a in f or
h is c ro ps .
 A k sha y a w o rk in g p art ne r r ec e iv ed s a lar y f r o m his p a rt n e r s h ip f ir m , wh er e t h e
fir m is invo lv ed in gro wi n g f lo w e r an d c r ee p ers .
 S a l e o f s t o n e o bt a in e d by di g gin g th e la n d.
 In c o me fr o m b u t t er a n d c h ees e m ak in g .
 In c o me fr o m p o ul tr y fa rm in g .
 In c o me in t h e fo r m o f R oy alt y f r o m M i n in g.
 S a l e o f g r as s t o c om pa n ie s t o ma i nt a i n gr ee n l ou n g e.

# 9. Spectrum Agro Foods Ltd manufactures and sells tea. The raw materials of tea leaves will be grown in their
own agricultural land. The total profits from the above activities is Rs. 30,00,000 for the AY 2023-2024. What is the
income from agriculture?

# 10. In Problem 9, if the market value of tea leaves is Rs. 8,00,000 will your answer differ?

# 11. Suncafe Coffee Ltd produces and sells Rs. 5,00,000 worth coffee which is grown in their coffee estates and
is cured by them. The profit made by this is Rs. 2,50,000. What is the portion of agricultural Income?

# 12. In Problem 11, if coffee is grown, cured, roasted and grounded by the company itself, what will bethe
agricultural income?

# 13. Natural Company Ltd sells both tea and rubber which are produced in the company’s own farms.The profits
earned from tea business is Rs. 9,50,000 and from latex (rubber) is Rs. 8,00,000. What will be their agricultural
income for the AY 2023-2024 ?

# 14. Sweet Sugar Ltd grows sugarcane and manufactures sugar out of it.For growing sugarcane the cultivation
cost including ploughing and manure is Rs.60,000.The sale of sugar during the AY 2023-2024 is Rs. 2,50,000.The
manufacturing cost is Rs. 1,00,000.If the company would have sold sugarcane in the market without spending on
manufacturing, the market value for sugarcane would be Rs. 85,000.Find out Income from business and income
from agriculture for the AY 2023-2024

RAM BAAN _AI CA VIKRAM BIYANI

 9

Illustration - Income Tax - Agricultural Income M 17

Discuss with brief reasons, whether Rent Received for letting out Agricultural Land for a Movie
Shooting and Amounts Received from Sale of Seedlings in a Nursery adjacent to the Agricultural
Lands owned by an Assessee can be regarded as Agricultural Income, as per the provisions of
the Income-Tax Act, 1961.

Item Treatment

Rent for Movie It is not an Agricultural Income, since it is not Income derived “through
Shooting Agriculture”. This constitutes Rental Income for “non-agricultural purposes”.

Sale of Seedlings in As such, Income from Sale of Plants and Seedlings grown in Pots in a Nursery
Nursery constitutes Agricultural Income as per decision in Soundarya Nursery 241 ITR
530 (Mad). However, in this case, such Income is derived not from agricultural
land, but from a Nursery “adjacent” to it. Hence, it does not constitute
Agricultural Income.

Business Income 4,00,000

Illustration-M 18
Mr. Avani, a resident aged 25 years, manufactures tea leaves from the tea plants grown by him
in India. These are then sold in the Indian Market for ₹ 40 lakhs. The cost of growing tea plants
was ₹ 15 lakhs and the cost of manufacturing tea leaves was ₹ 10 lakhs. Computer her tax
Liability for the Assessment Year 2023-2024.

Illustration - Income Tax - Agri & Business Income

Mr. Kamal grows Paddy and uses the same for the purpose of manufacturing of Rice in his own
Rice Mill. The Cost of Cultivation of 40% of Paddy Produce is t 7,00,000 which is sold for ₹
15,00,000, and the Cost of Cultivation of balance 60% of Paddy is ₹ 12,00,000 and the Market
Value of such Paddy is ₹ 24,00,000. To manufacture the Rice, he incurred ₹ 2,00,000 in the
manufacturing process on the balance (60%) Paddy. The rice was sold for ₹ 30,00,000.
Compute the Business Income and Agriculture Income of Mr. Kamal.

RAM BAAN _AI CA VIKRAM BIYANI