JUDGMENT R.L. Gulati, J.
1. This is a statement of the case under Section 66(1) of the Income-tax Act.
2. The assessee is a Hindu undivided family of the name and style of Seth Banarsidas Gupta. The assessment year involved is 1955-56 with previous year ended on June 30, 1954. The following questions have been referred for our opinion :
"1. Whether, on the facts and in the circumstances of the case, the profit of Rs. 1,096 realised by the assessee-family on the sale of the trees was income liable to tax ?
2. Whether, on the facts and in the circumstances of the case, the income from gur business was agricultural income, not liable to tax ?
3. Whether, on the facts and in the circumstances of the case, the amounts of Rs. 16,000 and Rs. 41,805 received by the assessee-family from Kashiram and Devi Chand, respectively, constituted its income ?
4. Whether, on the facts and in the circumstances of the case, the following expenses are permissible deductions:
(1) Rs. 2,640 legal charges.
(2) Rs. 1,381 interest.
(3) Rs. 350 travelling expenses ?
5. Whether, on the facts and in the circumstances of the case, Seth Banarsi Das acquired l/6th share in the factory under the deed of exchange dated July 16, 1948 ?
6. Whether, on the facts and in the circumstances of the case, the assessee's claim for determining the written down value of the alleged l/6th interest acquired by him in the factory under the deed of exchange dated July 16, 1948, at Rs. 4,50,000 for the purpose of allowance of depreciation is tenable ?"
3. The assessee purchased extensive land at Maiduwala on June 28, 1950, and thereafter acquired bhumidhari rights in that land on 15th March, 1951. In order to turn the land into a farm the assessee felled trees standing on the land and sold fuel wood obtained from such trees over a number of years. The sale proceeds of the fuel during the year ended on June 30, 1954, relevant for the assessment year in question was Rs. 1,831. The assessee claimed that this amount was not taxable on three grounds: (i) that the receipt was of a capital nature ; (ii) that it was agricultural income ; and (iii) that it was income of a casual nature.
4. The Income-tax Officer rejected the plea of the assessee and held the receipt to be taxable. The assessee did not succeed before the Appellate Assistant Commissioner nor before the Income-tax Appellate Tribunal.
5. Now, it is clear that the sale of fuel wood is not in the line of the assessee's business. The assessee had purchased certain land with the intention of converting the same into an agricultural farm. In order to achieve that object it had to clear the land of the trees which were of spontaneous growth. The assessee had neither purchased the land nor the trees with the intention of re-selling them at profit. What the assessee had acquired was a capital asset comprising land and the trees standing thereon, and when the assessee removed the trees and sold them as fuel wood, it merely realised a part of its capital. The circumstances of the case do not show that the assessee had undertaken any business activity or any adventure in the nature of trade. We, accordingly, answer question No. 1 in the negative.
6. The assessee had raised sugarcane crop on the farm land. Part of the sugarcane crop was sold as such, while the remaining was converted into gur. The Income-tax Officer estimated the profit from the sale of gur at 15 per cent, and included it in the assessee's taxable income. The assessee's plea that it was agricultural income was not accepted. The assessee's appeal before the Appellate Assistant Commissioner of Income-tax failed. On second appeal, the Income-tax Appellate Tribunal also rejected the assessee's appeal and held that the income realised from the sale of gur was not agricultural income.
7. Agricultural income is exempt from income-tax. Under Section 2(1)(a) of the Income-tax Act, agricultural income means any renter revenue derived from land which is used for agricultural purposes, etc., and under clause (b) of Sub-section (1) of Section 2, agricultural income includes any income derived from such land by, (i) agriculture ; or (ii) the performance by a cultivator or the 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. The assessee's contention is that on account of certain restrictions on the sale of sugarcane in the relevant year it was not able to sell its entire crop of sugarcane and was obliged to convert a part of it into gur, and the conversion of sugarcane into gur, in the circumstances, was a process ordinarily employed by a cultivator to render the produce raised fit to be taken to market. In order to bring the case within the scope of Section 2(1)(b), it is necessary, inter alia, to establish that the nature of the commodity remained the same even after the application of the process. When sugarcane is converted into gur it results in the production of a different commodity. The conversion of sugarcane into gur is not a necessary process performed by a cultivator to render sugarcane fit for being taken to the market. Moreover, the Tribunal has found as a fact that it was not true that the assessee was obliged to convert the sugarcane into gur as it was not in a position to dispose of the sugarcane as such. On these findings the case is not covered by Section 2(1)(b)(ii). We, accordingly, answer question No. 2 in the negative.
8. Question No. 3 is covered by the decision of this court in Seth Banarsi Das Gupta v. Commissioner of Income-tax [1971] 81 ITR 170 (All). Following that decision we answer the question in the affirmative, against the assessee and in favour of the department.
9. Question No. 4 is covered by our decision in Seth Banarsi Das Gupta v. Commissioner of Income-tax [1977] 106 ITR 559 (All). For the reasons. stated in our judgment in that case, we hold that all the three items of expenditure claimed by the assessee were permissible deductions.
10. Questions Nos. 5 and 6 are again covered by the decision in Seth Banarsi Das Gupta v. Commissioner of Income-tax [1971] 81 ITR 170 (All). Following that decision we answer question No. 5 in the affirmative and question No. 6 in the negative.
11. In the circumstances, we make no order as to costs.