TaxTMI 
TaxTMI 
1997 (7) TMI 12
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....come earned by the assessee from the sale of sugar. But the problem is of computation of such income. Section 10(1) of the Income-tax Act lays down that agricultural income shall not be taken into computation of the total income of a previous year of any person under the Income-tax Act, 1961. Section 295 of the Act which empowers the Board to make rules for carrying out the purposes of this Act has specifically empowered the Board by sub-section (2)(b) of section 295 to frame rules for the manner in which and the procedure by which the income shall be arrived at in the case of, inter alia, income derived in part from agriculture and in part from business. In exercise of this power, rule 7 of the Income-tax Rules, 1962, was framed which lays down : " Income which is partially agricultural and partially from business.--(1) In the case of income which is partially agricultural income as defined in section 2 and partially income chargeable to income-tax under the head 'profits and gains of business', in determining that part which is chargeable to income-tax the market value of any agricultural produce which has been raised by the assessee or received by him as rent-in-kind and which....
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.... if the assessee consumes the entire quantity of sugarcane raised by it, the market price of such sugarcane is ascertainable and this price has to be excluded from the profits and gains of business of the assessee. The Tribunal found that the assessee-company had grown sugarcane in its own land as well as lands taken on lease. Since the crushing capacity of the assessee's factory was 1,200 tons per day, the sugarcane grown by the assessee was not adequate for its requirements. It had, therefore, purchased sugarcane from other growers. The sugarcane purchased by the assessee was much more than the sugarcane produced by it for the assessment years 1962-63, 1966-67 and 1967-68. The assessee purchased sugarcane from registered ryots according to the provisions of the Sugarcane Control Order and also from non-registered ryots. The quantity of sugarcane purchased from non-registered ryots was negligible compared to the quantity of sugarcane purchased from registered ryots except during the periods relevant for the assessment years 1962-63, 1963-64 and 1966-67. The Tribunal was of the view that sugarcane could not be treated as an agricultural produce ordinarily sold in the market during....
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.... that there will be a market of a nature where buyers and sellers congregate. If such a market does not exist, the provisions of rule 7(2)(a) will not apply. Sub-rule (b) was framed by the Board to determine the value of agricultural products where such markets for agricultural products did not exist. We are unable to uphold this argument. "Market" in the context of rule 7 does not mean an open market where buyers and sellers get together for the purpose of purchase and sale of goods. The assessee-company regularly, year after year, in the ordinary course of business bought sugarcane from registered and unregistered ryots. Whether the purchase was at a price controlled by the Sugarcane Control Order or not is quite immaterial. There was a price at 'which sugarcane could ordinarily be purchased by the assessee for the purpose of its own business. The price paid by the assessee was the market price. It is by now well-settled that market does not have to be an open place of business where buyers and sellers congregate. If the market is controlled by Government regulations, sale and purchase of sugarcane within the framework of these regulations will be the ordinary mode of selling s....
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....and uneconomic procedure. Motihari jail bought a small quantity of aloe leaves from cultivators not for any commercial purpose but to keep the prisoners occupied. The purchase by the Motihari jail was not a commercial activity at all. Courtney-Terrell, C.J., explained the position thus : " The object of the manufacture in jails is not the conducting of an economic process which shall render profitable the cultivation of the aloe plant but merely to keep the prisoners employed on sufficiently laborious and punitive work. " It was held in the facts of that case that purchase of aloe leaves by jails in an artificial condition had no relation to a market for agricultural produce. But in the case before us, the purchases of sugarcane made by the factory were purely commercial transactions controlled by market forces within the framework of the Sugarcane Control Order. The Special Bench decision of the Patna High Court does not support the case made out by Mr. Nariman in any way. The principle that the value of a property will be the price which it will fetch if sold in the open market is a well-known method of valuation which has been adopted in a larger number of statutes in England....
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....he 'market value' of these stamps ? . . . It does not connote a market where buyers and sellers congregate. The 'market value' here means the price at which the goods could be expected to be bought and sold as between willing seller and willing buyer, even though there may be only one seller or one buyer, and even though one or both may be hypothetical rather than real. " These are the principles universally applied to find out the price at which the goods are ordinarily sold in the open market. For determination of market value, there is no pre-requisite that an open market where buyers and sellers congregate to buy and sell goods must exist. In the instant case, the assessee-company actually bought sugarcane from a large number of growers year after year in the ordinary course of business, The price at which it buys sugarcane must be taken to be the market price. If the price is controlled by the Sugarcane Control Order, the controlled price will be taken as the market price, because it is at this price that a willing buyer and a willing seller are expected to transact business. As Lord Denning pointed out, it does not make any difference to this position that the assessee was t....