1. This is a reference by the Income-tax Appellate Tribunal, Madras Bench, under section 66(1) of the Indian Income-tax Act, 1922. The assessment years concerned are 1950-51, 1953-54, 1954-55 and 1955-1956. The accounting periods are the Malayalam years 1124, 1127, 1128 and 1129 respectively. The reference is at the instance of the Commissioner of Income-tax, Kerala, at Ernakulam.
2. We shall first deal with the second of the two questions referred. The question reads as follows:
“Whether the profit by the conversion of cocoanuts grown on the assessee's own garden into retted husk and copra is exempt from tax under the provision of section 4(3)(viii) having regard to the definition of agricultural income in section 2(I)(b)(ii)?”
3. Sub-section (3) of section 4 of the Indian Income-tax Act, 1922, provides that any income, profits or gains falling within the classes specified in that sub-section shall not be included in the total income of the person receiving them. Clause (viii) of the clauses specified is “agricultural income”.
4. Section 2(1) of the Act defines agricultural income. The relevant portion of the definition reads as follows:
“2. (1) ‘agricultural income’ means—
(a) any rent 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 such as,
(b) any income derived from such land by—
(i) agriculture, or
(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, or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii).”
5. The sole question for determination is whether the conversion of the cocoanuts grown by the assessee into copra and the retting of the husks by him is a “process ordinarily employed by a cultivator to render the produce raised fit to be taken to market” or not. The Appellate Tribunal said:
“In our present case, cocoanut is a direct agricultural commodity. On that commodity naturally if all of which was thrown into the market at one and the same time, all of which would not and all of which could not be used by the public as such— some process has to be performed, to be marketed or sold to people who use it for industry and the process that the assessee did upon it was to convert the kernel into copra and ret the husk to sell it as such or as fibre. It seems to us that when these operations are made not by machine but only by manual labour it cannot be said that anything more than operations to make it fit to be taken to the market has been done on it. The exemption under section 2(1) applies.”
6. In his affidavit dated July 29, 1961, the assessee made the following affirmation:
“I am an agriculturist owning extensive cocoanut gardens and paddy fields. During the years under appeal, I owned 86-28 acres of cocoanut gardens and about 15 acres of paddy fields. The annual production of nuts will be about a lakh and a half.
Like all other agriculturists owning extensive cocoanut gardens I also was converting the cocoanuts into copra and retted husks before sale.”
7. In paragraph 11 of its order the Appellate Tribunal said:
“No doubt the duty of proving the right to exemption is upon the assessee as laid down by the Supreme Court in Commissioner of Income-tax v. R. Venkataswami Naidu [1956] 29 I.T.R 529 S.C.. It cannot be said in this case that the assessee has not discharged that onus.”
8. Whether the process employed by the assessee is a process ordinarily employed by a cultivator to render the produce raised fit to be taken to market is essentially a question of fact. In Commissioner of Income-tax v. Katragadda Madhusudhana Rao [1944] 12 I.T.R 1, 8. the Madras High Court said: “It is simply a question of fact”, and continued as follows:
“We may add that this is what the Tribunal itself held and the matter should have been allowed to rest there. As the Tribunal has made the reference, we will answer it in this way:— The process of curing tobacco employed by the assessee is a process ordinarily employed by a tobacco cultivator to render it fit to be taken to the market when the tobacco grown is that of the nature grown by the assessee.”
9. We do not agree that we should answer the second question referred once we have come to the conclusion that the question involves only a question of fact and not of law. This is not a case of “no evidence”, and as the only reference permitted under section 66(1) of the Act is on a question of law arising out of the order of the Appellate Tribunal we cannot but decline to answer the second of the two questions referred. This, however, does not mean that we endorse the conclusion reached by the Tribunal or that anything in this judgment will preclude a different conclusion in the future.
10. The first of the two questions referred relates to the ambit of two orders of remand, annexure “D” to the statement of the case dated March 31, 1957, and annexure “B” to the statement of the case dated. February 12, 1958. Both the orders were passed by the Appellate Assistant Commissioner. Annexure “D” relates to the assessment year 1950-51 and annexure “E” to the assessment year 1953-54.
11. The Appellate Tribunal dealt with the matter as follows:
“Learned counsel for the assessee contends firstly, that in the first two assessments 1960-61 and 1963-64, the Appellate Assistant Commissioner did not mention in the remand report for action to be taken on the profits of conversion into husk and retting on the assessee's own cocoanuts and it was not open to the Income-tax Officer on such remand to have taken action.
The departmental representative contends that no ground has been taken and so this point cannot now be urged. In reply, the counsel for the assessee contends that under rule 27 of the Tribunal Rules, when on the merits he has succeeded before the Appellate Assistant Commissioner it is open to him as a question of law to agitate this matter before us. The departmental representative claims that if we allow the assessee to agitate this matter now, he must be given an opportunity to rebut it. We may state that in the view we are taking of the case, it is unnecessary to pronounce on this issue.”
12. It is elementary that no question of law can possibly arise when the Appellate Tribunal has not pronounced on the matter at all, and in that view we must decline to answer the first of the two questions referred as well.
13. The reference is answered as above; but in the circumstances of the case without any order as to costs. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal as required by sub-section (5) of section 66 of the Indian Income-tax Act, 1922.