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Exemption - Agricultural Income

RAJENDRA PARAKHI (MANAGER-FINANCE & ACCOUNTS) (60 Points)

04 March 2010

Dear colleagues ,

If a manufacturing company also engages itself into some agricultural activity of growing and cultivating, income earned by the same from this activity will be treated as agricultural income and it can claim sales price of the produce (market price) as eligible deduction - as per Rule 7.

There are certain methods for computing "market value"

Does the law anywhere say that Company has to keep separate sets of books for this activity ?

Please post your response

Regards & thanks

Rajendra Parakhi

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3 Replies

Rachit (Analyst) (913 Points)
Replied 04 March 2010

It would be advisable to keep separate books of accounts pertaining to agricultural operation, due to applicability of sec. 14A.

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Amir (Learner) (4016 Points)
Replied 04 March 2010

Dear Rajendra Sir,

I think - Rule 7 provides for notional deduction, where actual deduction/amounts will not be relevant

Rule 7 provides that for disintegrating a composite business income which is partially agricultural and partially non-agricultural, the ‘market value’ of any agricultural produce, raised by the assessee or received by him as rent in kind and utilised as raw material in his business, is deducted. No further deduction is permissible in respect of any expenditure incurred by the assessee as cultivator or receiver of rent-in-kind.

So, If u r maintaining separate books of accounts then where is the point of disintegrating, Just read this interesting case -

Where agricultural produce is captively consumed, deduction towards market value cannot be denied merely because there was no sale of raw material and separate accounts had been maintained for agricultural production - Nizam Sugar Factory Ltd. v. AAC [1971] 80 ITR 547 (AP)

I mean Rule 7 itself requires that same set of books can be maintained but if assessee is maintaining separate set of books then benefit of Rule 7 cannot be denied merely on this ground.

Further there r 2 things -

1) Separate set of books altogether

2) Same set of books but with distinction in 2 operations (I mean separate ledgers with in the same set of books)

Second option will do it for u...........it is the bare minimum thing which would be required