The Income-tax Act, 1961 does not define what agricultural income is. Its definition is wide and inclusive. It tells us which incomes are agricultural incomes. It covers the income of cultivators and land-owners both. Under section 2(lA) of Income Tax Act 1961 : “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 b’ a cultivator or receiver of rent-in-kind, of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by hun, fit to be taken to the market; or
- (iii) the sale by a cultivator or receiver of rent-in-kind in respect of which no process has been performed other than a process described in the above paragraph
(c) Any income derived from any building and occupied by the receiver of rent or revenue of such land, or occupied by the cultivator or the receiver of rent-in-kind of any land with respect of which or the produce of which any process mentioned in (ii) and (iii) above is carried on, provided the following two conditions are fulfilled:
- (A) The building is situated on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of rent-in-kind requires as dwelling house or as a store-house or other out-building. The house must be needed by reason of its connection with land
- (B) The land is either assessed to land revenue in India or is subject to a local rate assessed and collected by the officers of the Govt. as such.
Types Of Agricultural Income
1. Any income received as rent or revenue from agricultural land
Rent can very simply be defined as a payment in cash or in-kind which the owner of the land receives from another person in consideration of a grant of a right to use land. When the owner of land is not performing agricultural operations himself but gives his land on contract basis, any amount received from the actual cultivator by the owner of the land shall be agricultural income. Such rent may he in cash or in-kind, i.e., a share in the produce grown by the cultivator.
2. Income derived from Agriculture
Income derived from land situated in India by applying agricultural operations shall be agricultural income. If all the basic operations like preparation of land for sowing, planting, watering, harvesting etc. are applied, any income resulting from such operations shall be agricultural income. On the other hand, if grass, trees etc. have grown spontaneously or without the aid of human skill, effort, labor etc., any income resulting from the sale of such grass, trees or lease rent of such land shall not he agricultural income.
Agricultural income also includes income from orchards or from horticulture.
3. Any income accruing to the person by the performance of any process to render the produce marketable
If, in the ordinary course, a process is to he employed by the cultivator himself or the landlord who receives the produce as rent-in-kind, any income derived from such a process shall he agricultural income. Such a process must be employed to render the produce fit for marketing. The process may he manual or mechanical. It should be noted that the produce should not change its original character in spite of the processing unless the produce cannot be sold in that form or condition.
Following points are to he noted in this connection :
- The process must he one which is ordinarily employed by the cultivator.
- The process is employed to render the produce fit to be taken to the market.
- The produce must retain its original character in spite of process unless the produce is having no market if offered for sale in its original condition.