An Indian company is making a lease agreement with Individual assessee (owner of the agricultural lands) for carrying on pure agricultural activities thereon for deriving agricultural income there from. Taxation issues in the hands of company?

Definition of Agricultural income [Section 2(1A) of Income Tax Act, 1961):

Section 2 (1A) “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 by 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 him fit to be taken to market; or

(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in paragraph (ii) of this sub-clause ;

(c) ……

Further, taxability of Agricultural income is as per section 10(2) of the Income Tax Act, 1961, as follows:

 

Income not includible in total income.

10. In computing total income of a previous year of any person, any income falling within any of the following clauses shall not be included-

 

          (1) agricultural income;

Under section 2 (1A) only agricultural incomes is defined and is required to be a source of income. It is not necessary that in order to come within the ambit of the Act, the person has to be an agriculturist. It is sufficient if revenue is derived from agricultural activities conducted on a land situated in India which is used for agricultural purposes. Therefore, a firm/company can be an agriculturist which derives revenue from agricultural activity.

A plain reading of section 2(1A) makes it clear that all that is necessary that revenue should be derived from a land situated in India and which is used for agricultural purposes. This section does not specify that revenue has to be derived by the owner of the agricultural land only.

Useful Reference: Section 2(1A) of the Income-tax Act, 1961 – Agricultural income [Ownership of land] – Whether ownership of land is not a prerequisite for having agricultural income and it would suffice if revenue is derived from agricultural activities carried out on an agricultural land situated in India – Held, yes – Whether further, a firm can be an agriculturalist which derives revenue from agricultural activity – Held, yes [Para 10][In favour of assessee [Income-tax Officer v. Gajanan Agro Farms [2013] 33 taxmann.com 149 (Pune – Trib.)]

Accordingly, the company can claim the income derived from lands under question as ‘agricultural income’ & shall be taxed accordingly.