If assesssee is engaged in the business of growing and manufacturing tea in India, the non-agricultural income in that case be:

Question

Prepp Team · Accepted Answer

Understanding Mixed Income for Tea Businesses in India

When a business involves both agricultural activities and manufacturing processes, the income generated is often considered a mix of agricultural and non-agricultural income. Agricultural income in India is generally exempt from income tax. However, non-agricultural income is subject to taxation.

For specific businesses that combine growing crops (agricultural activity) with processing those crops into a finished product (manufacturing activity), the Income Tax Act, 1961, provides rules to bifurcate the total income into its agricultural and non-agricultural components. The business of growing and manufacturing tea is one such specific case.

Tax Treatment of Tea Business Income

The rules for determining the agricultural and non-agricultural portions of income from growing and manufacturing tea in India are clearly defined. According to Rule 8 of the Income Tax Rules, 1962, income derived from the sale of tea grown and manufactured by the seller in India is apportioned as follows:

Agricultural Income: 60% of the total income from such business.
Non-Agricultural Income: 40% of the total income from such business.

The agricultural portion (60%) is exempt from income tax, while the non-agricultural portion (40%) is taxable under the head 'Profits and Gains of Business or Profession'.

Applying the Rule to the Question

The question asks for the non-agricultural income percentage when an assesssee is engaged in the business of growing and manufacturing tea in India. Based on Rule 8 of the Income Tax Rules, 1962, the income from this type of business is split into 60% agricultural income and 40% non-agricultural income.

Therefore, the non-agricultural income in this specific case is 40% of the total income from the tea business.

Conclusion on Tea Business Income Split

For a business engaged in growing and manufacturing tea in India, the income is statutorily divided. The agricultural part, which is 60%, is tax-exempt. The non-agricultural part, which is 40%, is the portion of income on which income tax is levied. The question specifically asks for the non-agricultural part, which is 40%.

Revision Table: Mixed Income Rules Highlights

Business Type	Agricultural Income (%)	Non-Agricultural Income (%)	Relevant Rule (Income Tax Rules, 1962)
Growing and Manufacturing Tea in India	60%	40%	Rule 8
Growing and Manufacturing Coffee in India (where coffee is grown, cured, roasted, and ground)	60%	40%	Rule 7B(1)
Growing and Curing Coffee in India	75%	25%	Rule 7B(1A)
Growing and Manufacturing Rubber in India	65%	35%	Rule 7A

Additional Information: Significance of Agricultural Income Exemption

The exemption of agricultural income from central income tax has historical roots in the Indian Constitution, which grants the power to tax agricultural income to the State Governments, not the Central Government. However, State Governments have largely chosen not to impose income tax on agricultural income.

For businesses like tea, coffee, and rubber that have both agricultural and manufacturing components, specific rules are necessary to ensure that the manufacturing portion, which is a non-agricultural activity, is appropriately taxed. These rules provide a clear basis for splitting the income, preventing disputes and ensuring fair taxation.

The apportionment rules are designed to reflect the contribution of each activity (growing/agricultural vs. manufacturing/non-agricultural) to the total income generated by the business.