NIZAM SUGAR FACTORY LIMITED Vs. APPELLATE ASSISTANT COMMISSIONER

JUDGEMENT

(1.) THE Nizam Sugar Factory Ltd., Hyderabad, the petitioner herein (hereinafter referred to as "the assessee-company") filed the return of its income for the year 1962-63 claiming therein an exemption of Rs. 3,01,34,942 as income from agriculture calculated under Rule 7 of the Income-tax Rules, 1962. THE Income-tax Officer, however, allowed an exemption of only Rs. 2,95,99,969. Aggrieved by this disallowance the petitioner company preferred an appeal to the Appellate Assistant Commissioner, D-Range, Hyderabad, the respondent herein. During the course of hearing of the appeal the respondent expressed the view that the question of allowing any notional agricultural profit by way of exemption from the income returned does not arise on the correct application of the provisions of the Income-tax Act, and the Rules made thereunder. Being of that view, the respondent thereafter issued a notice No. I.T.A. Com. 18/67-68 dated 29th July, 1967, calling upon the assessee-company to show cause on or before August 24, 1967, why its income should not be enhanced by adding the following amounts :

(2.) IT is stated that on July 29, 1967, the Appellate Assistant Commissioner expressed the view that the sugarcane produced by the assessee-company on its own farm was utilized by it as raw material by its factory and therefore no exemption could be given in respect of the market value of that sugarcane. In the notice also he referred to the discussion which he had with the representative of the petitioner-company. In these circumstances, the petitioner-company alleges that the Income-tax Officer had already formed an opinion against the assessee and that, therefore, no useful purpose would be served by making any representations to him in pursuance of his notice. IT is claimed by the petitioner-company, that its income is comprised partially of profits and gains of business and partially of agricultural income. As the agricultural income which comprises of sugarcane produced by the assessee-company is used as raw material for the production of sugar which is the business carried on by the petitioner-company, the income-tax authorities are bound to grant exemption of this income under Rule 7, read with Section 2(1) and Section 10(1) of the Act 43 of 1961, in determining the taxable income. The assessee-company claims that it is entitled to the exemption of the total market value of the agricultural produce raised and utilized by it as raw material in the business carried on by it, the income from which business is assessed to tax under the head of profits and gains from business. IT is contended that the Appellate Assistant Commissioner is acting without jurisdiction and illegally in proposing to include the agricultural income earned by the assessee-company and that imposition of tax on agricultural income violates Article 246(1) of the Constitution of India. The petitioner apprehends that if the respondent is allowed to proceed to revise the assessment, various complications would arise and the assessee-company would be burdened with the liability of paying a heavy tax which is not legally due and the imposition of which is wholly unconstitutional. The assessee-company has therefore invoked the jurisdiction of this court for the issuance of a writ of prohibition or any other appropriate writ or direction restraining the respondent from taking further action in pursuance of the aforesaid notice.

(3.) RULE 7 of the Income-tax RULEs, 1962, lays down the method of determination of income where income of an assessee comprises partly of agricultural income and partly of business income and where such assessee uses this agricultural produce as raw material for the business carried on by him. RULE 7 reads as follows :