CIT v Keshab Chandra Mandal

Facts

• Keshab Chandra Mandal derived income from land through cultivation activities
• The CIT sought to tax a portion, arguing certain processing activities took the income beyond agricultural character
• The assessee claimed full exemption as agricultural income under S.10(1)

Issues

1. What constitutes "agricultural income" for exemption under S.10(1)
2. Where does agricultural operation end and manufacturing/processing begin for tax purposes

Held

• Income derived from land through performance of basic agricultural operations (cultivation, tilling, sowing, harvesting) is agricultural income
• The exemption covers income up to the point where the produce is rendered fit for market through ordinary agricultural processes
• Processing that changes the essential character of the agricultural produce takes income outside the exemption

Ratio Decidendi

Agricultural income requires: (1) land from which income is derived, (2) agricultural operations performed on the land, (3) a direct connection between the operations and the income. Basic operations (cultivation) and subsequent processes ordinarily employed to render produce marketable (drying, threshing) are covered. Industrial processing that transforms the commodity (manufacturing) takes the income outside the agricultural exemption.