COMMISSIONER OF INCOME TAX Vs. DATE H G

JUDGEMENT

(1.) IN this reference under s. 66(2) of the INdian IT Act, 1922, made at the instance of the Revenue, the following two questions of law arise for decision :

(2.) THE short facts leading to the above reference may be summarised as follows : For a number of years prior to the asst. yr. 1952-53, the respondent-assessee, being the owner of about 93 acres of land situated at Phaltan on the southern and/or right bank of river Nira, cultivated sugarcane on his lands. He owned three heavy horse power engines for crushing sugarcane and converted sugarcane into jaggery for sale in the market. He was assessed to income-tax in respect of the income from the sales of jaggery under the IT Act, and had not claimed exemption in respect of this income on the footing that it was agricultural income. In respect of the income from sales of jaggery for the asst. yrs. 1952-53 and 1954-55, being the accounting years S. Y. 2007 and S. Y. 2009, he claimed that the income was agricultural income ; and that he was entitled to exemption from income-tax in respect thereof having regard to the provisions in s. 2(1)(b)(iii) r/w s. 4(3)(vii). This exemption was refused to him and in Appeals Nos. 1591 and 1592 of 1956, the Tribunal by its order dt. August 10, 1956, held that proper attempt had not been made to ascertain the truth whether there was in fact a market for the sale of sugarcane grown by the assessee. THE Tribunal remanded the case to the ITO for further investigations and report with particular reference to the above assessment years on 11 points formulated by the Tribunal in its order. THE assessee was given opportunity to tender further evidence in support of his case that his income was agricultural income and that he was entitled to exemption having regard to the above provisions in the Act. THE case of the assessee was in great particulars mentioned in the affidavit dt. August 9, 1956, which was made the part of the record before the Tribunal's order of remand. Before the ITO further evidence was taken on the record in a large way. THE ITO issued a questionnaire on the Phaltan Sugar Works being a factory which carried on business of manufacturing sugar and was situated approximately at a distance of 7 miles from the fields of the assessee. A questionnaire was also served on the Walchandnagar Factory and Brihan Maharashtra Sugar Factory which were situated at a long distance from the fields of the assessee and the transactions were not relevant to the question which had arisen to be decided by the Tribunal. THE ITO received correspondence and/or certificates in respect of the inquiries forwarded by him from the above three factories as also from the Registrar of Cooperative Societies, Poona, the Mamlatdar and Prant Officer, Phaltan Taluka, the Executive Engineer, Nira Right Bank Canal Division, Phaltan, and the Marketing Inspector, Satara District, Sangli. On behalf of the assessee, oral evidence of about 33 witnesses was tendered and recorded. THE assessee filed his own further affidavit dt. April 1, 1957. Having gathered information from the above sources, the ITO made his remand report dt. January 28, 1957. THE remand report is Annexure "B" to the statement of the case and includes the whole of the evidence recorded by the ITO as mentioned above including the correspondence and certificates. Apart from his above report, he filed his own affidavit dt. April 1, 1957, before the Tribunal in connection with the evidence that he had recorded and the conclusions he had mentioned in his report. Now, what appears to be the findings made by the ITO in this report and in his affidavit may be shortly stated as follows :

(3.) NOW, it is not possible in this judgment to recite the findings of the ITO completely nor the case made by the assessee in connection with these findings completely. The substance of the case on behalf of the Revenue through the report of the ITO and otherwise appears to have been that, since the above factory was a purchaser of sugarcane grown in the area of 15 miles radius from the site of its premises, there was a market where sugarcane in its natural condition was saleable. The sugarcane cultivated by the assessee was, therefore, marketable. In so far as under the above circumstances the assessee converted his sugarcane crop into jaggery, he was not covered by the provisions in s. 2(1)(b)(iii) r/w s. 4(3)(viii). The contrary submission on behalf of the assessee was that, having regard to the facts brought on the record by way of evidence both by the Revenue and the assessee, it was clear that the sugarcane crop of the assessee was not marketable and conversion of this crop into jaggery having been made by process ordinarily employed by a cultivator to make sugarcane fit to be taken to market, his earnings from sale of jaggery were agricultural income and he was entitled to exemption in accordance with the provisions of the above sections.