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

The correct answer is (d) Statement I is not correct but Statement II is correct.

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

This statement is not correct. Under the Income-tax Act, 1961, “agricultural income” is exempt from tax [under Section 10(1)]. However, the Act strictly defines agricultural income as income derived from the cultivation of land (like growing crops) or rent/revenue from such land.
Allied activities like poultry farming, dairy farming, and wool rearing are not considered agricultural income. They are treated as business income and are taxable.

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

This statement is correct. Section 2(14) of the Income-tax Act, which defines “capital asset,” specifically excludes rural agricultural land in India.
Because it is not considered a capital asset, any profit (capital gain) from the sale of such rural agricultural land is not subject to capital gains tax. (Note: Urban agricultural land, however, is considered a capital asset and its sale is taxable).