Product fit for marketing is agricultural income and extraction of oil from fruit / kernel is an industrial activity and assessable as business income.

The assessee is a plantation company which is engaged in cultivation of oil and processing and extraction of crude palm oil from fruit as well as from the kernel. The Assessing Officer held that part of income earned by assessee from sale of palm oil as business income by applying Rule 7 of the income –tax rules . In appeal the view of Assessing Officer was confirmed. On further appeal, the High Court held that the processing covered by item(ii) of section 2(IA)(b) is only so much of process which a cultivator ordinarily engages to make product for marketing, therefore income that is attributable to agricultural operations is the market value of palm fruit with pulp and kernel. Activity carried out by assessee in extraction of oil from fruit /from kernel is an industrial activity and therefore income from such activity is assessable as its ‘profits and gains of business’ under section 28(i). Appeal was decided in favour of revenue.(A.Ys 1997-98 to 2006-07)
Oil Palm India Ltd v. ACIT ( 2012) 206 Taxman 1 (Ker.) (High Court)