The main legal point established in the judgment is the interpretation of 'agricultural income' under the Indian Income-tax Act, 1922, and the determination of whether a specific process employed by a cultivator qualifies as agricultural income.

1. This is a reference by the Income-tax Appellate Tribunal, Madras Bench, under S.66 (1) of the Indian Income-tax Act, 1922. The question referred is:

"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was correct in holding that the income from the sale of latex after its conversion into sole crepe was agricultural income under S.2 (1) (b) (ii) of the Indian Income-tax Act, 1922?"

2. S.2 (1) of the Act defines the expression "agricultural income" and S.4 (3) (viii) of the Act provides that "agricultural income" shall not be included in the total income of an assessee. The relevant portion of the definition reads as follows:

"agricultural income' means

(a) any tent 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;

(b) any income derived from such land by

(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."

3. The primary condition regarding the quality of the land is satisfied in this case. The sole question for determination is whether the conversion of latex into sole crepe by the assessee is a process ordinarily employed by a cultivator to render the produce raised fit to be taken to market.

4. The extract from the definition of "agricultural income" given above makes it quite clear that two conditions have to be satisfied in order to come within its ambit. They are:

(1) The process to which the agricultural produce is subjected, whether manual or mechanical, should be one which is ordinarily employed by a cultivator; and

(2) The said process should be employed in order to render the produce fit to be taken to market and not for only other purpose.

In other words, as stated in Brihan Maharashtra Sugar Syndicate, Ltd. v. Commissioner of Income-tax (AIR. 1947 Bombay 166):

"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."

5. Latex, as it comes out of the tree, is an opaque liquid resembling milk. The latex itself has a limited market and is bought by the manufacturers of foam rubber, dipped goods and other similar products. It has, however, to be preserved to prevent coagulation and deterioration during transport and storage. It has also to be homogenised and concentrated to reduce the transport charges. The three familiar varieties are creamed latex, evaporated latex and centrifuged latex.

6. The more important forms in which plantation rubber is usually sold are as sheets and crepe. The Encyclopaedia Britannica deals with them as follows:

"The details of the methods employed in the preparation of plantation rubber depend upon the shape and appearance of the product to be put on the market, but in nearly all cases the outlines of the procedure adopted are the same. The sieved and diluted latex containing 15-25 per cent rubber is treated with a coagulant such as acetic or formic acid or sodium silicofluoride. This causes the rubber to rise to the surface as a wet, white, doughy coagulum leaving in solution a small quantity of mineral and organic matter. The coagulum is then pressed between rollers until it is the required consistency, thickness and shape. After that it is hung to dry and eventually packed in wooden cases and shipped to its destination. The two most important forms of plantation rubber are sheet and crepe. Sheet is generally dark brown in colour because it is dried in smoke whilst crepe is a straw colour and is dried in air.

Sheet is obtained from latex coagulated in shallow tanks di