Question

Examine with reasons, based on the provisions of the Act, as to chargeability of the following receipts to tax in the assessment year 2019-20: (i) Rent of ` 60,000 charged from tenants occupying houses constructed on the land situated in India and used for agricultural purposes. (ii) Income of ` 75,000 derived by Anand Nursery from the sale of seedlings grown without carrying out all the basic operations on land. (ii) Mr. Gaitonde, born and brought up in the State of Sikkim, had a net profit of ` 2,25,000 from the business located in Sikkim and interest of ` 55,000 on the securities/ bonds issued by the Government of Rajasthan.

Answer 1

Answer
(i) As per section 10(1), agricultural income is exempt from tax. The meaning and scope of agricultural income is defined in section 2(1A). According to Explanation 2 to section 2(1A), any income derived from any building from the use of such building for any purpose (including letting for residential purposes or for the purpose of any business or profession) other than agriculture shall not be agricultural income. It appears in this case that the house was occupied by tenants for residential purposes. Therefore, the rent of ` 60,000 from letting out of houses constructed on agricultural land for residential purposes shall not be treated as agricultural income by virtue of Explanation 2 to section 2(1A). Hence, such income would be chargeable to tax.

(ii) Explanation 3 to section 2(1A) provides that the income derived from saplings or seedlings grown in a nursery shall be deemed to be agricultural income, whether or not the basic operations were carried out on land. Accordingly, the income of ` 75,000 derived by Anand Nursery from the sale of seedlings grown without carrying out all the basic operations on land shall be treated as agricultural income and exempt from tax under section 10(1).

(iii) Section 10(26AAA) exempts the income which accrues or arises to a Sikkimese individual from any source in the State of Sikkim and the income by way of dividend or interest on securities. Therefore, the income of Mr. Gaitonde from a business located in Sikkim and interest income on the securities/bonds of Government of Rajasthan shall not be subject to tax.