Agricultural income test applied to land requisition compensation; direct nexus with agricultural land secured tax exemption.

Compensation received for requisition of land actually under agricultural use was treated as agricultural income because the immediate and effective source of the receipt was the land itself, not a remote statutory mechanism. The court applied the direct nexus test, requiring the income to be derived directly from agricultural land; on that basis, the requisition compensation was held intrinsically linked to the land and exempt from tax.

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Issues: Whether compensation received for requisition of land used for agricultural purposes constituted agricultural income and was therefore exempt from tax.

Analysis: The decisive test was whether the receipt was directly derived from land used for agricultural purposes, and whether its immediate and effective source was the land itself rather than a merely remote or statutory source. The requisitioned lands were found to have been under actual agricultural use and cultivation at the relevant time, and the compensation payable under the requisition statute was held to be intrinsically linked with the land requisitioned. Applying the principle that agricultural income must have a direct nexus with agricultural land and not merely an indirect or intervening source, the compensation was treated as revenue directly associated with the land.

Conclusion: The compensation was agricultural income and was exempt from tax. The question was answered in the affirmative and in favour of the assessee.

Ratio Decidendi: Compensation arising directly from requisition of land actually used for agricultural purposes is agricultural income where the land remains the immediate and effective source of the receipt.

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