Insurance proceeds for crop damage can qualify as agricultural income when they compensate loss from farming operations.

A payment received under a hail-damage insurance clause for injury to green leaf in a tea estate was treated as agricultural income because it directly compensated loss to a growing crop forming part of agricultural operations. Rule 24 of the Income-tax Rules, 1922 was held inapplicable, as it governs only the sale of tea grown and manufactured by the seller and the apportionment between agricultural and manufacturing operations. A sum received in substitution of loss of agricultural produce retains the character of the source from which it arises when it represents profit of agricultural operations. The receipt was therefore exempt under section 4(3)(viii) of the Indian Income-tax Act, 1922.

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Issues: Whether the amount received under the hail-damage insurance clause for damage to green leaf in a tea estate constituted agricultural income exempt under section 4(3)(viii) of the Indian Income-tax Act, 1922.

Analysis: The receipt arose under a special insurance clause covering damage by hail to the growing crop. Rule 24 of the Income-tax Rules, 1922, applies only to income derived from the sale of tea grown and manufactured by the seller and to the apportionment between agricultural and manufacturing operations; it does not govern a receipt of this nature. The payment was found to relate directly to damage to the growing crop, which formed part of the assessee's agricultural operations. A sum received in substitution of the loss of agricultural produce retains the character of the source from which it arises when it represents the profit of agricultural operations.

Conclusion: The receipt was agricultural income and was exempt under section 4(3)(viii) of the Indian Income-tax Act, 1922; the question was answered in the affirmative and against the revenue.

Ratio Decidendi: A payment received under an insurance clause compensating for damage to growing agricultural crop is agricultural income when it represents the profit of agricultural operations, and is exempt accordingly.

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