Tax on Income derived from Agricultural Activity outside India
According to the Definition of the term “Agricultural Income” under section 2(1A), any income derived from agricultural land situated in India shall be regarded as agricultural income and only such income qualifies for exemption under section 10(1) of the Income Tax Act. If the agricultural land is situated outside India, then the character of income derived from there cannot be considered as agricultural income under the Income Tax Act, 1961.
Therefore, the income arises from agricultural operations carried on outside India is chargeable to tax in the hands of a resident individual. The head of under which it requires to be included shall be “Profits and Gains of Business or Profession”, if it is carried on as a business and in any other case under the head “Income from Other Sources”.
In ca case where there is a loss from agricultural land situated outside India, the same loss shall be eligible for set-off while computing the taxable income of the resident assessee in India. This view has found favour from the decision of Supreme Court in CIT Vs. Carew & Co. Ltd. 120 ITR 540 (1979) on the principle that when agricultural income from land situated outside India is taxed, loss if any, suffered shall be allowed to be set-off.
Definition of Agricultural Land
Word not defined in Act;
Different meanings assigned to the terms: WIKIPEDIA :
• Agricultural land (also agricultural area) denotes the land suitable for agricultural production, both crops and livestock. It is one of the main resources in agriculture. The standard classification (used, e.g., by FAO — Food and Agriculture Organization of the United Nations) divides agricultural land into the following components:
• Arable land — land under annual crops, such as cereals, cotton, other technical crops, potatoes, vegetables, and melons; also includes land left temporarily fallow.
• Orchards and vineyards — land under permanent crops (e.g., fruit plantations).
• Meadows and pastures — areas for natural grasses and grazing of livestock.
• The first two components — arable land and land in permanent crops — constitute so-called cultivable land. The part of arable land actually under crops is called sown land or cropped land. The term farmland is ambiguous in the sense that it may refer, on the one hand, to agricultural land and, on the other hand, to cultivable or even only arable land.
• Depending on the use of artificial irrigation, agricultural land is divided into irrigated and non-irrigated land. In arid and semi-arid countries agriculture is often confined to irrigated land, with very little farming possible in non-irrigated or rainfed areas.
Organisation for Economic Co-operation and Development (OECD)
Agricultural land is land including arable land, land under permanent crops and land under permanent meadows and pastures.
Circular No. 2(WT) of 1968 dt. 16/03/1968
A land may be treated as Agricultural land if the following conditions are satisfied;
1. Land Revenue/Agricultural cess is paid.
2. Agricultural operations are carried out from year to year.
3. It has not been put to non-agricultural use.
4. Courts view :
The first decision of Hon’ble Supreme Court which considered the meaning of the expression ‘agricultural land’ is in CIT v . Raja Benoy Kumar Sahas Roy  32 ITR 466 . But the question there was whether the income from
forest land derived from sal and piyasal trees, ‘not grown by human skill and labour’ constitutes agricultural income?
Held, that the income actually derived from the trees planted by the assessee was agricultural income within the meaning of 2(1) of the Indian Income-tax Act.
Under the Wealth-tax Act, 1957 is in CWT v. Officer-in-charge ( Court of
Wards)  105 ITR 133 (SC) (hereinafter referred to as the Begumpet Palace case). It was an appeal from a Full Bench decision of the Andhra Pradesh High Court. The Full Bench of the Andhra Pradesh High Court
evolved the following eight indicators to determine whether a land is an agricultural land, viz.,:
“(1) The words ‘agricultural land’ occurring in section 2(e)( i) of the Wealth-tax Act should be given the same meaning as the said expression bears in entry 86 of List I and given the widest meaning;
(2) the said expression not having been defined in the Constitution, it must be given the meaning which it ordinarily bears in the English language and as understood in ordinary parlance;
(3) the actual user of the land for agriculture is one of the indicia for determining the character of the land as agricultural land;
(4) land which is left barren but which is capable of being cultivated can also be ‘agricultural land’ unless the said land is actually put to some other non-agricultural purpose, like construction of buildings or an aerodrome, runway, etc., thereon, which alters the physical character of the land rendering it unfit for immediate cultivation;
(5) if land is assessed to land revenue as agricultural land under the State Revenue Law, it is a strong piece of evidence of its character as agricultural land;
(6) mere enclosure of the land does not by itself render it a non-agricultural land;
(7) the character of the land is not determined by the nature of the products raised, so long as the land is used or can be used for raising valuable plants or crops or trees or for any other purpose of husbandry;
(8) the situation of the land in a village or in an urban area is not by itself determinative of its character.” (p. 139)
The Hon’ble Supeme Court characterised the indicator Nos. 6,7 and 8 as merely negative in character. It disagreed with (1) and (4) and observed that only the fifth indicator was a relevant one though not conclusive. There was no controversy regarding indicator No. 3. Inasmuch as the matter was not examined from the correct point of view, it was remitted to the High Court for a fresh decision.
Smt. Sarifabibi Mohmed Ibrahim v. Commissioner of Income-tax : (1993) 204 ITR 631(SC)
Hon’ble Supreme Court has evolved the following 13 factors/indicators applying which the question has to be answered. The 13 factors are the following :
(1) Whether the land was classified in the revenue records as agricultural and whether it was subject to the payment of land revenue?
(2) Whether the land was actually or ordinarily used for agricultural purposes at or about the relevant time?
(3) Whether such user of the land was for a long period or whether it was of a temporary character or by way of a stop-gap arrangement?
(4) Whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land?
(5) Whether, the permission under section 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land? If so, when and by whom (the vendor or the vendee)? Whether such permission was in respect of the whole or a portion of the land? If the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date?
(6) Whether the land, on the relevant date, had ceased to be put to agricultural use? If so, whether it was put to an alternative use? Whether such cesser and/or alternative user was of a permanent or temporary nature?
(7) Whether the land, though entered in revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled? Whether the owner meant or intended to use it for agricultural purposes?
(8) Whether the land was situate in a developed area? Whether its physical characteristics, surrounding situation and use of the lands in the adjoining area were such as would indicate that the land was agricultural?
(9) Whether the land itself was developed by plotting and providing roads and other facilities?
(10) Whether there were any previous sales of portions of the land for non-agricultural use?
(11) Whether permission under section 63 of the Bombay Tenancy and Agricultural Lands Act, 1948, was obtained because the sale or intended sale was in favour of a non-agriculturist? If so, whether the sale or intended sale to such non-agriculturist was for non-agricultural or agricultural user?
(12) Whether the land was sold on yardage or on acreage basis?
(13) Whether an agriculturist would purchase the land for agricultural purposes at the price at which the land was sold and whether the owner would have ever sold the land valuing it as a property yielding agricultural produce on the basis of its yield?
It is further clarified that not all of these factors would be present or absent in any case and that in each case one or more of those factors may make appearance and that the ultimate decision will have to be reached on a balanced consideration of the totality of circumstances.