Indirect connection with land
We have seen above that agricultural income is exempt, whether it is received by the tiller or
the landlord. However, non-agricultural income does not become agricultural merely on account of its indirect connection with the land. The following examples will illustrate the
above point.
1. A rural society has as its principal business the selling on behalf of its member societies,
butter made by these societies from cream sold to them by farmers. The making of butter was
a factory process separated from the farm.
The butter resulting from the factory operations separated from the farm was not an
agricultural product and the society was, therefore, not entitled to exemption under section
10(1) in respect of such income.
2. X was the managing agent of a company. He was entitled for a commission at the rate of
10% p.a. on the annual net profits of the company. A part of the company’s income was
agricultural income. X claimed that since his remuneration was calculated with reference to
income of the company, part of which was agricultural income, such part of the commission
as was proportionate to the agricultural income was exempt from income tax.
agricultural product and the society was, therefore, not entitled to exemption under section
10(1) in respect of such income.
2. X was the managing agent of a company. He was entitled for a commission at the rate of
10% p.a. on the annual net profits of the company. A part of the company’s income was
agricultural income. X claimed that since his remuneration was calculated with reference to
income of the company, part of which was agricultural income, such part of the commission
as was proportionate to the agricultural income was exempt from income tax.
Since, X received remuneration under a contract for personal service calculated on the amount of
profits earned by the company, such remuneration does not constitute agricultural income.
3. Y owned 100 acres of agricultural land, a part of which was used as pasture for cows. The
lands were purely maintained for manuring and other purposes connected with agriculture
and only the surplus milk after satisfying the assessee’s needs was sold. The question arose
whether income from such sale of milk was agricultural income.
profits earned by the company, such remuneration does not constitute agricultural income.
3. Y owned 100 acres of agricultural land, a part of which was used as pasture for cows. The
lands were purely maintained for manuring and other purposes connected with agriculture
and only the surplus milk after satisfying the assessee’s needs was sold. The question arose
whether income from such sale of milk was agricultural income.
The regularity with which the sales of milk were effected and quantity of milk sold showed
that the assessee carried on regular business of producing milk and selling it as a commercial
proposition. Hence, it was not agricultural income.
4. B was a shareholder in certain tea companies, 60% of whose income was exempt from tax as
agricultural income. She claimed that 60% of the dividend received by her on her shares in
those companies was also exempt from tax as agricultural income.
that the assessee carried on regular business of producing milk and selling it as a commercial
proposition. Hence, it was not agricultural income.
4. B was a shareholder in certain tea companies, 60% of whose income was exempt from tax as
agricultural income. She claimed that 60% of the dividend received by her on her shares in
those companies was also exempt from tax as agricultural income.
Dividend is derived from the investment made in the shares of the company and is hence, not
an agricultural income.
5. In regard to forest trees of spontaneous growth which grow on the soil unaided by any human
skill and labour there is no cultivation of the soil at all. Even though operations in the nature
of forestry operations performed by the assessee may have the effect of nursing and
fostering the growth of such forest trees, it cannot constitute agricultural operations.
an agricultural income.
5. In regard to forest trees of spontaneous growth which grow on the soil unaided by any human
skill and labour there is no cultivation of the soil at all. Even though operations in the nature
of forestry operations performed by the assessee may have the effect of nursing and
fostering the growth of such forest trees, it cannot constitute agricultural operations.
Income from the sale of such forest trees of spontaneous growth do not, therefore, constitute
agricultural income.
agricultural income.
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