Ques. Is the income earned from “Contract farming” business Taxable?
Ans. If you are farmer cultivating crop for a company or firm than the income is not taxable but if you are a company or a firm getting crop cultivated by the farmers under “Contract Farming” agreement than all the income is taxable.
|Taxability on “Contract farming” Income|
In a recent judgment on petitions by Namdhari Seeds Pvt. Ltd., a Division Bench of the Karnataka High Court held that such income of agri-business firms come under the purview of business income which attracts tax under the provisions of the Income Tax Act.
In this case, the firm had claimed as agricultural income the amount generated by it from the sale of hybrid seeds grown on land belonging to various persons under “contract farming” agreements. As per the Income Tax Act, according to the firm, income derived from agricultural land qualifies as agricultural income and it is not necessary to own land to derive agricultural income.
Though the Income Tax Department had rejected this claim, the Income Tax Appellate Tribunal had, in its 2006 order, treated 90 per cent of the firm’s income as agricultural income.