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Taxability of partnership firm having agriculture income

Kaushik (Accounts) (123 Points)

03 December 2015

I am having an Partnership firm cultivating Sugarcane and selling to industry. The firm has no other income. The land is owned by partner's. There is no other manufacturing or processing activity. Only agriculture farming

Will the income earn by partnership firm on selling of sugarcane exempt from Income Tax ?

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19 Replies

CA Goutam Sharma (Chartered Accountant in Practice) (468 Points)
Replied 03 December 2015

Yes, its exepmt...

CA Neha Gupta (Managing Partner LNG & Associates) (1839 Points)
Replied 03 December 2015

Income will be exempted.

1 Like

Kaushik (Accounts) (123 Points)
Replied 03 December 2015

Thanx. Under which section and where it has been mentioned. Can you give reference to any case ?

ashutosh kumar (student) (72 Points)
Replied 03 December 2015

Agriculture income is exempt U/S 10(1), OF incometax act 1961.

1 Like

Aditya (Article) (54 Points)
Replied 03 December 2015

Expert Sir, In this case when the land on which this agricultural income is generated is sold.. then will the assessee be eligible to take the exemption u/s 54 as in that case the condition is that assessee or his/her parents would have worked on that land.. but partnership firm has done so..

1 Like

ashish (article) (151 Points)
Replied 03 December 2015

To aditya.........here rent will be agricultural income earned by partner (I.e. individual).... Section 54B exemption is available to individual and huf......so at the time of sale partner being individual can take the benefit of section 54B because the land being used for agricultural purpose ( because as per income tax act.. Land given on rent used for agricultural is termed as land used for agricultural purpose).... Provided such use should be for minimum two years backward...

1 Like

Raival Sharma (student) (28 Points)
Replied 04 December 2015

Agriculture income is exempt U/S 10(1), OF incometax act 1961.

1 Like

Kaushik (Accounts) (123 Points)
Replied 04 December 2015

There is no sale or lease or rent of land. The land is owned by individual. The partnership firm is doing farming and the profit is distributed to partner in sharing ratio

1) Under section 10(1), is even partnership firm exempt from income on agriculture ? IF so, any case / order / any reference as sepifically the word partnership is not mentioned in 10(1)

2) if the above is yes, Is the partnership firm also exempt form filing return ? Note: The firm has no other income

Kindly guide

Aditya (Article) (54 Points)
Replied 04 December 2015

Sir, as in this case my query was not realted to the income generated on land but it was about the land being sold as a hypothetical situation.. now as the land belongs to the firm being shown in the balance sheet as firm asset.. how can the partners take benefit of section 154 on behalf of firm??

CA Goutam Sharma (Chartered Accountant in Practice) (468 Points)
Replied 04 December 2015

The Case shall be considered as follow

1 The Agricultural Land is owned by Individuals

2 The Agricultural Activities are carried on by Partnership Firm

3 The Land is sold

Dear All

A Partnership firm has been separately recognised in Income Tax Act. Any income arising to partnership , shall be taxed in the hands of Partnership only. Out of the net Income of Partnership Firm, Partners Share is exempt from tax to the extent it has already been taxed in the hands of Firm.However , as the Firm is carrying on Agricultural Activities , the income of Firm is Exempt in the hands of firm. At the same time, share of profit from firm in the hands of Partners is also exempt, no matter whether it is Agricultural or not.

Secondly, Sale of Agricultural Land is not considered as transfer of an asset, so there is no question of Capital gains or Exemption under 54 or anything else.

1 Like

Kaushik (Accounts) (123 Points)
Replied 05 December 2015

PLEASE NOTE: There is nothing to do with land. No were I have mentioned that the land is sold. THE LAND IS NOT SOLD, NOR LEASED, NOR RENTED by Partner to the Firm

Can anyone give refrence of case law stating that the Partnership Firm Income from Agriculture is not taxable ?

barkha maheshwari (practice) (21 Points)
Replied 10 June 2016

expert sir,

how the income from agriculture based partnership firm treated in the hands of partner

CA Goutam Sharma (Chartered Accountant in Practice) (468 Points)
Replied 20 September 2016

Agricultural income is altogether exempt from Income tax and even not includible in the hands of the assessee. Agricultural income in the hands of Partnership firm is exempt in the hands of the firm. It shall also be exempt in the hands of partners.

It is noteworthy to differentiate between Deduction and Exemption.As a basic principle, the expenses for which one party claims deduction, the same is included in the hands of Other as Income. However, Section is not about deduction. It is about altogether Exemption from Incoem Tax. The Incomes which are not includible in total Income.

Therefore, an Income Exempt from Income Tax, under section 10, shall be exempt in the Hands of Firm as well as Partners.

1 Like

laxansh (artical) (23 Points)
Replied 01 May 2017

in the above case if Operation is carried out with Joint Agriculture Farming Agreement (Contract Farming) where as the land owner has to maintain routing agriculture with expert advise and all material like seed,pesticides,fertiliser are provided by the Partnership firm also Agronomist visit by the company on routin schedule done.also marketing and transportation facility arranged by the partnership firm.

will partnership firm get benifit of exemption from share of sale of produced.