Bombay H.C : Whether, on the facts and in the circumstances of the case, the payment made by the assessee to M/s Sulzer Freres of Switzerland in pursuance of an agreement dt. 1st Oct., 1958, between them was expenditure capital in nature and not revenue expenditure ?

High Court Of Bombay

CIT vs. Kirloskar Bros. Ltd.

Sections 37, 37(1), 80E, 80-I

Asst. Year1966-67, 1967-68, 1968-69, 1969-70

S.P. Bharucha & T.D. Sugla, JJ.

IT Ref. No. 512 of 1976

26th September, 1989

Counsel Appeared

Dr. V. Balasubramanian, J.P. Devadhar & K.C. Sidhwa, for the Revenue : S.M. Inamdar, for the Assessee

S.P. BHARUCHA, J.:

The reference raises, at the instance of the Revenue, four questions which read thus:

“(1) Whether, on the facts and in the circumstances of the case, the payment made by the assessee to M/s Sulzer Freres of Switzerland in pursuance of an agreement dt. 1st Oct., 1958, between them was expenditure capital in nature and not revenue expenditure ?

(2) Whether, on the facts and in the circumstances of the case, the payment made by the assessee to M/s Bullard and Co. of U. S. A. in pursuance of an agreement dt. 30th Jan., 1960, between them was expenditure capital in nature and not revenue expenditure ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that sugarcane crushers are agricultural implements within the meaning of item No. 9, Schedule V, and that profits arising from the manufacture of sugarcane crushers would be entitled to relief under s. 80E of the IT Act, 1961 ?

(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that sugarcane crushers are agricultural implements within the meaning of item No. 9, Schedule Vl, and that profits arising from the manufacture of sugarcane crushers would be entitled to relief under s. 80-I of the IT Act ?”

2. It is common ground that the first two questions must be answered, having regard to this Court’s judgment in the assessee’s own case in CIT vs. Kirloskar Bros. Ltd. (1983) 37 CTR (Bom) 12 : (1990) 181 ITR 527 (Bom) (Appendix) (infra) thus: The payments made by the assessee to M/s Sulzer Freres of Switzerland and M/s Bullard and Co. of U. S. A. were revenue expenditure. These two questions are so answered.

3. The answers to be given to the third and fourth questions are disputed. The assessee grows sugarcane. It converts some of the sugarcane into jaggery. For this purpose, sugar juice has to be extracted from the sugarcane. This is done by the use of sugarcane crushers. It is the contention of the assessee that sugarcane crushers are agricultural implements and are entitled to relief as such under s. 80E read with item No. 9 of the Fifth Schedule to the IT Act, 1961, for the asst. yrs. 1966-67 and 1967-68 and to the same relief under s. 80-I read with item No. 9 of the Sixth Schedule for the asst. yrs. 1968-69 and 1969-70. The ITO rejected, but the AAC and the Tribunal upheld, the assessee’s contention in this behalf.

4. As this is basically a question of fact, we reproduce the Tribunal’s findings: “There is no dispute that sugarcane crushers manufactured by the assessee are sold to agriculturists for the purpose of conversion of the sugarcane into sugar juice, being the first step in the process of conversion of sugarcane into jaggery. The question at issue is, therefore, whether the process of conversion of the sugarcane into jaggery employed by the agriculturists or sugarcane growers is a part of the agricultural process employed by the agriculturists to enable them to make their produce marketable. This will depend upon whether or not an agriculturist is in a position to sell the sugarcane produced by him in that form itself without its conversion into jaggery. There can be no doubt that the only market for the sugarcane to be sold in that form would be the sugar factories. If, in spite of there being demand by the sugar factories and in spite of there being facilities to sell the sugarcane to those factories in respect of the entire production of sugarcane under cultivation, it could be established that the agriculturists prefer to convert the sugarcane into jaggery, it may be a reasonable proof to hold that the agriculturists desire to convert the sugarcane into jaggery not because there is no market for the sugarcane, but with a motive to make higher profits. No such material, however, has been brought on record by the Department.”

The Tribunal based its conclusion upon this Court’s judgment in CIT vs. H.G. Date (1971) 82 ITR 71 (Bom), and the Supreme Court’s judgment in Dy. Commr. of Agrl. IT & ST vs. Travancorc Rubber & Tea Co. (1967) 20 STC 520, and held that the Revenue’s contention that sugarcane crushers were used not for the purpose of agricultural operations but for the purpose of commercial operations was not a sound contention. The conversion of sugarcane into jaggery was a process essential to make sugarcane marketable and to preserve the agricultural produce grown by an agriculturist from deterioration.

In H.G. Date’s case (supra), this Court was concerned with a situation where the assessee cultivated sugarcane on his land and converted it into jaggery for sale in the market. He claimed exemption from tax for the income received as being agricultural income. The finding of the Tribunal was that sugarcane could not be stored as a crop as it started losing its sugar content within 48 hours of being cut. There was a sugar mill near the lands belonging to the assessee which bought sugarcane in its natural condition, but the evidence showed that the mill bought sugarcane mainly from cultivators in the factory area and from Government farms and had refused in the past to buy from the assessee. The Tribunal concluded that the existence of the single mill would not constitute a market for the assessee’s sugarcane in its natural condition. Conversion of sugarcane into jaggery was a process ordinarily employed in India to render it fit to be sold in the market. This Court noted that findings of fact made by the Tribunal were open to attack in a reference only if they were perverse or were reached without due consideration of relevant matters. It was not for the Court in a reference to scrutinise the details of the evidence to ascertain whether there had been evidence before the Tribunal to justify the finding that there was no market for the sugarcane produced by the assessee in its natural state. The income received by the assessee from the sale of jaggery was, accordingly, held to be agricultural income exempt from income-tax.

In the case of Travancore Rubber and Tea Co. (supra), the facts that had been established were that the assessee converted latex tapped from its rubber trees into sheets which it sold and that this conversion was a process essential for the transport and marketing of the produce. The question was whether the assessee was a dealer in that it carried on the business of buying and selling goods. The Court held that in all cases of taxation, the burden of proving the necessary ingredients laid down by law to justify taxation was upon the taxing authority. Upon the only facts found, the Court held that this onus had not been discharged. Dr. Balasubramanian, learned counsel for the Revenue, submitted that the assessee’s agricultural activity ended with the production of sugarcane and did not extend to the conversion of it into jaggery. According to him, therefore, implements such as sugarcane crushers used in the process of converting sugarcane into jaggery were not agricultural implements.

Dr. Balasubramanian cited the judgment of the Supreme Court in Dooars Tea Co. Ltd. vs. Commr. of Agrl. IT (1962) 44 ITR 6 (SC). The assessee held a large tract of land upon which it grew bamboos, thatching grass and fuel timber by agricultural operations. These were not sold but were utilised by the assessee in its tea business. The question was whether they constituted agricultural income, and the Court held that they did. It is difficult to see how the decision in Dooars Tea Co. Ltd. (supra), can advance the case of the Revenue.

It is very difficult to hold that an agricultural activity ends the moment that agricultural produce is grown or that it does not take into account any process which is requisite to preserve it and/or make it marketable. In our view, an agricultural operation extends to all activities which makes the agricultural produce marketable. Consequently, an implement used to make the agricultural produce marketable must be held to be an agricultural implement.

Having regard to the findings of the Tribunal and what is aforesaid, we hold that the assessee is entitled to the relief given by ss. 80E and 80-I in the concerned assessment years in so far as its sugarcane crushers are concerned. Accordingly, the third and fourth questions are answered in the affirmative and in favour of the assessee.

No order as to costs.

[Citation :181 ITR 523]

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