Agricultural income exemption applied to compensation for requisitioned land paid in lieu of lost farming income.

Rent or compensation received for agricultural land during requisition, before final acquisition, was treated as agricultural income because the land continued to retain its agricultural character until vesting in the Government. The payment was regarded as a substitute for income that would have arisen from agricultural operations, not as income from a disconnected source. Interruption of cultivation did not alter the nature of the receipt, since it was paid in respect of agricultural land and in lieu of agricultural income. The receipt was therefore exempt under section 10(1).

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Issues: Whether the amount received by the assessee as rent or compensation for the agricultural land during the period of requisition and before final acquisition constituted agricultural income under section 2(1)(a) and was exempt under section 10(1).

Analysis: The land continued to be agricultural land until its vesting in the Government on acquisition. The amount paid by the Government was in substitution of the income that would have been earned from agricultural operations on the land, and not income from a source disconnected from agriculture. The fact that cultivation was interrupted during the relevant period did not alter the character of the receipt, because the payment was made in respect of agricultural land and in lieu of agricultural income.

Conclusion: The receipt was agricultural income and was exempt; the assessee succeeded on the issue.

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