1970 (1) TMI 3 - HC - Income Tax

Agricultural Income - determination of market value - It was not for the authorities to go into the market and bring on record the fact relating to the average price - It cannot be said that the authorities were not right in relying upon the facts which had been ascertained in the assessment of other sugarcane cultivating companies in arriving at a reasonable rate for calculating the market value of the produce of the company

Summary

Issues Involved:
1. Deduction of managing agency commission and overhead expenses.
2. Ascertainment of the true value of sugarcane grown by the assessee-company.
3. Ascertainment of the true value of closing stock of sugar.

Detailed Analysis:

1. Deduction of Managing Agency Commission and Overhead Expenses:
The court addressed the claim for deduction of the entire managing agency commission and other overhead expenses, where one-third was disallowed as being attributable to agricultural income. The parties agreed that the answer must be in favor of the assessee-company based on the precedent set by the decision in Commissioner of Income-tax v. Maharashtra Sugar Mills Ltd. Therefore, the court ruled that the entire managing agency commission and overhead expenses are deductible.

2. Ascertainment of the True Value of Sugarcane:
The primary business of the assessee-company is to manufacture sugar from sugarcane grown on its own farms. The company occasionally purchased small quantities of sugarcane from outsiders. The company claimed that its sugarcane production should be valued according to Rule 23(2)(a) of the Income-tax Rules, 1922, and provided specific rates for each assessment year, supported by circulars from the Deccan Sugar Factory Association and the average prices paid for sugarcane purchased from outsiders. However, the Income-tax Officer rejected these rates, arguing that the rates from the Association had no sanctity and that the small quantities purchased from outsiders could not represent the market value. The officer instead adopted a rate of Rs. 42 per ton, consistent with rates applied to other companies in the Deccan area.

The company's appeals were rejected by the Appellate Assistant Commissioner and the Tribunal, which found that the company failed to substantiate its claimed rates. The Tribunal noted that the company did not provide sufficient data to support its claim of superior quality sugarcane or the average market price. The court upheld these findings, emphasizing that the burden was on the company to prove the average market price as per Rule 23(2)(a). The authorities were justified in adopting rates based on Government notifications and assessments of other similarly situated companies.

3. Ascertainment of the True Value of Closing Stock of Sugar:
This issue arose only in the last three years of assessment. However, the company's representative, Mr. Mehta, stated that the question had become academic and did not require an answer. Therefore, the court did not address this issue further.

Conclusion:
The court answered the questions as follows:
- Question (a): Regarding the ascertainment of the correct market value of the sugarcane produce, the value determined by the tax authorities was upheld as correct.
- Question (b): The deduction of managing agency commission and overhead expenses was affirmed in favor of the assessee-company.
- Question (c): Concerning the valuation of the closing stock of sugar, the question was not pressed and thus not answered.

No order as to costs was made.