The Income-tax Act, 1961 does not define what agricultural income is. Its definition is wide and inclusive. It tells us which incomes are agricultural incomes. It covers the income of cultivators and land-owners both. Under section 2(lA) of Income Tax Act 1961 : “agricultural income” means:
“(a) any rent or revenue derived from land which is situated in India and is used for agricultural purposes, or
(b) any income derived from such land by :
(i) agriculture; or
(ii) the performance b’ 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 hun, fit to be taken to the market; or
(iii) the sale by a cultivator or receiver of rent-in-kind in respect of which no process has been performed other than a process described in the above paragraph; or
(c) any income derived from any building and occupied by the receiver of rent or revenue of such land, or occupied by the cultivator or the receiver of rent-in-kind of any land with respect of which or the produce of which any process mentioned in (ii) and (iii) above is carried on, provided the following two conditions are fulfilled:
(A The building is situated on or in the immediate vicinity of the land and is a building which the cultivator or the receiver of rent-in-kind requires as dwelling house or as a store-house or other out-building. The house must be needed by reason of its connection with land; and
(B) The land is either assessed to land revenue in India or is subject to a local rate assessed and collected by the officers of the Govt. as such.
Where the land is not so assessed to land revenue or subject to a local rate, it must not be situated
(i) in an)’ area which is comprised within the jurisdiction of a municipality etc., or a cantonment board having a population of 10,000 or more as per-last census; or
(ii) in any area within such distance from the local limits of municipality etc. as the Central Govt. may specify in this behalf in the Official Gazette. This distance will not exceed eight kilometers and in determining the distance, the Govt. will be guided by the extent and scope .for the urbanization of that area.
Explanation. Any income derived from any building or land referred to in sub-clause (c), arising from use of such building or land for any purpose (including letting for residential purposes or for the purpose of any business or profession) other than for agricultural purposes falling under sub-clause (a) or (b), shall not be deemed as agricultural income.
It means that income from house property situated on agricultural land shall qualify for exemption only if such house property is used for agricultural purposes. In case it is let out for residential or business purposes it shall be taxable income:
From the above definition it is evident that to constitute agricultural income there must be a direct and positive link between income, land and agricultural operations. To establish this link some tests must be fulfilled, only then a particular income can be included in the definition of agricultural income.