K. A. THANIKKACHALAM J.

In pursuance of the order dated December 10, 1984, by this court the Tribunal referred the following question of law for the opinion of this court under section 256(2) of the Income-tax Act, 1961

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sale proceeds of eucalyptus oil extracted by the assessee from the leaves of the eucalyptus trees grown by it was in the nature of agricultural income and hence it was not assessable to tax ?".

The assessee company grows eucalyptus trees as shade trees and extracts eucalyptus oil from them. In the course of assessment proceedings for the assessment year 1978-79, the assessee contended that the sale proceeds of oil represented its agricultural income. The Income-tax Officer rejected this plea and treated the sale proceeds of the oil as miscellaneous receipts. However, on appeal, the Commissioner of Income-tax (Appeals) held that the extraction of oil was a process to render the leaves fit to be taken to market and, therefore, yielded agricultural income, which was not taxable. On further appeal by the Department, the Income-tax Appellate Tribunal