2015-16

TAX LAWS-I
ASSIGNMENT
Agricultural Income Taxation and Recommendations of Raj
Committee

Submitted to:
Ms. RaveenaNaz
Submitted by:
Anish Kumar,
Sem.VI, B.A., LL.B.(Hons.),
Roll no. : 13BLW0014,
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Jamia Millia Islamia.

Acknowledgement

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Contents

List of the Cases

Abbreviations used
I.
II.
III.
IV.
V.
VI.
VII.
VIII.

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Introduction, Research Questions and Research Objectives

What is Agricultural-Income Taxation
Why there is demand for Taxation of Agriculture Income
K.N. Raj Committees Report
Review of the Literature
Hypothesis
Conclusion
Bibliography

List of the cases

I.
II.
III.
IV.
V.
VI.
VII.

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CIT vs Raja Binoy Kumar Sahas Roy, 32 ITR 466(SC).

CIT vs KamakshyaNarain Singh (1948) 16 ITR 325.
KJ Joseph vs ITO, 121 ITR 178.
KV Abdulla vs Income-Tax Officer and Another, 161 ITR 589
Monsanto India vs Addl Commissioner of Income Tax [2011-TIOL-169ITAT-Mum].
Mustafa Ali Khan vs CIT (16 ITR 330).
Proagro SeedsCompany Limited vs Joint Commissioner ofIncome Tax
[2003-TIOL-50-ITAT-Del

I.Introduction
The socio-economic development of an economy depends primarily upon the availability of adequate
finances and their proper utilization.Taxes have come to be recognised as an instrument through which the
social and economic objectives of a welfare State could be achieved. The taxes are the basic source of
revenue for the Government. They are utilized for providing incentives for larger earnings and more
savings, fostering industrial development by selective concessions, restraining ostentatious expenditure,
checking inflationary pressures and achieving social objectives like inequalities and the enlargement of
opportunities to the common man.
Tax is the financial charge imposed by the Government on income, commodity or activity. But unlike
other incomes, most agricultural income in India today is not subject to tax e.g., Coffee and Tea
plantations are taxed.1A hypothetical question of how much additional revenue could have been
mobilised, if agricultural incomes too were treated on par with other incomes and subject to income tax,
yields an answer of a potential revenue in the range ofRs. 50,000 crore for 2007-08,i.e., about 1.2% of
GDP or about 9% of the GDP of agriculture. While additional revenues of this size would not
substantially alter the profile of overall government receipts in India, it represents a sizeable amount of
revenue for states, adding about 19% to the revenues of the states.2
The demand for taxation of Agricultural Income in India echoed eight decades ago, in the writings of Dr.
B.R. Ambedkar, though with not a great vigour. Dr.Ambedkar vehemently criticized the revenue system
of British Government because the revenue pattern of British Government of India was against the
interests ofthe poor people of India. There was no justice or equity in taxpolicy. According to him, land
revenue was highly oppressive, and sadly it has remained same even after more than six decades. He
argued that the government should undertake legislation to make thetax policy more equitable and elastic.
But even in the Independent India, such Legislation was not passed, due to strong lobbying of Zamindars
and Landlords. According to him, the first and most essential requirement of good tax system is that it
should be reliable. It does not matter whether that revenue system brings in large revenue or small
revenue but whatever it brings it ought to be certain in its yield.
However there is a lot of hue and cry on such exemptions being granted to Agricultural income as their
urban counterparts in their corresponding income group is taxed under Income Tax Act, 1961.
The Taxation Enquiry Commission (1953-54) recommended the revision of tax taking into
consideration the changes in prices of agricultural products. But government of India did not take it
seriously.
A comprehensive study of agricultural taxation was undertaken by the Committee on Taxation of
Agricultural Wealth and Income under the chairmanship of K.N. Rajwhich submitted its report in
October 1972. Unfortunately, the recommendations of this committee also went into cold storage.
The Report of the Taskforce on Direct Taxes (Kelkar Committee), has also discussed the underreporting of incomes under the guise of exempt agricultural income.3
1Section 7A, 7B of Income Tax Act, 1961
2D.P. Sengupta and Kavita Rao, Direct Taxes Code and Taxation of Agricultural Income: A Missed
Opportunity,EPW vol. XLVII NO 15(2012).

3Ibid, p. 51
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Some of the recommendations which were put forward by the Committee are worth noticing and my
project work will be revolving in and around the Committees recommendations. My attempt through this
topic will be to shed light on this four basic issues regarding Agricultural-Taxation:
(i)
(ii)
(iii)
(iv)
(v)

What is Agricultural-Income?
Why demands are being made to make it taxable under Income Tax Act?
What are the pathways and mechanism laid down by Raj Committee to make taxation of
agricultural-income equitable?
Whether the recommendations of Raj Committee is efficient enough to turn the highly
inequitable taxation system in Agricultural-sector equitable?
What could be the possible alternative for the existing system of Land Revenue?

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II.What is Agricultural Income Taxation

In order to understand what is Agricultural income taxation, and on what basis such demand is being
made, we first need to understand what is AgriculturalIncome?
Article 246(1) of the Constitutionread with Entry No. 82 of theUnion List of the Seventh
Scheduleempowers Parliament to make laws with respect to taxes on income other than agricultural
income.
Similarly, Article 246(3) read with Entry 46 in List II of the Seventh Scheduleempowers the State
Legislature to make laws relating to tax on agricultural income.
Accordingly, Section 10(1A) of the Income Tax Act, 1961 provides for exclusion of agricultural income
in the computation of total income. Similar was the position relating to taxation of agricultural income
even under the Government of India Act, 1935 and the Income Tax Act, 1922.
Vide Article 366(1) of the Constitution, the expression Agricultural Income for the above entries
means agricultural income as defined for the purpose of the enactments relating to Indian income tax.
Agricultural Income as defined in Section 2(1A) of Income Tax Act, 1961 is exempt from income-tax
under Section 10 of the said Act, in the case of all assesses. This exemption has been granted on account
of the constitutional provisions relating to the powers of the Central and the State Governments for
levying tax on agricultural income.
This exemption would, however, be available only in cases where the income in question constitutes
agricultural income within the meaning of Section 2(1A).
Under Section 2(1A), an income which satisfies the following conditions is Agricultural Income4:
(a) Rent or revenue derived from land:
(i)
(ii)
(iii)
(iv)

The word rent denotes the payment of money either in cash or in kind by one person to another
(owner of the land) in respect of grant of right to use land.
The recipient of rent or revenue should be the owner of the land.
The expression revenue is used in the broader sense of return, yield or income, and not in the
sense of land revenue.
Income is said to be derived from land only if the land is the immediate and effective source of
the income and not the secondary and indirect source. Thus interest on arrears of rent payable
in respect of agricultural land is not agricultural income because the source of income
(interest) is not from land but it is from rent which is a secondary source of income and is
taxable under the head Income from other sources.5

(b) Land must be situated in India:

Land must be situated in India but it is immaterial whether the agricultural land in question has been
assessed to land revenue or local taxes assessed and collected by the Officers of the Government in India.
(c) Land must be used for agricultural purpose:
4Tax Laws and Practice available at http:// www.icsi.edu
5CIT v. KamakshyaNarain Singh (1948) 16 ITR 325.
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The land must be used for agricultural purposes. There must be some measure of cultivation on the land,
some expenditure of skill and labour upon it, to have been used for agricultural purposes within the
meaning of the Act.6
The operations on the land for agricultural purposes can be:
(i) Basic operation: These include tilling of the land, sowing of seeds, planting or an operation of a
similar kind (digging pits in the soil to plant a sapling).
(ii) Subsequent operations: These include weeding, digging the soil around the growth, nursing,
pruning, cutting, etc. If the person has performed the basic operations on the income shall be
agricultural income. For the land whether he has performed the subsequent example: Seller of
standing crops, who has put in operations or not. Labour and skill to make the crop sprout out of
the land, is agricultural income. If the person has not performed the basic operations the income
shall not be agricultural income for him on the land but he has performed the subsequent and it
will be taxable under the head Business/ operations/ Profession.
In the case of CIT vs Raja Binoy Kumar Sahas Roy7, Supreme Court laid down the following basic
propositions regarding the expression Agricultural Income:
The term agriculture is understood is the cultivation of the field and in that sense relates to basic
operations like tilling of the land, sowing of the seeds and planting and similar operations on the land.
These basicoperations require expenditure in terms of human labour and skill upon the land itself.
There are operations which are not basic in nature but are performed after the produce sprouts from the
land like weeding, digging of the soil around the growth, preservation against insects and pests, tending,
pruning, cutting, harvesting, etc., or rendering the produce fit to be taken to the market. These subsequent
operations must necessarily be in conjunction with and a continuation of the basic operations. One cannot
dissociate the basic operations from the subsequent operations and say that the subsequent operations can
constitute agricultural operations by themselves.
The nature of the produce raised is not relevant, the produce could be either vegetables or fruits
necessary for human consumption or pastures grown for beasts or for items like betel, coffee, tea, spices
or tobacco or for the growth ofcommercial crops.
Mere association with land as in the case of breedingand rearing livestock, dairy farming, butter- and
cheese-makingand poultry-farming cannot be treated as constituting agriculture.
Almost all subsequent decisions have been rendered in thetouchstone of the test as laid down in the said
judgment.
Since in India we dont have Agricultural-Taxation, but we have Land Revenue which accounts only 1%
of the total farm output. Land revenue in its original form was nothing but a direct tax on gross
agricultural income.

6Mustafa Ali Khan v. CIT (16 ITR 330).

732 ITR 466(SC).
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III. Why Demands are being made for Taxation of Agricultural Income
The foundations of modern land revenue system in India were laid during the period of the Mogul
dynasty, whereas the East India Company strengthened the land revenue system by introducing permanent
settlement in Bengal and Bihar and subsequently this was extended to the other parts of the country.
Under the Government of India Act 1935 the land revenue was assigned to the states and the same is
incorporated into the Indian Constitution in 1950 and then State Governments have attempted to have
their own independent land revenue system, though the basic structure has not changed more.
Demands for taxation of Agricultural Income is more than a half century old, as I mentioned that DR.
B.R. Ambedkar voiced the demand for taxation of agricultural-income. The basic reason behind such
demand, according to me, is two folded. One the one hand,the long existing Land Revenue System in
India was highly inequitable and regressive in nature and on the other hand, rapid changes in farming
technology, development of irrigation facilities, High Yielding Variety of Seeds led to a sharp rise in
agricultural production.
3.1 The present land revenue system is highly inequitable:
Farmers having similar and equal sized farms are treated differentially under the existing land revenue
system. In the urban sector the low income group is exempted from payment of income tax while in the
rural sector land revenue provides no such exemptions except at times of floods and other calamities.
Thus, considering the corresponding low income groups in the non-agricultural sector, land revenue
results in over taxation of the low income farmers. At the same time, under land revenue the upper income
group of farmers are taxed lightly while the corresponding income group in urban areas is taxed very
heavily. Thus equally situated individuals are differentiated.So in order to have horizontal equity among
the taxpayers, we need to impose broadly same incidence of tax on equally situated taxpayers, regardless
of their source of Income.
Given below are the seven basic parameters of model taxation system (MTS), on account of which we can
decide the efficiency and equitability of any taxation system:
1. Tax must be levied on taxable capacity or income.
2. It must be progressive i.e., the rich must be taxed more and the poor less.
3. Exemptions to tax payers should be allowed to those who haveincome below a certain limit.
4. Land revenue item must not be rigid but elastic and subject tovariations.
5. There should be equity in taxation.
6. No taxation system should be manipulated to lower the standard ofliving of the people.
7. There should be efficiency in taxation.
When we compare land revenue to the above mentioned parameters, it certainly fails to attract any of
these features of model taxation system.8
Any suggestion to impose a surcharge on the existing land revenue will, in the present circumstances,
only aggravate the in-equity.9 So looking at the present situation of taxation in
Agricultural sector, it will not be very benefiting to carry on with inequitable land
revenue system, and at the same time, any attempt to impose progressive taxation
on land revenue will further worsen the situation.
8 Mahesh Bhatt, How good a tax is Agricultual Tax, EPW p.915 (1969).
9A M Khusro, The Economic Weekly, Annual Number, (1963).
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Considerations of equity demand that agricultural income groups are taxed broadly on par with their
urban counterparts.10
3.2 Change in Structure and Organisation of Indian Agriculture:
Over the years, however, change in the composition of the crops cultivated as well as in the forms of
organisation in the agricultural sector. Agriculture has undergone a massive change in India. There are
many activities in this sector now which are either akin to or allied to manufacturing activities. Some of
these are:
Tissue Culture
Nurseries and Pot Cultivation: Jugal Kishore Arora Vs Deputy Commissioner of Income-Tax
[269 ITR 133].
Seed Companies: In recent years, there have been quite a few tax cases,
involvingseed companies which employ modern methods of generation and
propagation of seeds.
While the Mumbai Tribunal in the case of Monsanto11 has held the income from
sale of seeds to be agricultural income whereasThe Delhi Tribunal in the case
of Pioneer Overseas and Proagro Seeds has held the same to be non-agricultural
in nature.12
Apart from this the number of tractors per 100 sq. km has increased from 50 in the late 1980s to about
200 by 2008. While the total cropped area has increased from 185 to 195 million hectares since 1990-91,
the share of foodgrains has remained static around 122 to 125 million hectares. This suggests that there
has been some increase in the area devoted to non-food grain crops. While the change in the acreage is not
dramatic, it has increasingly been reported that the returns on the cultivation of non-foodgrains are
significantly higher than those from cultivation of foodgrains.13
Another important dimension in Indian agriculture, finding a lot of place in discussions on this sector, is
the growing presence of the corporate sector in various activities associated with this sector. There are
corporates/companies reporting agricultural income and income from the sale of various agricultural
products. While the number of companies is not large, the corresponding incomes are not inconsequential,
with over 50 companies reporting agricultural incomes of over Rs 100 crore, with their total agricultural
incomes amounting to Rs 31,313 crore in 2009-10.14
So here arises the need of a taxation mechanism which will squarely fit in these seven features of MTS. In
an attempt to do so, in the next section, we will look at some of the recommendations of Raj Committee.

10C H Hanumantha Rao, Agricultural taxation and Raj Committees report, EW p.2345 (1972).
11Monsanto India vs Addl Commissioner of Income Tax [2011-TIOL-169-ITAT-Mum].
12Proagro SeedsCompany Limited vs Joint Commissioner ofIncome Tax [2003-TIOL-50-ITAT-Del],
13Sushil Kumar,Higher Yields and Profits from New Crop Rotations Permitting Integration of Mediculture with
Agriculture in the Indo-Gangetic Plains, pp 563-66 C S, 80 (4), (2001),
14D.P. Sengupta and Kavita Rao, Direct Taxes Code and Taxation of Agricultural Income: A
Missed Opportunity,EPW vol. XLVII NO 15(2012).
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ButEquity cannot be attained unless enforcement is effective.The large-scale evasion and avoidance by
self-employed professionals and businessmen weakens the equity case of income tax. If this is the case in
the non-agricultural sec-tor, it is difficult to understand how the extension of this tax to the rural sector
which consists largely of self-employed farmers is going to sub-serve equity.15
The motive behind agricultural income tax in place of land revenue may be is to
mobilise more resources from the agricultural sector, as the yield from land revenue
has been diminishing in relative importance due to the phenomenal growth of sales
tax.16

15 Mahesh Bhatt, How good a tax is Agriculural Tax, EPW p.915 (1969).
16Ibid.
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IV. Recommendations of K.N. Raj Committee, 1972

Recommendations of Raj Committee:The temptation to dress up large chunks of taxable
income as agricultural in origin would be curbed to a considerable extent if the tax liability in
respect of non-agricultural income is linked in some way with the aggregate income of an
assesses comprising the receipts from both agricultural and non-agricultural sources. In other
words, evasion through the device of camouflaging taxable income as gains from agriculture
would cease to be paying if the disclosure of agricultural incomes entails a heavier burden of
tax on non-agricultural incomes. We, therefore, propose that both the agricultural and nonagricultural components of a taxpayers income be aggregated and the tax on the nonagricultural portion be levied as if it were placed in the top slabs of the aggregate income.17
Some of the basic recommendations are summarised below:
1. Introduction of Agricultural Holding Tax (AHT) in place of land revenue whereas
the unit of AHT assessment should be an operational holding and not an owner-ship
holding.
An operational holding is defined as consisting of land owned by the farm operator
minus any land leased out by him and plus any land leased in, provided the area
leased out and leased in are properly registered according to the provisions of the
tenancy legislation. The Committee claims that the adoption of this basis "will
discourage illegal or concealed leases of land because if a landowner leases out land
without get-ting it duly registered, he will be liable to the payment of AHT on the
same. Such obligation to register all leases will also help to pro tect the rights of
the tenants".18

2. Rejected Agricultural Income Tax as an alternative to land revenue. Agricultural

Income tax will not serve the purpose on account of following reasons19:
Difficulty in obtaining adequate accounts on farm in-comes and expenses;
Real possibility of tax evasion by the more influential cultivators;
Harassment of the less influential and the genuinely poor cultivators at the hands of
petty officials;
Administrative and other difficulties.
3. Calculations of output per hectare of different crops for each year (within each
soil-climatically homogeneous tract) should be worked out on the basis of the
estimates of yield for the previous 10 years.
Despite of the fact that Committee is aware that this procedure would understate the
incomes of large farmers because "the technological progress during the last 10 years
(1950-60) should place the normal performance in the current year above the average
of the past 10 years".20
17D.P. Sengupta and Kavita Rao, Direct Taxes Code and Taxation of Agricultural Income: A Missed
Opportunity ,EPW vol. XLVII NO 15(2012).
18K.N. Raj Committee Report, p.45 (Oct.1972).
19 C H Hanumantha Rao, Agricultural taxation and Raj Committees report, EW p.2345 (1972).
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4. For Calculating farm business income, the Committee suggests the deductions on
account of paid-out costs for all tin-irrigated crops at the rate of 40 to 50 per cent of
the value of their gross output.
Extra deductions are to be made on account of expenses of irrigation which means
that the percentage of gross output deductible as costs would be higher for irrigated
crops than for un-irrigated ones which means that the percentage of gross output
deductible costs would be higher for irrigated crops than for unirrigated crops.
5. Principle for agricultural tax policy: Incidence of direct taxation should be
broadly the same on comparable income and wealth groups irrespective of the
sources of such income and the forms in which wealth is held.21
The logical implication is firstly, that those earning Rs 5,000 and above per annum in
the agricultural sector who are now able to get away lightly should be taxed roughly
on par with their non-agricultural counterparts. Secondly, agricultural income groups
below Rs 5,000 per annum should be exempted from the direct taxes which they are
now required to pay in the form of land revenue, as their non-agricultural counterparts
are exempt from the Income Tax (This is in reference to Income Tax Rates applicable
in the financial year 1972-73).
6. The Committee has recommended that the Family should be the tax-paying unit for
assessment of agricultural as well as non-agricultural (non-corporate) incomes.
The family and not the individual earner is the recipient of income from all sources of
production activity in which the members of the family engage severally or
jointly.Essentially, the case for treating the family as the tax-paying unit is based on
equity. People in equal income positions should be treated equally, independent of
their source of income.22
7. Integration of agricultural and non-agricultural incomes. It should take effect
only if a taxpayer has taxable non-agricultural income exceeding the minimum
exemption limit laid down for the levy of income tax.
The Finance Act, 1973 accepted this recommendation and provided for partial
integration of agricultural income. However the constitutionality of this provision has
been challenged but has been upheld by the courts. In KJ Joseph vs ITO23the Kerala
HighCourt held that the Court held that the charge of tax is still on non-agricultural
income. No part of the agricultural-income is subjected to tax. For the purposes of
determining rate at which non-agricultural income is to be taxed, the agricultural
income is taken into account. This and the differential rates are based on the different
sources of income available to the persons concerned. It is only in respect of persons
who have agricultural income, in addition to non-agricultural income that the mode of
20 K.N. Raj Committee Report, p.39 (Oct.1972).
21 K.N. Raj Committee Report, p.9 (Oct.1972).
22 Ibid at p.90
23121 ITR 178
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computation of the rate of tax as provided by the impugned provisions is adopted.

This classification is reasonable and based on the intelligible differentia.
In KV Abdulla vs Income-Tax Officer and Another 24,the Karnataka High Court
held thatmaking the burden of tax on the net incomeheavier in proportion to the
increase in the agriculturalincome cannot be said to be unreasonable.An assessee with
agricultural incomeoccupies a position of economic superiority by reason of his larger
income and to make his tax liability heavier is not arbitrary, but is only an attempt to
proportion the payment to capacity to pay and then arrive, in the end, at a more
genuine quality.

24161 ITR 589.

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V. Review of the literature of Raj Committees Report:

The Raj Committee on Taxation of Agricultural Wealth and Income apparently sees the
reality but instead of exploding this myth and coming out boldly with proposals for an
equitous tax structure, it has decided to perpetuate some of the regressive elements in the
existing tax structurepresumably on grounds of practical wisdom.25
Equity cannot be attained unless enforcement is effective.The large-scale evasion and
avoidance by self-employed professionals and businessmen weakens the equity case of
income tax. If this is the case in the non-agricultural sec-tor, it is difficult to understand how
the extension of this tax to the rural sector which consists largely of self-employed farmers is
going to sub-serve equity.26
The motive behind Agricultural Holding Tax in place of land revenue may
be is to mobilise more resources from the agricultural sector, as the yield
from land revenue has been diminishing in relative importance due to the
phenomenal growth of sales tax.27
The arguments, both for and against the committees report are very
interesting, and will certainly enable us to draw a rough sketch of
agriculture-income-taxation. These are presented below:
1. The committee while saying that the unit for taxation will not be
agricultural income, owing to the difficulties in administration and
implementation of tax to the self-employed farmers, is a larger
probability of tax evasion. So AHT was recommended for taxation
purpose in rural areas.AHT is calculated as consisting of land owned
by the farm operator minus any land leased out by him and plus any
land leased in, provided the area leased out and leased in are
properly registered according to the provisions of the tenancy
legislation.This can be justified on the basis of valid economic reasoning. If income
from farming (estimated in one mariner or another) constitutes the tax base, it is
operational holding and not ownership holding that is relevant because one does not
necessarily have to own land in order to derive income from land.
2. It excludes Rental Income arising out of Agricultural Landout
of the purview of taxation.The Committee claims that the adoption
of this basis "will discourage illegal or concealed leases of land
because if a landowner leases out land without get-ting it duly
registered, he will be liable to the payment of AHT on the same.
Such obligation to register all leases will also help to protect the

25C H Hanumantha Rao, Agricultural taxation and Raj Committees report, EW p.2345 (1972).
26 Mahesh Bhatt, How good a tax is Agriculural Tax, EPW p.915 (1969).
27Ibid.
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rights of the tenants".28But this is not true because29. Legally stipulated

rents are significantly lower than the free market rents and the difference be-tween
them far exceeds the possible tax liability under the AHT so that land-owners may
stand to gain by concealed leases even after the payment of AHT. Besides, no
landowner would like to run the risk of losing ownership rights in land by getting the
leases registered. Further, by recommending operational holding as the unit, the
Committee allows a significant loophole for tax evasion: fictitious, though legal,
leases to friends and relatives by large landowners may be created with a view to
evading AHT.
3. Committee says that Norms of output per hectare of different crops for each year
(within each soil-climatically homogeneous tract) should be worked out on the basis
of the estimates of yield for the previous 10 years. It is highly undesirable to calculate
output on average 10 year basis because the production rises drastically within such a
long period, and hence the rise in agricultural income, due to advancement in farming
methods and related technologies. A 10-year average may be all right for dry
regions with high yield variability, for other regions 3-year is suffice.
4. Committee says Extra deductions are to be made on account of expenses of irrigation
which means that the percentage of gross output deductible as costs would be higher
for irrigated crops than for un-irrigated ones.Considering the fact that the green
revolution, which is expected to reduce unit costs, is likely to spread more rapidly in
areas served with assured (public) sources of irrigation, e.g. Irrigated pockets of
Punjab, Haryana, Andhra Pardesh, the Committee's suggestion would introduce an
element of inequity, as this amounts to a subsidy for the low-cost and prosperous
regions.30
5. Committee recommends family as the tax-paying unit, based on equity. It is based on
sound logic. Since ceilings on land holdings have been applied to family holdings, the
Agricultural Holdings Tax also should apply to family holdings, The committee has
rightly pointed out that family should be assesses for tax purposes. It could be well
understood by the following illustration:
Suppose there are two families A and B, of equal size. Let us assume that in family A
the husband alone works and that his annual income is Rs 12,000. In family B, both
husband and wife work, their annual incomes being Rs 7,000 and Rs 5,000,
respectively, Family B had a total income of Rs 12,000, like family A. Under the
existing rules and at the prevailing rates, family A will be liable to pay Rs 924 and
family B, Rs 220 towards income tax, ignoring concessions in respect of contributions
to provident fund, life insurance policy, etc. Though these two families have equal
incomes, the income tax liability of family A is over four times that of family B.31
28 K.N. Raj Committee Report, p.45 (Oct.1972).
29C H Hanumantha Rao, Agricultural taxation and Raj Committees report, EW p.2346 (1972).
30C H Hanumantha Rao, Agricultural taxation and Raj Committees report, EW p.2346 (1972).
31E T Mathew, Taxation of Agricultural Wealth and Income: ANote on the Raj Committees Report EPW
p.842(1973)

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But If on grounds of equity, if we argue that two families with equal (aggregate)
incomes should be treated equally for tax purposes, it follows that two families with
equal incomes but unequal number of dependents should be treated differently. In this
context Committees report is silent on differential taxation of equal families
having unequal number of dependants.So my submission is that family with equal
income but having more dependants shall be given concessions regarding the
responsibilities of their dependants.

VI. Hypothesis
Based on the above arguments put forth, in support as well as against the recommendations of
Raj Committees report, there is almost a consensus on following points:

Present land revenue system, the only form of direct taxation, applicable to the
agriculture, which is calculated on acreage basis is highly regressive in nature as well
as inequitable.

It is highly inequitable, when two equally situated persons in terms of income, to tax
one while the other (agri-income) is being given exemption.

Development of modern farming techniques has led to the sharp rise in the production
of agricultural output as well as income and hence agriculture in India is no more
subsitensive in nature.

There has been a shift from production of food grains towards horticulture and cash
crops, which in one way or other is a business. And hence agricultural income must be
place horizontally with other income which is taxable.

Agricultural income tax cant be an alternative because of administrative difficulties,

evasion of income tax.

Progressive surcharge cant be levied on land revenue, as it will further aggravate the
circumstances, and if done so it will remain same in letter and spirit.

AHT as proposed by Raj Committee, doesnt include rental income under the taxable
income, giving a loophole for tax evasion.

Farm output should be determined through an intense and deep survey of each Agroclimatic zone, based on the empirical data collected inter alia, soil, precipitation,
average size of landholdings.

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Close co-ordination between Centre and State as well as between different States so as
to come on a consensus on tax rates, to ensure that equally situated farmers in
different states are not taxed differently.

From the above mentioned points, it is clear that that agricultural income must be taxed.
However its way may be of different kinds, but any path to tax agricultural-income must be
equitable, progressive, simple to administer and assesse friendly, so that they should not feel
being harassed, especially small and marginal farmers.

VII. Conclusion

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VIII.Bibliography
1. Dr. V. K. Singhania : Students Guide to Income-tax including Service Tax/VAT;
TaxmannPublications Pvt. Ltd., 59/32, New Rohtak Road, New Delhi 110 005
(Edition based on provisions applicable for AY 2014-15).
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C H Hanumantha Rao, Agricultural taxation and Raj Committees report, EW

p.2346 (1972).

4.

E T Mathew, Taxation of Agricultural Wealth and Income: A Note on the Raj

Committees Report EPW (1973)

5. Mahesh Bhatt,How good a tax is Agriculural Tax, EPW p.915 (1969).

6. D.P. Sengupta and Kavita Rao, Direct Taxes Code and Taxation of Agricultural
Income: A Missed Opportunity ,EPW vol. XLVII NO 15(2012).

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