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Agricultural Income: Taxation Law
Agricultural Income: Taxation Law
PATNA
Project Topic:
AGRICULTURAL INCOME
Taxation Law
Project submitted to: Mr. G.P. Pandey
[ Lecturer(law) ]
TABLE OF CONTENTS
1) ACKNOWLEDGEMEN T.................................................................3
2) RESEARCH METHODLOGY.........................................................4
3) INTRODUCTION..5
4) MEANING OF AGRICULTURAL INCOME.6-8
5) ESSENTIALS OF AN AGRICULTURAL INCOME.9-11
6) TAX ON SALE OF AGRICULTURAL LAND....................12-13
7) PROVISIONS OF FINANCE ACT.14
8) SOME IMPORTANT CASE LAWS .....15-21
9) CONCLUSION.22
10) BIBLIOGRAPHY...23
ACKNOWLEDGEMENT
I am grateful to my faculty Mr.G.P. Pandey who has given me an idea and encourage me
to venture this project. I would like to thank librarian of CNLU for their interest in providing
me a good back up material.
And finally yet importantly I would like to thank my parents for their support and
almighty god who helps me in all my endeavours.
POORNIMA SINGH
7th semester, 4th year
RESEARCH METHODOLOGY
Aims and Objectives:
The aim of the project is to present a detailed study of Agricultural income and to study the
various aspects of agricultural income and its taxability.
Sources of Data:
The following secondary sources of data have been used in the project1. Articles
2. Books
3. Websites
Method of Writing:
The method of writing followed in the course of this research paper is primarily analytical.
Mode of Citation:
The researcher has followed a uniform mode of citation throughout the course of this research
paper.
CHAPTER 1-INTRODUCTION
Agriculture income is exempt under the Indian Income Tax Act. This means that income
earned from agricultural operations is not taxed. The reason for exemption of agriculture
income from Central Taxation is that the Constitution gives exclusive power to make laws
with respect to taxes on agricultural income to the State Legislature. However while
computing tax on non-agricultural income agricultural income is also taken into
consideration.
Agricultural income is exempt from tax by virtue of section 10(1). Section 2(1A) defines
agricultural income as :
Any rent or revenue derived from land, which is situated in India and is used for
agricultural purposes.
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.
(c) 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, or the produce of which, any process mentioned in paragraphs (ii)
and (iii) of sub-clause (b) is carried on :
Provided that
(i)
the building is on or in the immediate vicinity of the land, and is a building which
the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind,
by reason of his connection with the land, requires as a dwelling house, or as a
(ii)
(A) in any area within such distance, not being more than eight kilometres, from the local
limits of any municipality or cantonment board referred to in item (A), as the Central
Government may, having regard to the extent of, and scope for, urbanisation of that area and
other relevant considerations, specify in this behalf by notification in the Official Gazette.
(B) in any area which is comprised within the jurisdiction of a municipality (whether known
as a municipality, municipal corporation, notified area committee, town area committee, town
committee or by any other name) or a cantonment board and which has a population of not
less than ten thousand according to the last preceding census of which the relevant figures
have been published before the first day of the previous year ; or
Explanation 1.For the removal of doubts, it is hereby declared that revenue derived from
land shall not include and shall be deemed never to have included any income arising from
the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of
this section.
Explanation 2.For the removal of doubts, it is hereby declared that income derived from
any building or land referred to in sub-clause (c) 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 falling under sub-clause (a) or sub-clause (b) shall not be
agricultural income.
Explanation 3.For the purposes of this clause, any income derived from saplings or
seedlings grown in a nursery shall be deemed to be agricultural income;
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: Assessees do not
have to pay tax on rent or revenue from agricultural land. Such land should, of course, be
assessed to land revenue in the country or be subject to a local rate. Further, there must be a
direct link between the agricultural land and the receipt of income by way of rent or other
revenue (for instance, a landlord could receive revenue from a tenant).
(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.
Income from such farm houses is considered agricultural income. The definition of `farm
houses covers buildings owned and occupied by both cultivators of agricultural land and
assessees who receive rent or revenue from agricultural land. The sole purpose of such
farmhouses should be for use as dwellings for the cultivators or use as store houses.
Normally, the annual value of a building is taxable as `income from house property.
However, in the case of a farm house, the annual value would be deemed agricultural income
and would, thus, be exempt from tax.
(iv) Income earned from carrying nursery operations is also considered as agricultural
income and hence exempt from income tax.
10
agricultural produce.3 The sales proceeds in such cases are considered agricultural income
even though the producers final objective is to sell his products.
Certain income which is treated as Agriculture Income;
(a)
(f)
(f)
(g) Income of salt produced by flooding the land with sea water.
(h) Royalty income from mines.
(i)
(j)
(k) Income from Plantation companies:- Many plantation companies have launched
schemes that offer tax-free agricultural income. 4These schemes are of various types: while
some give investors leasehold rights to the land,some give rights to trees a certain level above
the ground, even as others offer rent.5If the scheme gives rise to ownership or leasehold
interest in the land, then the income is considered to be rent or revenue in the hands of the
..................................................................................................................................................
3. 50-year trend of Indian personal tax rates - Business Today - Business News
4.
11
5.
http://www.thetaxinfo.com/2013/12/income-tax-rebate-of-2000-calculation-sec-87a/
6.
..................................................................................................................................................
7.
12
8.
Business Income
9. The institute of Cost accountants of India (Jan 2012).Applied direct taxation. Directorate of
Studies,The Institute of Cost accountants of India. p. 238.
13
The whole amount of capital gain must be utilised in the purchase of the new agricultural
land. If not, the difference between the amount of capital gain and the new asset will be
chargeable as capital gains and the tax will be computed accordingly.
The new asset purchased should not be sold within a period of three years.
If sold, the cost of the new asset will be reduced by the amount of capital gain for the purpose
of computing capital gains tax.
Where the amount of capital gain is not utilised by the assessee for the purchase of the new
asset before the due date of furnishing his return of income, he may deposit it in the Capital
Gains Account Scheme (CGAS) of any specified bank.10
The return of income of the assessee should be accompanied by the proof of such deposit.
In such a case, the cost of the new asset shall be deemed to be the amount already utilised by
the assessee for the purchase of the new asset together with the amount deposited in the
CGAS.11
If the deposited amount is not utilised for the purchase of the new asset within the specified
period, then the unutilised amount shall be charged in the year in which the period of two
years from the date of sale of the original asset expires.12
14
.....................................................................................................................................................
10. The institute of Cost accountants of India (Jan 2012).Applied direct taxation. Directorate of
Studies,The Institute of Cost accountants of India. p. 238.
11. http://www.tax.fintotal.com/Sections/80E-Tax-Rebate/5913/68
12. http://www.tax.fintotal.com/Sections/80TTA-Tax-Rebate/6212/68
15
...............................................................................................................................................
13. http://www.tax.fintotal.com/Sections/80U-Tax-Rebate/5916/68
14. http://www.thetaxinfo.com/2014/01/additional-deduction-on-interest-on-housing-loan/
15. http://www.incometaxindia.gov.in/publications/1_Compute_Your_Salary_Income/2_Income_from_hou
se_property.asp
16. http://www.caclubindia.com/articles/e-filing-is-mandatory-income-is-more-than-5-lacs-17646.asp
16
soil or any other person getting land cultivated by others for deriving benefit therefrom.18 But
to say that the benefit intended to be conferred upon this class of persons should extend to
those into whosoever hands that revenue falls, however remote the receiver of such revenue
may be is hardly warranted.
..............................................................................................................................................
17. Income Tax Act, tax rates for foreign companies.
18. Finance Act 2010
A shareholder acquires a right to participate in the profits of the company may be readily
conceded but it is not possible to accept the contention that the shareholder acquires any
interest in the assets of the company.
It cannot be said that a shareholder, on investing money in the purchase of shares, becomes
entitled to the assets of the company and has any share in the property of the company.
A shareholder has got no interest in the property of the company though he has undoubtedly a
right to participate in the profits if and when the company decides to divide them.
17
Premier Construction Co. Ltd. v. C.I.T., Bombay City (1948) 16 ITR 380
(PC)
Where an assessee receives income, not itself of a character to fall within the definition of
agricultural income contained in the Act, such income does not assume the character of
agricultural income by reason of the source from which it is derived, or the method by which
it is calculated.
But if the income received falls within the definition of agricultural income it earns
exemption, in whatever character the assessee receives it.19
In the present case the assessee received no agricultural income as defined by the Act, it
received remuneration under a contract for personal service calculated on the amount of
profits earned by the employer.20 Such remuneration was payable, not specifically out of any
item of such profits, but out of any moneys of the employer available for the purpose.
In such circumstances , remuneration therefore is not agricultural income and is not exempt
from tax.21
It is agreed on all hands that products which grow wild on the land or are of spontaneous
growth not involving any human labour or skill upon the land are not products of agriculture
and the income derived therefrom is not agricultural income. 22
There is no process of agriculture involved in the raising of these products from the land.
There are no agricultural operations performed by the assessee in respect of the same, and the
only work which the assessee performs here is that of collecting the produce and consuming
and marketing the same.No agricultural operations have been performed and there is no
question at all of the income derived therefrom being agricultural income within the
definition given in S. 2(1A) of the Indian Income-tax Act.Where, however, the assessee
performs subsequent operations on these products of land
18
......................................................................................................................................................
19. http://www.tax.fintotal.com/Sections/80U-Tax-Rebate/5916/68
20. http://www.thetaxinfo.com/2014/01/additional-deduction-on-interest-on-housing-loan/
21. http://www.incometaxindia.gov.in/publications/1_Compute_Your_Salary_Income/2_Income_from_hou
se_property.asp
22. http://www.caclubindia.com/articles/e-filing-is-mandatory-income-is-more-than-5-lacs-17646.asp
which are of wild or spontaneous growth, the nature of those operations would have to be
determined in the light of the principles enumerated above.
Applying these principles to the facts of the present case, we no doubt start with the finding
that the forest in question was of spontaneous growth. If there were no other facts found, that
would entail the conclusion that the income is not agricultural income. But, then, it has also
been found by the Tribunal that the forest is more than 150 years old, though portions of the
forest have from time to time been denuded, that is to say, trees have completely fallen and
the proprietors have planted fresh trees in those areas and they have performed operations for
the purpose of nursing the trees planted by them.It cannot be denied that so far as those trees
are concerned, the income derived therefrom would be agricultural income.
In view of the fact that the forest is more than 150 years old, the areas which had thus become
denuded and re-planted cannot be considered to be negligible.
The position therefore is that the whole of the income derived from the forest cannot be
treated as non-agricultural income.
If the enquiry had been directed on proper lines, it would have been possible for the Incometax authorities to ascertain how much of the income is attributable to forest of spontaneous
growth and how much to trees planted by the proprietors.But no such enquiry had been
directed.
The expenditure shown by the assessee for the maintenance of the forest is about Rs. 17,000
as against a total income of about Rs. 51,000.Having regard to the magnitude of this figure, it
can be assumed that a substantial portion of the income must have been derived from trees
planted by the proprietors themselves.
As no attempt has been made by the Department to establish which portion of the income is
attributable to forest of spontaneous growth, hence it is nothing but agricultural income.
19
20
that had it not been for the vegetation, there would not have been any occasion for the
producers to shoot films in the garden and, it was because of that, that the income earned
from those shooting charges amounted to agricultural income. The High Court considered
whether the income earned by the assessee by permitting film producers to shoot their flms in
his garden could amount to agricultural income within the meaning of section 2(1-A) of the
Income-tax Act, 1961.
The Court referred to the aforesaid decision of the Supreme Court in the case of Raja Benoy
Kumar Sahas Roy in which it was emphasized that certain basic operations should be carried
out alongwith subsequent operations. The Supreme Court observed that if the integrated
activity of the agriculturist, viz., agriculture, which includes the basic operations and the
subsequent operations, is undertaken and performed in regard to any land, that land can be
said to have been used for agricultural purposes and the income derived therefrom can be said
to be agricultural income derived from the land by agriculture. In the very same judgment,
the Supreme Court also considered the other activities in relation to the land or having
connection with the land including breeding and rearing of live-stock, dairy-farming, butter
and cheese-making, poultry-farming, etc.
The Supreme Court observed and considered that this extension was based on the dictionary
meanings of the term and the definitions of agriculture in Whartons Law Lexicon. The
Supreme Court then went on to hold that the mere fact that an activity has some connection
with or is in some way dependent on land is not sufficient to bring it within the scope of the
term agriculture.
Applying the aforesaid principles, the Madras High Court held in Nagi Reddis case that
income earned by the assessee by way of shooting-hire charges by permitting film producers
to shoot their films in his garden was not agricultural income. The shooting of films is an
activity which has no nexus whatsoever with agricultural operations, or with the land, except
that the shooting is done on land which may be or has been agricultural land yielding some
agricultural income. The nexus, as claimed by the assessee, was non-existent, far-fetched and
21
illusory. To conclude, there is enough scope for taxing income from activities which are nonagricultural in nature. In fact, it is well known that agriculturists themselves do not have
taxable income, taking into account the fact that when it is divided amongst family members
who are involved in agricultural operations, each one of them would have income within the
exemption limit. However, there are hundreds of thousands of middlemen like wholesalers,
retailers, distributors, etc. who earn substantial income from trading in agricultural produce as
well as fruits, flowers, etc. Such income or profits are fully taxable under the present law and,
therefore, if concerted efforts are made by the Tax Department to recover tax from them, the
need for widening the tax base to rope in agriculturists and farmers, would be eliminated.
22
CHAPTER 7-CONCLUSION
Agricultural income is exempt from income tax. no matter agricultural operations are done by
an industrial organisation or an individual. If any industrial organisation grow crops and sale
half of the goods as raw material in market and remaining further processed and sold as finish
goods the income earned on first half of produce which is sold in market as raw material is
totally exempt from tax.The second half of the produce which is further processed in this case
scheme of presumptive taxation is applicable. Rule 7,7A,7B & 8 of Income tax rules deals
with such type of income. Rule 7A deals with Income from manufacture of rubber, 7B deals
with Income from manufacture of coffee and Rule 8 deals with Income from manufacture of
tea. . Rule 7 deals generally wich says that in cases in which income is partially agriculture
and partially from business the market value of the agricultural produce which has been
raised by the assessee or received by him as rent in kind and which has been utilised as a raw
material shall be deducted from the sale receipts and will be treated as agriculture income.
Remaining will be treated as non agricultural income.
Any processing done on Agricultural produce to make it marketable is a part of agricultural
operations and such amount recoved will be treated as agricultural income only. Say for
example trashing of wheat, mustard, etc is part of agricultural operations only and the
amount recoved will be treated as agricultural income only no matter processing takes place
on on the land itself or some other place.
But in certain cases like in the case of tea, coffee, sugarcane where a major processing is
being done then some part of the processed produce (tea, coffee & sugar) is taxed as nonagricultural income and rest is exempt as agricultural income.
As per the Income Tax Act Agriculture Income means income derived from land which is
used for agricultural purpose. If no land is being used for agriculture purpose in hydroponic
system. Therefore prima facie income derived from hydroponic system is not an agriculture
23
income. But as per the latest amendment in Income Tax Act in 2008 any income derived
from saplings or seedlings grown in a nursery shall be deemed to be agriculturral income.
No Matter whether the land is urban or rural agricultural land. If agricultural operations are
carried out on land the income derived from sale of such agricultural produce shall be treated
as agricultural income and will be exempt from tax.
CHAPTER 8-BIBLIOGRAPHY
WEBSITES
en.wikipedia.org
indiantaxguide.wordpress.com
taxguru.in
www.moneycontrol.com
incometaxmanagement.com
BOOKS