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, relying upon the decision of the Supreme Court in CST v. D. S. Bist 1980 AIR(SC) 169, 1980 (1) SCR 593, 1979 (4) SCC 741, 1979 (44) STC 392, 1980 UJ 220, 9980 scc(Tax) 41 held that eucalyptus oil was agricultural produce. The Tribunal accordingly confirmed the order of the Commissioner of Income-tax (Appeals)

Before us learned standing counsel appearing for the Department submitted that the eucalyptus leaves are having a market and, therefore, the sale of the oil extracted from the eucalyptus leaves cannot be considered to, be an agricultural produce. According to learned standing counsel, agricultural income means any rent or revenue derived from land which is situated in India and is used for agricultural purposes. Since the oil extracted from the eucalyptus leaves has no direct nexus to the land, it cannot be considered as agricultural produce. It was further submitted that since the eucalyptus leaves themselves have no market that would not mean that the oil extracted from the eucalyptus leaves which alone is marketable is to be considered as agricultural produce. In order to support the above said contentions reliance was placed upon the decisions in Dooars Tea Co. Ltd. v. Commr. Agrl. I. T 1962 AIR(SC) 186, 1962 (3) SCR 157, 1962 (44) ITR 6 (Mad) and Seth Banarsi Das Gupta v. CIT 1977 (106) ITR 559, 1977 (106) ITR 804 (All). On the other hand, learned counsel for the assessee submitted that the eucalyptus leaves themselves have no market and, therefore, the assessee has got to extract oil and bring the oil to the market since the eucalyptus oil alone has got the market. Placing reliance upon the provisions contained in section 2(1A)(b)(ii) of the Act, learned counsel submitted that even after a process is employed by a cultivator to make the produce fit for marketability, it would not lose its character as an agricultural produce. According to learned counsel, since the leaves themselves cannot be sold and the oil extracted alone is fit for marketability and therefore, the eucalyptus oil is agricultural produce. Reliance was placed upon the decisions in CIT v. H. G. Date 1971 (82) ITR 71 (Bom), CIT v. Woodland Estates Ltd. 1965 (58) ITR 612 (Ker) and CIT v. S. L. Mathias 1937 (5) ITR 435 (Mad)We have heard both learned standing counsel as well as learned counsel for the assessee

The point for consideration is whether the eucalyptus oil extracted from the eucalyptus leaves can be considered as an agricultural produce ?

While considering sections 2(1)(b)(i), 4 and 6 of the Indian Income-tax Act, 1922, the Supreme Court in Dooars Tea Co. Ltd. v. Commr. of Agrl. I.T. 1962 AIR(SC) 186, 1962 (3) SCR 157, 1962 (44) ITR 6 held as under

"Going back to section 2(1)(b) it refers to income derived from land which means arising from land and denotes income th