# Apportionment of Composite Income — Rules 7, 7A, 7B, and 8
Where an assessee carries on a business in which agricultural produce is used as raw material for manufacture, the income has both an agricultural and a business component. The Income-tax Rules prescribe the basis of apportionment.
## Rule 7 — General Rule (Non-Specified Produce)
Applies to any agricultural produce (other than tea, coffee, rubber) used as raw material in a business.
Computation of Business Income:
| Particulars | Amount |
|---|---|
| Sale Proceeds of non-agricultural (manufactured) produce | xxx |
| Less: Market value of agricultural produce (raw material) used | (xxx) |
| Less: Manufacturing expenses | (xxx) |
| Business Income (Taxable) | xxx |
The market value of the agricultural produce is treated as agricultural income (exempt).
## Rule 7A — Income from Manufacture of Rubber
- Agricultural Income: 65% (Exempt)
- Business Income: 35% (Taxable)
## Rule 7B — Income from Manufacture of Coffee
| Activity | Agricultural | Business (Taxable) |
|---|---|---|
| Coffee grown and cured by seller | 75% | 25% |
| Coffee grown, cured, roasted and grounded by seller (with or without mixing chicory/flavoring agents) | 60% | 40% |
## Rule 8 — Income from Manufacture of Tea
- Agricultural Income: 60% (Exempt)
- Business Income: 40% (Taxable)
## Summary Table
| Rule | Produce | Agricultural (Exempt) | Business (Taxable) |
|---|---|---|---|
| 7 | Other produce | Market value of raw material | Balance |
| 7A | Rubber | 65% | 35% |
| 7B(1) | Coffee — grown & cured | 75% | 25% |
| 7B(1A) | Coffee — grown, cured, roasted, grounded | 60% | 40% |
| 8 | Tea | 60% | 40% |
## Key Points
- These rules apply when the assessee both grows AND manufactures the produce.
- If the assessee only purchases the agricultural raw material (e.g., buys tea leaves and manufactures tea), the entire income is business income — no agricultural component.
- The exempt agricultural portion is added to Total Income for rate purposes under partial integration (if applicable).
## Additional Note
Agricultural income may also be derived from any farm building required for agricultural operations (subject to conditions on location and use under Section 2(1A)(c)).