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Income Tax Laws – I

Notes 4.1.2 Partly Agricultural Income

As per Rule 7 of the Income Tax Rules, 1962 – In the case of income which is partially agricultural
income as defined in section 2 and partially income chargeable to income-tax under the head
“Profits and gains of business”, in determining that part which is chargeable to income-tax the
market value of any agricultural produce which has been raised by the assessee or received by
him as rent-in-kind and which has been utilized as a raw material in such business or the sale
receipts of which are included in the accounts of the business shall be deducted, and no further
deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or
receiver of rent-in-kind. For this purpose “market value” shall be deemed to be:

1. where agricultural produce is ordinarily sold in the market in its raw state, or after
application to it of any process ordinarily employed by a cultivator or receiver of
rent-in-kind to render it fit to be taken to market, the value calculated according to the
average price at which it has been so sold during the relevant previous year;
2. where agricultural produce is not ordinarily sold in the market in its raw state or after
application to it of any process aforesaid, the aggregate of –
(a) the expenses of cultivation;
(b) the land revenue or rent paid for the area in which it was grown; and
(c) such amount as the Assessing Officer finds, having regard to all the circumstances in
each case, to represent a reasonable profit.

Example: If a cotton mill has its own farm and the cotton grown on the farm has been
utilized in the factory, the average market price of the cotton shall be deducted from the sale
proceeds of cotton while computing the taxable income from business.

Self Assessment

Fill in the blanks:
1. Agriculture income is ……………………..under the Indian Income Tax Act.

2. For any income to be considered as agricultural income, the rent or revenue should be
derived from ……………………
3. ……………………..denotes the payment of money either in cash or in kind by one person
to another in respect of grant of right to use land.
4. ………………….include tilling of the land, sowing of seeds, planting or an operation of a
similar kind such as digging pits in the soil to plant a sapling etc. in agricultural income.

4.2 Other Important Exemptions

In addition to the exemption of tax on agricultural income in India the following exemptions are
also available under the Section 10 of Income Tax Act:
1. Money received by an individual as a member of H.U.F [Section 10(2)]: Any sum received
by an individual in his capacity as a member of H.U.F. is wholly exempt from income-tax
where such sum has been paid out of the income of the family, or out of the income of an
impartible estate belonging to the family, because that has been taxed in hand of H.U.F.

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