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Agriculture Income or Not - Urgent

Ravindra Manek (Chartered Accountant) (74 Points)

05 May 2010

Mr. A is a farmer but he does not own any agriculture land. Now he enters into agreement with Mr. B who is having agricultural land for cultivating his land and taking crops and in return he will pay certain amount of rent to Mr. B in consideration land used.

Now whether income earned by Mr. A by selling agricultural crops is agriculture income or not? Rent received by Mr. B is agriculture income or not?

N what if both have entered into partnership for sharing profits from sale of crops?

Kindly help and give your valuable opinions with supporting.

Plz its urgent

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5 Replies

CA Shiv (Business Controller) (2987 Points)
Replied 05 May 2010

Agricultural Income mean:

As per Income Tax Act income earned from any of the under given three sources meant Agricultural Income;

(i) Any rent received from land which is used for agricultural purpose.

(ii) Any income derived from such land by agricultural operations including processing of agricultural produce, raised or received as rent in kind so as to render it fit for the market, or sale of such produce.

(iii) Income attributable to a farm house subject to the condition that building is situated on or in the immediate vicinity of the land and is used as a dwelling house, store house etc.

SO for both its agricultural income.. Dont get partnership inbetween. Let it be a simple agreement.

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Nitin Singhal (Gaining knowledge...) (320 Points)
Replied 05 May 2010

Yes as replied by Shivang Ji, both incomes of Mr.A & Mr.B are agricultural incomes. and as far as I know even if they get into partnership, it will be treated as agricultural income and hence not taxable

Max Payne (employed) (2574 Points)
Replied 05 May 2010

I concur with the views of Shivang sir and Nithin...

It will be treated as agricultural income for both persons...

Just a value add, salary to the partner can also be treated as agricultural income and same will not be taxable in his hand.

See

R.M. Chidambaram Pillai [1977] 106 ITR 292 (SC)

Bhargav Patel (CA Final B.Com M.B.A.) (50 Points)
Replied 06 May 2010

Income of Mr.A and Mr.B are considered as Agricultural income hence not taxable.

(Guest)

Dear,

As per sec.2(1A)

1	Income earned by Mr.A by selling agricultural crops is agro-income.(without carrying on
	any process, other than the process required to render it fit for the market).

2	Rent received by Mr.B is agro-income.

	Stress :
		Rent may be in cash or kind.

		Assessee may be the owner or tenant of such land.

3	Share of profit from firm

	Share of profit of a partner from a firm engaged in agricultural operation is agro-income.

			CIT V. R.M.Chidambaram Pillai

Tax Treatment of Agro-income.

	(i.e.) Impact of agro-income on tax computation.

For Firm(Registered firm)

Sec.10(1) of the IT act, exempts agro-income from tax as our constitution does not provide
to the parliament to levy tax on agro-income.( if it comes within the definition of agro-income as given in sec.2(1A)

Stress :	Aggregation provisions do not apply to company,firm,co-operative society and local authority.

For Case (1), (2) and (3)

Since 1973 an indirect method has been found to levy tax on agro-income.

According to this method, agro income is included in the total income of the assessee for deciding tax slab of
assessee.

Object of aggregating net agro-income with non-agro income

To tax non-agro income at higher rates.

Conditions :

Assessee is individual,HUF,Unregistered firm.AOP,BOI or Artificial juridical person.

Assessee has non-agro income exceeding maximum exempted limit of income..

Agro-income of assessee exceeds Rs.5,000/-

Treatment

Step 1	Compute income tax on total income of assessee including agro income.

Step 2	Compute income tax on Agro income + maximum exempted limit.
		(Rebate for agro income)

Step 3	Tax liability before cess

	Add : ED 2%
	Add : SHEC 1%

	Tax payable


Regards
K.Ilayaraja