Agricultural income from composite tea estate lease remains exempt to the extent attributable to agricultural land under apportionment rules.

Rent received from land used for agricultural purposes retains its character as agricultural income even when paid under a lease, because section 2(1) covers rent or revenue derived from agricultural land. Where the lease is composite and includes a tea estate together with a factory and other non-agricultural assets, the agricultural component must be separated from the rest. Rule 8 was upheld as the proper basis for apportioning the lease income in such circumstances, so only the portion attributable to the tea estate land qualified for exemption. The assessee's exemption claim therefore succeeded to that extent.

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Issues: Whether lease rent received from a tea estate constituted agricultural income exempt from tax, and whether Rule 8 could be applied to apportion the income where the lease also included a factory and other non-agricultural assets.

Analysis: Section 2(1) of the Income-tax Act defines agricultural income to include rent or revenue derived from land in India used for agricultural purposes. Rent received under a lease does not lose its character as rent derived from agricultural land merely because it arises under a contract of lease. At the same time, where the lease covers not only agricultural land but also a factory and other assets, the agricultural component has to be separated. The allocation made by applying Rule 8, which had been upheld in similar circumstances, was found to be and consistent with the exemption scheme.

Conclusion: The lease income was agricultural income to the extent attributable to the tea estate land, and the apportionment under Rule 8 was upheld.

Final Conclusion: The assessee's claim for exemption succeeded, and the relief granted in part by the appellate authority was confirmed.

Ratio Decidendi: Rent received from land used for agricultural purposes retains its character as agricultural income even when received under a lease, and where the lease is composite, the agricultural portion may be determined by apportionment under the applicable rule.

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