SAKARLAL NARANLAL Vs. COMMISSIONER OF INCOME TAX GUJARAT AHMEDABAD

JUDGEMENT

(1.) Ordinarily we find cases where the assesseee 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)(viii) and the assessee disputing that position. The Reference relates to assessment years 1954-55 1955 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 pentandra and the assessee accordingly obtained Gulka seeds from abroad and after preparing the lands for cultivation raised Galkas on the lands in 1952. Now the kind of Galkas grown by the assessee was not an indigenous kind but was a kind grown fairly widely in Formosa Japan and other places. After the Galkas 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) boiling them in salicylic acid; (5) drying them in the 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 his process is known as Loofahs is a fibrous product in the nature of a pad and we are 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 for 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 in the assessment for the assessment year 1954-55 and similar losses were also claimed in the assessments for the subsequent assessment years 1955-56 and 1956-57.

(2.) 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 at 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 buts 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 nonagricultural operations a question might well arise as to the correct amount of losses suffered by the assessee attributable to those non-agricultural operations. Both the businesses namely Sakarlal Sons and Company and Minaxi Trading Company being the proprietory 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 under sec. 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 merely because an argument was founded upon them on behalf of the assessee for showing the conduct of the assessee as a cultivator.

(3.) The losses claimed by the assessee were disallowed by the Incometax Officer on the ground that they were agricultural losses. The Income-tax Officer took the view that the raising of Galkas was admittedly 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 losses 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:- .