A CRITICAL ANALYSIS ON THE TAXATION OF THE AGRICULTURAL INCOME BY - R. SANAT
A
CRITICAL ANALYSIS ON THE TAXATION OF THE AGRICULTURAL INCOME
AUTHORED BY -
R. SANAT
Abstract
This paper
presents a critical analysis of taxing agricultural income in India. The
objective of the study is to analyze the agricultural tax system in India, its
effect on the farming sector, and the impact it has on the rural economy. The
paper also examines the various forms of agricultural taxes in India, including
the taxes on agricultural income, agricultural land, and agricultural
commodities. The paper further examines the legal and procedural measures
required to effectively implement the agricultural tax system in India.
Finally, the paper proposes policy recommendations to improve the agricultural
tax system in India, such as increasing the tax base, reducing the tax rate,
and providing tax incentives.
The paper
concludes by highlighting the need for a holistic approach to agricultural
taxation in India.
Key words - Agricultural
income, tax system, farming sector .
Introduction
According
to reports, India's sizable rural population relies solely on agriculture as a
means of subsistence. The nation's fundamental food needs are totally met by
agriculture. Exempting farm revenue from taxation is only one of the numerous
programs, regulations, and other initiatives the government has in place to
encourage growth in this industry. In the Seventh Schedule of the Constitution,
entries 82 in the Union List and 46 in the State List both specify taxes on agricultural
income. Historically, the taxation of agricultural revenue goes back to the
1960s.
Therefore,
agricultural income is acceptable for both the federal and state lists.
Agriculture income in India was taxed until 1886 according to the Income Tax Act
of 1860, which instituted the income tax. A clause of the Income Tax Act of
1961 exempted agricultural income from taxation. States may, however, enact
agricultural income tax legislation, for example, on plantations. A lot of the
North-East states, including Uttar Pradesh, Hyderabad, Travancore, Ernakulam,
Tamil Naidu, and others, as well as many other states in India, have
agricultural income tax laws that are applicable.
Literature Review -
Overall,
this literature review has shown that taxation of agricultural income is a
complex issue, and there is no clear consensus on the issue. While some studies
have shown that taxation of agricultural income can have a positive effect on
the sector, others have argued that it can have a detrimental effect. Ultimately,
it is up to policymakers to decide on the best approach to taxation of
agricultural income, and to consider all the implications of taxation on the
agricultural sector.
Research methodology -
In
this research paper we are adopting the doctrinal legal research, also the
secondary data analysis that is the analysis of data that was collected by
someone else for primary purpose. The utilization of this existing of this
existing data provides a viable option for researchers who may have limited
time and resource.
Objective
of the study-
The
objective of the study is to understand the concept of whether the agricultural
income should be taxed and the issues dealing with agricultural income with
respect to the Indian context.
Research question –
1. Whether the
agricultural income should be taxed?
2. What are
the issues dealing with agricultural income?
Scope of the study
This
research paper study seeks attention toward the concept of taxing agricultural
income, it also discus about whether the agricultural income should be taxed or
not ,it also deals with issue dealing with the agricultural income so we can
say that these concept have been explained with respective case law to justify,
analyze and make conclusion for this research.
Should
Agricultural Income be Taxed
As
per Section 2 (1A) of the Income Tax Act, agriculture income is considered as
any rent or income made from the property and also any revenue made from such
land and of any buildings, provided that the assessor utilizes said buildings
for agriculture activities. The concept of "Agricultural Income,"
that applies to revenue derived through land spread across India and utilized
for agricultural purposes, was broadened more by Finance Bill Memorandum, 2008.
As per the law, such agricultural revenue is immune against tax. The tax
assessment varies and confined to certain limit it only entertain the Agricultural
income from the land and other income which is lot related to the land then the
tax is not exempted. In order to comply with Section 10(1), money derived by
taxpayer will never be acknowledged as agricultural revenue; rather, it'll be
subject to tax to the taxpayer as business revenue. The court determined that
filming of movies which have no correlation to agriculture activities or even
to land ought to be excluded from considering of agricultural revenue[1].
Yes,
agricultural income should be taxed. In the case of CIT v. Raja Benoy Kumar
Sahas Roy (AIR 1953 SC 375), the Supreme Court held that agricultural income is
taxable under Section 10(1) of the Income Tax Act, 1961. The Court concluded
that agricultural income is taxable, whether it is derived from land or
livestock, and that it is immaterial whether the agricultural income is derived
from land situated in India or outside India. The Court further stated that
agricultural income is taxable under Section 10(1) of the Act, even if it is
derived from land situated outside India. Thus, agricultural income should be
taxed, as it is a form of income and is liable to be taxed under the Income Tax
Act.[2]
The
exemption limit of the agriculture income is as follows The income tax is
partially determined by calculating the gross agricultural revenue with
non-agricultural revenue as in scenario of a person who is a resident senior
citizen 60 or so but less 80 years old is 3,00,000 lakh, in the case of a super
senior resident individual the person is 80 years or more is 5,00,000 lakh, in
the case of a firm or company the agricultural income is zero, although in the
case of an individual, Hindu undivided family, AOP/BOI if somehow the
agricultural income exceeds 5000 limits.
Agricultural
income is subject to taxation in India. It is taxable under the Income Tax
Act,1961.
However,
the taxation of agricultural income is subject to certain conditions. The
Supreme Court of India has held in several cases that the taxability of
agricultural income depends on the nature of the activity rather than the
occupation of the assessee.
The
Supreme Court has held in the case of CIT vs. Chhabil Das (1958) that
agricultural income is taxable only if it is derived from a commercial
activity. In this case, the Court held that even though the assessee was a
farmer, his agricultural income was not taxable because he had not carried out
his farming activities in a commercial manner. [3]
The
Supreme Court has also held in the case of CIT vs. Khetan International Ltd.
(2008) that agricultural income is taxable only if the assessee’s activities
are of a business nature. In this case, the Court held that the assessee’s
activities of buying and selling land parcels for agriculture purposes were not
of a business nature, and therefore the agricultural income derived from such
activities was not taxable.[4]
The
Court has also held in the case of CIT vs. Girdhari Lal (1981) that
agricultural income is taxable only if the land is cultivated with the
intention of making a profit. In this case, the Court held that the assessee’s
agricultural income was taxable because he had cultivated the land with the
intention of making a profit. Therefore, it can be concluded that the
taxability of agricultural income depends on the nature of the activity rather
than the occupation of the assessee. If the activity is of a commercial or
business nature, or carried out with the intention of making a profit, then the
agricultural income is taxable under the Income Tax Act, 1961.
Considering
the nation's expansion and growth, the thought of taxing agricultural revenue
stands to reason. The application of this clause would've had a massive effect
on several people's lives, which would be clearly relevant to voting during an
election, that is why the topic is so politically influenced. Farmers must
always be categorized as having both economic and social supply shortages in
order to benefit from this Act. Given that many people in this situation only
own tiny plots of land or work like migrant laborers who are just not
landowners, recognizing the persons will now be the greatest difficulty in this
situation. This is also trying to define the output's value or the farmer's net
earnings. Rather than adhering to the legal system, people often utilize their
black cash to make white cash conversions by understanding the tax provision's
language. Additionally, the taxpayer uses window dressing when cultivating
wheat and rubber on the very same piece of land in either a 3:2 proportion
since wheat is entirely excluded under the section whereas rubber is now only
immune to 60% underneath the tax provision. Moreover, the exclusion of
agricultural revenue promotes to extremism as it presents the authorities with
a negative image by transforming the illegal money into "white money"
in the accounting books. This tax will, nevertheless, have had an influence on
the customer because they would have to pay more for goods were it to be
enacted.
The Issue
Dealing with Agricultural Income
India's
economy is based on agriculture, despite the fact that it has been losing
ground in terms of GDP share. Over 50% of the population of India is employed
in agriculture, which accounts for more than 15% of the GDP of the nation.
Agriculture contributes significantly to India's economy, yet most of its
revenue is not subject to income tax. The taxation of agricultural revenue has
generated debate in India. Agriculture income tax proponents contend that it
will boost government revenue and improve the fairness of the income tax
system. They contend that the government can generate more money to pay for
public services and social programs by taxing agricultural income.
Additionally, they contend that by taxing agricultural revenue, it will be
included in the income tax system and become equitable for all taxpayers. On
the other hand, those who are opposed to taxing agricultural revenue contend
that doing so will raise the price of food by driving up the cost of food
production. They contend that taxing agricultural revenue will also raise the
price of inputs like gasoline, fertilizers, and pesticides, raising the cost of
production for farmers. They contend that taxing agricultural revenue will make
it less attractive for individuals to start farms, which will result in a
decrease in agricultural output. They contend that taxing agricultural revenue
will also raise the price of inputs like gasoline, fertilizers, and pesticides,
raising the cost of production for farmers. They contend that taxing
agricultural revenue will make it less attractive for individuals to start
farms, which will result in a decrease in agricultural output. The Indian
government has taken a number of actions throughout the years to lessen the
burden of taxation on agricultural revenue. To lower the cost of inputs for
farmers, it has developed a number of agricultural subsidy programs, given tax exemptions
for inputs used in agricultural production, and exempted agricultural revenue
from income tax. In spite of the government's actions, there is still
disagreement in India over the taxation of agricultural revenue. In the end,
the choice of whether to tax agricultural revenue should be made in light of
the nation's overall economic status. The government should carefully analyze
the advantages and disadvantages of such a policy and weigh them against the
possible impact on agricultural productivity if it decides that taxing
agricultural income is necessary to collect more funds and make the income tax
system more equitable.
Black
money is the illicit cash or other assets obtained via dishonest tactics
including bribery, tax fraud, and smuggling. As it decreases the amount of tax
income gathered by the government and jeopardizes the stability of the economy,
it is a serious issue in many nations. Agricultural revenue is one method
through which black money is changed into white money. To do this, money from
agricultural operations is underreported while being claimed as agricultural
income. This is accomplished by misrepresenting the source of the revenue as an
agricultural activity, such as the sale of food, cattle, or other agricultural
goods, when it was really obtained through bribery, tax evasion, or other
unethical practices. There are various phases involved in turning agricultural
revenue from black money into white money. The individual involved in the
activity first has to figure out how to lawfully convert the black money into
white money. This can be accomplished through various financial systems, asset
transfers, and other techniques. Once the funds have been transferred, they
must be shown on the tax return as agricultural income. The participant in the
activity must also make sure that all required paperwork, including invoices
and receipts, is in order to support the claim of agricultural income.
Additionally, it is crucial to ensure that the revenue is declared honestly and
in compliance with all applicable tax regulations. The person must also make
sure that all essential tax deductions have been made and that the income is
correctly reported. The purpose of doing this is to prevent the tax authorities
from imposing any penalties or fines. It is against the law and subject to
harsh punishments to use agricultural revenue to convert black money into white
money. It is crucial to keep in mind that correctly reporting all income in
compliance with the applicable rules is the easiest method to avoid fines. If
the money is not correctly disclosed, the individual engaging in the activity
might be subject to harsh penalties, including jail time.
As
case law to explain the concept In the case of Asst. CIT vs. M/s. Punjab Woolen
Mills Ltd. (2008), the Supreme Court held that the onus is on the assessee to
prove that the agricultural income declared is genuine. The Court also held
that the assessee must prove that the agricultural income was generated through
genuine agricultural activities, and not through the conversion of black money
into white money. The Court further held that agricultural income cannot be
used as a means to launder black money. Thus, the use of agricultural income for
money laundering is prohibited under Indian law.[5]
Conclusion
Nani
Palkhivala believes that "no government has the right to, in the course of
extracting revenue, bring the taxpayer suffering and annoyance, as well as the
nagging sensation that he has been made a victim of obvious injustice."
The advantage of the provision, however, has been misunderstood by certain
people, causing a disparity in the system. Given the nation's expansion and
advancement, the government ought to take the initiative and investigate the
processes of regulation. Overall, taxation of agricultural income has been an
ongoing debate for many years. While it can be argued that taxing agricultural
income is necessary to fund public services, it can also be argued that it is
unfair to tax a sector that is already heavily taxed due to its reliance on
inputs from other sectors. Ultimately, the decision to tax agricultural income
should be made on a case-by-case basis, taking into account the needs of the
farmers, the government, and the country as a whole.