Bombay High Court
Commissioner Of Income-Tax, … vs H.G. Date on 26 February, 1970
Equivalent citations: 1971 82 ITR 71 Bom
Author: K Desai
Bench: K Desai, N Mody
JUDGMENT K.K. Desai, J.
1. In this reference under section 66(2) of the Indian Income-tax Act, 1922, made at the instance of the revenue, the following two questions of law arise for decision :
“(1) Whether, on the facts and in the circumstances of the case, there was any evidence before the Tribunal to justify the finding that there was no market for sugarcane produced by the assessee ? and (2) Whether, on the facts and in the circumstances of the case, the income received by the assessee was agricultural income within the meaning of the Indian Income-tax Act ?”
2. The short facts leading to the above reference may be summarised as follows :
For a number of years prior to the assessment year 1952-53, the respondent-assessee, being the owner of about 93 acres of land situated at Phaltan on th 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 Income-tax 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 assessment years 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 section 2(1) (b) (iii) read with section 4(3) (viii). This exemption was refused to him and in Appeals Nos. 1591 and 1592 of 1956, the Income-tax Appellate Tribunal by its order dated August 10, 1956, had 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 Income-tax Officer 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 dated August 9, 1956, which was made the part of the record before the Tribunal’s order of remand. Before the Income-tax Officer further evidence was taken on the record in a large way. The Income-tax Officer 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 Appellate Tribunal. The Income-tax Officer received correspondence and/or certificates in respect of the inquiries forwarded by him from the above three factories as also from the Registrar of Co-operative Societies, Poona, the Mamlatdar and Prant Officer, Phaltan Taluka, the Executive Engineer, Nira Right Bank Canal Division, 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 dated April 1, 1957. Having gathered information from the above sources, the Income-tax Officer made his remand report dated 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 Income-tax Officer as mentioned above including the correspondence and certificates. Apart from his above report, he filed his own affidavit dated 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 Income-tax Officer in this report and in his affidavit may be shortly stated as follows :
On the southern bank of river Nira, within a radius of 15 miles from the Phaltan Sugar Factory, there were in all 419 sugarcane cultivators, big and small. These cultivators owned 5,253 cultivable acres, 3,109 acres from sugarcane blocks and on a rotation basis only 1,036 acres were utilised for growing sugarcane. The above acreage excluded farms taken on lease by the Phaltan Sugar Works Ltd. (hereinafter referred to as “the factory”). This factory cultivated on its own at an average sugarcane on about 2,000 acres of an. The factory was situated at a distance only of 7 miles from the assessee’s lands and there were trolley line put up by the factory which were passing from the distance of about one mile from the assessee’s factory. The factory had made purchases between 1946 and 1955 of different quantities of sugarcane – about 11,000 tons for five of the above years, about 36,000 tons in 1948 and 1951 and 24,000 tons in 1953. In the above 10 years the factory had by itself cultivated and produced sugarcane which approximately varied between 65,000 tons and 88,000 tons. The factory had crushed sugarcane in the above 10 years in the quantities which were approximately between 85,000 tons and 1,00,000 tons. It was further found that the capacity of the factory was to absorb about 850 tons per day and that the factory worked in year approximately for the season which lasted for about 184 days. On the basis of these figures relating to the sugarcane produced, purchased and crushed by the factory in the above 10 years, the Income-tax Officer reported that the factory was in a position to purchase and absorb every year at least about 35,000 tons of sugarcane from outsiders. A very small part of the sugarcane was purchased by the factory from two cultivators who were not with in the distance of 15 miles radius from the premises of the factory. The Income-tax Officer further reported that, on account of the recalcitrant attitude of the cultivators, the factory had been compelled to purchase sugarcane from on R. N. Agarwal who was cultivating its crops in Poona and from Government farms in Padegaon. His reading of the evidence of the assessee was that he grew sugarcane of the quantity of 60,419 tons for manufacture of jaggery. He maintained three power crushers for the above purpose. In certain past years the assessee had sold sugarcane worth Rs. 1,00,000 to the factory.
3. Now, the case of the assessee in the oral and documentary evidence tendered on his behalf was that the quality of the sugarcane that was produced by him was such as could not be chewed and must be used for conversion into jaggery or sugar. There was no demand by merchants and others in respect of the sugarcane of the quality that he produced for consumption thereof as sugarcane. By its very nature, the sugarcane was heavy in weight and perishable in quality and there was no practice to send sugarcane to any distant places for sale. The finding of the Income-tax Officer himself was to the above effect. On the left north bank of river Nira on 5,000 acres of lands, sugarcane was not available for sale to the above factory. He relief upon instances where cultivators on the left bank of the river had so sugarcane to the factory. According to him, the total sugarcane available for purchase (if so desired) by the factory and cultivated on fields within the radius of 15 miles from the factory on the left and right banks of river Nira was the quantity grown on 6,000 acres of lands. The factory had refused in the past to purchase sugarcane from the assessee himself and neighbouring farmers. He relied upon the letters brought on record in the above connection. His case was that the factory had been purchasing sugarcane only from sugarcane cultivators within the factory areas under contracts and by mutual arrangements with Government farms in Padegaon and one Radheshyam Agarwal. He pointed out that according to the tariff report and the facts mentioned therein the season for the working of the factory would only be of 120 days and 20 days thereof would be holidays. According to him, the average yield of sugarcane per acre was not 30 tons as found by the Income-tax Officer, but far exceeded even 45 tons. He gave figures of produce disclosed by different factories in his affidavit. He also pointed out that in spite of the crushing capacity being high, a sugarcane factory cannot purchase outside sugarcane in excess, as outside cane as well as factory cane is required to be cut before the 15th February each year. He pointed out several facts in that connection. He further pointed out :
“If nearness would have been a major factor, Phaltan Sugar Works would have purchased sugarcane from all neighbouring cultivators year after year regularly. Phalton Sugar Works purchases outside sugarcane from contract bagaitdars of 300 acres, Government Padegaon Research Farm of 100 acres, from Radheshyam Agarwal 100 acres, on agreed basis, from Rajah Saheb of Phaltan 50 acres and other 100 acres, which make a total of 650 acres producing sugarcane 32,500 tons or more….”
4. Now, it is not possible in this judgment to recite the findings of the Income-tax Officer 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 Income-tax Officer and otherwise appears to have been that, since the above factory was a purchaser of sugarcane grown in the areas 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 section 2(1) (b) (iii) read with section 4(3) (viii). The contrary submissions 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.
5. On the record of evidence of the above nature, the Income-tax Appellate Tribunal by its judgment and order accepted the case made by the assessee and in that connection recorded the following reasoning :
“The sugarcane grown by the assessee in his farm cannot be used for chewing. The only other use to which it can be put is the production of sugar…” Sugarcane is a crop which has certain peculiarities. If sugarcane after being cut is not crushed within 48 hours, it starts losing its sugar content. Mills buy sugarcane near the mills as far as possible… If no mill buys sugarcane, an agriculturist has to convert it into gur. There is no market as such where sugarcane of this quality can be sent and sold. The mills buy their requirements at prices fixed by the Government or at such other prices at which sugarcane can be purchased according to their requirements. The existence of a mill, in our opinion, does not mean that there is a market for the sale of sugarcane. A market indicates a number of purchasers and sellers. Sugarcane is not like wheat or rice which can be sent to the market and kept there for months. As we have stated hereinabove, that sugarcane loses it content if it is kept for even a few days. The only manner in which sugarcane can be sent to market is, in our opinion, to convert it into gur. This has been the method ordinarily employed by a cultivator in this country from times immemorial. We have examined the evidence on record…. If the mills would refuse to buy sugarcane, the poor agriculturist has no other alternative but to convert it into gur. Whether he does so at a profit or loss is of no consideration to him. That is the only manner in which he can keep his crop in a saleable condition for any reasonable length of time.”
6. Mr. Joshi for the revenue has challenged the correctness of the above findings and has submitted that there was no evidence before the Tribunal to justify the finding that there was no market for sugarcane produced by the assessee. The total substance of his submission was that, since the Phaltan Sugar Works was situated within a distance of 7 miles from the fields of the assessee and since in connection with the business of manufacturing sugar this factory required to purchase sugarcane of the quality produced by the assessee from the outsiders to the extent found by the Income-tax Officer, the sugarcane crop of the assessee must be held to be marketable in its natural condition. That was the effect of the evidence on record and, therefore, there was no evidence to justify the finding of the Tribunal that there was no market for the sugarcane produced by the assessee. His second contention was that the Tribunal’s approach in connection with the question of existence of a market where the crops of the assessee could be marketable was prime facie wrong and the consequent findings were such as no reasonable Tribunal could have arrived at, having regard to the evidence on record. He, accordingly, submitted that for the above two reasons the findings should be set aside and the question raised should be answered in favour of the revenue.
7. In reply, Mr. Mehta for the assessee submitted that the findings of the Tribunal have been arrived at after all relevant evidence was brought on the record on behalf of the parties. The submission that the findings have been made without evidence on record is totally unjustified and misconceived. In that connection, he emphasised that the jurisdiction of this court in a reference under section 66 is restricted and limited in the manner decided by the Supreme Court in the cases of Bai Velbai v. Commissioner of Income-tax and Omar Salay Mohamed Sait v. Commissioner of Income-tax, as further explained in the case of Homi Jehangir Gheesta v. Commissioner of Income-tax. The submission was that on questions of fact, like existence of a market, findings of the Tribunal cannot be set aside by this court. The question of existence of market was not a question of law at all. The argument that findings have been made without any evidence on record is a device adopted to fall into the ratio of the above decisions. He submitted that in that connection it was not permissible for this court to scrutinize the effect of the evidence on record and to make a finding that a market existed for sale of the sugarcane crops of the assessee.
8. He altogether denied the second contention made on behalf of the revenue and in that connection largely relied upon the reasoning of the Tribunal which we have quoted above. He further submitted that the contention is made beyond the scope of the questions raised in the reference. If this question had been raised before it, the Tribunal could have recorded its own explanation in connection with the contention. He repeatedly drew our attention to various pieces of evidence which could all have been included in the judgment of the Tribunal so as to explain in a better manner the recorded reasoning for the finding that the factory was not a market available for sale of the sugarcane crops of the assessee.
9. The question of the true construction and effect of section 2(1) (b) (iii) read with section 4(3) (viii) arose in the case of Brihan Maharashtra Sugar Syndicate v. Commissioner of Income-tax. The first contention made on behalf of the respondent in that case was that the High Court under section 66 had no right to go behind the findings of fact made by the Income-tax Appellate Tribunal. The court observed :
“The question whether the requirements of the section are made out is a question of law to be deducted from the facts. The court can go into that question. But the question whether the conclusions of the Tribunal on pure questions of fact are justified, whether there is sufficient evidence to come to those conclusions, is not a matter for inquiry by the court. On that point the court has only to ask the question whether there is any evidence to justify the conclusion of fact….
We have therefore to decide in this case whether the findings of fact recorded by the Tribunal are based on any evidence.”
10. Now, having regard to the above observations in the case and also the observations of the Supreme Court in the cases of Sree Meenakshi Mills Ltd. v. Commissioner of Income-tax and Bai Velbai v. Commissioner of Income-tax, as also the observations of the House of Lords in the case of Edwards (H. M. Inspector of Taxes) v. Bairstow & Harrison, the questions raised by the parties in this case will have to be decided on the footing that the only question which this court has jurisdiction to consider is to find whether the findings recorded by the Tribunal are based on “No” evidence. Apparently, immediately upon a finding being made that there is relevant evidence on record in connection with the findings made by the Appellate Tribunal, it will not be competent for us to hold that the findings were unwarranted having regard to the inadequacy of the evidence on record. The material observations of the Supreme Court in the cases of Bai Velbai v. Commissioner of Income tax and Omar Slay Mohamed Sait v. Commissioner of Income-tax, run as follows :
“As this court observed in Sree Meenakshi Mills v. Commissioner of Income-tax, a finding of fact does not alter its character as one of fact merely because it is itself an inference from other basic facts; but a finding on a question of fact is open to attack under section 66 as erroneous in law when there is no evidence to support it or if it is perverse or has been reached without due consideration of the several matters relevant for such a determination.”
11. The observations in the case of Edwards (H. M. Inspector of Taxes) v. Bairstow & Harrison was :
“It is therefore a case in which, whether it be said of the Commissioner that their finding is preserves or that they have misdirected themselves in law by a misunderstanding of the statutory language or otherwise, their determination cannot stand.”
12. Lord Justice Radcliffe observed :
“If the case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex faces, it may be that the facts found are such that no person acting judicial and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination. So there, too, there has been error in point of law. I do not think that it much matters whether this state of affairs is described as one in which there is no evidence to support the determination or as one in which the evidence is inconsistent with and contradictory of the determination, or as one in which the true and only reasonable conclusion contradicts the determination.”
13. Relying upon the above observations, Mr. Joshi for the revenue has with some emphasis submitted that the finding of the Appellate Tribunal that there was no market for the sale of the sugarcane produce of the assessee is based on such misconception of law that it must be held to be a finding which no reasonable person could have arrived at. The submission was made in the above manner apparently because it was pointed out to the learned counsel that there was overwhelming evidence on the record which was tendered on both sides in support and/or denial of the assessee’s case that his sugarcane produce was during the relevant assessment years not saleable, because there was no market for sale thereof.
14. Before considering the details of the contentions, it may at once be stated that in the case of Brihan Maharashtra Sugar Syndicate v. Commissioner of Income-tax, on a true construction of the provisions in section 2(1) (b) (iii), it was held that in connection with the claim for exemption made by an assessee under the above section, the first condition required to be satisfied was that the process employed by the assessee must be one which is ordinarily employed by a cultivator for making his agricultural produce marketable. The second condition required to be satisfied was :
“….. the produce must retain its original character in spite of the process unless there is no market for selling it in that condition.”
15. The further observation was :
“If there is no market to sell the produce then any process which is ordinarily employed to render it fit to reach the market, where it can be sold, would be covered by the definition.”
16. Now, there can be no dispute and it is admitted that the sugarcane produce of the assessee had not retained its original condition or character when it was converted by the ordinary process employed into jaggery (gur) for rendering it marketable. The whole of the dispute raised by the parties in this case centre round the question whether the case of the assessee that of the sale of his sugarcane produce in its natural condition there was no market was true or otherwise. The contention made by the revenue that there was no evidence on record in this connection must, prima facie, be rejected, because, if one may so describe it, there is plethora of evident entered on behalf of the assessee, written and oral, in support of his case the there was no market for selling his sugarcane produce during the assessment years in its natural condition, i.e., as sugarcane. In that connection, there is no dispute between the parties the quality of the sugarcane produced by the assessee was such as was not fit for chewing. This must lead to the conclusion, as observed in the case of Brihan Maharashtra Sugar Syndicate v. Commissioner of Income-tax, that this variety of sugarcane was not usable in its natural form. Apparently, this variety of sugarcane can only be sold if there was a purchase who wanted to sue it for converting it into sugar and/or jaggery by applying manual and/or mechanical process. Having regard to the above situation, the whole of the burden of evidence tendered on behalf of the revenue was that a purchaser in the shape of the Phaltan Sugar Works was always available for sale of the sugarcane produce of the assessee in its natural condition. The whole of the effort of the assessee in tendering evidence on his side was to prove that this single purchaser was useless to him for sale of his sugarcane produce in the assessment years. As already mentioned, a plethora of evidence was recorded on both sides towards supporting their cases as mentioned above. The first contention made by Mr. Joshi that there was no evidence on record on the basis whereof a finding could be made by the Tribunal for accepting the above case of the assessee must accordingly be rejected. It requires to be recorded that in this connection it is not competent for this court to scrutinies the details of the evidence available to both sides to ascertain whether the findings made by the Tribunal are justified or incorrect. The question which arose in the above manner for decision was a question of fact.
17. The question is whether the relevant contents of the order of the Tribunal disclose materials on the basis whereof it can be held in favour of the revenue that the Tribunal was not aware of the true effect of the relevant provisions of law and/or its finding that the sugarcane produce of the assessee in the two assessment years was not saleable in its original condition because there was no market for selling it in that condition is so unreasonable that no person with reason could make it. Mr. Joshi submits in that connection that contrary to the above legislative provisions, the Tribunal assumed that to make the sugarcane produce of the assessee marketable and saleable in its original condition, it was necessary that a market place where buyers and seller collected for sale and purchase of sugarcane produce must exist. He specifically in that connection relies upon the following contents in the order of the Tribunal :
“There is no market as such where sugarcane of this quality can be sent and sold…. A market indicates a number of purchaser and sellers.”
18. Now, if these were the only contents and/or if this was the basic reasoning in the order of the Tribunal, there would be some justification in the submissions made by Mr. Joshi. The contents of the Tribunal’s order, however, are not liable to be read disjointedly by extracting therefrom the above two sentences. Very material reasoning other than the above is contained in the order of the Tribunal which goes to show that the Tribunal was throughout aware the in law it was not necessary that a market place must exist and should have existed for the marketability of the sugarcane produce of the assessee. The Tribunal has, by mentioning certain facts, disclosed that it applied its mind to the basic fact that the only purchaser who was available for sale of the sugarcane produce of the assessee was one single mill-factory. The Tribunal has indicated several facts relating to this single available purchase which induced the Tribunal to hold as a matter of fact that on the evidence on record a finding could not be made in favour of the revenue that the sugarcane produce of the assessee was saleable to its purchaser. Now, it is true that the Tribunal’s order is compact and short in its compass and, therefore, all this has not been discussed in a large way for the benefit of a person who might critically desire to read it. To a large extent, the Tribunal’s order, in its shortness, is admirable as it contains so much of reasoning in a few words as it would be difficult to draw up ordinarily. The Tribunal has indicated the following relevant facts :
“The sugarcane grown by the assessee in his farm cannot be used for chewing. The only other use to which it can be put is the production of sugar….
Sugarcane is a crop which has certain peculiarities. If sugarcane after being cut is not crushed within 48 hours, it starts losing its sugar content…”
19. Now, each of theses facts is mentioned to indicate that the produce of the assessee was such as could not be stored and retained for a long period of time. If the assessee attempted to do so, the produce would lose its sugar content and accordingly its value in a large way. The further statements are :
“Mills buy sugarcane near the mills as far as possible… If no mill buys sugarcane, an agriculturist has to convert it into gur.”
20. Now, these statements obviously were in reference to the questions raised about the Phaltan Sugar Works Factory and to indicate that this was only a single mill who might have been a purchaser. It was also accordingly indicated that if this mill did not make purchases from the assessee he had no alternative but to convert its sugarcane produce into gur. Towards the fact that other purchasers could not be available the sentence relied upon by Mr. Joshi was included the sentence being “there is not market as such where sugarcane of this quality can be sent and sold”. As regards the factory in question the text sentence ran as follows :
“The mills buy their requirements at prices fixed by the Government or at such other prices at which sugarcane can be purchased according to their requirements.”
21. Apparently, this observation was made in connection with the evidence on record about the quantities of sugarcane that the Phaltan Sugar Works and purchased from outsiders. The Tribunal seems to have emphasised the fact that the factory would not make purchases in excess of its requirements on the particular days in the season in which it made purchases from outsiders. In connection with the above observations the Tribunal found it unnecessary to discuss in detail the times when and the quantities of sugarcane that the factory had purchased during the assessment years in question. It is not impossible to imagine that the Tribunal indicated the evidence had not disclosed that the factory had desired to purchase quantities other than it crushed from outsiders like the assessee or had not been able to produce quantities it needed for its requirements. The Tribunal found in unnecessary to include all such details in its order. It is with reference to the evidence on record that the Tribunal used the next sentence : “The existence of a mill in our opinion does not mean that there is a market for the sale of sugarcane.” It is only in this connection that the Tribunal made the second observation on which Mt. Joshi relied i.e., “a market indicates a number of purchasers and sellers”. The Tribunal we apprehend desired to indicate that in twist case here was a single purchase and it had crushed such quantities of sugarcane in the assessment years as it desired and it had not been proved that the larger and better quantities were desired to be purchased by this purchaser and had not been sold to it by outsiders like the assessee. Now, the arguments advanced by Mr. Joshi therefore by culling out the sentences of quoted above on which he relied do not represent the true effect of the reasoning of the Tribunal. In this very connection the Tribunal pointed out the fact that sugarcane produced could not be stored for a long number of months like wheat and rice and the only alternative to the failure of purchaser to be made by the factory in question for a cultivator like assessee was to convert its sugarcane produce into gur. Apparently, the Tribunal was not satisfied that the single purchaser factory indicated by the revenue was in a position to absorb and purchase produce of sugarcane available from the sugarcane plantation situated on the north and south banks of the river Nira and/or even the south bank of the river Nira. The burden that the revenue had undertaken was to prove that the factory was a willing purchaser of the whole of the sugarcane produce available in the adjacent localities and fields and in any event from the fields situated on the southern bank of the river Nira. The Tribunal considered all the evidence on its record on which reliance could be placed by the revenue. For the reasons contained in its order it rejected the contentions made on behalf of the revenue. Not we find it extremely difficult having regard to the above position to accept the contention made by Mr. Joshi that the Tribunals filings are arrived at a result of a total misconception of law and/or that the findings are such as no reasonable Tribunal could have reasonably arrived at at any time. We do not accept the contention that the approach of the Tribunal to the question which arose before it was utterly unreasonable and the findings of the Tribunal should for that reason be set aside.
22. Under the circumstances, our answers to the questions are :
Question No. 1 : In the affirmative.
Question No. 2 : In the affirmative.
23. The Commissioner will pay costs.