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Only state govts can enact law regarding taxation on agriculture income

Responding to a petition seeking directions to exclude rich and affluent farmers from the benefit of income tax exemption, the central government has clarified that tax on agricultural income falls under purview of state governments and only state governments are competent to enact any law imposing tax on agriculture income.

In its detailed reply, filed by central government through Vivek Vardhan, deputy commissioner of Income Tax, it has been stated that item “Taxes on agricultural income” falls under Entry 46 in “State List” under the Constitution, and hence only the state governments are competent to enact legislations imposing a tax on agricultural income. Therefore, taxation of agricultural income, if any, has to be considered by the state governments only.

The affidavit further stated that as regards the recommendations of Tax Administration Reforms Commission, in its third report, the tax on agricultural income can be imposed by central government only if the states pass a resolution under article 252 of the Constitution, authorizing the Centre to impose such tax on agricultural income. It is further stated that as per scheme of direct taxes at present, income of agriculture is utilized for rate of tax purpose only in cases where the income from other sources exceeds the income not chargeable to tax, and net agricultural income exceeds five thousand rupees.

These submissions by Centre were submitted before a division bench headed by Justice A K Mittal during the hearing of a public interest litigation (PIL) filed by advocate H C Arora.

According to the petitioner, the provision contained in Section 10 (1) of the Income Tax Act, 1961, providing total exemption of agricultural income from Income tax is highly arbitrary, as even the rich and affluent farmers have been given benefit of this provision. He alleged that big industrialists, transporters, liquor barons are taking benefit of this provision and causing huge loss to revenue by diverting income from other business to show it to be agricultural income for avoiding liability to pay income tax. He further contended that exemption under section 10 (1) is against basic principles of our Constitution which envisages India to be “a socialist republic”, when very rich and affluent farmers are being given benefit of this provision by exempting their agricultural income also from tax.


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