Madras HC says conversion to jagger not essential to make cane marketable
Profit from the sale of jaggery is not agricultural income. Hence, it does not qualify for tax exemption, the Madras High Court has ruled.
Considering an appeal filed by E Palaniappan against the Income Tax Appellate Tribunal (ITAT) order, a division bench of Justices M Duraiswamy and R Hemlatha said that manufacturing of jaggery can be done in 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 product. 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, the bench observed.
Palaniappan moved Court after Chennai bench of ITAT confirmed orders by assessing officers and the Commissioner of Income Tax (Appeals) on classification of income. The appellant harvested sugarcane that was converted into jaggery and the profit made out of the sale of jaggery was shown as agricultural income.
According to the bench, 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.
It noted the argument from lawyer for the petitioner who cited ruling by Bombay High Court (CIT vs H G Date, 1971) where the Court agreed with the reason for converting sugarcane into jaggery as nearest sugar mills refused to buy the farm produce citing the poor quality as a reason. Accordingly, income derived out of the sale of the jaggery was accepted as agricultural income.
The Chennai bench also took note of two different matters (Commissioner of Income-Tax Vs. Kirloskar Bros Ltd and Krishi Utapadan Mandi Samiti and another Vs. Shankar Industries and Others) cited by the Appellant’s lawyer. While in the former case, it was held that the conversion of sugarcane into jaggery was a process essential to make sugarcane marketable, court in the later case 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.
Counsel for Tax Department 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.
After going through arguments, Justices Duraiswamy and Hemlatha said that earlier ruling of getting exemption through converting sugarcane into jaggery was on of few instances and “definitely exception cannot be rule” and dismissed the appeal.