Rule 270 of the Income-tax Rules, 2026

Where this rule sits

Rule 270 gives effect to Section 533 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.

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What this rule does

Sub-rule (1) provides that in terms of section 533(2)(b)(i), where income is partially agricultural income and partially from business, the market value of any agricultural produce raised by the assessee, or received by him as rent in kind, shall be allowed as a deduction, where the produce has been utilised as a raw material in the business or where the sale receipts of the produce are included in the accounts of the business.

Sub-rule (2) provides that no further deduction shall be made in respect of any expenditure incurred by the assessee as a cultivator or receiver of rent-in-kind.

Sub-rule (3) defines "market value" for sub-rule (1) in two situations. Where the agricultural produce is ordinarily sold in the market in its raw state, or after a process ordinarily employed by a cultivator or receiver of rent-in-kind to render it fit to be taken to market, it is the value calculated according to the average price at which it has been so sold during the relevant tax year. Where it is not ordinarily so sold, it is the aggregate of the expenses of cultivation, the land revenue or rent paid for the area in which it was grown, and such amount as the Assessing Officer finds, having regard to all the circumstances in each case, to represent a reasonable profit.

Why it is there

When a business consumes what the assessee himself has grown, no purchase has taken place and there is no price to deduct, yet the whole value of the produce would otherwise be taxed as business profit even though the agricultural part of it is not chargeable. The rule inserts a notional deduction at the point of transfer from field to factory, and then fixes how that notional figure is arrived at — an average market price where one exists, and a built-up cost-plus-reasonable-profit figure where it does not. Sub-rule (2) makes sure the same expenditure is not deducted twice.

Who it applies to

• An assessee whose income is partially agricultural income and partially from business
• An assessee who raises agricultural produce or receives it as rent in kind and uses it in his business, or includes its sale receipts in the business accounts
• The Assessing Officer determining the reasonable profit element in the second market value method

The figures, and what each one turns on

What this means in practice

The deduction is not a choice between two valuation methods. Which limb of sub-rule (3) applies is settled by fact — whether the produce is ordinarily sold in the market in its raw state or after a process ordinarily employed by a cultivator — and only if it is not so sold does the cost-plus-reasonable-profit computation apply. The average price limb is an average over the relevant tax year, so a favourable day's price is not the measure. The processes that count are those a cultivator ordinarily employs to make the produce fit for market; processing beyond that is the business's own activity and does not move the valuation point. Sub-rule (2) is the trap for accounts: having deducted market value, the assessee cannot also deduct the cultivation expenditure he actually incurred, and in the second limb that expenditure is already inside the market value figure. The reasonable profit in that limb is not the assessee's own estimate; it is what the Assessing Officer finds having regard to all the circumstances of the case.

An example

A firm grows sugarcane and crushes it in its own mill. The cane is ordinarily sold in the market in its raw state, so under sub-rule (3)(a) the deduction is the average price at which it was so sold during the tax year — say Rs 3,000 a tonne for 10,000 tonnes, a deduction of Rs 3 crore against the business income. It cannot also deduct the Rs 1.8 crore it spent on cultivation, because sub-rule (2) allows no further deduction for expenditure incurred as a cultivator. Had the cane not been ordinarily sold in that state, the deduction would instead have been cultivation expenses plus land revenue or rent plus the reasonable profit the Assessing Officer finds.

Where you meet this rule

An assessee with both agricultural and business income meets it in the computation attached to the return, where the market value of self-grown produce consumed in the business appears as a deduction, and in an assessment where the price used or the reasonable profit element is examined.

The words themselves

What people get wrong

• Deducting both market value and cultivation expenditure. Sub-rule (2) allows no further deduction for expenditure incurred as a cultivator or receiver of rent-in-kind.
• Choosing the cost-plus method because it gives a higher figure. Sub-rule (3)(b) applies only where the produce is not ordinarily sold in the market in its raw state or after an ordinary process.
• Using a spot or year-end price. Sub-rule (3)(a) requires the average price at which the produce has been so sold during the relevant tax year.
• Treating factory processing as an ordinary process. Sub-rule (3)(a) covers a process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce fit to be taken to market.
• Fixing the reasonable profit in the accounts. Sub-rule (3)(b)(iii) leaves it to the Assessing Officer on the circumstances of the case.
• Applying the rule where the produce is neither used as raw material nor its sale receipts included in the business accounts. Sub-rule (1) requires one of those two.