1. These are reference under section 66(1) of the Indian Income-tax Act (to be referred to as the 'Act' hereinafter).
2. In both these references, a common question of law has been referred for our decision. That question is :
'Whether, on the facts and in the circumstances of the case, the income derived by the assessee from the sale of flower tamarind obtain on conversion of raw tamarind got from trees frown on assessee's own lands and on lands mortgaged with the assessee comes within the meaning of section 2(1)(b)(ii) so as to be exempt from tax under section 4(3)(viii) of the Indian Income-tax Act.'
3. The facts relevant for the purpose of deciding the point of law referred to us as found by the Tribunal are as follows : The assessee has tamarind trees in the lands which are in his possession either as owner or as mortgagee. He plucked tamarind from those trees; he made them into flower tamarind by a process of cleaning which involved removing fibre as well as seeds and thereafter sold the same in the market. The Tribunal has come to the conclusion that raw tamarind as such had also a market; therefore, its conversion into flower tamarind is not an agricultural process; consequently, the extra income realised by the sale of flower tamarind cannot be considered as agricultural income. It did not give any finding as to what was the process ordinarily employed by the cultivators before marketing their tamarind. It was of the opinion that as raw tamarind as such also could be marketed, the assessee could not claim the benefit of section 2(1)(b)(ii) of the 'Act' merely because, in his view, the flower tamarind will get him better price. The parties are at issue as to the true meaning of the words 'process ordinarily employed by a cultivator to render the produce raised by him fit to be taken to market' found in section 2(1)(b)(ii). According to the revenue, before an assessee can claim the benefit of that provision, he must establish two conditions, i.e., (1) the process employed by him is the one ordinarily employed by a cultivator, and (2) the process employed must be such as just to make the produce fit for marketing. But, according to the learned counsel for the assessee, the process must be that which is ordinarily employed before marketing the produce raised.
4. We have now to see which of these contentions is correct. Section 2(1)(b)(ii) reads :
'Any income derived from land used for agricultural purposes by the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of re-in-kind to render the produce raised or received by him fit to taken to market.'
5. The language of section 2(1)(b)(ii) does not appear to justify the contention of the revenue that for claiming the benefit of section 2(1)(b)(ii) the process employed by the assessee must be of such character as just to make the produce marketable. This interpretation ignores the words 'ordinarily employed'. The interpretation put by the learned counsel for the revenue about the true scope of section 2(1)(b)(ii) appears to us extremely narrow. The true test, according to us, is what is the process ordinarily employed by the cultivators of any particular locality to render the produce raised by them fit for market. The process adopted in one locality may not necessarily be adopted in another locality. In some places paddy as such is sold; yet in other places usually it is converted into rice, before it is sold. In other words, the 'market' referred to in the provision is a ready and willing 'market' where the produce has to be dumped.
6. Now we may proceed to examine the decided cases read at the time of the hearing. The first case read to us is Killing Valley Tea Co. Ltd. v. Secretary of State. The assessee therein was a grower of tea. Tea grown was made ready for marketing by employing certain mechanical process. The extra income earned as a result of the application of the mechanical process in question was claimed to be agricultural income. This is what Mookerjee, A. C.J. observed dealing with that contention :
'It appears to us to be clear from the respective cases just set out that the process in its entirety cannot be appropriately described as agriculture. The earlier part of the operation when the tea bush is planted and the young green leaf is selected and plucked may well be deemed to be agriculture. But the latter part of the process is really manufacture of tea, and cannot, without violence to language, be described as agriculture. Counsel for the company appreciated this difficulty and made an endeavour to bring the case under the second clause of the definition. That clause, in our opinion, cannot be applied to the case before us. The manufacture of tea as a marketable commodity from the green leaves cannot be held to be the performance by a cultivator of a process ordinarily employed by a cultivator to render the produce raised by him fit to be taken to market. The assertion of the company that the actual leaf of the tea plant is of no value as a marketable commodity must be taken with a qualification. The green leaf is not a marketable commodity for immediate use as an article of food, but is a marketable commodity to be manufactured by people who process the requisite machinery into tea fit for human consumption. We must further observe in view of the expression used in the definition, that the manufacturing process cannot properly be said to be employed to render the tea leaves fit to be taken into the market. The means employed for the cultivation and manufacture of tea are well known and are succinctly stated in an article on tea by Mr. John McEwan in volume 26 of the eleventh edition of the Encyclopedia Britannica; they are described in fuller detail in the standard works on cultivation and manufacture of tea by Lieut. Col E. Money and David Crole. There can be no doubt, in our opinion, that the entire process is a combination of agriculture and manufacture.'
7. We fail to see how the ratio of this decision is helpful to the revenue. From the facts of that case it appears that the ordinary process employed by the cultivator to make tea leaves fit for marketing was not the one adopted by the assessee. The process employed was necessary to make tea fit for human consumption, which is not a relevant aspect under section 2(1)(b)(ii).
8. Next case cited to us is the decision of a Special Bench of the Patna High Court in J. M. Casey v. Commissioner of Income-tax. In that case the assessee among other activities of an agricultural nature cultivated aloe plants and from them by means of machinery prepared sisal fibre which he sold in the market; the whole of the profits earned was held to be exempt as being purely agricultural income. Dealing with the contention that the process employed by the assessee was not agricultural but a manufacturing process, the court observed :
'Now it is perfectly clear from the wording of the section that an agricultural process does not necessarily stop short at the removal of the plant from the soil. In the case of, for example, cereal plants, they must be threshed and winnowed in order to produce the grain and the process of threshing and winnowing is one ordinarily employed by the cultivator to render the produce fit to be taken to market. It is further to be noted that in order to test whether the process employed by the assessee is an agricultural process it would be possible to compare it with that which is 'ordinarily employed by a cultivator', that is to say, it must be found that the plant with which we are concerned is in fact cultivated and that the cultivator in order to render the produce fit to be taken to market ordinarily employs a process to treat the produce of actual cultivation. Now in this case there is in the first place no cultivation of the aloe plant save in connection with the economic process involving the use of machinery such as employed by the assessee and therefore the process 'ordinarily employed' is in fact that used by the assessee. In spite of the enquiries which the department has been able to make nothing in connection with the cultivation of aloe fibre has been discovered, save that aloe leaves are bought by certain jail authorities from persons who cultivate it and supply the leaves to the jail, the jail being apparently the only market which such cultivators have for the disposal of their leaves. The so bought by the jail authorities are treated by the prisoners by means of the same laborious and uneconomic process which is employed by some villagers in treating the leaves of the wild and uncultivated plant. The object of manufacture in jails is not the conducting of an economic process which shall render profitable the cultivation of the aloe plant but merely to keep the prisoners employed on sufficiently laborious and punitive work. In other words, this instance relied on by the department does not provide a standard of comparison for the process employed by the assessee.'
9. We are in respectful agreement with the above observations which we think correctly brings out the true scope of section 2(1)(b)(ii).
10. The above decision also deals with the meaning of the expression 'market'. This is what is stated :
'The word 'market' in the section implies a real center of economic exchange and the purchase by jails is merely an artificial condition having no relation to a market for agricultural produce. The department relies upon the decision of the Calcutta High Court in the case of Killing Valley Tea Co. Ltd. v. Secretary of State. That case was concerned with the state of affairs in connection with the manufacture of tea. The assessees employed process of manufacture applied to the leaf which the use of costly machinery and was of a complicated nature, but the court was able to compare this process with a process which had ordinarily been employed by the cultivators of the tea bush before modern manufacture had been introduced, that is to say, the dry leaf had long been known as a marketable commodity and the preparation of the dried leaf in its market form had been carried on by known processes of simple nature. Here the standard of comparison was available and the modern manufacturing process could be clearly differentiated from it.'
11. The decision in Sheolal Ramlal v. Commissioner of Income-tax, was next brought to our notice. Therein the assessee owned various village; amongst his crops he grew cotton and it was apparently his practice, instead of selling the cotton in a crude state, to send it to a ginning factory at Pandharkooda and another village in the same district; having had the cotton ginned there, he used to sell it in Bombay at a price naturally much higher than he would have obtained if he had sold the crude produce in its original state; the Commissioner of Income-tax assessed him on a profit of Rs. 1,010 made in this way. When the aggrieved assessee took up the matter to the High Court, the High Court held :
'The process 'ordinarily employed by a cultivator' must mean one in ordinary use amongst cultivators generally. The Income-tax Act so far as agricultural income is concerned only relieves the producer from liability to income-tax so long as he is a bona fide agriculturist carrying on that business in the ordinary course of good husbandry. Where cotton is first ginned and then sold in market, then although it may be distinctly advantageous even from the mere point of view transport to do so it cannot be said that ginning is essential in order to enable the produce to be fit to be taken to market.' (As summarised in the head note). In the course of the judgment, it was observed : 'It has been suggested on behalf of the applicant that, even assuming that it is not the general practice amongst the cultivators to have their cotton ginned in the first instance, as he does, the subsection quoted should be taken as implying that the process in question should be postulated to be one 'ordinarily employed by an agriculturist' in the position and standing of the applicant. We do not think however that this interpretation is the correct one. The process 'ordinarily employed by a cultivator' must, in our opinion, mean one in ordinary use amongst cultivators generally, and the Income-tax Act, so far as agricultural income is concerned, only relieves the producer from liability to income-tax so long as he is a bona fide agriculturist carrying on that business in the ordinary course of good husbandry.' This decision again supports the view taken by us.
12. The last case cited is Brihan Maharashtra Sugar Syndicate Ltd. v. Commissioner of Income-tax. In that case the assessee who was a grower of sugarcane crushed the canes grown by him and manufactured gur (jaggery) out of the same and sold the manufactured jaggery. The point for consideration was whether the assessee was entitled to treat the extra income realised by the conversion of sugar cane and into jaggery and the sale of the jaggery as agricultural income. Kania J. (as he then was), who delivered the judgment of the Bench, held that the words 'to render the produce raised by him fit to be taken to market' in section 2(1)(b)(ii), when read in their natural meaning 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', would be covered by the definition.
13. The relevant discussion is found in paragraphs 17 and 18 of his Lordship's judgment. This is what he stated therein :
'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.
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 sugarcane. The article ultimately sold in the market, of which the profits are sought to be assessed, is not sugarcane 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.'
14. The view expressed in the above case appears to unduly restrict the benefits conferred by section 2(1)(b)(ii) though the conclusion reached therein may be justified on the facts of that case. That is probably the reason why Kania J. observed at the end of the judgment' our observations in this case are limited to the facts noticed in the reference.' If the learned judges meant that the mere possibility of selling the product and not the marketing of the product in the ordinary way, is what is contemplated by section 2(1)(b)(ii) then we are unable to accept that decision as laying down the law correctly. What is of essence is that the process employed must be the one that is ordinarily employed to make the produce fit for marketing. The nature of the process in question would depend upon the prevailing practice in a given locality. It may differ from time to time or place to place.
15. In the instant case, unfortunately, the Tribunal has not addressed itself to the question as to what was the process ordinarily employed by the cultivators in the locality where the assessee resides to render the tamarind grown by them fit to be taken to market. That being so, it is necessary for us to call for a further statement of the case from the Tribunal under section 66(4) of the 'Act'. The Tribunal will submit that statement by the end of July, 1962. If the Tribunal thinks that it cannot submit the statement in question without taking additional evidence, it is permitted to take additional evidence after duly notifying the parties.
16. We want the Tribunal to submit a further statement of the case bearing on the question as to 'what is the process ordinarily employed by cultivators of tamarind residing in the locality in which the assessee resides, to render the tamarind raised by them fit to be taken to market'. These cases will be posted for further hearing after the receipt of the statement called for.
17. Order accordingly.