THIRU AROORAN SUGARS LTD., MADRAS versus COMMISSIONER OF INCOME TAX, MADRAS

Citation: [1997] SUPP. 3 S.C.R. 151 · Decided: 20-07-1997 · Supreme Court of India · Bench: S.C. SEN · Disposal: Dismissed

Judgment (excerpt)

THIRU AROORAN SUGARS LTD., MADRAS 
v. 
COMMISSIONER OF INCOME TAX, MADRAS 
. 
JULY 20, 1997 
[SUHAS C. SEN AND S.P. KURDUKAR, JJ.] 
Income Tax Act 1961: Sections 2(1-A) & 10(1)-Agricultural income 
to be excluded f omt total income of asses see . 
A 
B 
. Section 295(2)(b)-fncome de1ived partly from agriculture and partly C 
from business-Computation of income-Liable to be taxed. 
Income Tax Rules 1962: Rule 7(1)-Computation of income charge-
able to income tax-Market value of agricultural produce used as raw material 
in busines:r-T o be deducted. 
Rule 7(2)(a}-Market value-Detemiination of-Average price during 
relevant previous year--Of goods ordinarily sold in the market-To be deemed 
market value. 
D 
Sugarcane Control Order : Regulation of production, distribution and 
plice of sugarcane-Whether sugarcane ceases to be an agricultural produced E 
'ordinarily sold' in the market?-No. 
Words and Phrases : 'Market and 'ordinarily sold'-Meaning o~In the 
context of Rule 7 of the Income Tax Rules 1962 : 
The assess.ee company engaged in the manufacture of sugar, cul-
F 
tivated sugarcane in its own cane fields. The entire quantity of sugarcane 
produced by the assessee was consumed by the assessee itself. The assessee 
also purchased raw sugarcane for crushing from the market, as the 
quantity produced by it was not adequate for its requirement. During the 
period relevant for assessment years 1962-63, 1966-67 and 1967-68, when G 
the Sugar-cane Control Order was in force, the quantity of sugarcane 
purchased by the assessee, from registered and non registered ryots far 
exceeded that produced by it. 
The contention of the assessee was that since at the relevant time the 
sugar-cane prices were controlled by the Sugar-cane Control Order, the H 
151 
152 
SUPREME COURT REPORTS [1997] SUPP. 3 S.C.R. 
A market value of the sugarcane produce, to be deducted from its income 
chargeable to income tax, was to be determined not according to clause (a) 
but as per clause (b) of sub-rule 2 of rule 7 of the income tax rules. 
Upholding this contention, the Tribunal took the view that sugarcane could 
not be treated as agricultural produce ordinarily sold in the market, 
B during the relevant previous years. 
Taking a contrary view the High Court held that merely because the 
market for sugar-cane was regulated by the Sugar-Cane Control Order, 
the product itself did not cease to be an agricultural produce ordinarily 
sold in the market, and therefore the market value of the sugarcane 
C produced by the assessee had to be computed in the manner laid down in 
Rule 7(2)(a). Aggrieved by this, the assessee company preferred ihe 
present appeal. 
It was argued on behalf of the assessee that rule 7(2)(a) is applicable 
D only where there exists an actual market where sugarcane is ordinarily 
sold and where buyers and sellers congregate for the sale and purchase of . 
goods, and that the market value of goods could not be determined in the 
absence of such a market. 
Dismi.ssing the appeal and upholding the decision of the High Court, 
E this Court 
F 
G 
HELD : 1. The High Court has come to a right decision in holding 
that Rule 7(2)(a) was applicable in this case. The market value of the 
sugarcane produced and consumed by the assessee company was to be 
computed accordingly. [157-A] 
2. The product itself does not lose its identity or nature or character 
of an agricultural produce sold in the market merely because the price, 
distribution, production and relationship between the grower and pur-
chaser thereof, were subject to elaborate government/regulations. 
[156-G-H] 
2.1. The assessee was itself purchasing sugarcane for its manufac-
turing purposes in the ordinary course of business. Thus, raw sugarcane 
was ordinarily sold in the market within the framework of Govt. regula-
tions and the market value of the same had to be determined as provided 
H in rule 7(2)(a). [158-E] 
1HIRU AROORAN SUGARS LID. v. C.l.T. 
153 
3. For determining the market value of the sugarcane produced by A 
the assessee, the fact that the price of such goods was controlled was 
immaterial. The price at which the assessee bought sugarcane must be 
taken as the market price. [160-F] 
3.1. If the price is controlled by government regulations, the control-
led price at which the buyer and seller are reasonably expected to transact B 
business, will be taken as the market price. [160-G] . 
4. 'Market' in the context of Rule 7 does not mean an open market 
w

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