Case Law Details

Case Name : E. Palaniappan Vs ITO (Madras High Court)
Appeal Number : Tax Case Appeal No. 1467 of 2008
Date of Judgement/Order : 22/06/2021
Related Assessment Year : 2003-04

E. Palaniappan Vs ITO (Madras High Court)

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 (1971) reported in 82 ITR 71 (Bombay), it was 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. That was 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. Moreover, 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 asssessee converted the sugarcane into jaggery. It is further observed by him that the assessee has incurred an expenditure of Rs.1,70,000/- for manufacturing of jaggery  while he incurred expenditure of Rs.1,30,000/- towards cultivating sugarcane.

Moreover, it is 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.

Income from conversion of sugarcane into jaggery is not a Agricultural Income

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

Both the appeals by the assessee are directed against the order of the Income Tax Appellate Tribunal, Bench-‘D’, Chennai, for the assessment year 2003-2004.

2. The one common point in both these appeals pertain to the question whether the profit from the sale of Jaggery falls within the definition of agricultural income. It is common knowledge that the expression “agricultural income” connotes any income derived from land by agricultural operations including processing of agricultural produce raised or received so as to render it fit for the market. It is sine qua non that the produce must retain its original character and the only change which is permitted in the produce would be that which makes it marketable. In the instant case, the sugarcane crops which were harvested by the appellant was converted into jaggery and the profit made out of the sale of jaggery was shown as agricultural income. This classification of income was not accepted by the assessing officers as well as the Commissioner of Income Tax(Appeals). These orders were further confirmed by the Income Tax Appellate Tribunal leading to these two appeals.

3. Mr.Niranjan Rajagopal, learned counsel for the appellant relied on CIT Vs. H.G. DATE (1971) reported in 82 ITR 71 (Bombay), in which, the High Court of Bombay held that though there can be no dispute that the sugarcane produce of the assessee had not retained original condition or character when it was converted into jaggery, there was a convincing reason that the nearest sugar mill refused to buy the sugarcane citing the poor quality as a reason. In such a compelling circumstance, the assessee had shown the income derived out of the sale of the jaggery as agricultural income and the same was accepted after the intervention of court.

4. Mr.Niranjan Rajagopal, learned counsel for the appellant also relied on the decision in Commissioner of Income-Tax Vs. Kirloskar  Bros. Ltd., wherein it was held that the conversion of sugarcane into jaggery was a process essential to make sugarcane marketable.

5. In yet another decision relied upon by the counsel for the appellant in Krishi Utapadan Mandi Samiti and another Vs. M/s. Shankar Industries and Others 1993 Supp (3) SCC 361 (2), the Apex Court held that “Gur-lauta or raskat and rab-galwat and rab-salawat” come under the definition of ‘agricultural produce’, to be eligible for market fee under the U.P.Krishi Utpadan Adhiniyam, 1964. The other  citations relied upon by him are not directly related to sugarcane or jaggery.

6. Per contra, Mr.M.Swaminathan, learned Senior Standing counsel assisted by Mrs.V.Pushpa, learned Standing Counsel contended that the nature of the commodity should remain the same even after the application of any process and the process in itself should be a necessary one to render the original commodity marketable. Reliance was placed on the decision in Banarsi Das Gupta Vs. Commissioner of Income Tax [1977] 106 TTR 804 (Allahabad) wherein the assessee had sold part of the sugarcane in its original form and the remaining was converted into jaggery claiming exemption for both the incomes. It was held that the portion of income earned from sale of jaggery is not an agricultural income and it was not entitled for any exemption from Income Tax. Therefore, it was contended that the appellant/assessee was not eligible to declare the income derived from the sale of jaggery as agricultural income merely because jaggery is a by-product of sugarcane.

7. According to the learned counsel for the Revenue, the appellant/assessee, in the instant case had no specific reason or justification for converting the sugarcane into jaggery.

8. 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 (1971) reported in 82 ITR 71 (Bombay), it was 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. That was 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. Moreover, 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 asssessee converted the sugarcane into jaggery. It is further observed by him that the assessee has incurred an expenditure of Rs.1,70,000/- for manufacturing of jaggery  while he incurred expenditure of Rs.1,30,000/- towards cultivating sugarcane.

9. Moreover, it is 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.

10. In view of the findings rendered, we dismiss both the appeals.

There shall no order to costs.

Download Judgment/Order

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