791/CBDT. - Income Tax - 791/CBDT

INSTRUCTION NO. 791/CBDT Dated : November 19, 1974 Section(s) Referred: 143 Statute: Income - Tax Act, 1961 Attention is invited to the provisions in the Finance Act, 1973, whereby, with effect from the assessment year 1974-75, agricultural income is to be integrated with the non-agricultural income of an assessee for purposes of determining the rate of tax to be applied to the latter. The number of cases likely to be affected by these provisions is not known but it is desirable that the introduction of the new provision should not retard the Department's efforts for quick disposal of the existing work-load, and cases involving determination of agricultural income should also be handled expeditiously without of course, adversely affecting the interest of revenue. Towards that end, it is necessary that some clear and precise guidelines are provided to the assessing officers so that they can dispose of these cases in a speedy manner. For this purpose, some broad checks would have to be evolved on the application of which an ITO can quickly come to a decision whether the agricultural income declared by an assessee is acceptable or not. 2. In view of the numerous variables such as the nature of the soil, weather conditions from year to year, the type of irrigation facilities available, the nature and number of the crops grown, and the variations in regional prices not unoften resulting from restrictions placed by Government on movement of agricultural products, the checks visualised would have to be evolved on regional basis. The Commissioner are, therefore, requested to get in touch with the Department of Agriculture or any other agency of the State Government operating in their areas and after collecting necessary information formulate general guidelines for the Income-tax Officers. While doing so, the CITs may broadly classify the land into three or four types/classes and indicate the standard amount of net agricultural income that can be expected in respect of each crop per hectare for each type/class of land. The standards prescribed need not be rigid and, if necessary, can even indicate the monetary ranges within which these can vary for each class of land and crop. When more than one crop is grown in one year, necessary adjustments for revising the standard prescribed would have to be indicated. Where one state is covered by more than one Commissioner of Income-tax charge, it is essential that all the Commissioner of Income tax in that state, while evolving broad checks, should consult each other so as to ensure uniformity in approach. 3. Whenever a case involving agricultural income comes before an ITO he should see whether on broad application of the checks indicated to him by the CIT the income returned by the assessee is acceptable. If so, he need not waste any time over the case and the agricultural income declared by the assessee should be promptly accepted. Since however, the integration of agricultural income is only for the limited purpose of determining the tax rate on the non-agricultural income, the temptation to overstate the agricultural income at the cost of non-agricultural income, or comouflage unaccounted money as agricultural income has not been fully contained; and is, therefore, likely to manifest itself in a number of cases. Where therefore, on the application of broad checks, it is found that the agricultural income has been over-stated, the ITO should examine the case properly and the excess should be brought under assessment under the head "Business or Profession" or "Other Source" as the facts of the relevant case suggest. Cases where non-agricultural income declared is a loss or is small, but agricultural income declared is considerable (say above Rs.20,000) should be fully scrutinised. If these cases fall under the present Summary Assessment Scheme, these should be taken out of it and after proper scrutiny dealt with as indicated earlier. It is felt that cases involving under-statement of agricultural income are likely to be few so that in determining agricultural income the ITOs would, generally, have to be on their guard against applying the traditional approach of making additions to the amounts declared. If, however, such cases do occur, the ITO should make suitable additions in the light of the broad standards of checks indicated to them. 4. In majority of the cases, the assessees are not likely to have any accounts for their agricultural income and even if these are maintained and produced, these might generally not be of a reliable nature to provide a basis for assessment. In such cases, assessments should be raised on the basis of broad guidelines given by the CIT. Where however, regular accounts are produced, these should be examined and assessments framed on the basis of the account books according to the Rule formulated. 5. As current assessment work must have already started in right earnest, the Commissioners would have to evolve the broad standard checks urgently and issue directions to the field officers as early as possible. Copies of the instructions issued by the Commissioners to the field officers should be endorsed.