Agricultural income includes rent arrears from the previous year and income from cultivated groves under the U.P. Act.

Arrears of rent realised in the relevant previous year were treated as agricultural income even though the land had vested in the State before the assessment year, because the amended U.P. Agricultural Income-tax Act was construed as taxing income of the previous year without requiring continued ownership or holding during the assessment year. The same reasoning made the arrears assessable in favour of Revenue. Income from groves was also held to fall within agricultural income under section 2(1), since groves planted and cultivated through basic agricultural operations produce land-derived income of an agricultural character. That issue too was resolved in favour of Revenue.

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Issues: (i) Whether arrears of rent realised in the previous year were includible in agricultural income where the land had vested in the State before the assessment year, and whether the amendment to the U.P. Agricultural Income-tax Act removed the requirement of continued ownership or holding in the assessment year. (ii) Whether income from groves constituted agricultural income within section 2(1) of the U.P. Agricultural Income-tax Act.

Issue (i): Whether arrears of rent realised in the previous year were includible in agricultural income where the land had vested in the State before the assessment year, and whether the amendment to the U.P. Agricultural Income-tax Act removed the requirement of continued ownership or holding in the assessment year.

Analysis: Tax was charged on the total agricultural income of the previous year, and the statutory definition of "person" and the amendment of 1953 were construed to remove doubts that tax liability depended on continued ownership or holding in the assessment year. Once the assessee had owned or held property in the relevant previous year, it was immaterial that the property had ceased to be owned or held during the assessment year. The arrears of rent realised in the previous year were therefore assessable as agricultural income.

Conclusion: The issue was answered in the affirmative, in favour of Revenue.

Issue (ii): Whether income from groves constituted agricultural income within section 2(1) of the U.P. Agricultural Income-tax Act.

Analysis: Agricultural income was understood to include not only cultivation in the strict sense, but also basic operations and the necessary subsequent operations that foster and preserve the produce of the land. Groves where trees are planted on land and cultivated by such operations fall within that conception, and their produce is a product of the land having agricultural character.

Conclusion: The issue was answered in the affirmative, in favour of Revenue.

Final Conclusion: The references were disposed of by holding the rent arrears taxable in the connected matter and by treating grove income as agricultural income in both references.

Ratio Decidendi: Where the assessee owned or held property during the relevant previous year, subsequent cessation of ownership before the assessment year did not prevent taxation of agricultural income earned in that previous year, and income from planted groves cultivated through basic agricultural operations is agricultural income.

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