Lawful assessment and collection are essential for agricultural income exemption; illegal or refundable levies do not satisfy the statute.

Rent derived from land used for agriculture was held not to qualify as agricultural income because the statutory conditions were not met by an unlawful levy. The Court construed "assessed to land revenue" and "assessed and collected" to mean a lawful assessment and lawful collection, not a de facto or refundable exaction. Examining the land revenue and local cess framework, it found no valid assessment of land revenue for the relevant period, and the later refund order confirmed that the earlier collection was illegal. The income therefore did not fall within the agricultural income definition and was not exempt under the 1922 Act.

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Issues: Whether rent or revenue derived from land used for agricultural purposes could be treated as agricultural income where land revenue and local cess had been collected but were later held to have been illegally levied and ordered to be refunded.

Analysis: The definition of agricultural income required that the land be used for agricultural purposes and also be either assessed to land revenue or subject to a local rate assessed and collected by officers of the Government. The Court held that the expressions "assessed to land revenue" and "assessed and collected" in the definition mean legally assessed and legally collected, not merely subjected to an unlawful or de facto collection. Reading the Bombay Land Revenue Code, the relevant rules for fixing assessment, and the provisions relating to local fund cess, the Court concluded that no valid assessment of land revenue had been fixed for the relevant period and, therefore, the local cess predicated on such assessment could not alter the position. The subsequent refund order confirmed that the earlier collection was illegal and could not satisfy the statutory condition for exemption.

Conclusion: The income was not agricultural income within section 2(1)(a) and was not exempt under section 4(3)(viii) of the Indian Income-tax Act, 1922.

Ratio Decidendi: For the purpose of agricultural income, the statutory requirement of land being "assessed to land revenue" or "subject to a local rate assessed and collected" is satisfied only by a lawful assessment and collection, not by an illegal or refundable levy.

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