Madras High Court
E. Palaniappan vs The Income Tax Officer on 22 June, 2021
Tax Case Appeal Nos.1467 & 1468 of 2008
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 22.06.2021
CORAM
THE HON'BLE MR.JUSTICE M. DURAISWAMY
AND
THE HON'BLE MRS.JUSTICE R. HEMALATHA
Tax Case Appeal Nos.1467 & 1468 of 2008
E. Palaniappan ... Appellant in both TCAs
Vs.
The Income Tax Officer,
Ward-II (1) Salem. ...Respondent in both TCAs
COMMON PRAYER: Tax Case Appeals filed under Section 260A of
the Income Tax Act, 1961 against the order of the Income Tax Appellate
Tribunal, Chennai "D" Bench, dated 18.03.2008 passed in
I.T.A.Nos.1205 & 1206/Mds/2006 for the assessment year 2003-2004.
For Appellant : Mr.Niranjan Rajagopal
in both TCAs for G.R.Associates
For Respondent : Mrs.V. Pushpa
in both TCAs Standing Counsel
https://www.mhc.tn.gov.in/judis/
Page 1/7
Tax Case Appeal Nos.1467 & 1468 of 2008
COMMON JUDGMENT
(Common Judgment of the Court was delivered
by R.HEMALATHA, J.)
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
https://www.mhc.tn.gov.in/judis/
Page 2/7
Tax Case Appeal Nos.1467 & 1468 of 2008
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.
https://www.mhc.tn.gov.in/judis/
Page 3/7
Tax Case Appeal Nos.1467 & 1468 of 2008
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, 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
https://www.mhc.tn.gov.in/judis/
Page 4/7
Tax Case Appeal Nos.1467 & 1468 of 2008
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
https://www.mhc.tn.gov.in/judis/
Page 5/7
Tax Case Appeal Nos.1467 & 1468 of 2008
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.
Index : Yes/No [M.D., J.] [R.H., J.]
Internet : Yes /No 22.06.2021
gv
https://www.mhc.tn.gov.in/judis/
Page 6/7
Tax Case Appeal Nos.1467 & 1468 of 2008
M. DURAISWAMY, J.
and
R. HEMALATHA, J.
gv
To
1.The Income Tax Officer,
Ward-II (1) Salem.
Tax Case Appeal Nos.1467 & 1468 of 2008
22.06.2021
https://www.mhc.tn.gov.in/judis/
Page 7/7
