Agricultural income exemption upheld for rent under a usufructuary mortgage and lease-back arrangement.

Rent derived from land used for agricultural purposes remains exempt agricultural income, even where it arises under a usufructuary mortgage coupled with a lease-back arrangement. The Court treated the receipt as rent and not taxable business profit, held that the assessee's motive was irrelevant, and refused to recharacterise the transaction so as to defeat the statutory exemption. The rent was therefore not assessable to income-tax, and the reference was answered in the negative.

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Issues: Whether rent received under a usufructuary mortgage and lease-back arrangement, where the land is used for agricultural purposes, constitutes agricultural income exempt from income-tax.

Analysis: The relevant provisions treated agricultural income as exempt from assessment, notwithstanding that income might otherwise fall within a charging head under the Act. The rent in question was derived from land used for agricultural purposes, and the Court held that the arrangement, even when the mortgage and lease were read together, still produced rent and not taxable business profits. The motive of the assessee was held to be irrelevant, and the transaction could not be recharacterised so as to defeat the statutory exemption for agricultural income.

Conclusion: The rent was agricultural income and was not assessable to income-tax.

Final Conclusion: The reference was answered in the negative, and the assessee succeeded on the question referred.

Ratio Decidendi: Rent derived from land used for agricultural purposes remains exempt agricultural income even if it arises through a usufructuary mortgage coupled with a lease-back arrangement, where the legal character of the receipt is rent and not business profit.

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