Rule 270: Income partly agricultural and partly from business
Rule 270, made under section 533(2)(b)(i), deals with income that is partly agricultural and partly from business. Where agricultural produce raised by the assessee, or received as rent in kind, is used as raw material in the business or its sale receipts are in the business accounts, its market value is allowed as a deduction. No further deduction is allowed for expenditure incurred as cultivator or receiver of rent in kind.
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Rule 270 - Determination of income, being partly from agricultural and partly from business
(1) In terms of section 533(2)(b)(i), in case of income, which is partially agricultural income and partially from business, the market value of any agricultural produce which has been raised by the assessee, or received by him as rent in kind, shall be allowed as a deduction, where —
(a) such agricultural produce has been utilised as a raw material in such business; or
(b) sale receipts of such agricultural produce are included in the accounts of the business.
(2) No further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.
(3) For the purposes of sub-rule (1) "market value" shall be deemed to be, —
(a) where agricultural produce is ordinarily sold in the market in its raw state, or after application to it of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be taken to market, the value calculated according to the average price at which it has been so sold during the relevant tax year; and
(b) where agricultural produce is not ordinarily sold in the market in its raw state or after application to it of any process referred to in clause (a), the aggregate of —
(i) the expenses of cultivation;
(ii) the land revenue or rent paid for the area in which it was grown; and
(iii) such amount as the Assessing Officer finds, having regard to all the circumstances in each case, to represent a reasonable profit.
Rule breakdown
The deduction: Rule 270(1) and (2)
Produce raised by the assessee or received as rent in kind.
Allowed where it is used as raw material in the business, or its sale receipts are included in the business accounts.
The market value of the produce is deducted; no further deduction for cultivation or rent-in-kind expenditure.
Market value: Rule 270(3)
If the produce is ordinarily sold in its raw state or after a cultivator's ordinary process: the average price at which it was so sold during the relevant tax year.
If not ordinarily sold that way: expenses of cultivation, plus land revenue or rent for the area where it was grown, plus a reasonable profit as found by the Assessing Officer.
Key takeaways
Market value deducted
Own produce used in the business is deducted at market value.
No double deduction
Cultivation expenses are not deducted again.
Two valuation methods
Average market price, or cost plus reasonable profit.
Practical checklist
- Keep records of average market prices for the tax year.
- Keep cultivation cost records where produce is not sold raw.
Avoid
- Do not claim cultivation expenses in the business account in addition to the market value deduction.
FAQs
What is deducted from business income?
The market value of the agricultural produce used as raw material or whose sale is included in the business accounts (Rule 270(1)).
Can I also deduct cultivation costs?
No. Rule 270(2) bars further deduction for expenditure as cultivator or receiver of rent in kind.
How is market value found if the produce is not sold in the market?
Cost of cultivation plus land revenue or rent plus a reasonable profit determined by the Assessing Officer (Rule 270(3)(b)).
Glossary
- Rent in kind
- Rent received in the form of agricultural produce.
- Market value
- The value of produce worked out under Rule 270(3).