CIRCULAR NO. 1/ 2009, DATED 27th MAR, 2009

4. Widening the scope of “agricultural income”

4.1 “Agricultural income” is defined in sub-section (1A) of section 2 of the Act mean, inter-alia, income derived from land which is situated in India and is used agricultural purposes. Such agricultural income is exempt from tax under sub-section (1) of section 10 of the Income-tax Act, 1961. It has been held by judicial authorities that whether income from nursery operations constitutes agricultural income or not, will depend on the facts of each case. If the nursery is maintained by carrying out basic operations on land and subsequent operations are carried out in continuation the basic operations, then income from such nursery would be agricultural income not liable to tax under section 10. However, if the nursery is maintained independently without resorting to basic operations on land, then income from such nursery would not be agricultural income and would be liable to be included in the total income.

4.2 With a view to giving finality to the issue, an Explanation in section 2 of Income-tax Act, has been inserted providing that any income derived from saplings seedlings grown in a nursery shall be deemed to be agricultural income. Accordingly, irrespective of whether the basic operations have been carried out on land, such income will be treated as agricultural income, thus qualifying for exemption under sub-section (1) of section 10 of the Act. 4.3 Applicability: This amendment has been made applicable with effect from April, 2009 and shall accordingly apply for assessment year 2009-10 and subsequent assessment years.

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