Kantawala, C.J.
1. This reference has been made under section 66(2) of the Indian Income-tax Act, 1922, pursuant to an order passed by this court. There are two sets of questions referred to us for determination. The first set of common questions relate to the assessment years 1952-53, 1953-54, 1955-56 and 1956-57 and they are as under :
'1. Whether there was any evidence for holding that the cane rate was lower than the average rate at which the petitioner purchased cane from market
2. Whether the Tribunal erred in law or misdirected itself in fixing the cane rate for cane grown by the petitioner on its own farm at a rate lower than the average purchase rate at which such cane was purchased by the petitioner from market without reference to any evidence except the assessments made in the case of other sugar mills
(3) Whether the cane rate should have been fixed at the average purchase rate of sugarcane by the petitioner-company ?'
2. The other common question that has been referred relates to the assessment years 1953-54 and 1954-55 and is as under :
'Whether the Tribunal erred in law or misdirected itself in not admitting the additional grounds of appeal filed by the petitioner-company and disposing of the same on merits ?'
3. At the outset it may be stated that so far as question No. 4 is concerned, it is not pressed by Mr. Dwarkadas on behalf of the assessee and it need not be answered. We are, therefore, concerned with the first three questions under the first set.
4. The assessee is a company carrying on business of manufacturing and sale of sugar. The crushing of sugarcane was carried out by the assessee in its own two factories situated at Sakarwadi and Laxmiwadi and Ahmednagar District, which are on either side of the river Godavari. Also in the vicinity of these sugar factories there are other factories belonging to half a dozen other companies engaged in the manufacture of sugar. The assessee had its own sugarcane farms which are situate in close vicinity of these factories. The assessee had also one other farm known as Somayya Farm which is about 15 to 20 miles away from these factories. A substantial portion of the sugarcane that was required for the manufacture of sugar in the factories was obtained by the assessee from its own farms and a small portion by purchase from other cane producers. The assessee had two composite activities which gave its income. One of the activities was the cultivation of sugarcane for crushing and the other was cane crushing and manufacture and sale of sugar. The income derived by the assessee from the former activity was agricultural income which was exempt from payment of income-tax under section 4(3)(xiii) of the Indian Income-tax Act, 1922, and the income from the latter activity was business income chargeable to income-tax under section 10 of the Indian Income-tax Act, 1922. The profit and loss account of the assessee-company showed an overall profit. The company also submitted separate profit and loss accounts showing the results in the manufacturing operations and the agricultural operations. The assessee was showing loss in the manufacturing business and huge profits in the agricultural business. In the course of examination of the details furnished by the assessee the Income-tax Officer found that the assessee had debited to the profit and loss account of the manufacturing activity several expenses which were patently of an agricultural character; that large sums of expenditure incurred in the factories pertained to the agricultural operations of the company and miscellaneous expenses debited to two factories included several expenses common to the agricultural activity as well as manufacturing activity.
5. When the assessee derived income which is partly chargeable to tax and partly not chargeable to tax, then for taxation purposes, such income which is chargeable to tax has to be separately worked out and ascertained. In the ascertainment and computation of the separate profits from the business activity of manufacture and sale of sugar, the assessee claimed certain prices as the market values of sugarcane produced and used by it as raw products in the manufacture of sugar. It is a well-recognised trade practice in this business that when sugarcane is purchased in vendor is to deliver the same at the factory gate. In other words, a person contracting to supply sugarcane has to include within its price the expenses that may be incurred for carting the same from the farm to the factory. During all the relevant assessment years in order to ensure the sugarcane cultivator a fair market price for the sugarcane grown by him the Government of India used to fix from year to year the minimum prices for the sugarcane delivered by the cultivator at the factory gate of the manufacturer.
6. In the assessments before the Income-tax Officer for the several years under consideration, the Income-tax Officer required the assessee to state the basis on which it had claimed the price for the sugarcane cultivated by it on its own farms and crushed by it in its own factories. The assessee submitted that since the sugarcane cultivated by it on its own farms and used by it for crushing was of a superior quality, it was entitled to claim higher rates for it than the market rates. The Income-tax Officer declined to accept those prices but actually fixed the market prices at lower rates. The Income-tax Officer also took into account, that since the income of the assessee-company was partly agricultural and exempt from payment of income-tax and partly non-agricultural and chargeable to income-tax, the market value of the agricultural produce had to be determined as contemplated by rule 23(2)(a) of the Indian Income-tax Rules.
7. After considering the various contentions urged on behalf of the assessee, the Income-tax Officer gave the following findings :
1. The evidence led before him did not establish that the sugarcane produced by the assessee on its own farms was of a superior quality.
2. The Government of India had fixed the minimum price of sugarcane at lower rates.
3. The assessee itself did not produce any data to show that the average price at which the sugarcane was sold during the year in question was of the order of Rs. 68 per ton as claimed by it for the particular year, i.e., 1952-53.
4. The minimum price fixed by the Government of India gave a clue to the prevailing cane rates and but for the Government's notification regarding the minimum price, the rates may have been lower and such minimum rates fixed by the Government could be taken as the average price at which that commodity was sold during the year.
5. The mere fact that the assessee-company had made some purchases at some higher rates did not prove anything about the ruling cane rates of the year.
6. The assessee was the only company which in that particular year chose to pay such heavy rates for sugarcane, and, as such, the assessee's example could not lead to a general finding that it was the average price of the cane during the year.
8. These findings were arrived at by the Income-tax Officer for the assessment year 1952-53 and in the subsequent three years the rates fixed by him were higher than the minimum rates fixed by the Government of India because he had come across cases of certain companies which had made purchases more or less at those rates. In the assessment order for the year 1953-54, he also found that in some years the rates at which sugarcane cultivated in Sakarwadi and Laxmiwadi farms was taken were lower than the rates at which cane was taken from Somayya Farms. In some years, the rate for the cane cultivated on Somayya Farms was lower than the rate at which cane cultivated on the other two farms was taken by the assessee-company. In view of these findings in the assessment order for these years the Income-tax Officer fixed the rates of sugarcane used by the factories from its own farms for the purpose of determining the net income of the assessee which was liable to payment of tax in these assessment years.
9. The appeals preferred by the assessee for the several years were dismissed by the Appellate Assistant Commissioner. He found that, (1) the rate of sugarcane adopted for the various years in the case of the assessee by the Income-tax Officer were also the rates adopted by the department in the case of other sugar factories situate in the same area; (2) the assessee failed to establish that the quality of sugarcane grown by it on its own farms was superior than that of the sugarcane purchased from others; (3) the assessee itself sold sugarcane grown on Somayya Farms in the accounting year relevant to the assessment year 1953-54 at Rs. 48 per ton and there was no reason why the assessee should have sold its superior quality of sugarcane to an outsider at a sacrificial price while it had to purchase inferior cane from outsider at the rate of Rs. 53-10-6 per ton as claimed by it; (4) the assessee failed to establish that the sugarcane produced by it would have fetched 10% more if sold in the open market than the price of cane produced by others. While dealing with the contention on behalf of the assessee, that while fixing the price in respect of sugarcane taken from its own farms it ought to have been valued at least at the same rates at which the assessee had made purchases from outsiders, the Appellate Assistant Commissioner found that the contracts for purchase of sugarcane from outsiders indicated that the price was inclusive of transport charges for delivering the cane at the factory gate and further that the assessee had purchased sugarcane on the basis of forward contracts and the rates at which it had purchased in pursuance of forward contracts could not be regarded as rates representing the market value of sugarcane on the dates of purchase.
10. In the second appeals before the Tribunal for the several years, the contentions urged on behalf of the assessee were rejected by the Tribunal and the appeals were dismissed. Before the Tribunal for the first time it was conceded by the counsel for the assessee that there was no evidence on record to prove that the cane cultivated by it on its own farms was of a superior quality. The Tribunal in its order also pointed out that though the minimum price fixed by the Government may not be the actual market value under rule 23(1), such fixation of price gave a fair indication that the market values of sugarcane could not be less than those fixed for the various years. The Tribunal discarded the evidence led on behalf of the claimants in relation to the rates at which the assessee purchased sugarcane from outsiders, because the said sugarcane was purchased under forward contracts and the higher price paid might be due to long distances from which such sugarcane had to be transported for delivery to the assessee at the factory gate. the Tribunal took into consideration the market values of the sugarcane fixed in the case of other sugar mills in the vicinity and came to the conclusion that the Income-tax Officer has determined the market value of the cane in the assessee's case for all the assessment years properly. the Tribunal took notice of the fact that no attempt was made on behalf of the assessee to produce any evidence to show that the Income-tax Officer had adopted higher market values for sugarcane in that very distinct in other cases. The Tribunal took notice of the fact that the market value claimed by the assessee for its sugarcane were undoubtedly excessive as against the purchase price paid by it to the other cane growers by about 10% for the first 2 years, 30% for the 3rd year and 15% for the last two years. Bearing all these factors in mind, the Tribunal came to the conclusion that the prices that had been arrived at by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner in appeals were neither unfair nor unreasonable and accordingly upheld the cane rates fixed by the taxing authorities. Questions Nos. 1, 2 and 3 above referred to arise out of this order of the Tribunal.
11. At the outset it may be stated that when a taxing authority or the Tribunal has to fix the price of sugarcane produced on its own farms and used by a sugar manufacturing company, the question of fixation of price will primarily be a question of fact depending upon the evidence in the case. It is difficult to see how normally in such a case a question of law may arise. Even the way in which questions Nos. 1, 2 and 3 above referred to are raised clearly indicates that they are merely worded to challenge the findings of fact arrived at by the taxing authorities and the Tribunal upon appreciation of evidence that was on record. Such being the position, we do not consider it necessary that elaborate discussion is required for answering the three questions which are referred to us.
12. The first question pertains to the rate fixed by the Income-tax Officer and confirmed by the other authorities for sugarcane being lower than the average rate at which the assessee-company purchased the sugarcane from the market and the question relates to the aspect of existence of any evidence to support such a finding. The situation of the two farms on which sugarcane was cultivated by the assessee was in the vicinity of its factories at Sakarwadi and Laxmiwadi. Now, it is equally well settled and not disputed before us that when sugarcane is purchased from any private producer, the price that it paid to him is inclusive of carting charges in respect of delivery of the cane at the factory gate. Mr. Dwarkadas informed us in the course of his submissions that a statement showing the rates at which sugarcane was purchased by the assessee-company during the relevant assessment years from outsiders was produced before the Income-tax Officer. However, as seen from the orders of the Income-tax Officer, the Appellate Assistant Commissioner and the Tribunal, these purchases were made on a forward basis. The price that may be fixed in respect of purchase of a commodity under a forward transaction cannot be a safe guide for determining the price at which the assessee-company should be regarded as having taken sugarcane produced from its down farms. Ordinarily, the prices under forward contract may vary and will depend upon the fluctuations in the market and they are not a safe guide for determining the price in the present case of the sugarcane produced by the assessee in its own farms and utilised by it. Secondly, it is quite evident that the price in respect of sugarcane which was purchased from outsiders was inclusive of transport charges from the place of production to the factory gate, while so far as the assessee-company was concerned its two farms were almost adjacent to the factories and the question of transport charges did not arise. When such are the facts in relation to the price paid by the assessee-company when it purchased sugarcane from others, it is difficult to see how the average price represented by such purchases can be a guide or a reasonable guide for determining the price of the sugarcane produced by the assessee in its own farms and utilised by it for the purpose of computing the income made by the company in its manufacturing business. The above discussion clearly shows that question No. 1 referred to above has to be answered in the affirmative, that is to say, there was sufficient evidence on record to show that the cane rate in regard to the sugarcane used by the assessee-company from its own farms was lower than the average rate at which the assessee-company purchased sugarcane from outsiders in the market.
13. Question No. 2 is only a different facet of the very same question and apart from merely different wording thereof, it does not require any independent consideration. Question No. 2 is to be answered accordingly in the negative.
14. Question No. 3 relates to the query whether in the case of the assessee the cane rate should be fixed at the average purchase rate of sugarcane by the petitioner (assessee) company. If, as pointed out above, the instances of purchase of sugarcane from outsiders are not comparable instances, then, naturally, the average price indicated by these transactions can never be a safe guide for determining the cane rate in regard to the sugarcane used by the assessee-company from its own farms. Accordingly, our answer to question No. 3 is in the negative. The assessee shall pay the costs of the revenue.