1. This is a reference under Section 66(1) of the Indian Income-tax Act made by the Appellate Income-tax Tribunal. The question submitted for the Court's opinion is in these terms:
Whether in the circumstances of this case income derived by the assessee from sale of gur manufactured from sugarcane is agricultural income within the meaning of Section 2(1) (b) of the Income-tax (Amendment) Act, 1939, so as to be exempt from taxation under Section 4(3) (viii) of the Act
2. The question arises in respect of the manufacture of gur by the assessee-company, which is a joint stock company and has erected a sugar factory. It owns large areas of land on which sugar-cane is grown. Section 2(1) of the Indian Income-tax Act defines agricultural income (omitting immaterial parts) as follows:
'Agricultural income' means-...,
(b) any income derived from ... land by....
(ii) the performance by a cultivator ... of any process ordinarily employed by a cultivator ... to render the produce raised by him fit to be taken to market; or
(iii) the sale by a cultivator ... of the produce raised ... in respect of which any process has been performed other than a process of the nature described in sub-clause (ii).
The rest of the section is immaterial. Although in the reference the Tribunal has referred to sub-cl.(ii), it appears that the correct reference should be to Section 2(1) (b) (iii) of the Act. The income in question is the result of sale of gur by the assesses company. It is not income derived by the performance of the process by the assessee as mentioned in Sub-clause (ii). The material question still remains and is to be considered in two parts: (1) whether the process is ordinarily employed by a cultivator; and (2) whether it is employed to render the produce raised by him fit to be taken to market.
3. When the matter was first submitted by the Tribunal for the Court's opinion the necessary facts from which the Court could say whether the two factors necessary to bring it in the definition were not found in the reference. We had therefore to refer the matter back to the Tribunal. The Tribunal has now made a further report in para. 3 of which they have set out the letter received by them from the Deputy Director of Agriculture. In para. 4, they have stated the extent of the area under sugar-cane cultivation in the Nira Canals Division. In para. 5 they have set out the report of the Inspector in respect of the process employed by the assessee in the manufacture of gur. Paragraph 6. contains a further report of the Inspector on the same point. In paragraphs 7 and 8 they have stated their conclusions on the materials before them. The relevant statements in paragraphs 7 and 8 are the following: (I) Use of machine power would not make any difference as regards the process employed. It may even be that machine power is more economical than bullocks if the production is on a larger scale. (2) The Inspector's report shows that the assessee company was not growing any soft quality of sugar-cane which could be sold for the purpose of chewing. (3) The sugar-cane grown by the assessee can either be sold to other sugar-factory owners or utilised in the production of gur and sugar by the assessee company. (4) Some factory owners may require sugar-cane for the production of sugar and purchase it from the small bagaitdars. (5) It may be possible for the small bagaitdars to sell the sugar-cane to the factory owners. (6) In the present case we do not think that the particular quality of sugar-cane which was used for the manufacture of gur could be sold by the assessee company. (7) We do not therefore think that the Inspector was right in assuming that the surplus of sugar-cane with the assessee company was marketable without being turned into gur, i.e. saleable in its raw form. They conclude by stating that they were of the opinion that the requirements of the definition were made out. It may be noticed that throughout their statement of facts they have nowhere disbelieved any portion of the Inspector's report. The Inspector's report inter alia contains two statements which are material. The first is that the process employed by the assessees however differs from that of the agriculturists inasmuch as the company crushes the sugar-cane by means of crushers worked by an oil engine whereas the cultivators generally work the crushers by bullocks. In the further agreed statement of facts which the parties have put before us in paragraph 5 it is stated as follows: 'These crushers and oil engine were used for crushing the sugar-cane and extracting juice therefrom and for boiling the juice.' The second statement in the second report of the Inspector is this; 'Prom these facts it can be said that the sugar-cane is marketable, without being turned into gur.' A further statement although it appears to be hearsay is in these terms: ' It is also reported that the gur manufactured by the assessee company is of the highest degree. It fetches more price as compared to the prices obtained by other manufacturers in the market. The company's gur is said to be of very good colour highest percentage of sugar as special chemicals are added by the company;'
4. The first point discussed before us was whether having regard to the conclusion mentioned in the further statement of facts it is open to the Commissioner to contend that the requirements of the definition section have not been fulfilled. It was argued that the Tribunal being the final fact-finding authority its statement that the process employed by the assessee was that ordinarily employed by the cultivators to render the produce raised by him fit to be 'taken to market is binding and the department has no right to contend that the Court should go behind it. In this connection our attention was drawn to H. and 6. Kincmas Ltd. v. Cook (H. M. Inspector of Taxes) (1988) 18 T. C. 116. In that case; the Commissioners had set out certain findings of the manner in which the new concern was being run by the assessees. Finlay J. (as he then was) observed as follows (p. 121) :
I have come to the conclusion in this case that I cannot interfere with the decision of the Commissioners. I desire to say quite definitely that it is their decision and not mine. It is not necessary that I should express an opinion and I do not express an opinion as to whether if I had been in their position I should have arrived at the same conclusion.
Our attention was also drawn to Bomford v. Oshorne (1941) 10 I. T. R.27. In that ease the question for the Court's consideration was whether the assessee was liable to be taxed under Rule 8 in respect of a certain area of land, because the profits were contended to arise from lands occupied as nursery and garden. From the facts it appears that the assessee Was the occupier of 550 acres; 229 out of that were contended to be one holding. It was argued that because in a certain limited portion thereof some fruits were grown the area was liable to be assessed as garden land. The Commissioners recorded their findings in detail as to how the area of 229 acres was cultivated, what live stock remained on the farm, how labour and machinery was used, whether there was a separation of the garden area (so described) from the rest of the 229 acres and whether there was any demarcation of the areas. The conclusions were recorded in lettered paragraphs running from (a) to (r). The trial Court held that the conclusion that the whole area was garden land was correct and that was upheld on appeal, Scott L. J. dissenting. When the matter came before the House of Lords it was contended that the conclusion that the profits of the things grown on the 229 acres were profits arising from land occupied as nursery and garden was not justified. Viscount Simon L. C. in delivering judgment stated as follows (p. 28):
No doubt there arc many cases in which Commissioners, having had proved or admitted before them a series of facts, may deduce therefrom further conclusions which are themselves conclusions of pure fact. But in such cases the determination in point of law is that the facts proved or admitted provide evidence to support the Commissioners' conclusions.
On behalf of the Commissioner it was urged before us that the Court has therefore jurisdiction to determine whether there was sufficient evidence for the conclusion of pure fact, as indicated by the Lord Chancellor in the above sentence. In my opinion, this is not a correct reading of that judgment. The Lord Chancellor only meant, what has always been understood in matters of this kind to mean, namely whether there was evidence on which the conclusion of fact recorded by the fact-finding authority could be based. In the same case at p. 36 Viscount Maugham stated as follows:
The question which emerges is whether there are any facts stated in the case which justify the course which the Commissioners took.
Similarly Lord Porter in the concluding part of his judgment stated as follows (p. 54) :
In the present case my view is that the splitting up of the holding for tax purpose was not justified and that there was no evidence on which the Commissioners could find that the portion which they so nationally divided from the rest was occupied as a garden for the sale of produce.
To emphasise the point I have italicized the words in the quoted paragraphs. The question whether the requirements of the section are made out is a question of law to be deduced from 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 the conclusions of the Tribunal on pure questions of fact That has been the consistent rule adopted by our Court and I find nothing in Bomford v. Oshorne to lead to a different conclusion. The close analysis of facts made by Lord Maugham is with a view to find out whether there was any evidence on which the conclusion of the Commissioners that the whole area was garden land could be justified. They were not considering the question whether the various pieces of evidence put together were sufficient to lead to that conclusion.
5. We have therefore to decide in this case whether the findings of fact recorded by the Tribunal are based on any evidence. As I have pointed out at the beginning two ingredients are required to make the income agricultural in this case. The first point is whether the process employed by the assessee is ordinarily employed by a cultivator. I think there is evidence on which that conclusion is reached. The Tribunal accepted the report of the Inspector. The report shows that large cultivators use oil engine for crushing the sugarcane, while small cultivators extract the juice by using the crushers worked by bullocks. It is further found that the process is substantially the same. There is therefore evidence that the process is ordinarily employed by a cultivator and the conclusion drawn from the facts is, in our opinion, to that extent, justified.
6. That, however, does not help the assessee. It has to be found that the process so employed is to render the produce fit to be taken to the market. In the present case the produce is sugar-cane. The article ultimately sold in the market, of which the profits are sought to be assessed, is not sugar-cane but gur. Reading the words used in the definition section with their natural meaning they must mean that the produce must retain its original character in spite of the process, unless there is no market for selling it in that condition. 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. In the present case the statement of ease itself discloses that the sugar-cane grown by the assessee company can either be sold to other factories or utilised by the factory to produce gur or sugar. The Tribunal has further found that small cultivators sell their sugar-cane to factory owners. To put it in other words every owner of a sugar-cane factory manufacturing sugar or gur does not necessarily own sugar-cane fields. Conversely growers of sugarcane, i.e. farmers, do not necessarily own machinery which converts sugarcane to gur or sugar. One important factor is noticed in the present case. It is stated that the sugar-cane grown by the assessee company is not fit for chewing. That however does not prevent there being a market in respect of this hard quality of sugar-cane. It only leads to the conclusion that a particular section of humanity cannot use this variety of sugar-cane in its natural form. But there is a large section of people to whom this variety is useful. They buy and sell the same. If so, within the meaning of the definition section there is a market for this commodity. This construction of the word 'market' is supported by Casey v. Commissioner of Income-tax, B. & O.1 In that case the assessee prepared sisal fibre for sale in market by means of machinery, from aloe plants cultivated by him. It was found that there was no cultivation of aloe plants save in connection with the economic process involving the use of machinery such as was employed by the assessee, barring the laborious and uneconomic process employed by the jail authorities. It was held that under the circumstances there was no market in the proper sense of the word for the aloe leaves. It was argued on behalf of the Commissioner that the raw aloe leaves had a market. That was negatived because it was found as a fact that raw aloe leaves by themselves could not be sold. The argument that the only process ordinarily employed by the cultivator to render the article fit for being taken to market was in the case of aloe leaves after being cut was decortication (i.e. extraction of fibre), was rejected. After reviewing the evidence which was put before the Court it was observed in the concluding part of the judgment as follows (p. 264) :-
The conclusion at which I arrive is that if a generalisation may be made from the single instance available, then [the] process ordinarily employed by the cultivator of the aloe plant in order to render his produce fit to be taken to market is that in fact employed by the assessee and the whole of the profits derived by him from the manufacture of sisal fibre is agricultural income... It may be that in the future economic conditions may change. If the growth of the aloe leaf should become established as an agricultural industry by itself, and if the manufacturers of sisal fibre cease to cultivate the plant themselves and should purchase the leaves in an open market, then such circumstances may possibly require re-consideration in the light of the income-tax law;...
7. Our observations in this case are limited to the facts noticed in the reference. I have already pointed out that the report of the Inspector, which is not disbelieved, shows that the sugar-cane grown by the assessee is marketable without being turned into gur. The Tribunal in the first part of paragraph 7 (finding No. 3) has recorded that the sugar-cane grown by the assessee can either be sold to other factory owners or utilised in the production of gur, etc. If so, there is a market where this sugar-cane can be sold without passing through any process. We therefore think that the Tribunal was in error in overlooking this fact, because on their own statement there is evidence to show that the produce, which in this case consists of sugar-cane, requires no process to be employed to make it fit to be taken to market.
8. The result is that the question submitted for our opinion must be answered in the negative. The assessee to pay the costs of the reference throughout.