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Judgment
Bhagwati, J.—Ordinarily we find cases where the assessee relies on section 4(3)(viii) and the revenue contests the claim of the assessee, but
here in this reference the position is reversed and we find the revenue relying on section 4(3)(iii) and the assessee disputing that position. The
reference relates to assessment year 1954-55, 1955-56 and 1956-57 the corresponding previous years being Samvat Years 2009, 2010 and
2011. The assessee is an individual and he holds certain agricultural lands. In or about 1952, a friend of the assessee suggested to him the idea of
growing a vegetable product commonly called galka, the botanical name being luffa pentendra and the assessee accordingly obtained galka seeds
from abroad and, after preparing the lands for cultivation, raised galka on the lands in 1952. Now the kind of galka prown by the assessee was not
an indigenous kind but was a kind grown fairly widely in Formosa, Japan and other places. After the gulkas were fully grown, they were removed
from the plants and the assessee then subjected them to a process for preparing what are called loofahs. The process consisted of various steps
taken in the following order : (1) tapping dry galkas for taking out the seeds; (2) deskinning them; (3) giving them an acetic acid bath; (4) holding
them in salicylic acid; (5) drying them in the sun ; (6) drying them in sun; (6) putting them in cold water for two days ; and (7) lastly, pressing them
for the purpose of packing. The final product which emerges as a result of subjecting galkas to this process is known as loofah. It is a fibrous
product in the nature of a pad and we area told that it is commonly used in the manufacture of shoes.
The foreign loofahs are about 16"" in length and 4"" in width. The loofahs prepared by the assessee were, however, only 5"" in length and 2-1/2"" in
width. The assessee tried to market these loofahs abroad and sent them to England on consignment basis the sale, but it was found that it was not
possible to sell them. The position was that even if they were sold at the lowest possible rate, the assessee would have been liable to pay purchase
tax and that would have caused considerable loss to the assessee. The loofahs were, therefore, reshipped to India. The result was that loss was
suffered by the assessee in this transaction. The assessee claimed a loss of Rs. 1,85,932-8-0 in the assessment for the assessment year 1954-55
and similar losses were also claimed in the assessment for the subsequent assessment years 1955-56 and 1956-57.
We may point out at this stage that the accounts in respect of the activities relating to the cultivation of galkas were entered by the assessee in
the books of account of a business carried on by him in the name of Sakarlal Sons and Company. After the galkas were raised and removed from
the plants, they were transferred by the assessee to the books of account of another business carried on by the assessee in the name of Minaxi
Trading Company at a particular value determined by the assessee and it was Minaxi Trading Company which processed the galkas and exported
loofahs prepared out of them. The losses set out above were, therefore, suffered by the business of Minaxi Trading Company and they were
obviously arrived at on the basis of the cost of the galkas being taken at the value of which they were shown to have been taken over from Sakarlal
Sons and Company. These losses were claimed by the assessee as business losses arising out of non-agricultural operations but the revenue
contended that they were agricultural losses and were, therefore, not liable to be taken into account in computing the income of the assessee from
business. That is a question which we shall presently consider, but it is clear that even if the contention of the assessee is accepted and it is held that
the operations of Minaxi Trading Company were non-agricultural operations, a question might well arise as to the correct amount of losses suffered
by the assessee attributable to these non-agricultural operations. Both the businesses, namely, Sakarlal Sons and Company and Minaxi Trading
Company being the proprietary businesses of the assessee, the revenue may in that event have to apportion the losses suffered by the assessee in
the entire transaction between the agricultural operations carried on in the name of Sakarlal Sons and Company and the non-agricultural operations
carried on in the name of Minaxi Trading Company by resort to rule 7 of the Rules made u/s 59 of the Act. We are, however, not concerned with
that question and we do not wish to express any opinion upon it. These facts have been set out by us namely because an argument was founded
upon them on behalf of the assessee for showing the conduct of the assessee as a cultivator.
The losses claimed by the assessee were disallowed by the Income Tax Officer on the ground that they were agricultural losses. The Income
Tax Officer took the view that the raising of galkas was ultimately an agricultural operation and so far as the processing of galkas resulting in the
preparation of loofahs was concerned, it was a process ordinarily employed by a cultivator to render galkas produced by him fit to be taken to
market and the losses resulting from these operations were, therefore, agricultural losses within the meaning of section 2(1)(b)(ii). The assessee
carried the matter in appeal, but the Appellate Assistant Commissioner upheld the disallowance of these losses. The matter was then taken to the
Tribunal. The Tribunal also came to the conclusion that the process employed by the assessee was a process which came within section 2(1)(b)(ii)
and the lossess suffered by the assessee were therefore, agricultural losses which were not liable to be deducted in computing the income of the
assessee. Much argument turned upon the question as to what findings of fact were actually reached by the Tribunal and it would, therefore, be
desirable to set out the relevant portion of paragraph 5 and the whole of paragraph 6 of the order of the Tribunal which were in the following terms
:
.... It was submitted that this was a case where the product galka has a market by itself and that subsequent operations are in the nature of
manufacturing operations which do not come within the scope of the definition of agricultural income in section 2(1)(b)(ii). Reliance for this purpose
is placed on evidence in the shape of letters written by an entity called Messrs. M. Kawanishi of Kobe, Japan. This is a letter, which was written to
the assessee on September 21, 1959, in which it is stated that looking to the quality of the stuff, texture and size, they would have been in a
position to purchase the stuff on assorted basis in the year 1952, round about the 12s per dozen on C.I.F. Japanese port basis. Another letter
written on October 8, 1959, by another party of Japan was also relief upon for showing that the price in 1952 would have been round about 15-
1/2s, a dozen. It is stated that on the basis of these letters, even dried fruits had a market by themselves and that, therefore, the rest of the activity
was not one which would be an agricultural operations.
We are unable to agree with this submission. In order to find out whether there was a market for the produce as such or whether it had to be
processed before it could be sold, what is necessary is to see whether there is a market at which it could be absorbed. The existence of a
theoretical market in a place like Japan is not one that has to be taken into account for this purpose. The section postulates the performance of any
process ordinarily employed by a cultivator so as to render the produce fit to be taken to market. The expression ""ordinarily employed"" would
appear to postulate the existence of certain conditions at or about the locality in which the produce is grown. The item marketed by the assessee
was a stranger to the Indian market. Therefore, there could have been no ready market in India. Indeed, this position was not disputed by the
assessee. Therefore, merely because there was some possibility of a sale at its original stage, in a distant country, it does not follow that the fruit by
itself had a market, which is relevant for our purpose. If a produce is grown, say in Kerala, and it does not have a ready market in its original stage
there, then merely because there is some market, say in Punjab, for the produce in its original stage, it does not follow that the process ordinarily
employed by cultivators in Kerala would cease to be agricultural process. In all these matters, what is liable to be looked into is the area in which
the produce is grown and the customary process employed to render it fit for market, if it is not marketable in its original stage. That is why it is a
question of fact in each case : see Brihan Maharashtra Sugar Syndicate Ltd., v. Commissioner of Income Tax. In our opinion, therefore, in this
case, there was no market in which it could be sold in its original stage.
The assessee thereupon made an application to the Tribunal for a reference and on the application the Tribunal made an order referring the
following question for the opinion of this court :
Whether on the facts here, where the galka produced does not have a market in India, the process employed on it for purposes of exporting and
selling it abroad satisfies the requirements of section 2(1)(b)(ii) of the Act ?
This was the form in which the question was framed, but an argument was addressed to us that this question did not bring out the real
controversy between the parties inasmuch as it was based on a very limited postulate, namely, that the galkas did not have a market in India
whereas the actual finding of the Tribunal was that there was that there was no market at all the galkas and that the question should, therefore, be
reframed so as to bring out the real controversey between the parties. We shall consider this argument at the appropriate stage.
It is evident that the question depends for its determination on the true construction of section 2(1)(b)(ii) of the Income Tax Act, 1922. The
question whether the process employed by the assessee for the purpose of preparing loofahs out of galkas with a view to exporting and selling
loofahs abroad satisfies the requirements of section 2(1)(b)(ii) becomes material because if the process is covered by section 2(1)(b)(ii), the whole
of the loss suffered by the assessee would be agricultural loss and would by reason of section 4(3)(viii) be liable to the excluded in computing the
income of the assessee. Section 4(3)(viii) provides that agricultural income shall not be included in the total income of an assessee. ""Agricultural
income"" is defined in section 2(1). Section 2(1)(a) deals with agricultural income consisting of rent or revenue derived from land which is used for
agricultural purposes, and is either assessed to land revenue in the taxable territories or subject to a local rate assessed and collected by officers of
the Government as such. We are not concerned with this part of the definition. Section 2(1)(b) which contains the material provision relevant for
the purpose of the present reference reads as follows :
In this Act, unless there is anything repugnant in the subject or context : -
(1) agricultural income means - ....
(b) any income derived from such land by -
(i) agriculture, or
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to
render the produce raised or received by him fit to be taken to market, or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed
other than a process of the nature described in sub-clause (ii).
This section refers to income derived from land which means arising from land and denotes income, the immediate and effective cause of which
is land. It is divided into three clauses. Clause (i) in terms takes in income derived from agricultural land by agriculture which would include
agricultural produce as held by the Supreme Court in Dooars Tea Co. Ltd., v. Commissioner of Income Tax. Clause (ii) includes cases of income
derived from the performance of any process ordinarily employed by a cultivator to render the produce fit to be taken to market. The reason
behind this provision is not far to seek and it really provides a clue to its interpretation. A cultivator raises produce from the land with a view to
selling it. If there is a market for the produce as grown, there is no difficulty; the cultivator can in such a case sell the produce without anything more
and he need not perform any process on the produce. But if there is no market for the produce as grown and it can be sold only by performing
some process on it., the cultivator would have to perform such process in order to be able to sell the produce; otherwise the produce would not be
marketable and the raising of it would be futile. Where such is the case, the legislature says that, though strictly the agricultural operations ceases
when the produce is raised and removed from the soil, the performance of the process should be regarded as a continuation of the agricultural
operations since the process has to be performed by the cultivator for the purpose of enabling him to sell the produce which the otherwise cannot.
It is because the performance of the process is essential in order to render the produce marketable, which it is otherwise not, that the law regards it
as part of the agricultural operations carried on by the cultivator. This reason also explains the other requirement of the section, namely, that the
process must be such as is ordinarily employed by cultivators to make the produce saleable. The performance of the process is assimilated to
agricultural operations and must, therefore, like agricultural operations stricto sense, be an operation which is ordinarily done by cultivators. If some
special or unusual process is employed by a cultivator, which is not ordinarily employed by cultivators to render the produce marketable, it cannot
be regarded as part of the agricultural operations and the benefit of the income being treated as agricultural income would not be available to the
cultivator. It will be clear from this discussion that there are two conditions which are required to be fulfilled before a process performed by the
assessee can be said to be a process within the meaning of section 2(1)(b)(ii). The first condition is that the process must be necessary to render
the produce fit to be taken to market and that involves the proposition that there must be no market for the produce in its raw state. If there is
already a market for the produce in its raw state, then the process cannot be said to be a process employed to render the produce fit to be taken
to market or, in other words, to make it marketable. That which is already marketable does not need any process to render it marketable. The
second condition is that the process must be one which is ordinarily employed by a cultivator of the produce to render it marketable. But even if
these two conditions are satisfied, it is not sufficient to attract the applicability of section 2(1)(b)(ii). There is an additional requirement which must
be satisfied and that requirement springs directly from the language and the reason of the enactment. It follows as a necessary corollary from what
is stated above that, even where the produce is subjected to a process ordinarily employed by cultivators to render it fit to be taken to market, the
produce must not change its original character. The cultivator is permitted to subject the produce to a process in order to make it marketable and
what is ultimately marketed must, therefore, be that produce. The character of the produce must not be altered as a result of the process. Of
course when we say this we must make it clear that there may be changes brought about in the produce for the purpose of making the produce
marketable but those changes must not amount to altering the original character of the produce : vide Dooars Tea Company''s case.
So much on principle. Turning now to the authorities, the first decision to which our attention was invited was the decision of the Patna High
Court in In re Bhikanpur Sugar Concern. The question which arose in this case was whether income derived from sale of sugar manufactured from
sugarcane grown by the assessee on its lands was agricultural income within the meaning of section 2(1)(b) of the Income Tax Act, 1918, which
was in identical terms with section 2(1)(b) of the Income Tax Act, 1922. The assessee contended that the income was agricultural income, but a
Full Bench of the Patna High Court consisting of three judges held that it was not, on the ground that the process employed by the assessee for
manufacturing sugar was not a process ordinarily employed by cultivators of sugarcane for rendering it fit for marketing. Dawson-Miller C.J. said
that the market of the was majority of cultivators of sugarcane was the sugar factory or the country mill and and they did not manufacture sugar out
of it in order to make it marketable and that the process employed by the assessee was, therefore, not a process ordinarily employed by cultivators
so as to bring the case within the section 2(1)(b)(ii). The other learned judges also expressed the same view. This decision clearly proceeded on
the basis that the process employed by the assessee not being a process ordinarily employed by cultivators to render the sugarcane produced by
them marketable, one of the two conditions specified in section 2(1)(b)(ii) was not fulfilled.
We were then referred to a decision of the Calcutta High Court in Killing Valley Tea Company Ltd., v. Secretary of State (A.I.R. 1921 40).
The assessee in this case grew green leaf tea in a tea garden owned by it and manufactured tea by performing a process on green leaves plucked
from the tea garden. In its assessment to Income Tax, the assessee contended that the entire income from the sale of manufactured tea was
agricultural income within the meaning of section 2(1)(b)(ii) of the Income Tax Tax Act, 1918. The Calcutta High Court, however, held that though
the green leaf from the tea plant was not a marketable commodity for immediate use as an article of food, it was certainly ""a marketable
commodity to be manufactured by people who possess the requisite machinery into tea fit for human consumption"" and the manufacturing process
could not, therefore, properly be said to be employed to render the tea leaves fit to be taken to market as required by the section. This decision,
therefore, proceeded on the basis that if there is a market for the produce egfown by the assessee and despite that, some process is performed on
it, such process cannot be said to be a process to render the produce fit to be taken to market so as to attract the applicability of section 2(1)(b)
(ii).
The next decision which was cited before us was the decision of the Patna High Court in J. M. Casey v. Commissioner of Income Tax The
facts in this case were that the assessee cultivated aloe plants and from them by means of machinery prepared sisal fibre which he sold in the
market. The question arose whether the whole of the income derived by the assessee was exempt from tax as being agricultural income. The Patna
High Court held that it was so exempt and the ground on which the Patna High Court based its decision was that aloe leaves had no market and
that the process performed on aloe leaves for preparing sisal fibre was a process ordinarily employed to render aloe leaves fit to be taken to
market. Courtney-Terrell C.J. who delivered the main judgment, observed that no cultivation of aloe plant appeared to have been practiced save in
connection with the process of manufacture of sisal fibre and, moreover, there was no market for aloe leaves. Of course aloe leaves could be
supplied to jails but the learned Chief Justice observed that that did not make any difference since the leaves so bought by the jail authorities were
treated by the prisoners by means of the same laborious and uneconomic process which was employed by some villagers in treating the leaves of
the wild and uncultivated plant and that the object of the manufacture in jails was not the conducting of an economic process which rendered
profitable the cultivation of the aloe plant but merely to keep the prisoners employed on sufficiently laborious and punitive work. It was thus
definitely found that the aloe leaves were not ordinarily marketable and they could normally be sold only by converting them into sisal fibre. The
learned Chief Justice made it clear that the decision of the court was based on these conditions which existed at the time and observed :
It may be that in the future the 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 should cease to cultivate the plant themselves and should purchase the leaves in an open
market then and such circumstances may possibly require reconsideration in the light of the Income Tax law...
An argument was also advanced on behalf of the revenue that the assessee being the only cultivator, the process employed by him could not be
said to be a process ordinarily employed by a cultivator to render aloe leaves marketable, but this argument was met by the learned Chief Justice
by saying that since there was no cultivation of the aloe plant save in connection with the economic process involving the use of machinery such as
was employed by the assessee, the process ordinarily employed would in fact be that used by the assessee. This decision thus laid down two
propositions : (1) that in order to attract the applicability of section 2(1)(3)(ii) the produce in its raw state must not have a ready and available
market where goods of that kind are bought and sold; and (2) that even if the assessee is the only cultivator, a generalization can be made from the
single instance of the assessee and the process employed by the assessee can be regarded as a process ordinarily employed by a cultivator in
render the produce marketable. The second proposition laid down in this decision would meet the difficulty pointed out on behalf of the assessee,
namely, that the assessee being the only cultivator of galkas in the present case, the process employed by him could not be appropriately described
as a process ordinarily employed by a cultivator to render galkas fit to be taken to market.
Reference was also made to a decision of the Court of the Judicial Commissioner, Nagpur, in Sheolal v. Commissioner of Income Tax, where
the question was whether the process of ginning applied by the Assessee could be said to be a process within the meaning of section 2(1)(b)(ii).
The court held that the process of ginning was not a process ordinarily employed by cultivators to render cotton grown by them fit to be taken to
market since unginned cotton was sold by the cultivators and ginning was not essential in order to render the cotton fit to be taken to market. The
fact that there was a market for cotton grown on the land was thus taken into account for the purpose of holding that the process of ginning could
not be said to be a process necessary to render the produce fit to be taken to market.
Then we were referred to a decision of the Bombay High Court in Brihan Maharashtra Sugar Syndicate Ltd., v. Commissioner of Income Tax.
The question which arose in this case was whether income realised as a sale of galkas manufactured by the assessee out of sugarcane grown by it,
was agricultural income within the meaning of section 2(1)(b)(ii). The Tribunal found that the requirements of the section were satisfied, but on a
reference to the High Court a Division Bench of the High Court held that though there was evidence to support the finding of the Tribunal that the
process employed by the Assessee in the manufacture of gal was a process ordinarily employed by a cultivator, the finding that the process was
one ordinarily employed by a cultivator to render the produce fit to be taken to market was erroneous inasmuch as there was a market for the sale
of sugarcane before it was turned into gul. Kania J., as he then was, after referring to section 2(1)(b)(ii), said :
Reading the words used in the definition section with their mutual 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...
The learned judge agreed with the Patna High Court in J. M. Casey''s case that market must mean a ready and available market where
produce of the kind grown by the assessee is bought and sold and observed that since the statement of the case itself showed that there was a
market for sugarcane, the process employed by the assessees in converting it into gul could not be said to be a process ordinarily employed to
render it fit to be taken to market where it can be sold. Now it must be conceded straightway that, in view of the decision of the Supreme Court in
Dooars Tea Company Ltd.''s case, the statement contained in the passage quoted above can no longer be regarded as good law in so far as it says
that if there is no market for selling the produce in its original character, the character of the produce may be altered by performing a process
necessary to render it fit to be taken to market and such a process too would be covered by section 2(1)(b)(ii). It is now clear that the produce
must retain its original character and if the effect of the process is to alter the character of the produce, the process would not be a process within
the intendment of section 2(1)(b)(ii). But this much is certainly established by this decision, namely, if there is a market for the produce, no process
performed on it can be said to be a process necessary for rendering it fit to be taken to market.
We were also referred to a decision of the Mysore High Court in A. T. Parthasarathiah & Bros. v. Commissioner of Income Tax. That
decision does not help us very much for it merely applies section 2(1)(b)(ii) as construed by us above to the facts of that case. The question there
arose in regard to tamarind plucked by the assessee from trees owned by him and converted into ""flower tamarind"" by a process of cleaning which
involved removal of fibre and seeds. The Mysore High Court held that inasmuch as the Tribunal had not addressed itself to the question as to what
was the process ordinarily employed by cultivators in the locality where the assessee resides to render the tamarind grown by them fit to be taken
to market, it was necessary to call for a further statement of the case and the Tribunal was accordingly required to submit a further statement of the
case in order to enable the court to dispose of the question.
The last decision to which we must refer is the decision of the Andhra Pradesh High Court in Boggavarapu Peda Ammaiah v. Commissioner of
Income Tax. The assessee in this case carried on the business of export of tobacco grown on his lands and he claimed exemption in respect of
income arising on the sale of tobacco as agricultural income. The revenue authorities treated the income derived from operations up to the stage of
flue-curing"" as agricultural income but regarded the subsequent activities which involved the performance of the process of re-drying, stripping and
grading and sale of tobacco subjected to such process as non-agricultural operations and treated the income attributable to those operations as
income from business subject to tax. The Andhra Pradesh High Court before whom the question came on a reference took the view that the
tobacco after flue-curing had a large market in the country and the operations of re-drying, stripping and grading were, therefore, not quite
essential to make the tobacco marketable. The High Court also took the view that these operations could not be regarded as a process ordinarily
employed by cultivators in order to make the tobacco marketable. Since in the opinion of the High Court both the conditions of section 2(1)(b)(ii)
were not satisfied, the High Court held that the income attributable to the operations of re-drying, stripping, and grading could not be described as
agricultural income but should be treated as income liable to tax.
It would thus be seen that in all these decisions the various High Courts applied section 2(1)(b)(ii) to the facts of the case before them and
examined the question whether the two conditions of the section were satisfied so as to make the income agricultural income. We will, therefore,
now proceed to consider how far these two conditions could be said to be fulfilled in the present case in regard to the process employed by the
assessee for the purpose of preparing loofahs out of galkas.
Before, however, we do so, it would be convenient to dispose of one short argument advanced by Mr. Kaji on behalf of the assessee and that
argument was that galkas when subjected to the process for converting them into loofahs did not retain their original character but underwent a
change in character, since loofahs were goods of a different character from galkas and section 2(1)(b)(ii) was, therefore, not attracted. Now it is
undoubtedly true that if galkas did not retain their original character on being subjected to the process for converting them into loofahs, the process
would not be a process within the meaning of section 2(1)(b)(ii). But unfortunately for the assessee it is not open to Mr. Kaji to urge this contention
before us since the contention raises a question of fact and not having been advanced before the Tribunal and there being no finding of the Tribunal
on the question and the question not being the subject-matter of reference before us, the assessee cannot be permitted to raise the contention
before us.
Going back to the main question, Mr. Kaji contended that the Tribunal had misdirected itself in law in proceeding on the basis that for the
purpose of determining whether there was no market for galkas in raw state which would make the performance of the process for converting
them into loofahs necessary to render them marketable, the only market which the Tribunal was required to take into account was the market in
India. He urged that even if there was no market for galkas in India, but there was a market abroad, say for example, in Japan, as the contention of
the assessee was, the performance of the process for converting them into loofahs could not be said to be necessary in order to render them fit to
be taken to market and the Tribunal should have therefore considered whether there was no market for galkas outside India. This contention is, in
our opinion, well-founded. We do not think it can be seriously disputed that if there was a market for galkas - and by galkas we mean the
commodity of galkas in raw state - even outside India, the performance of the process for converting them into loofahs could not be said to be
necessary in order to make them marketable. It is in this connection important to bear in mind that even loofahs had no market in India and the
process of converting into loofahs was performed on the galkas with a view to exporting and selling them abroad. Both in the case of galkas and in
the case of loofahs, therefore, there was no market in India and the market had to be found outside India. It is possible that if loofahs had a market
in India, an argument could with some plausibility have been advanced that even if galkas had a market outside, a cultivator of galkas in India
would ordinarily convert them into loofahs which would be saleable in India rather than sell galkas in their raw state outside India. But where, as in
the present case, the markets, if any, could only be outside India, both for galkas and loofahs, it must be concluded that if galkas had a market
outside India, the process employed for converting galkas into loofahs for a market which was also outside India could not be said to be employed
in order to make galkas fit for being taken to market. In such a case both the markets being out of India and galkas being marketable, no process
performed on them could be said to be a process essential to make them marketable. It was, therefore, not enough for the Tribunal to find that
there was no market for galkas in India. The Tribunal should have also considered whether there was no market for galkas outside India and it was
only if the Tribunal found that there was no market for galkas outside India, that the Tribunal could come to the conclusion that the process
employed for the purpose of converting gullas into loofahs was a process covered by section 2(1)(b)(ii).
But the learned Advocate-General contended that even if that be the view which we are inclined to take, there was a finding of the Tribunal
that there was no market for gulkas and that in view of that finding the process employed by the assessee must be regarded as a process necessary
to render gulkas fit to be taken to market. This contention involves a consideration of the order of the Tribunal. But before we examine this
contention, we may dispose of another argument advanced by Mr. Kaji, namely, that the process employed by the assessee could not be said to
be a process ordinarily employed by a cultivator to render galkas fit to be taken to market. There were two circumstances relied on by Mr. Kaji in
this connection. The first was that the assessee was the only cultivator of galkas and there could not, therefore, be any standard with reference to
which it could be said whether the process was a process ordinarily employed by a cultivator. But this argument is sufficiently met by the reasoning
of the Patna High Court in J. M. Casey''s case to which we have already referred. As a matter of fact if galkas in their raw state had no market at
all, a cultivator of galkas in India could not do otherwise that make loofahs out of them and the process of making loofahs would, therefore, be a
process ordinarily employed by a cultivator of galkas. The second circumstance on which reliance was placed was the fact that the accounts in
respect of the cultivation of galkas were maintained by the assessee in one set of books while the accounts in respect of the processing of galkas
and sale of loofahs made out of them were maintained in another set of books. This, argued Mr. Kaji, showed that the intention of the assessee as
a cultivator was not to make loofahs out of galkas but to sell galkas in their raw state and if the conduct of the assessee be taken as a test, the
process of making loofahs out of galkas could not be said to be a process which would be ordinarily employed by a cultivator. This argument is, in
our opinion, totally devoid of force. It cannot be overlooked that both the concerns belonged to the assessee and it is not possible to infer from a
mere bifurcation of the two activities of the assessee that an ordinary cultivator of galkas would sell galkas in their raw state and would not prepare
loofahs out of them. The determining factor must be whether there was a market for galkas as a commodity. If there was a market for galkas as a
commodity, it would be possible to take the view that a cultivator would ordinarily sell galkas in raw state for he would be interested merely in
selling his produce and not in performing processes which are not necessary in order to render the produce marketable. But if there was no such
market, then obviously the cultivator would have no choice but to make loofahs out of them for the purpose of sale. We must, therefore, come
back to the question whether there was no market for galkas in the sense that there was no place in India or abroad where galkas as a commodity
were bought or sold.
Now turning to the order of the Tribunal, the portion of paragraph 5 of the order which we have reproduced above shows that before the
Tribunal it was the contention of the assessee that galkas had a market by themselves and that the subsequent operations were in the nature of
manufacturing operations. The assessee for the purpose of establishing this plea produced evidence in the shape of letters addressed by parties in
Japan to the assessee and contended on the basis of these letters that there was a market for gulkas. The Tribunal after setting out this contention
of the assessee in paragraph 5 proceeded to deal with it in paragraph 6. The Tribunal started by saying that they were unable to agree with this
contention of the assessee, namely, that galkas had a market. The Tribunal then proceeded to give its reasons for coming to this conclusion. The
Tribunal first stated that in order to find out whether there was a market for the produce, what was necessary to be seen was whether there was a
market at which it could be absorbed. This is no doubt a correct proposition, but in the way in which it is put, it is likely to be misunderstood and
we would, therefore, like to clarify it by saying that what is required to be considered is not whether the particular produce grown by the assessee
is saleable but whether there is a market where the produce ordinarily grown by a cultivator is bought or sold as a commodity so that a cultivator
of the produce would ordinarily sell the produce as such and not perform any process on it. The Tribunal after setting out this proposition observed
that the existence of ""a theoretical market in a place like Japan is not one that has to be taken into account for this purpose"". The learned
Advocate-General relied strongly on this observation and contended that this observation showed that the Tribunal found as a fact that there was
no real market in Japan. Mr. Kaji, on the other hand, contended that all that the Tribunal meant to say in making this observation was that the
existence of a theoretical market in a place like Japan was not relevant but what was relevant was the existence of a market in India. He urged that
the word ""theoretical"" was used by the Tribunal to describe the market in Japan because the Tribunal considered that the real market to be
considered was the market in India and all markets outside India were theoretical markets for the purpose of determination of the present question.
We think Mr. Kaji is right in his reading of this observation of the Tribunal. The observations of the Tribunal which immediately follow upon this
observation clearly support the interpretation sought to be placed by Mr. Kaji. The Tribunal, after making this observations, proceeded to examine
what is the market in reference to which the question whether it exists or does not exist is required to be considered. The Tribunal observed that
the expression ""ordinarily employed"" would appear to postulate the existence of certain conditions at or about the locality in which the produce is
grown, meaning thereby that whether there is a market for the produce must be judged in relation to the area in which the produce is grown. The
Tribunal then stated that the item marketed by the assessee, namely galkas, was a stranger to the Indian market and, therefore, held that there
could not be ready market for galkas in India. This position was as a matter of fact not disputed by the assessee. The Tribunal emphasised the
necessity of the market in India by observing that merely because there was some possibility of a sale at its original stage in a distant country, it did
not follow that galkas by themselves had a market. The Tribunal then gave an illustration to reinforce its point of view. The Tribunal observed that if
a produce is grown, say in Kerala, and it does not have a ready market in its original stage there, then merely because there was some market, say
in Punjab, for the produce in its original stage, it does not follow that the process ordinarily employed by cultivators in Kerala would cease to be
agricultural process. The Tribunal then stated that what was required to be looked at was the area in which the produce is grown and the
customary process employed to render it fit for market, if it is not marketable in its original stage. This process of reasoning of the Tribunal which
we have set out above clearly shows that what the Tribunal considered to be the correct position in law was that the market to be taken into
account must be the market in the area in which the produce is grown, that is, the Indian market, and since there was no ready market for galkas in
India, it must be concluded that galkas had no market so as to attract the applicability of section 2(1)(b)(ii). And that conclusion was set out by the
Tribunal in the last sentence of the paragraph. Reading the paragraph as a whole we think that though there are one or two observations in the
paragraph which read in isolation appear to lend some support to the argument that the Tribunal found as a fact that there was no market for
gulkas in Japan and, therefore, no market at all in India or abroad since the market in Japan was the only market put forward on behalf of the
assessee, if those observations are read in the context of the rest of the paragraph, it is clear that those observations were made not for recording a
finding that there was no market for galkas as a commodity in Japan but merely for the purpose of emphasizing that what must be looked at is the
market in India and not the market in a distant place like Japan. The word ""theoretical"" also appears to have been used in order to emphasize that
the real market to be considered is the Indian market and that the rest of the markets would be mere theoretical markets. The word ""theoretical
was not used in order to record a finding that there was no real market in Japan. It appears that in the view of the law which it took, the Tribunal
did not concern itself to examine and find whether there was a market for galkas as a commodity in Japan and this becomes clear if we refer to the
statement of the case and the question referred to us for our opinion. The statement of the case clearly shows that according to the Tribunal what it
held was, to quote its own words :
.... that what was liable to be looked into for the purpose of finding out whether there was a market is the area in which the produce is grown and
the customary process employed to render it fit for market if it is not marketable in its original stage. The Tribunal found also that there was no
market in India in which it could be sold in its original stage. Under these circumstances, it was held...
The question which has been referred to us also shows that according to the Tribunal the basis on which its decision was founded was that
galkas did not have a market in India. Even if, therefore, there were any doubt as to what the Tribunal found in its order, such doubt is clearly laid
at rest by the statement of the case and the question referred by the Tribunal. We, therefore, think that reading the order of the Tribunal as a whole
along with the statement of the case and the question referred for our opinion, it must be held that the only finding reached by the Tribunal was that
there was no market for galkas in raw stage in India and that there was no finding of the Tribunal that galkas as a commodity had no market even
outside India.
Now the real controversy between the parties was whether the process employed by the assessee was a process within the meaning of section
2(1)(b)(ii) and in order to the proper determination of that controversy it was necessary for the Tribunal to give a finding on the question whether
there was no market for galkas in India or outside India, for it is only if there was no market for galkas in India or abroad, that the process
employed by the assessee could be said to be a process covered by section 2(1)(b)(ii) as contended by the revenue. The question as framed is
however based on the postulate that it would be sufficient to attract the applicability of section 2(1)(b)(ii) if there was no market for galkas in India.
It is, therefore, necessary to reframe the question in order to bring out the real controversy between the parties and the question as reframed will
be as follows :
Whether, on the facts and circumstances of the case, the process employed on galkas for purposes of exporting and selling them abroad satisfies
the requirements of section 2(1)(b)(ii) of the Act ?
In order to properly and effectively answer this question it is necessary to have the finding of the Tribunal on the question whether there was no
market for galkas as a commodity in India or abroad. We, therefore, direct the Tribunal to give its finding on this question after hearing the parties
and to submit a further statement of the case in relation to that finding. The Tribunal will of course confine itself to the record of the case in giving
the finding. We, however, do not express any opinion on the question as to on whom would lie the burden of proof in regard to the question on
which the Tribunal is directed to give the finding. That would be a matter for the Tribunal to consider. The reference will be placed on board for
hearing after the supplementary statement of the case is received from the Tribunal.