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COMMISSIONER OF INCOME TAX, POONA VS. H.G. DATE [1971]82ITR71(BOM)

 

 

COMMISSIONER OF INCOME TAX, POONA VS. H.G. DATE [1971]82ITR71(BOM)

FACTS

  • The respondent-assessee owned about 93 acres of land and cultivated sugarcane.
  • The assessee converted sugarcane into jaggery for sale.
  • For the assessment years 1952-53 and 1954-55, the assessee claimed that income from jaggery sales was agricultural income and thus exempt from taxation.
  • The Income Tax Appellate Tribunal (ITAT) remanded the case for further investigation regarding the market for sugarcane.
  • The assessee argued that their sugarcane, unfit for chewing, could only be used for jaggery or sugar production.
  • The Tribunal recognized the unique characteristics of sugarcane, its perishable nature, and the practical necessity for conversion into jaggery or sugar.
  • The Tribunal found in favour of the assessee, determining their income from jaggery sales as agricultural income exempt from taxation.
  • Hence, the present appeal before HC.

ISSUE

  • Whether there was evidence to justify the finding that there was no market for the sugarcane produced by the assessee.
  • Whether the income received by the assessee was agricultural income under the Income Tax Act.

RULE

  • To qualify for exemption, agricultural produce must retain its original character unless there is no market for selling it in that condition.

HELD

  • Brihan Maharashtra Sugar Syndicate v. Commissioner of Income Tax, on a true construction of the provisions in section 2(1) (b) (iii), it was held that in connection with the claim for exemption made by an assessee under the above section, 
    • the first condition required to be satisfied was that the process employed by the assessee must be one which is ordinarily employed by a cultivator for making his agricultural produce marketable. 
    • The second condition required to be satisfied was: "..... the produce must retain its original character”
  • The Tribunal found that the sugarcane produced by the assessee was not fit for chewing and could only be used for producing sugar or jaggery.
  • It noted that sugarcane had certain peculiarities and must be crushed within a short period to retain its sugar content.
  • The Tribunal concluded that there was no evidence to justify the finding of a market for the sugarcane produced by the assessee.
  • It held that the income received by the assessee from the sale of jaggery was agricultural income exempt from tax.
  • The High Court affirmed the decision of the tribunal and decided in favour of assessee.

 

COMMENTARIES RATIO/NOTE

  • 278.2-2 INCOME DERIVED FROM MARKETING PROCESS- Sometimes it becomes difficult to find ready market of the crop as harvested. In order to make the produce a commodity which is saleable, it becomes necessary to perform some kind of process on the produce. The income, arising by way of enhancement of value of such produce, by performing such process to make the raw produce fit for market, is also agricultural income. However, the following conditions must be satisfied: 
  1. the process must be one which is ordinarily employed by a cultivator or receiver of rent-in-kind
  2. the process must be applied to render the produce fit to be taken to market.

 

For instance, tobacco leaves are ordinarily dried to make them suitable for sale. Therefore, the income from the ordinary process employed to dry the tobacco leaves to make them fit to be taken to market, is agricultural income. The ordinary process employed to render the produce fit to be taken to market includes thrashing, winnowing, cleaning, drying, crushing, boiling and decanting, etc., though the nature of process depends upon quality of the produce and varies from time to time and place to place. Moreover, if marketing process is performed on a produce which can be sold in its raw form (without requiring any process to make it fit for marketing), income derived therefrom is partly agricultural and partly non-agricultural. For instance, unginned cotton has a ready market and as such profit attributable to ginning operation is not agricultural income. Similarly, sugarcane is generally sold in a given area without being subjected to any process, the process of converting sugarcane into gur would not be agricultural process and income attributable to the process of converting sugarcane into gur would not be agricultural income-Brihan Maharashtra Sugar Syndicate Ltd. v. CIT[1946] 14 ITR 611 (Bom.).