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B.N.KIRPAL, S.P.KURDUKAR
K. Lakshmanan And Company – Appellant
Versus
Commissioner Of Income Tax – Respondent
What is the meaning of "agricultural income" under Section 2(1) of the Income Tax Act, 1961 as applied to the rearing of silkworms and sale of cocoons? What is the status of income derived from the rearing of silkworms and sale of cocoons in relation to being agricultural income when the agricultural produce is mulberry leaves? What are the conditions under which income from a cultivator’s process to render produce fit for market qualifies as agricultural income?
Key Points: - The income from sale of cocoons was held not to be agricultural income; the agricultural produce is mulberry leaves, not silkworms or cocoons. (!) (!) (!) - The process of rearing silkworms and selling cocoons is not a process ordinarily employed by a cultivator to render his produce fit to be taken to market. (!) (!) - Section 2(1) defines agricultural income to include income from processes ordinarily employed by a cultivator to render produce fit for market, but the produced item must be what is cultivated; cocoons are not the agricultural produce of the cultivator. (!) (!) (!) - Dooars Tea Co. Ltd. v. CIT cited to interpret clause (ii) about processes to render produce marketable without altering its character. (!) - The High Court correctly concluded that feeding mulberry leaves to silkworms does not constitute a process employed by a cultivator to make leaves marketable, thus not agricultural income. (!) (!) (!) - Appeals dismissed; there is no exemption for income from silkworm rearing and cocoons under the Act. (!) (!)
ORDER
CAs Nos. 5086-97 of 1984
1. The short question which arises for consideration in this batch of appeals is whether or not the income derived from business of rearing silkworms is "agricultural income" as defined under Section 2(1) of the Income Tax Act, 1961 (for short "the Act").
2. The appellant is a partnership firm constituted for the purpose of carrying out agricultural activities. During the course of its business it indulges in the activity of growing mulberry leaves and rearing silkworms.
The assessee purchases silkworm eggs and when they are hatched the worms are principally fed on mulberry leaves. The mulberry leaves are plucked from the trees grown by the appellant and these leaves are cut into stripes which are fed to the silkworms. The worms wind around themselves the saliva which oozes from their mouth and the hardened saliva forms the protective cocoons. These cocoons are then sold in the market by the appellant.
3. Before the Income Tax Officer, the appellant claimed that the entire income which it derived from the growing of the mulberry leaves to the sale of the cocoons, was exempt from levy of income tax as it was "agricultural income" within the meaning of
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