Agricultural income exemption fails where cantonment land is not assessed to land revenue, despite agricultural use.

Income from land used for agriculture in a military cantonment does not qualify as agricultural income unless the statutory twin conditions are met: the land must be used for agricultural purposes and it must also be assessed to land revenue or subject to a local rate. Rent paid to the Union of India as lessor is not land revenue, and exemption from land revenue in a cantonment does not by itself prove assessment to land revenue in the relevant settlement. On that basis, the income discussed is outside the agricultural income exemption.

---

---

Issues: Whether the income derived from agricultural land taken on lease from the Union of India in a military cantonment was exempt as agricultural income under the statutory definition requiring that the land be used for agricultural purposes and be assessed to land revenue or subject to a local rate.

Analysis: The statutory definition of agricultural income required two co-existing conditions: the income must be derived from land used for agricultural purposes, and the land must be assessed to land revenue or subject to a local rate. The land in question was used for agriculture, but the rent paid to the military authorities, representing the Union of India as lessor, was not land revenue. Assessment to land revenue is a matter within the State's domain, and exemption from land revenue does not by itself establish that the land was assessed to land revenue in the relevant settlement. Lands in military cantonments were shown to be exempt from assessment absent special orders, and no material established that these lands were assessed to land revenue in the current settlement.

Conclusion: The income was not agricultural income within the meaning of the statutory definition and was not exempt from tax.

Ratio Decidendi: For income to qualify as agricultural income under the statutory definition, both the agricultural use of the land and its assessment to land revenue or liability to local rate must be established; rent paid to the Union of India for cantonment land does not amount to land revenue.

---