Toddy tapping and vending is not agricultural income and does not qualify as manufacture for deduction purposes.

Income from toddy tapping and vending is not agricultural income where the assessee shows no basic agricultural operations such as tilling, sowing, planting, or other cultivation activity; natural growth alone is insufficient, and the exemption under section 10(1) is not available. Toddy tapping and vending under a statutory excise lease and licence also does not amount to manufacture or production of an article or thing, because the activity is only tapping and sale without any established manufacturing process or qualifying plant and machinery. On that basis, the claimed deduction under section 80HHA is unavailable.

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Issues: (i) Whether income derived from toddy tapping and vending is agricultural income exempt under section 10(1) of the Income-tax Act, 1961. (ii) Whether toddy tapping and vending involves manufacture or production of an article or thing so as to qualify for deduction under section 80HHA of the Income-tax Act, 1961.

Issue (i): Whether income derived from toddy tapping and vending is agricultural income exempt under section 10(1) of the Income-tax Act, 1961.

Analysis: The activity was carried on under a statutory excise regime requiring a lease and licence, and the assessee led no evidence of any agricultural operation. The trees were naturally grown, and the income arose only from the right to tap and vend toddy. Income can be treated as agricultural only when it is derived from land by basic agricultural operations or operations incidental to them. Products of spontaneous growth, without tilling, sowing, planting, or similar basic operations, do not yield agricultural income. The burden to establish exemption lay on the assessee.

Conclusion: The income from toddy tapping and vending is not agricultural income and is not exempt under section 10(1); the issue is answered against the assessee and in favour of the Revenue.

Issue (ii): Whether toddy tapping and vending involves manufacture or production of an article or thing so as to qualify for deduction under section 80HHA of the Income-tax Act, 1961.

Analysis: The activity consisted only of tapping trees and vending toddy under licence, with no manufacturing process and no material machinery or plant established on record. Section 80HHA contemplates an industrial undertaking with the requisite plant and machinery and an industrial operation of the prescribed kind. On the facts, the activity was not industrial in nature and did not amount to an industrial undertaking.

Conclusion: Toddy tapping and vending does not involve manufacture or production and does not qualify for deduction under section 80HHA; the issue is answered against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered wholly against the assessee, with both the agricultural-income claim and the industrial-undertaking claim rejected.

Ratio Decidendi: Income from naturally grown produce tapped and sold under a statutory licence is not agricultural income unless the assessee proves derivation from basic agricultural operations, and a mere tapping-and-vending activity without manufacturing process or qualifying plant and machinery does not constitute an industrial undertaking.

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