Question map
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?
Explanation
**Explanation:**
**Statement I is incorrect.** While agricultural income is generally exempt from income tax in India, allied agricultural activities like poultry farming and wool rearing are **not automatically exempt**. These activities are considered business income, not agricultural income, and are therefore taxable under the Income-tax Act, 1961. The exemption applies only to income derived from agricultural land through basic agricultural operations.
**Statement II is correct.** Under Section 194-IA of Income Tax Act, 1961, there are specific provisions for collection at source on transfer of certain immovable property[1] other than agricultural land, which indicates that agricultural land (particularly rural agricultural land) receives different treatment. Rural agricultural land is specifically excluded from the definition of "capital asset" under Section 2(14) of the Income-tax Act, 1961, meaning gains from its sale are not subject to capital gains tax.
Since Statement I is incorrect and Statement II is correct, option D is the right answer.
Sources- [1] https://cga.nic.in/DownloadPDF.aspx?filenameid=1787
PROVENANCE & STUDY PATTERN
Guest previewThis is a classic 'Definition Trap'. The examiner exploits the layman's assumption that 'Rural/Farming = Tax Free'. You must distinguish between the strict legal definition of 'Agricultural Income' (exempt) and 'Allied Activities' (often taxable as business). Success here requires knowing statutory exclusions, not just general economic sentiments.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: Under the Income-tax Act, 1961 in India, are incomes from allied agricultural activities such as poultry farming and wool rearing in rural areas exempt from income-tax?
- Statement 2: Under the Income-tax Act, 1961 in India, is rural agricultural land treated as a capital asset for capital gains taxation?
States that the Income-tax Act, 1961 governs taxable income and that the Act specifies standard deductions and exemptions — showing exemptions must be read in the Act.
A student could use this to look up the Act's specific definition and list of exemptions (i.e., whether 'agricultural' or 'allied' incomes are enumerated or excluded).
Lists livestock types (sheep, goat, poultry, etc.) and says income from livestock/poultry is an important secondary rural income — indicating wool rearing and poultry are treated as rural livestock activities.
A student could compare this list to the Income-tax Act's legal definition of 'agriculture' or 'agricultural income' to see if such livestock/allied activities fall within exemptions.
Describes poultry as a significant rural employment and income source (eggs, meat, exports) — giving an economic example of allied agricultural activity.
Use this economic characterization to justify checking whether the Act or case law treats commercial poultry in rural areas as 'agricultural' for tax exemption purposes.
Explains poultry farming practices and scale (egg/meat production), noting low capital and rural job opportunities — another practical example of allied activity.
A student could test whether small-scale rural poultry (described here) matches any statutory or judicial criteria (e.g., rural location, nature of operations) used to grant agricultural exemptions.
Notes that livestock rearing provides non-farm employment and income in rural areas, suggesting blurred lines between agricultural and non-agricultural activities.
A student could use this to reason that tax treatment may depend on factual distinctions (e.g., commercial scale, processing), prompting a search of legal tests in the Act or rulings.
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