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

   Both I and II are correct and II explains I. That would need poultry and wool to be tax-exempt because rural land is not a capital asset. Those are different heads. Allied-activity income is not agricultural income, so I fails and cannot be explained by II.

2. B

   Both Statement I and Statement II are correct but Statement II does not explain Statement I

   Both correct but II does not explain I. II is correct. I is not: exemption under section 10(1) is for agricultural income as defined, not for every rural farm-neighbour business.

3. C

   Statement I is correct but Statement II is not correct

   I correct, II not. Rural agricultural land is, in fact, kept out of ‘capital asset’ in section 2(14). II holds.

4. D

   Statement I is not correct but Statement II is correct

   I is not correct, II is correct. Agricultural income (rent or revenue from agricultural land, and produce of cultivation) is exempt. Poultry farming and wool rearing do not use land as a crop; they are generally taxable as business income. Rural agricultural land is not a capital asset, so capital gains on its transfer are not charged — that is II, and it does not rescue I.

Summary. Official key is (d): Statement I is not correct, Statement II is correct. Poultry and wool rearing are not agricultural income, so they are not tax-exempt. Rural agricultural land is excluded from ‘capital asset’ under section 2(14). (a) and (b) treat poultry as exempt; (c) drops the land line.