1946 (4) TMI 20 - HC - Income Tax

Summary

Issues Involved:
1. Whether the income derived from the sale of gul manufactured from sugar-cane is agricultural income under Section 2(1)(b) of the Income-tax Amendment Act, 1939.
2. Whether the process employed by the assessee is ordinarily employed by a cultivator.
3. Whether the process employed renders the produce fit to be taken to market.

Detailed Analysis:

Issue 1: Agricultural Income Definition
The primary issue is whether the income derived from the sale of gul manufactured from sugar-cane qualifies as agricultural income under Section 2(1)(b) of the Income-tax Amendment Act, 1939, and thus is exempt from taxation under Section 4(3)(viii) of the Act. The definition of agricultural income includes income derived from land by the performance of any process ordinarily employed by a cultivator to render the produce fit to be taken to market or the sale of produce in its natural form.

Issue 2: Process Employed by a Cultivator
The Tribunal initially referenced Section 2(1)(b)(ii) but later corrected it to Section 2(1)(b)(iii). The question is whether the process employed by the assessee, which involves using crushers and oil engines to crush sugar-cane and extract juice, is ordinarily employed by a cultivator. The Tribunal's findings, based on the Inspector's report, indicate that large cultivators use oil engines while small cultivators use bullocks. The Tribunal concluded that the process employed by the assessee is substantially the same as that employed by cultivators, thus satisfying the requirement.

Issue 3: Fit to be Taken to Market
The second part of the issue is whether the process employed renders the produce fit to be taken to market. The Tribunal's findings show that the sugar-cane grown by the assessee can be sold to other factories or used to produce gul or sugar. The Tribunal also noted that small cultivators sell their sugar-cane to factory owners. The Tribunal's conclusion that the process employed by the assessee is to render the produce fit to be taken to market is based on the evidence provided.

Evidence and Tribunal's Findings:
The Tribunal's report includes various findings:
1. Use of machine power does not alter the nature of the process.
2. The sugar-cane grown by the assessee is not of the soft quality used for chewing.
3. The sugar-cane can be sold to other factory owners or used by the assessee for producing gul or sugar.
4. Small cultivators can sell their sugar-cane to factory owners.
5. The particular quality of sugar-cane used for manufacturing gul by the assessee is not marketable in its raw form.

Court's Analysis:
The Court examined whether the Tribunal's findings are based on any evidence and whether the process employed by the assessee is ordinarily employed by a cultivator. The Court found that there is evidence supporting the Tribunal's conclusion that the process employed by the assessee is ordinarily employed by a cultivator. However, the Court also noted that the sugar-cane grown by the assessee is marketable without being turned into gul, as there is a market for this hard quality of sugar-cane.

Conclusion:
The Court concluded that the Tribunal was in error in overlooking the fact that the sugar-cane grown by the assessee is marketable without passing through any process. Therefore, the income derived from the sale of gul manufactured from sugar-cane does not qualify as agricultural income under the definition provided in Section 2(1)(b) of the Income-tax Amendment Act, 1939.