Despite holy cow agri tax status, Himachal CM Virbhadra Singh’s apple cart may be upset

Doodh bech ke kamayatha, (got it from sale of milk) said Rabri Devi, the former chief minister of Bihar and wife of the irrepressible Lalu Prasad Yadav, himself an ex CM, with a touch of defiance laced with innocence, when tax sleuths asked for the source of ample and mind-boggling cash found in her household a decade or so ago.

She did not know that dairy farming was not and is not an agricultural activity for income tax purposes. Only activities relating to vegetable kingdom, as it were, are considered to be agricultural and hence exempt from income tax. This includes not only vegetables but also fruits, cereals, pulses and even commercial crops.

Agriculture therefore beckons city slickers and others endowed with ample black money seeking laundering without being sent abroad through the hawala route and brought back once again through subterranean channels as FII or QIB money in the capital market.

Pretense of doing farming pulls the wool over the eyes of the tax administration. Farm houses that dot the fringes of our urban-scape is a fallout of this tendency which besides acting as a bulwark against taxation also enables one to bask in sprawling villa type houses away from the din and dust of cities. Any number of farm houses is tax-free whereas for regular residential houses, only one begets the nil income status. Thus if I have two houses, one in Delhi and another in Chennai, I have to choose one for the nil income status. But not for the one who has ten farm houses because all of them are exempt from tax in the belief that farming is going on in the vicinity. The former finance minister Yashwant Sinha must be complimented for bringing income from marriages and other functions in farm houses under the tax net. Earlier, this too blithely passed muster as farm income.

The Himachal chief minister, Virbhadra Singh, naturally clambered onto the farm house and farming bandwagon, enticed by its immense potential. Unlike milk, apples make the grade as farming and hence income from sale of apples is indeed exempt from tax. But where he went wrong was in assuming that agriculture’s holy cow status would extend to absence of scrutiny. He is alleged to have deposited Rs 5 crore cash into the bank account of his agri business company, and glibly explained it away as proceeds of apple sales. The tax authorities naturally are suspecting money laundering. His alleged act was as unthinkingly brazen as those of JMM MPs who deposited the bribe received from the Narsimha Rao government to vote in its favor on the floor of the Lok Sabha into their savings bank accounts.

In this regard, I believe it was a monumental mistake to carve out exemption for agricultural income. Indeed it was a historical and historic mistake, the one that has been lending agriculture to tax abuse. The rationale for exemption is it is in the state list. Shops and establishments are also in the state list. Don’t we expect shopkeepers to pay income tax? It is another matter that they thumb their noses at the taxman. The presumptive taxation scheme obtaining for them whereunder 8% of turnover upto Rs 1 crore is presumed to be their income, has had no takers despite its upshot being just a slap on their wrists. Be that as it may, the point is carte blanche exemption to agricultural income is wholly unwarranted. The deserving ones, presumably 90%, would have in any case gotten the exemption with their incomes being below the tax-free limit. Kulaks and charlatans are laughing all their way to banks, with a heightened tax on their non-agricultural income barely scratching the surface.

It is good that our regulators are at last not allowing wool to be pulled on their eyes.SEBI is now actively questioning the FIIs and QIBs and handing over the charlatans among them to the CBDT as reported by FP. Round-tripping in the capital market has been going on for decades. It is time the CBDT bestirred and made a door to door survey of farm houses on the city fringes. Deductively, it would land booty because none of them remotely facilitate farming, with farming there being just an eye wash.

In short if agriculture itself cannot be taxed, the charlatan variety represented by farm houses, happening under the taxman’s nose, must be targeted. Taxmen will accrue tax from numerous farm houses that simply do not make the grade. More importantly,  discovery of money laundering going on through this seemingly benign route would also throw up considerable revenue for the exchequer.