Case: Zila Parishad Kheri Vs. Hindustan Sugar Mills &amp; Anr

was a raw material from half a dozen Districts it could hardly be said from the point of view of business, that it was being carried on in the various Districts from where the raw material was being acquired.4. Before us it has been contended on behalf of the Zilla Parishad that the continuous and regular activity of buying sugarcane which extended for the period mentioned in Clause (a) of Section 121 of the Adhiniyam constituted carrying on of business in the rural areas from where the sugarcane was purchased. Reliance has been placed on a Bench decision of the East Punjab High Court in Chas, J. Webb Sons and Company Inc. Philadelphia v. Commissioner of Income-tax, East Punjab, 18 ITR 33 = (AIR 1951 Punj 347). There the assessee company which was incorporated in the United States of America was carrying on the business of manufacturing carpets in America. Its only business in British India was to purchase, through its agents in British India, wool as raw material for use in the manufacture of carpets. The Company was sought to be assessed in respect of its income from such purchases of raw material under Section 42 (3) of the Indian Income-tax Act, 1922. It was held that the mere purchase of raw material in British India was an operation within the meaning of Section 42 (3) of that Act and that the profits which arose out of such purchases were taxable. Section 42 of the Income-tax Act was a totally different provision. According to it all income, profits or gains accruing or arising whether directly or indirectly through or from any business connection in British India were to be deemed to be income accruing or arising within British India.It was further provided that in case of a business of which all the operations were not carried out in British India the profits and gains of the business deemed under the section to accrue or arise in British India were only such profits and gains as were reasonable attributable to that part of the operation carried out in British India. The High Court was of the view (which appears to be unexceptionable) that the word "operation" covered the purchase of wool as raw material for use in manufacturing carpets and that such a purchase was an operation carried out in the course of its business by a person or firm which manufactured the carpets. We are unable to see how any assistance can be derived from the above case for the purpose of deciding the meaning of the words "carrying on business" used in Section 121 (a) of the Adhiniyam. In Commr. of Income-tax, Bombay v. Ahmedbhai Umarbhai and Co., Bombay,1950 SCR 335 at p. 376 = (AIR 1950 SC 134 ) Mukherjea, J., (as he then was) observed as follows:-"A man may carry on the trade of a seller or purchaser of goods; he may be a manufacturer of goods or an exporter or importer of the same. Each of these would be a business within the meaning of the Act. Suppose, for example, that he combines all these activities and carried on a business which includes manufacturing, selling and also exporting and importing of goods. Can it not be said that each one of these activities is a part of the business which he carries on? I agree with Mr. Munshi that if a particular process or activity of a continuous character can be distinguished from other processes and if a separate profit can be ascertained and allotted in respect to the same, there is no reason why it should not be regarded as a part of the business which yields income or profits."These observations can hardly be of any avail to the Zilla Parishad. The buying of raw material in the shape of sugarcane may be a process or activity of a continuous character but even according to the test laid down by Mukherjea, J., which related to entirely different statutory provisions and facts it cannot be said that the company was making any separate profits or income by means of purchasing sugarcane. It is futile to refer to all the other cases on which learned counsel for the Zilla Parishad has relied as they are totally distinguishable on facts except to notice the decision in Zilla Parishad, Muzaffarnagar v. Jugal Kishore Ram Swarup, 1969 All LJ 24. There a firm had set up crushers in certain rural areas from where it purchased sugarcane. The sugarcane was crushed and converted into a juice. That juice was sent to the town of Miranpur for being pressed into sugar. The High Court was of the view that the juice which was called "Rab" was a saleable commodity in itself and was also a finished product. It was used in home consumption and could also be pressed for producing sugar. The firm was, therefore, working for gain in the places where that activity took place which was for making a profit. It was held that the circumstances and property tax was leviable in these circumstances on the firm because it carried on business in that place where it converted the sugarcane into Rab. The facts that have been stated clearly establish the distinguishing features from the present case. The sugarcane which was being purchased by the Company was not subjected to any such process by which any such commodity or finished product came into existence which by itself could earn profits. In our opinion the contention of the Zilla Parishad, if accepted, would lead to the astounding and extraordinary result that if a manufacturing concern continuously acquires raw material not only from different parts of India but also from other parts of the world it could be said that it was carrying on business in all those places from where the raw materials were acquired or purchased. We are unable to give any such wide connotation to the words "carrying on business", employed in Section 121 (a) of the Adhiniyam.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]These observations can hardly be of any avail to the Zilla Parishad. The buying of raw material in the shape of sugarcane may be a process or activity of a continuous character but even according to the test laid down by Mukherjea, J., which related to entirely different statutory provisions and facts it cannot be said that the company was making any separate profits or income by means of purchasing sugarcane. It is futile to refer to all the other cases on which learned counsel for the Zilla Parishad has relied as they are totally distinguishable on facts except to notice the decision in Zilla Parishad, Muzaffarnagar v. Jugal Kishore Ram Swarup, 1969 All LJ 24. There a firm had set up crushers in certain rural areas from where it purchased sugarcane. The sugarcane was crushed and converted into a juice. That juice was sent to the town of Miranpur for being pressed into sugar. The High Court was of the view that the juice which was called "Rab" was a saleable commodity in itself and was also a finished product. It was used in home consumption and could also be pressed for producing sugar. The firm was, therefore, working for gain in the places where that activity took place which was for making a profit. It was held that the circumstances and property tax was leviable in these circumstances on the firm because it carried on business in that place where it converted the sugarcane into Rab. The facts that have been stated clearly establish the distinguishing features from the present case. The sugarcane which was being purchased by the Company was not subjected to any such process by which any such commodity or finished product came into existence which by itself could earn profits. In our opinion the contention of the Zilla Parishad, if accepted, would lead to the astounding and extraordinary result that if a manufacturing concern continuously acquires raw material not only from different parts of India but also from other parts of the world it could be said that it was carrying on business in all those places from where the raw materials were acquired or purchased. We are unable to give any such wide connotation to the words "carrying on business", employed in Section 121 (a) of the Adhiniyam.