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Agricultural Income

Max Payne (employed) (2574 Points)

01 March 2010

Assessee has land outside specified area.

On the land, he cultivates and grows Ganja, poppy etc... with license from the concerned Govt authorities...

Assessee claims that the entire gains on the sale of "Agricultural produce" shall be exempt from Income Tax,

since his income comes within the meaning of "agricultural income" as defined in section 2(1A) of the Act.

Assessee cites a case that agriculture only requires that the performance of basic and subsequent agricultural operations on land, so the same shall be covered as agricultural income.

DO U AGREE WITH ASSESSEE'S CLAIM? GIVE REASON.

Would your answer be different if land was not owned by him, but he was giving the "agricultural produce" to the another person, as rent in kind? What will be the taxability in receiver's hands?

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1 Replies

Amir (Learner) (4016 Points)
Replied 02 March 2010

G.K. Bhai,

Assesee's claim is correct -

1) The fact that land is situated outside the specified area is relevant for the purposes of Capital gain, I mean when this Land will be tranfered then it will not be exempt & Capital Gain will be computed becos Sec 2(1A) says REVENUE DERIVED FROM LAND WHICH IS USED FOR AGRICULTURE PURPOSES........

2) As u have mentioned that assesses is engaged in cultivation & growing of "ganja, poppy, etc" therefore it will be regarded as "Agriculture Purposes"

Judgements have held that in strict sense "agriculture" means "cultivation of feild" only but then there has to be some labour/human skill to do these basic operations & as such these operations would also fall in the definition of agriculture purposes.

It has also been held that mere expenditure on labour,etc in the absence of cultivation would not amount to agriculture purposes. In this very same judgement one more important held was "No assistance can be taken from any other statue to define the term agriculture"

Further Honbl SC has held thet "Agriculture" not only means produces meant for human beings or for consumption only. It can be extended to any products of land may be used for trade/ commerce,etc

If Land was not owned by the assessee -

Answer would be no different from above becos Sec 2(1A) never requires that Land should be owned by the assessee.....

Treatment of Rent in kind in the hands of Landlord -

Rent received in Kind will also be treated as "Agriculture Income" in the hands of Landlord & the same shall be exempt.

Sec 2(1A) (a) reads as follows -

any rent or revenue derived from land which is situated in India and is used for agricultural purposes