CIT v. H.G. Date [1971] 82 ITR 71 (Bom)

FACTS

• The respondent-assessee owned about 93 acres of land and cultivated sugarcane.

• The assessee converted sugarcane into jaggery (gur) 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

• Citing Brihan Maharashtra Sugar Syndicate v. Commissioner of Income Tax, the court noted the two conditions for claiming exemption under section 2(1)(b)(iii):

  1. The process employed by the assessee must be one which is ordinarily employed by a cultivator for making his agricultural produce marketable.

  2. The produce must retain its original character (unless no market exists for the raw produce).

• 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 evidence to justify the finding of no market for the sugarcane produced by the assessee (in its raw form).

• 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 the assessee.

COMMENTARIES RATIO/NOTE

• INCOME DERIVED FROM MARKETING PROCESS- Sometimes it becomes difficult to find a ready market for 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: a. the process must be one which is ordinarily employed by a cultivator or receiver of rent-in-kind b. the process must be applied to render the produce fit to be taken to market.

• Moreover, if a 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, if sugarcane is generally sold in a given area without being subjected to any process, the process of converting sugarcane into gur would not be an 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.)).

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