Agricultural income test for processed produce: eucalyptus oil from marketable leaves was treated as taxable income after identity changed.

Eucalyptus oil extracted from eucalyptus leaves was held not to qualify as agricultural income because processing converted the leaves into a different commodity and therefore altered the original character of the produce. The governing test is whether the process is ordinarily employed by a cultivator to render the produce fit for market without changing its identity; if the processed article loses that identity, the receipt is not agricultural income. On the facts, the assessee failed to show that the leaves had no market, and the leaves themselves were marketable. The income was therefore assessable to tax.

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Issues: Whether eucalyptus oil extracted from eucalyptus leaves grown by the assessee constitutes agricultural income and is therefore not assessable to tax.

Analysis: For income to fall within the agricultural-income definition, the process applied to the produce must ordinarily be employed by a cultivator to render it fit for market and must not alter the original character of the produce. Where the processed product loses its identity and becomes a different commodity, the receipt does not retain the character of agricultural produce. On the facts, the assessee did not establish that the eucalyptus leaves had no market, and the record indicated that the leaves were themselves marketable.

Conclusion: Eucalyptus oil extracted from eucalyptus leaves was not agricultural income and was assessable to tax, so the answer to the referred question was against the assessee and in favour of the Revenue.

Ratio Decidendi: A produce remains agricultural income after processing only if the process is ordinarily employed to make it marketable and does not change its identity; if the processed article becomes a different commodity and the original produce is itself marketable, the income is not agricultural income.

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