Mr. Bewaja, grows sugarcane and uses the same for the purpose of manufacturing sugar in his factory. 35% of the sugarcane produce is sold for ₹20 lacs and the cost of cultivation of such sugarcane is ₹7 lacs. The cost of

Sugarcane is an agricultural produce and therefore, income from the sale of sugarcane gives rise to pure agricultural income. However, in case of cultivation of sugarcane and use of sugarcane to manufacture sugar, the income would be partly business and partly agricultural. As per Rule 7 of the Income-tax Rules, 1962, taxable business income would be computed after deducting market value of any agricultural produce utilised as a raw material in such business, and no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind. The relevant workings as under: Business Income: Sales - Market Value of 65% of sugarcane produce - manufacturing expenses. ₹45 lakhs - ₹35 lakhs - ₹3.5 lakhs = ₹6.5 lakhs Agriculture Income: Market Value of sugarcane produce - Cost of cultivation of the sugarcane = [₹20 lakhs + ₹35 Lakhs] - [₹7 lakhs + ₹13 Lakhs] = ₹55 lakhs - ₹20 lakhs = ₹35 lakhs