Consider the following statements Statement I: In India, income from allied agricultural activities like poultry farming and wool…

Question

Consider the following statements:

Statement I: In India, income from allied agricultural activities like poultry farming and wool rearing in rural areas is exempted from any tax.

Statement II: In India, rural agricultural land is not considered a capital asset under the provisions of the Income-tax Act, 1961.

Which one of the following is correct in respect of the above statements?

1. A. Both Statement I and Statement II are correct and Statement II explains Statement I
2. B. Both Statement I and Statement II are correct but Statement II does not explain Statement I
3. C. Statement I is correct but Statement II is not correct
4. D. Statement I is not correct but Statement II is correct (Correct answer)

Correct Answer

Option D — Statement I is not correct but Statement II is correct

Detailed Solution & Explanation

The correct answer is Statement I is not correct but Statement II is correct.

Key Points

• Statement I is not correct, but Statement II is correct.
• Why Statement I is wrong: Income from allied activities such as poultry farming, wool rearing, dairy and fisheries is NOT agricultural income and is not tax-exempt.
• Under Section 2(1A) of the Income-tax Act, 1961, agricultural income is narrowly defined (rent or revenue from agricultural land and income from cultivation), so allied activities are taxable as business income.
• Why Statement II is correct: Rural agricultural land is not treated as a capital asset under Section 2(14) of the Income-tax Act, 1961, so its transfer does not attract capital gains tax.

Additional Information

• Agricultural income, though exempt under Section 10(1), is still used for rate purposes through partial integration when computing tax on non-agricultural income above the basic exemption limit.