Income From Business Chapter- 09
This rule applies to a person who is a cultivator or receiver of agricultural produce as rent in
kind and who uses agricultural produce raised or received as raw material in a business the
income from which is chargeable to tax under the head "Income from Business" as under:
Taxable income = Total income LESS market value of the agricultural produce used in business as
raw material
Only the market value of the agricultural produce is deducted and no further deduction shall be
made in respect of the any expenditure incurred by the taxpayer as cultivator or as a receiver of rent
in kind. The market value shall be computed as under:6.1 Where the produce is ordinarily sold in the market
Where the product is ordinarily sold in the market either in the raw state or after application of any
process required to make to product fit to be taken to the market then the market value shall be
determined on the date of use.6.2 Where the produce is not ordinarily sold in the market
The aggregate of expenses on cultivation and the land revenue or rent paid for the area in which it is
grown.
Example
Mr. B owns a floor mill. He also owned agricultural land from which wheat is being grown and used in
the floor mill as raw material. Profit and loss account of Mr. B for the year ended June 30, 20 23 is as
under
Rupees
Sale of floor 1,000,000
Less expenditure:
Wheat cultivation cost 600,000
Wheat conversion cost 100,000
Other expenses 50,000
250,000
Important note: Wheat used in floor mill, if purchased from open market, would have cost to Mr. B
Rs. 725,000.
Required:
(a) Taxable income of Mr. B, if wheat is ordinarily sold in the market.
(b) Taxable income of Mr. B, if wheat is not ordinarily sold in the market.
Solution:
(a) Taxable income of Mr. B, if wheat is ordinarily sold in the market in raw state.
Rupees
Sale of floor 1 ,000,000
Less expenditure:
Market value of wheat 725,000
Wheat conversion cost for floor 100,000
Other expenses 50,000
Taxable income 125,000
(b) Taxable income of Mr. B, if wheat is not ordinarily sold in the market in raw state.
Rupees
Sale of floor 1,000,000
Less expenditure:
Wheat cultivation cost (including land rent) 600,000
Wheat conversion cost 100,000
Other expenses 50,000