Agricultural Incomes under

Income Tax Act, 1961

By
Dr. Vijay Srivastava
Professor & Director
IPEM Law Academy
Synopsis
Introduction
Definition u/s 2(1A)
Agricultural Incomes includes
Essential Features
Non- agricultural Incomes
Judicial Approaches
Taxability
Introduction
 Agricultural income is any income that is earned from
any rent or revenue from a land or a building, which is
used for an agricultural purpose.
 Agricultural income is defined under Sec. 2(1A) of the
Income Tax Act, 1961.
 Agricultural income is exempt from income tax as
per section 10(1) of the Income Tax Act, 1961.
 The Central Government has not any power in relation
to this, but the State Government can collect
agricultural income from other sources.
 Agricultural income is any rent or revenue by means
of cash or in-kind, derived from a land, which is used
for an agricultural purpose and land should be
situated in India.
Definition U/S 2(1A)
As per section 2(1A), agricultural income generally
means
a)Any rent or revenue derived from land which is
situated in India and is used for agricultural purposes.
b) Any income derived from such land by agriculture
operations including processing of agricultural produce
so as to render it fit for the market or sale of such
produce.
c) Any income attributable to a farm house subject to
satisfaction of certain conditions specified in this
regard in section 2(1A).
Note: Any income derived from saplings or seedlings
grown in a nursery shall be deemed to be agricultural
income.
Agricultural Incomes includes:
 I - RENT OR REVENUE 1. any rent or
revenue 2. derived from land 3. which is
situated in India (i.e the land should be
situated in India)
II. INCOME FROM AGRICULTURE OR
PROCESSING ACTIVITY OR SALE any income
derived from such land by— (i) agriculture; or
(ii) the performance of any process ordinarily
employed by a cultivator or receiver of rent-in-
kind to render the produce raised by the
cultivator or received by receiver of rent in
kind fit to be taken to market by 1. a cultivator
or 2. receiver of rent-in-kind
III – INCOME FROM FARM BUILDING any income
derived from any building owned and occupied by the
receiver of the rent or revenue of any such land, or
occupied by the cultivator or the receiver of rent-in-kind,
of any land with respect to which agricultural activities
are performed.
Use of building or land for purpose other than agriculture
shall not constitute agricultural income: Income derived
from any building or land referred to in sub-clause (c)
above arising from the use of such building or land for
any purpose (including letting for residential purpose or
for the purpose of any business or profession) other than
agriculture shall not be agricultural income.
Essential Features
 Land must be situated in India.

 Land must be used for the Agricultural

purposes.
 Income should be derived from land.

 Ownership of Land is not essential.

 Income may be of cash or kind.

Land must be situated in India
The land must be situated in India, whether situated in urban areas
or rural areas and where land revenue can be collected by officers
of the government:
 If it is situated in an area which comes within the jurisdiction of
the municipality or cantonment board where the population is not
less than ten thousand.
 Any area within the distance,
 Not being more than two kilometers from the local limits of any
municipality or cantonment board and which has a population of
more than ten thousand but not exceeding one lakh.
 Not being more than six kilometers from the local limits of any
municipality or cantonment board and which has a population of
more than one lakh but not exceeding ten lakh.
 Not being more than eight kilometers from the local limits of any
municipality or cantonment board and which has a population of
more than ten lakh.
 Agricultural income from foreign countries will be considered as
income from other sources and it will not be exempted under
Agricultural income.
Land must be used for the Agricultural
purposes.
 Agricultural operations means efforts induced for
the crop to sprout out of the land. The ambit of
agricultural income covers income from agricultural
operations, which includes processes undertaken to
make the produce fit for sale in the market.
 Some measure of cultivation is necessary for land to
have been used for agricultural purposes.
 The ambit of agriculture covers all land produce like
grain, fruits, tea, coffee, spices, commercial crops,
plantations, groves, and grasslands.
 However, the breeding of livestock, aqua culture,
dairy farming, and poultry farming on agricultural
land cannot be construed as agricultural operations.
Income should be derived from land

 The income should be derived from land not from any other assets. Land can
be owned or occupied by a cultivator who produces on that land, or a rent
receiver of that produce.
 Land can be farming land or a building that should be occupied or owned
by a cultivator or a rent receiver. That building or farmhouse should be on
the same land and used as a dwelling-house, store-house or other
outbuildings.
 Income should be in the form of rent or revenue,
 Rent is payment, it can be in cash or in-kind, by one person to another in
respect of a grant of right to use that land.
 Revenue can be derived from land only if lands are an effective and
immediate source of income and not the indirect and secondary source of
income. Where income derived from indirect source then it will not be
considered income derived from land.
 “Revenue” covers income other than rent. Mutation fees extracted from
tenants upon their succeeding to occupancy holding are revenue derived
from land.
Ownership of the Land is not essential
 In the case of rent or revenue, it is essential
that the Assessee has an interest in the land
(as an owner or a mortgagee) to be eligible
for tax-free income.
 However, in the case of agricultural
operations, it is not necessary that the
cultivator be the owner of the land.
 He could be a tenant or a sub-tenant. In other
words, all tillers of land are agriculturists and
enjoy exemption from tax.
Income may be of cash or kind.

 Rent or Revenue is a kind of income derived

from agricultural income by the landlord or
the owner of the land.
 Rent can be in cash or in-kind. E.g.- if a
person owns the land and gives it to another
person on rent for agricultural purposes @
Rs. 5,000, then this amount of income
considered to be rent from land in cash which
is a part of agricultural income.
 It may be in kind also.
Non- agricultural Incomes
 Income from sale of
 forests, trees, wild grass, fruit and flowers grown spontaneously and without human effort,
 salt produced by flooding the land with sea water and then extracting salt therefrom.
 stone quarries.
 Livestock,
 dairy farming, butter and cheese making , poultry farming. fisheries.
 Preservation of potatoes by refrigeration as it is not a process ordinarily employed by a
cultivator.
 brick making.
 surplus water to other agriculturists.
 Interest on arrears of rent in respect of agricultural land.
 Profit on sale of standing crops/agricultural produce purchased by the assessee.
 Income derived from letting out of land/godowns for storing crops.
 Royalty income of mines.
 Annuity payable to vendor of agriculture land or payable to a person giving up his claims
to piece of agricultural land.
 Harvest Crop on purchased land.
 Compensation/damages paid for loss of agricultural income due to late payment of
instalments of the consideration price of rubber plantation site.
 Registration fee collected from the contractor who is bidding at the auction conducted for
sale of plantation is not an agricultural income as such registration fee had no nexus with
land.
JUDICIAL APPROACHES
CIT v. Raja Benoy Kumar Suhas Roy [1957]
32 ITR 466,
 Mere connection with land will not be
sufficient for Agricultural Purpose. There
should be activities in connection with
agriculture.
 It must Include Basic operation and
subsequent operation of the Agriculture
 Activities like dairy farming, poultry farming,
cheese and butter making, etc. are not
considered to be agricultural activities.
Bacha F. Guzdar v. CIT, 1955 ITR 1

In this case, a dividend paid by a company

out of its agricultural income is not revenue
derived from land, as an effective and
immediate source of income is shareholding
and not the land.
Durga Narain Singh v. CIT [ (1947) 15 ITR 235]

Revenue can be derived from land only if

lands are an effective and immediate source
of income and not the indirect and secondary
source of income. Where income derived from
indirect source then it will not be considered
income derived from land.
K. Lakshmanan Co. v. CIT [1999] 239 ITR 597 (SC),

In this case, SC held that Sec. 2(1A)(b) of the

Act does not contemplate the sale of
commodity different from what is cultivated
and processed and where the assessee is
growing mulberry leaves, feeding them to
silkworms and obtaining silk cocoons, income
from the sale of silk cocoons is not an
agricultural income.
H.H. Maharaja Vibhuti Narain Singh v. State of Uttar
Pradesh[1967] 65 ITR 364 (All.)

In this case, the Hon’ble Allahabad High

Court held that income from a nursery is not
an agricultural income unless maintained by
a farmer as an aid or necessary adjunct to the
primary process of agriculture, for example,
paddy nursery, nursery of tomato plants. Here
assessee used the nursery for ornamental
plants which can not be considered an
adjunct to the primary agricultural process.
CIT v. Saundarya Nursery [2000] 241 ITR 530 (Mad.)

Madras High Court held that nursing

activities involve carrying out of several
operations on land before the sapling were
transplanted in a particular pot and then put
them in shades for further operation and
growth. Therefore, the income from the
nursery will consider being an agricultural
income.
Taxability of Agricultural incomes
 Taxability of Agricultural income post amendment by Finance
(No.2) Act, 2014
 Agricultural income is considered for rate purposes while computing
the income tax liability, if following two conditions are cumulatively
satisfied:
 i. Net Agricultural income exceeds Rs. 5,000/- for previous year, and
 ii. Total income, excluding net Agricultural income, exceeds the
basic exemption limit.
 Note: If aggregate agricultural income of the Assessee is up to Rs.
5,000/, then the entire income shall be exempt from tax.
Accordingly, you need to disclose the agricultural income in
the income tax return (ITR) 1 – form to be compliant from the
disclosure perspective.
 But if the agricultural income exceeds Rs.5,000, then form ITR 2
applies, which has a separate column for disclosure of agricultural
income.
Conti……
Once the aforementioned conditions are satisfied
then we shall compute the Tax liability in the
following manner:
Step 1: Include the Agricultural income while
computing your income Tax liability.
Step 2: – Add the applicable basic tax slab benefit, as
applicable, to the Net Agricultural income
Step 3: Subtract the Tax computed in Second step
from the Tax computed in First step
Step 4: -Add surcharge, education cess, and
secondary and higher education cess.
This process of computation is, however, followed
only if the assessee’s non-agricultural income is in
excess of the basic exemption slab.
Thank You