This post is on account fo a tax query by a premium member of thsi site . His main question is in Forum for Tax Q & A . So, the issue is if you sale an agriculture land which is not capital asset as defined u/s 2(14) of the Income Tax Act , should you include the income with other income for rate purpose ? In my considered opinion , the sale of agriculture land can not be taken for rate purpose ?
Sale of Agriculature Land Not Agriculature Income under I.T.Act
The term “agriculature income” has been defined under section. You will find that there are various types of income associated with agriculture included within the meaning . But nowhere the gain from sale or transfer of agriculture land. So, first see the definition of agriculture income
(c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any land with respect to which, or the produce of which, any process mentioned in paragraphs (ii) and (iii) of sub-clause (b) is carried on :
(i) the building is on or in the immediate vicinity of the land, and is a building which the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land, requires as a dwelling house, or as a store-house, or other out-building, and
(ii) the land is either assessed to land revenue in India or is subject to a local rate assessed and collected by officers of the Government as such or where the land is not so assessed to land revenue or subject to a local rate, it is not situated—
(A) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee or by any other name) or a cantonment board and which has a population of not less than ten thousand ; or
(B) in any area within the distance, measured aerially,—
(I) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten thousand but not exceeding one lakh; or
(II) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than one lakh but not exceeding ten lakh; or
(III) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (A) and which has a population of more than ten lakh.
Explanation 1.—For the removal of doubts, it is hereby declared that revenue derived from land shall not include and shall be deemed never to have included any income arising from the transfer of any land referred to in item (a) or item (b) of sub-clause (iii) of clause (14) of this section.
Explanation 2.—For the removal of doubts, it is hereby declared that income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or sub-clause (b) shall not be agricultural income.
Explanation 3.—For the purposes of this clause, any income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income.
Explanation 4.—For the purposes of clause (ii) of the proviso to sub-clause (c), “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;
Basically agricultural income is defined under section 2(1A) of the Income-tax Act. As per section 2(1A), that means:
- (i) Any rent or revenue derived from land which is situated in India and is used for agricultural purposes.
- (ii) Any income derived from such land by agriculture operations including processing of agricultural produce so as to render it fit for the market or sale of such produce.
- (ii) Any income attributable to a farm house subject to satisfaction of certain conditions specified in this regard in section 2(1A).
So, the income generated from sale of agriculture land is not included in teh aforesaid definition sec. 2(1A) of the agriculture income as defined under Income Tax Act. Thus , even if it is an income from agriculture land , in a way, it is not an agriculture income for income tax purpose.
Which provision states for inclusion ?
Finance Act 1973 , for the first time brought in this provision that the agriculture income , although exempt under section 10(1) will be included in total income for tax rate purpose. Section 2 of teh Finance Act , therefore you find the provision of including”agriculture income ” in Chapter II of the Finance Act . Form Example Finance Act 2015 has following
(2) In the cases to which Paragraph A of Part I of the First Schedule applies, where the assessee has, in the previous year, any net agricultural income exceeding five thousand rupees, in addition to total income, and the total income exceeds two lakh fifty thousand rupees, then,—
|(a)||the net agricultural income shall be taken into account, in the manner provided in clause (b) that is to say, as if the net agricultural income were comprised in the total income after the first two lakh fifty thousand rupees of the total income but without being liable to tax, only for the purpose of charging income-tax in respect of the total income; and|
So, if the sale of agriculture land is not “agriculture income” , it can not be included as per section 2 of Finance Act for rate purpose
Where to show sale of agriculture land income in the tax return ?
In the income tax return, you will find a a Schedule EI for showing exempt income. The Other field in Schedule EI is for income from sale of agriculture land which is exempt from tax . For example , Schedule EI for assessment year 2015-16 is as under :
It shoould be shown under Schedule for Exempt Income in tax return