Report No. 49
5. Dichotomy between agricultural income and other income.-
It is thus obvious that there is, in the constitutional scheme, a rigid dichotomy between agricultural income and other income, for the purpose of taxation. This dichotomy has, in legislative practice in India also, a very long history, and it is axiomatic that agricultural income cannot be taxed by the Centre.
When the income-tax was levied in India in 1860, income was taxable1 under four schedules, viz., (1) income from landed property, which included income purpose of determining the Rate of Tax under the Income-tax Act, 1961 from land (agricultural income) and from house property; (2) income from Professions and Trades; (3) income from Securities (annuities and dividends included); and (4) income from Salaries and Pensions. But, since 1886, agricultural income has been excluded. The whole question now is, whether the proposal to take into account agricultural income for the limited purpose of determining the rate of tax would change the character of the tax and take it on the other side of the dichotomy, or whether the tax will still remain on this side of the dichotomy, that is to say, within the competence of the Union.
1. O.P. Chawla Development of the concept of Income under the Indian Income-tax Laws, (1968) 22 Bulletin for International Fiscal Documentation, 341, 342.