Consider the following statements:Statement I: In India, income from allied agricultural activities

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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?

Accepted Answer

Correct Answer: D - Statement I is not correct but Statement II is correctStep-by-step Solution:Statement I - Income from allied agricultural activities like poultry farming and wool rearing is tax-exempt: This statement is incorrect. Under the Income-tax Act, 1961, only 'agricultural income' (as defined under Section 2(1A)) is exempt under Section 10(1). Agricultural income must arise from land through cultivation or related processes. Activities like poultry farming, wool rearing, dairy farming, and pisciculture are classified as non-agricultural income because they do not involve cultivation of land. Therefore, such income is taxable under normal income tax provisions, even if carried out in rural areas. ✗Statement II - Rural agricultural land is not a capital asset under IT Act 1961: This statement is correct. As per Section 2(14) of the Income-tax Act, 1961, 'capital asset' excludes rural agricultural land in India. Hence, gains arising from the sale of such land are not subject to capital gains tax. However, urban agricultural land is treated as a capital asset and is taxable. ✓Do they explain each other? Since Statement I itself is incorrect, the question of explanation does not arise. Moreover, Statement II deals with capital gains taxation on land, while Statement I concerns income tax on agricultural/allied activities — two entirely different aspects of taxation.Why other options are incorrect:Option A: Incorrect. Statement I is wrong.Option B: Incorrect. Statement I is factually incorrect.Option C: Incorrect. Statement I is not correct.Key Concept: Agricultural income exemption in India is narrowly defined. Only income derived from land (cultivation, rent, basic processing) is exempt. Allied activities like poultry, dairy, and fisheries are fully taxable. Separately, rural agricultural land is excluded from 'capital asset', so its sale is not taxed under capital gains — a different provision altogether.

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More Questions from Taxation – Direct & Indirect Taxes, GST

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