Is business is taxable or is non taxable in nature

This query is : Resolved

Waquar Ahmad (Querist)
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01 March 2012 Dear Sir/Madam,
One of my friend pays advance to the farmers who owns Lichi & Mango Gardens & made a agreement that he will pay xyz amount after 2 months when lichi will come to sale in the market & works hard on that garden, gives fertilizers sprays on the flowers of the mangoes & Lichi so that he can get some profit from that garden & sold the fruit businessmen of that very trade & get some profit.

Is that profit is taxable or is exempted as agriculture income.
Will be waiting for your valuable comments.

Thanks & Regards
Waquar Ahmad Afaque

C A S.S.Agarwal, M.Com.,LL.B,

C A S.S.Agarwal, M.Com.,LL.B, (Expert)
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08 April 2012 It is exempted in the hands of the Lichi & Mango garden owner but not in the hands of the purchaser. Kindly go through the definition of agricultural income

Agricultural operations
All tillers (whether a tenant or sub-tenant of the land) are deemed as agriculturists and enjoy freedom from tax. Processing of agricultural produce to make it fit for sale in the markets is also covered under the ambit of agricultural income. Here, ownership of the land is not a necessity.

In many cases, raw agricultural produce may not fetch the right market price. To make it marketable, further processing may be necessary. Even though the final objective of the processor is to sell the produce at a higher price, such sales are treated as agricultural income. But if the farmer buys processed product and sells at a profit, such income will be taxed.

Further, if substantial value addition is involved (with the whole character of the primary produce undergoing a sea change), the entire operation is not treated as agricultural income. In such cases, the process will be broken down into primary, secondary and tertiary activities. While the primary and secondary activities will be treated as agricultural income, the rest will be treated as business income (taxable).

Similarly, if you get tempted to get into lumberjacking or cutting down a large growth of trees for tax-free profits, you could be in for a nasty shock. This income will not be treated as agricultural income, as your involvement lies only in cutting, sawing and selling of the trees etc and such profits will be taxed. Activities such as cultivation, soil treatment and others associated with farming have to be indulged in for such an activity to be non-taxable.