The correct option is that Statement I is not correct but Statement II is correct because, while income from traditional agricultural activities is exempt from tax, allied activities such as poultry farming can be subject to taxation if they exceed specified thresholds. In contrast, Statement II accurately reflects the law, as rural agricultural land is not treated as a capital asset under the Income-tax Act, 1961, meaning any gains from its sale are exempt from capital gains tax. This distinction is crucial for understanding the taxation policies that stimulate agricultural growth and livelihoods in rural India.