Consider the following statements : Statement I : In India, income from allied agricultural activities like poultry farming and wool rearing in rural areas is exempted from any tax. Statement II : In India, rural agricultural land is not considered a capital asset under the provisions of the Income-tax Act, 1961. Which one of the following is correct in respect of the above statements?

Statement I is incorrect because income from allied activities like poultry farming and wool rearing is classified as non-agricultural income and is fully taxable, whereas Statement II is correct as rural agricultural land is specifically excluded from the definition of a "capital asset" under Section 2(14) of the Income-tax Act, 1961. Option (A) is a common trap for candidates who mistakenly believe all farm-related rural income is tax-exempt, failing to distinguish between land-based cultivation and commercial animal husbandry. The core concept tested is the legal definition of "Agricultural Income" and "Capital Assets" under Indian tax laws.