Q.State, with reasons, whether the following is agricultural income: profit earned by a company from converting sugarcane grown on its own land into refined sugar and selling it.

Converting a raw crop into a substantially different manufactured product goes beyond what a cultivator ordinarily does to make produce marketable.

Growing the sugarcane is agriculture; converting it into refined sugar is a manufacturing process well beyond ordinary marketing preparation.

Growing sugarcane on the company's own land is a genuine agricultural operation, and the sugarcane itself, at the point it is harvested and fit for the market, represents agricultural produce. Converting that sugarcane into refined sugar, however, is a substantial manufacturing process — well beyond "a process ordinarily employed by a cultivator... to render the produce raised... fit to be taken to market" under Section 2(1A)(b), which covers only simple marketing-preparation steps (like drying or cleaning), not a full industrial conversion into a different commercial commodity.

Because the activity genuinely mixes agriculture (growing the cane) with business (manufacturing it into sugar), the income is a COMPOSITE income, similar in principle to the tea and coffee cases in Section 2 of this chapter. The general apportionment principle for such cases — Rule 7 of the Income-tax Rules, 1962 — treats the market value of the agricultural produce (the sugarcane, valued at the point it would ordinarily be sold as raw produce) as agricultural income (exempt), deducting that market value as a cost in computing the remaining business income (taxable) from the manufacturing and sale of sugar. Unlike tea (Rule 8) and coffee (Rule 7B), there is no FIXED percentage for this general case — the split depends on the actual market value of the raw sugarcane, which is why this question is answered qualitatively here rather than with a computed rupee split; this syllabus fixes numeric splits only for tea and coffee.

Treating the ENTIRE profit from selling refined sugar as agricultural income merely because the sugarcane was grown by the same company — once a genuine manufacturing process (well beyond ordinary marketing preparation) is applied to the produce, the resulting income becomes a composite of agricultural and business income, not wholly agricultural.