Q. 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?
(a) Both Statement I and Statement II are correct and Statement II explains Statement I
(b) Both Statement I and Statement II are correct but Statement II does not explain Statement I
(c) Statement I is correct but Statement II is not correct
(d) Statement I is not correct but Statement II is correct
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Answer & Explanation:
✅Correct Answer: Option (d): Statement I is not correct but Statement II is correct.
Statement I Analysis:
“In India, income from allied agricultural activities like poultry farming and wool rearing in rural areas is exempted from any tax.“
This statement is incorrect in its generalization. According to the Income-tax Act, only income from core agricultural activities, such as cultivation of land and the subsequent sale of produce, is exempt from tax under Section 10(1).
However, income from allied agricultural activities, like poultry farming, dairy farming, or wool rearing, is not treated as agricultural income under the Income-tax Act. These activities may be connected to rural livelihoods, but the income from such activities is considered business income and is taxable, regardless of whether they are carried out in rural areas.
Hence, Statement I is incorrect if it claims such income is exempt from any tax.
Statement II Analysis:
“In India, rural agricultural land is not considered a capital asset under the provisions of the Income-tax Act, 1961.“
This statement is correct. According to Section 2(14)(iii) of the Income-tax Act, rural agricultural land in India is not treated as a capital asset for the purpose of calculating capital gains tax. Therefore, any capital gain arising from the sale of rural agricultural land is not taxable. The definition of rural agricultural land is based on its location (e.g., distance from a municipality and population of the area).
So, Statement II is factually correct.
❌ Relationship between the Statements:
While both statements talk about tax exemptions, Statement II does not explain or justify Statement I, because one deals with land classification under capital gains, and the other talks about taxation of income from allied activities, which is not exempt.
📝 Conclusion:
- Statement I is incorrect.
- Statement II is correct.
- They are unrelated in terms of explanation.
✅ Therefore, the correct answer is Option (d): Statement I is not correct but Statement II is correct.