The three basic tests which must be satisfied to treat a particular income as agricultural income are given below. It is essential that all the following three tests must be fulfilled
Test (A) —Income derived from land
It is essential that for any income to be termed as agricultural income land must be effective and i,n,nediate source of inc ome and not indirect and secondary. (C.!. T. vs. Kamakshya Narain Singh). As a result, interest on arrears of land revenue, dividend paid by a company out of its profits which included agricultural income also (Bacha Guzdar vs. C.I.T.) and salary paid to a manager for managing agricultural farms (Premier Construction Co. Ltd. vs. C.I.T.) are not agricultural incomes because in all these cases land is not the effective and immediate source of income.
Test (B)—Land is used for agricultural purposes
To term any income as agricultural income, it is necessary that income must be the result of agricultural operations performed on agricultural land. Agriculture means performance of some basic operations—ploughing, sowing, irrigating and harvesting and some subsequent operations—weeding, digging, pruning cutting etc. It involves employment of some human skill, labour and energy to get some income from land. (Raja Mustafa Au Khan vs. C.LT.).
Supreme Court in its decision in I CiT. vs. Raja Benoy Kurnar Sahas Ray (i957 32 i.T.R. 466] has observed:
Agriculture in its primary sense denotes the cultivation of the field and it is restricted to the cultivation of land in strict sense of the term meaning thereby tilling of the land, sowing of seeds, planning and similar operations on the land.
- Operations to he performed subsequently like weeding, digging etc.
Agriculture comprises within its scope all produce regardless of its nature. The produce may be grains, vegetables or fruits including plantations, groves and pastures, or articles of luxury such as betel, coffee, tea, spices, etc.
Test (C)—Land is situated in India
To qualify for exemption u/s 10(1) of the Act, it is necessary that agricultural income must he derived from land situated in India. In case income is derived from agricultural land situated outside India or is from any non-agricultural land, it will not be exempted u/s 10(1). It is taxable income under the head “Income from other Sources.”