Agricultural income test: feeding mulberry leaves to silkworms is not a marketability process, so cocoon sale is not exempt.

Feeding mulberry leaves to silkworms is not a process ordinarily employed by a cultivator to render mulberry leaves marketable within section 2(1)(b)(ii) of the Income-tax Act, 1961. The statutory test requires the process to be customary, directed to making the agricultural produce marketable, and to leave the original produce identifiable in substance after processing. Here, the leaves were consumed by the silkworms and ceased to exist as mulberry leaves, while the cocoons did not retain any identifiable character as that produce. Income from selling the cocoons therefore does not qualify as agricultural income under the provision.

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Issues: Whether feeding mulberry leaves to silkworms and selling the resulting cocoons is a process ordinarily employed by a cultivator to render mulberry leaves marketable so as to bring the income within agricultural income under section 2(1)(b)(ii) of the Income-tax Act, 1961.

Analysis: The statutory test requires that the process be ordinarily employed by a cultivator or receiver of rent in kind, that it be used to make the produce marketable, and that the produce retain its original character after the process. On the facts, the mulberry leaves were not merely processed into a marketable form; they were consumed by the silkworms and ceased to exist as the agricultural produce. The resulting cocoons had no identifiable character as mulberry leaves or as a marketable form of that produce. The reasoning that the absence of a direct market for mulberry leaves by itself made the silkworm rearing process fall within the clause was rejected.

Conclusion: Feeding mulberry leaves to silkworms is not a process employed by a cultivator of mulberry leaves to make them marketable, and the income from the sale of cocoons is not exempt as agricultural income under section 2(1)(b)(ii) of the Income-tax Act, 1961.

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