Interest on arrears of agricultural rent qualifies as agricultural income where it is inseparable from the rent itself.

Interest on arrears of agricultural rent was treated as agricultural income because its real source was the landlord's right to receive rent from agricultural land, not a separate default-based receipt. The reasoning emphasised that such interest is inseparably connected with the landlord-tenant relationship and operates as an accretion to the rent itself. The Court also relied on the broad statutory meaning of income derived from land and consistent administrative practice. On that basis, interest on arrears of agricultural rent falls within the definition of agricultural income and is exempt from taxation under the Indian Income-tax Act.

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Issues: Whether interest on arrears of agricultural rent forms part of agricultural income within the meaning of Section 2(1)(a) of the Indian Income-tax Act.

Analysis: The issue turned on whether interest on arrears of rent could be treated as income derived from land, or whether it was a separate receipt arising only from the tenant's default. The Court distinguished the view that interest is not rent, but held that the character of the receipt for income-tax purposes depends on its real source. Interest accruing on arrears of agricultural rent was treated as an accretion to the rent itself and as inseparably connected with the landlord-tenant relationship arising from the land. The Court also relied on the long-standing administrative practice of treating such interest as exempt agricultural income and on the broad meaning of rent or revenue derived from land in the statutory context.

Conclusion: Interest on arrears of agricultural rent is agricultural income and is exempt from taxation under the Indian Income-tax Act.

Ratio Decidendi: Where interest arises directly from arrears of agricultural rent and is inseparably connected with the landlord's right to receive rent from agricultural land, it is income derived from land and falls within the statutory definition of agricultural income.

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