Expenses incurred to earn agricultural income cannot be allowed as expenditure in computing the business income
KANCOR FLAVOURS & EXTRACTS LTD. vs. DCIT
ITAT, Cochin Bench : ITA Nos. 714 & 715/Coch/2005; AYs 1994-95 & 1996-97
Gist of decision : Agricultural income is not only exempt from tax, but under the scheme of the IT Act, 1961 is also to be excluded in computing the total income. In the present case, the assessee has earned some agricultural income by way of sale of white chillies cultivated by it. But the expenses for farming the white chillies were more than such income. Therefore, the assessee had to debit the net expenses in its P&L a/c. If, on the other hand, there was a surplus on sale of white chillies, the surplus income being in the nature of agricultural income could not be brought to tax under the IT Act, 1961. If there was a surplus of agricultural income in the hands of the assessee for these impugned assessment years, there would have been no question of claiming expenses by way of deduction or question of allowing the same as deduction in computing the business income of the assessee company.
The expenses relating to agricultural operations cannot be allowed as expenditure in computing the business income for the simple reason that agricultural income does not form part of the total income under the IT Act.