Profits earned from the sale of jaggery will be taxed as converting sugarcane into a saleable commodity like jaggery or gur is not an agricultural operation, a tax tribunal has ruled.

“Profit from the sale of jaggery falls beyond the ken of agriculture income,” the Chennai bench of the Income Tax Appellate Tribunal (ITAT) said, adding there is no nexus between jaggery and agricultural operations.

The issue whether jaggery production is an agricultural activity becomes important as income from farm operations is exempted from payment of taxes.

“When sugarcane was converted into jaggery it resulted in the production of a different commodity. Conversion of sugarcane into jaggery is not a necessary process performed by the cultivator to render sugarcane fit for being taken to the market,” the ITAT said in its order dated March 18, 2008.

The tribunal rejected the contention of the assessee that conversion of sugarcane into jaggery was a “process essential to make sugarcane marketable and to preserve the agricultural produce grown by an agriculturist from deterioration”.

Noting that gur and jaggery are the same thing, the tribunal said, “It is clear from the perusal of the statutory provision that what is taken to the market and sold must be the produce which is raised by the cultivator.” 

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October 2020