TMI Blog1994 (9) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... s are sorted/graded into different, varieties. These are then bundled into 5 kg. lots and put into sacks of 60 kgs. (5 x 12). The processed goods are then handed over by the Orissa Forest Department to Orissa Forest Corporation Ltd. for auction sale. It is these processed leaves that were purchased by the assessee and then transported to Kerala. Hence, the assessee contended before the Assessing Officer that tendu leaves are not ' forest produce ' and section 44AC is not applicable to the assessee's case. The Assessing Officer did not accept the above contention of the assessee. Placing reliance on a tax deduction certificate issued by the Orissa Forest Corporation Ltd. wherein it is certified that the assessee has purchased (tendu leaves) that is ' any other forest produce not being timber ', the Assessing Officer held that the assessee had purchased only tendu leaves which is a forest produce. He further held that even otherwise the processed tendu leaves are treated as forest produce and the provisions of section 44AC will be attracted in this case. The assessee had purchased tendu leaves to the tune of Rs. 59,96,936 from Orissa Forest Corporation Ltd. Holding that section 44AC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , lac, mahua flowers and myrabolams. " Hence, tendu leaves are forest produce. He contended that the mere act of drying and sprinkling water on the leaves would not change the character or the nature of produce itself. The CIT (Appeals)' reliance on the communication of the CBDT, cited above, is misplaced. Accoraing to the learned departmental representative, the communication was to the effect that if the traders dried the tendu leaves and sprinkled water on the same and sold such processed leaves, the purchases from such traders will not be hit by the provisions of section 44AC. This cannot be applied to purchases made from the forest department or forest corporation. Further, the assessee has not placed any material on record to show as to what was the representation before the Board in response to which the Board has sent such communication. On the other hand, the Minister of State for Finances (Revenue) in his letter dated 30-12-1991 addressed to the Member of Parliament has clarified as follows : " 4. Clarification dated 23-1-1989 to the Maharashtra Tendu Leaves Merchants' Association was sent by the Board after detailed consideration of the issue that drying and sprinkli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in this trade is less than 3% as seen from the accounts for several years. Shri Balakrishnan, the learned departmental representative, joined issue by stating that the Kerala High Court has unequivocally held that the Legislature has devised a fiction for treating the percentage of purchase price paid by the assessee as income falling under the head ' Profits gains '. Therefore, the decision of the Kerala High Court should be followed. 5. Having regard to rival submissions, we uphold the stand of the revenue that the decision of the Kerala High Court will have precedence over the other High Court decisions on the subject. However, before proceeding to apply the ratio laid down in that decision, it has to be seen whether the case of the assessee will fall for consideration under the provisions of section 44AC. There are certain undisputed facts in this case. They are-- (a) The assessee is a trader dealing in processed tendu leaves. (b) The assessee has purchased the processed tendu leaves from Orissa Forest Corpn. Ltd. in auction. (c) The assessee did not purchase raw tendu leaves or unprocessed tendu leaves from the said Corporation. The controversy in a short compass i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ). (3) In a case where the business carried on by the assessee does not consist exclusively of trading in goods to which this section applies and where separate accounts are not maintained or are not available, the amount of expenses attributable to such other business shall be an amount which bears to the total expenses of the business carried on by the assessee the same proportion as the turnover of such other business bears to the total turnover of the business carried on by the assessee. Explanation.-- For the purposes of this section, ' seller ' means the Central Government, a State Government or any local authority or corporation or authority established by or under a Central, State or Provincial Act, or any company or firm. " From a reading of the above provisions, it will be clear that there cannot be an ambiguity in regard to the nature of goods stated against (i) (ii) in the above table. Ambiguity arises in respect of item at S. No. (iii). The ambiguity arises because the expression " forest produce " has not been defined in the Income-tax Act. The learned departmental representative contended that the meaning assigned to it in several Forest Acts could be adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f section 2(1) to rope in operations such as those to render the produce fit for market, as agricultural operations. If the above sub-clauses were not found in the definition of agricultural income, the income derived from the sale of produce after such operations would not fall for consideration as agricultural income. Thus, if a primary produce has been subjected to certain operations or processes even for the purpose of rendering it fit for market, it can no longer retain its identity in its natural form and hence a special provision was found necessary in defining the agricultural income. Extending the same logic, we hold that if the tendu leaves were auctioned in "as is, where is " condition, it will be a forest produce. If, on the other hand, it has been processed and then auctioned, it can no longer be considered as a forest produce but only as a commercial commodity. There is no dispute before us that the assessee in this case has purchased processed tendu leaves from the Orissa Forest Corporation Ltd. Therefore, we hold that the provisions of section 44AC of the Income-tax Act are not attracted to the assessee's case. The appeals filed by the revenue are dismissed - - T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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