Direct Tax

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MD.Taufique

CA CS

308 Points Joined November 2010

Agricultural Income means-

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

(b) any income derived from such land by --

i)agriculture; or

ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver-in-kind to render the produce raised or received by him fit to be taken to market; or

iii)the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this subclause ;

(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 subclause (b) is carried on:

FRIENDS PLEASE EXPLAIN ME POINT (b) SUBCLAUSE (ii) AND (iii).

Replies (2)

Hitesh Agarwal

Chartered Accountant

80 Points Joined August 2007

Section 2(1A) of the income tax act gives the definition of the agricultural income.Sub point (ii) and (iii) provides that income must be derived by sale of agricultural produce or by the process that is ordinarily employed which renders the product fit for the market and sale by a cultivator or receiver of rent in kind.

Market doesnot means that there must be buyers and sellers in the market. Even if the buying and selling is controlled by the government than there is a market for it.

Sale of agricultural produce is covered under items (ii) and (iii), but not under item (i), of section 2(1A)(b) - Section 2(1A)(b)(iii) in terms and expressly refers to the income derived from sale. It refers to the sale price realised either by the cultivator or the receiver of rent-in-kind by the sale of the produce in respect of which the process as contemplated by clause (ii) has been performed. It is significant that the sale to which clause (iii) refers must be the sale of produce which has not been subjected to any process other than that contemplated by clause (ii). Thus, it may be stated that reading clauses (ii) and (iii) together they contemplate the sale of the produce—clause (ii) indirectly inasmuch as it refers to the process employed for making the produce marketable and clause (iii) directly inasmuch as it refers to the price realised by sale of the produce which has been subjected to the process contemplated by clause (ii). Therefore, it is clear that income derived from sale of agricultural produce has been provided for by clauses (ii) and (iii) and prima facie that would show that clause (i) which does not refer to sale even indirectly cannot be intended to cover cases of income derived from the sale of agricultural produce - Dooars Tea Co. Ltd. v. CAIT [1962] 44 ITR 6 (SC).

Hitesh Agarwal

Chartered Accountant

80 Points Joined August 2007

So in other word Clause ii of section 2(1A)(b) provides for the process of agriculture produce by the cultivator or receiver of rent in kind while clause iii provides for sale of agriculture produced by the cultivator or receiver of rent in kind. Processing also amounts to agricultural activity and included in clause ii