Compensation for requisitioned farmland can be agricultural income when cultivation continues and the land retains its agricultural character.

Compensation received for requisition of agricultural land remained agricultural income where the land continued to be cultivated and retained its agricultural character. The payment was directly referable to land used for agricultural purposes and was treated as rent or revenue derived from such land under section 2(1) of the Indian Income-tax Act, 1922. It was distinguishable from cases where requisitioned property was not put to agricultural use. The compensation was therefore exempt from tax as agricultural income.

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Issues: Whether compensation received for requisition of agricultural land, while agricultural operations continued on the land, constituted agricultural income exempt from tax.

Analysis: Agricultural income under section 2(1) of the Indian Income-tax Act, 1922 includes rent or revenue derived from land used for agricultural purposes. The finding of fact was that, even after requisition, the land continued to be cultivated by refugees and its agricultural character did not change. The compensation was paid for parting with possession of land on which agricultural operations continued, and was directly related to the land. On that basis, the payment had the character of rent or revenue derived from agricultural land and was distinguishable from cases where requisitioned property was not used for agricultural purposes.

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

Final Conclusion: Compensation received for requisition of agricultural land, where the land continued to be used for agriculture, falls within agricultural income and is not taxable.

Ratio Decidendi: Compensation received for requisition of land retains the character of agricultural income when it is directly referable to land used for agricultural purposes and the land continues to yield agricultural operations during the relevant year.

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