Taxing Non-Agricultural Income

Posted: Monday, Dec 30, 2002 at 0000 hrs IST
Updated: Monday, Dec 30, 2002 at 0000 hrs IST

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: After the Kelkar Report, the debate for taxing agricultural income has been revived. The general feeling is that before venturing into a new arena of taxation, it would be prudent to go step by step by taxing non-agricultural income of persons living in rural areas which, despite the law permitting, has escaped taxation. This is primarily on account of inability of the Tax Department to bring such persons within the net of taxation. There are millions of shopkeepers, transport operators, contractors, money lenders and service providers in the rural and semi-urban areas who earn income which is much more than the initial exemption of Rs.50,000 per annum, but who have not paid income tax in view of the laxity of the Tax Department in enforcing the law.

Therefore, it makes more sense to first bring to tax those who are liable for taxation under the present law, before going into uncharted areas of taxing income from agricultural activities. Several decades ago, the Supreme Court of India in the case of CIT v Raja Benoy Kumar Sahas Roy (32 ITR 466) laid down the following three propositions to decide as to what constitutes agricultural income - (a) some basic operation, prior to germination, involving expenditure of human skill and labour on the land itself and not merely on the growths from the land, is essential to constitute agriculture. Illustrative instances of such basic operations are tilling of the land, sowing or disseminating of seeds, and planting; (b) subsequent operations, i.e., operations performed after the produce sprouts from the land, e.g. weeding, digging the soil around the growth, removal of undesirable undergrowths, tending, pruning, cutting, felling and preservation of the plants from insects, pests and other animals by themselves would not constitute agriculture. However, in cases where the subsequent operations are combined with basic operations, the subsequent operations would also constitute part of the integrated activity of agriculture; (c) activities not involving any basic operation on the land would not constitute agriculture merely because they have relation to or connection with the land. This point was considered by the Madras High Court in B. Nagi Reddi v CIT ((2002) 125 Taxman 20). In this case, the assessee had shown certain income from film-shooting in his premises, which was known as Vijaya Gardens, and he used to recover charges for the same. The assessee claimed that those charges amounted to agricultural income as the...

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