A brief explanation of the landmark rulings of the Supreme Court and High

Courts on agricultural income. Raja Benoy Kumar Sahas Roy: In this case,
the Supreme Court held that agricultural income is exempt from income tax
under the Indian Income Tax Act, 1922.

What Is Agriculture Income?

To define agriculture income, it is the total revenue generated by an individual or

entity by executing agricultural activities on identified agricultural land. Section
2(1A) of the Income Tax Act of 1961 defines agriculture income under the
following activities.
● Revenue or rent generated through activities executed on agricultural land
situated in India for agricultural purposes
● Income or revenue generated by the commercial sale of produce grown on
agricultural land
● Income or revenue generated by leasing or renting buildings on or around
agricultural land (the tenant should be a farmer or cultivator and use the building
for a warehouse/storeroom, residential space or outhouse)
Furthermore, the land on which the building is situated should be assessed for land
revenue or through a local rate set and collected by local government officers.
For an income to be categorised as agricultural income and for a better
understanding of the agricultural income meaning, consider the following factors.
● Existence: The income earned should come from an existing piece of land.
● Utilisation: The rent or revenue and the income generated by the tenant or the
cultivator from the agricultural land should be through agricultural operations only
on the piece of land. The income also includes the marketing expenses done to
promote the agricultural produce.
● Cultivation: The income will be considered agricultural income if the income
is generated by way of the cultivation of land. Such an income includes revenue
from all land produce such as fruits, pulses, grains, commercial crops etc.
However, the income does not include revenue from activities such as poultry
farming, dairy farming etc., on the agricultural land.
● Optional Ownership: The cultivators do not necessarily have to be the owner
of the land through which they generate the agricultural income. However, the
individual must possess a monetary interest in the land as an owner or a
mortgagee.
Here are some examples of agricultural income:
● Income from the sale of seeds.
● Revenue generated from the sale of replanted trees.
● Interest on the capital amount a partner receives from a company or firm
engaged in agricultural operations.
● Income from growing creepers and flowers.
● Rent received by an individual or entity for agricultural land.
● Profits received by a partner from a company or a firm engaged in agricultural
produce or activities.

Types of Agricultural Income

The Indian government has classified agricultural income into three categories.
● Income from agricultural land: This includes income earned from cultivating
crops, fruits, vegetables, and other agricultural products. It also incorporates
income from selling livestock, dairy products, and poultry.
● Income from agricultural business: This includes income earned from
agricultural processing and manufacturing activities such as sugar, textiles, jute,
and other agricultural products.
● Income from agricultural rent: This includes income earned by the
landowner from renting out the land to farmers for cultivation purposes. The owner
can receive the rent income either in cash or in kind.

Agricultural Income in Income Tax

The Indian government, with the Income Tax Department, has exempted
agriculture income by defining agriculture income tax under section 10(1) of the
Income Tax Act of 1961. The exemption implies that the government wants Indian
citizens to take on agricultural activities without being liable to pay income tax on
the earned income.
However, the state government levies agriculture income tax on agriculture income
using a method known as partial integration of agricultural income with non-
agricultural income when the below conditions are met.
● The net agriculture income is above Rs 5,000 in the previous financial year.
● Total income after deducting the agricultural income is higher than the
exemption limit of Rs 2,50,000 for individuals below 60 years, Rs 3,00,000 for
senior citizens and Rs 5,00,000 for super senior citizens.

Taxation of Agricultural Income

Although the Indian government has exempted agriculture income from income
tax, the Income Tax Act of 1961 defines a method to indirectly tax the income
earned from agriculture. It partially integrates agricultural and non-agricultural
income with the above-mentioned conditions.
If an individual and entity fulfil the above criteria, the agriculture income tax is
calculated through the below three-step process:
1. Determining tax on non-agricultural income + net agricultural income.
2. Calculating tax on net agricultural income + maximum set exemption limit as
per applicable tax slab.
3. Calculating the final tax amount by determining the difference between the
amounts of steps 1 and step 2. This step provides the following information:
● Deduction of a tax rebate, if available.
● Addition of a surcharge, if applicable.
● Addition of the Health and Education Cess.
Section 54B of the Income Tax Act of 1961 provides tax relief to an entity or
individual if they sell their owned agricultural land and use the amount they
receive after selling to acquire another piece of land.
However, you must fulfil the following criteria to claim the benefit under section
54B.
● The benefit-claiming entity can only be an individual or a Hindu Undivided
Family (HUF).
● The individual or their parents should have used the agricultural land for at
least two years before the date of selling. For HUFs, the land should have been
used by a member.
● The individual or the HUF must purchase another agricultural land within two
years of selling the last one.

1.Raja Benoy Kumar Sahas Roy: In this case, the Supreme Court held that
agricultural income is exempt from income tax under the Indian Income Tax Act,
1922. The Court also clarified that any income earned by an assesses from
agricultural land, whether directly or indirectly, falls within the definition of
agricultural income.
2.Namdhari Seeds: In this case, the Supreme Court held that income from sale of
seeds, fruits, and vegetables is agricultural income and is therefore exempt from
income tax under the Indian Income Tax Act, 1961. The Court held that the
definition of agricultural income includes not only the income from the sale of
agricultural produce but also the income derived from agricultural operations.
3. Shiv Shankar Lal: In this case, the Supreme Court held that income from rent
or lease of agricultural land is also exempt from income tax under the Indian
Income Tax Act, 1961. The Court held that the income from rent or lease of
agricultural land is considered as agricultural income, irrespective of whether the
owner of the land is an agriculturist or not.
4 Raza .Buland Sugar Co: In this case, the Supreme Court held that income
derived from the sale of sugarcane grown by a farmer is agricultural income, and is
therefore exempt from income tax under the Indian Income Tax Act, 1961. The
Court clarified that income derived from the sale of sugarcane is part of the income
derived from agricultural operations.
5 K Lakshmanan: In this case, the Supreme Court held that income from sale of
rubber, grown by an agriculturist, is agricultural income and is therefore exempt
from income tax under the Indian Income Tax Act, 1961. The Court held that
income derived from sale of rubber grown on land which is used for agricultural
purposes falls within the definition of agricultural income.
6.Sri Ranganatha Enterprises: In this case, the Karnataka High Court held that
income from sale of coffee beans grown on land which is used for agricultural
purposes is agricultural income and is therefore exempt from income tax under the
Indian Income Tax Act, 1961. The Court held that coffee grown on land used for
agricultural purposes falls within the definition of agricultural income.
7. P Chidambaram: In this case, the Madras High Court held that income from
sale of pepper grown on land which is used for agricultural purposes is agricultural
income and is therefore exempt from income tax under the Indian Income Tax Act,
1961. The Court held that income derived from sale of pepper grown on land
which is used for agricultural purposes falls within the definition of agricultural
income.
8.Dooars Tea Co Ltd: In this case, the Calcutta High Court held that income from
sale of tea grown on land which is used for agricultural purposes is agricultural
income and is therefore exempt from income tax under the Indian Income Tax Act,
1961. The Court held that tea grown on land used for agricultural purposes falls
within the definition of agricultural income.
9.Raja Rajendra Narayan Bhanja Deo: In this case, the Orissa High Court held
that income from sale of forest produce, such as timber and bamboo, is agricultural
income and is therefore exempt from income tax under the Indian Income Tax Act,
1961. The Court held that income derived from forest produce grown on land used
for agricultural purposes falls within the definition of agricultural income.
10 Suresh Chand Talera: In this case, the Rajasthan High Court held that income
from sale of flowers grown on land which is used for agricultural purposes is
agricultural income and is therefore exempt from income tax under the Indian
Income Tax Act, 1961. The Court held that flowers grown on land used for
agricultural purposes falls within the definition of agricultural income.
11.All India Tea & Trading Co Ltd: In the case of All India Tea & Trading Co
Ltd v Commissioner of Income Tax, the Supreme Court held that income from tea
cultivation is exempt from income tax under Section 10(1) of the Income Tax Act,
1961, only if it is derived from the sale of tea leaves grown and manufactured in
India.
12.Tamilnadu Forest Plantation Co: In the case of Tamil Nadu Forest Plantation
Corporation Ltd v. Commissioner of Income Tax, the Supreme Court held that if an
assessee has planted saplings on the forest land, then the income derived from the
sale of timber and forest produce is taxable as agricultural income.
13.Woodland Estates Ltd: In the case of Woodland Estates Ltd v. Deputy
Commissioner of Agricultural Income Tax, the Kerala High Court held that income
derived from the sale of rubber wood is taxable as agricultural income, as it arises
from the cultivation of rubber trees.
14.Haroocharai Tea Co: In the case of Haroocharai Tea Co Ltd v. Commissioner
of Income Tax, the Supreme Court held that income from the sale of tea grown on
land not used for agricultural purposes is not exempt from income tax under
Section 10(1) of the Income Tax Act.
15.Puransingh M Verma: In the case of Puransingh M Verma v. Commissioner of
Income Tax, the Madhya Pradesh High Court held that income from the sale of
tendu leaves grown on land used for agricultural purposes is exempt from income
tax.
16.K N Pannirselvam: In the case of K N Pannirselvam v. Commissioner of
Income Tax, the Madras High Court held that income derived from the sale of
coconut grown on land not used for agricultural purposes is not exempt from
income tax under Section 2(1A) of the Tamil Nadu Agricultural Income Tax Act,
1955.
17. Soundarya Nursery: In the case of Soundarya Nursery v. Commissioner of
Income Tax, the Karnataka High Court held that income from the sale of plants and
flowers grown in a nursery is not exempt from income tax as agricultural income.
18. Kanan Devan Mills: In the case of Kanan Devan Hills Produce Co Ltd v.
Assistant Commissioner of Income Tax, the Kerala High Court held that income
from the sale of tea grown on land used for agricultural purposes is exempt from
income tax.
19.Namdhari Seeds: In the case of Commissioner of Income Tax v. Namdhari
Seeds Pvt Ltd, the Supreme Court held that income from the sale of seeds grown
on land used for agricultural purposes is exempt from income tax.20. Rana Gurjit
Singh: In the case of Rana Gurjit Singh v. Commissioner of Income Tax, the
Punjab and Haryana High Court held that income from the sale of sugarcane grown
on land used for agricultural purposes is exempt from income tax.
21.Ram Chandra Choudhury: In the case of Ram Chandra Choudhury v.
Commissioner of Income Tax, the Orissa High Court held that income derived
from the sale of bamboo grown on land used for agricultural purposes is exempt
from income tax.
22.Beohar Singh Raghubir Singh: In the case of Beohar Singh Raghubir Singh
v. Commissioner of Income Tax, the Supreme Court held that income derived from
the sale of fruits and vegetables grown on land used for agricultural purposes is
exempt from income tax.
23.Stanes Amalgamated Estates: In the case of Stanes Amalgamated Estates Ltd
v. Commissioner of Income Tax, the Madras High Court held that income from the
sale of tea grown on land used for agricultural purposes is exempt from income
tax.
24. New Ambadi Estates: In the case of New Ambadi Estates, the Supreme Court
held that when an agricultural activity is carried out in the same area where a non-
agricultural activity is also carried out, the entire income from agricultural activity
would not be exempt from tax.
25.B Nagi Reddi: In the case of B Nagi Reddi, the Andhra Pradesh High Court
held that income from sale of agricultural produce by an agriculturist to a non-
agriculturist is not agricultural income and is liable to tax under the Income Tax
Act.
26. Probhat Chandra Barua: In the case of Probhat Chandra Barua, the Gauhati
High Court held that income from sale of rubber grown and collected by an
agriculturist is agricultural income and is exempt from tax under the Income Tax
Act.
27.VTS Sevuga Pandia Thevar: In the case of VTS Sevuga Pandia Thevar, the
Madras High Court held that income derived from sale of standing trees is
agricultural income and is exempt from tax under the Income Tax Act.
28. Beohar Singh Raghubir Singh: In the case of Beohar Singh Raghubir Singh,
the Supreme Court held that income from processing and sale of sugarcane grown
by an agriculturist is agricultural income and is exempt from tax under the Income
Tax Act.
29.Carew & Co: In the case of Carew & Co, the Kerala High Court held that
income from sale of standing trees is agricultural income and is exempt from tax
under the Income Tax Act.
30. Raja Mustafa Ali Khan: In the case of Raja Mustafa Ali Khan, the Supreme
Court held that income from sale of rubber grown and collected by an agriculturist
is agricultural income and is exempt from tax under the Income Tax Act.