2021 (6) TMI 1047 - HC - Income Tax

Agricultural income or not - Profit from the sale of Jaggery - HELD THAT - It is not the case of the appellant/assessee that the sugarcane in its original form could not be marketed by him. The conversion of sugarcane into jaggery is also not an essential process to make sugarcane marketable. In the decision in CIT Vs. H.G. DATE 1970 (2) TMI 41 - BOMBAY HIGH COURT as held that the sugarcane variety raised by the assessee was not usable in its natural form which inevitably forced the farmer to convert it into sugar or jaggery to market. As the basis for such a ruling that the sugarcane which was converted to jaggery still falls under the agricultural produce category to make it eligible for Income Tax exemption. Such instances are far and few and definitely the exception cannot be a rule - the assessment Officer in his order dated 18.11.2005 has categorically found that the present assessee did not state the circumstance under which the asseessee converted the sugarcane into jaggery. It is further observed by him that the assessee has incurred an expenditure of ₹ 1,70,000/- for manufacturing of jaggery while he incurred expenditure of ₹ 1,30,000/- towards cultivating sugarcane. As also seen that though manufacturing of jaggery can be done by a small scale by a group of farmers by extracting juice from fresh sugarcane which is filtered and boiled in wide yellow shallow iron pans with continuous stirring and also adding soda or other similar chemicals to get the jaggery, it is evident that the process of converting sugarcane into jaggery is not an essential one to make sugarcane marketable and there is more profit in making it as jaggery and selling. If the exemption of agricultural income is extended to the sale of jaggery, it would only facilitate many agriculturists to claim this exemption and carrying revenue loss to the exchequer.

Summary

Issues:
1. Classification of profit from the sale of Jaggery as agricultural income.

Analysis:
The judgment by the High Court of Madras involved two appeals by the assessee against the order of the Income Tax Appellate Tribunal for the assessment year 2003-2004. The main issue in both appeals was whether the profit from the sale of Jaggery could be classified as agricultural income. The court emphasized that agricultural income is derived from land by agricultural operations, including processing of agricultural produce to make it marketable while retaining its original character. The appellant had converted sugarcane crops into jaggery and claimed the profit as agricultural income, which was disputed by the assessing officers and the Commissioner of Income Tax(Appeals), leading to the appeals.

The appellant's counsel relied on precedents such as CIT Vs. H.G. DATE and Commissioner of Income-Tax Vs. Kirloskar Bros. Ltd. to argue that the conversion of sugarcane into jaggery was essential to make it marketable, hence qualifying as agricultural income. Additionally, a Supreme Court decision was cited to support the classification of jaggery as agricultural produce eligible for market fee. However, the Revenue's counsel contended that the nature of the commodity should remain unchanged after processing, citing a case where income from the sale of jaggery was not considered agricultural income.

The court considered the arguments and noted that the appellant did not provide a specific reason for converting sugarcane into jaggery. It was observed that the conversion process was not essential to make sugarcane marketable, as evidenced by the fact that sugarcane could be marketed in its original form. The court highlighted that while some exceptions exist where conversion is necessary, these instances are rare. The assessing officer's findings revealed a significant expenditure on manufacturing jaggery compared to cultivating sugarcane, indicating a profit-driven motive rather than agricultural necessity.

Ultimately, the court dismissed both appeals, emphasizing that the process of converting sugarcane into jaggery was not essential for marketability and extending agricultural income exemption to jaggery sales could lead to revenue loss. The judgment serves as a precedent for determining the classification of income derived from processed agricultural produce in similar cases.