Zila Parishad Kheri Vs. Hindustan
Sugar Mills & ANR [1971] INSC 219 (26 August 1971)
GROVER, A.N.
GROVER, A.N.
HEGDE, K.S.
CITATION: 1972 AIR 151 1972 SCR (1) 423 1971
SCC (3) 715
ACT:
U.P. Kshettra Samitis and Zila Parishads,
Adhiniyam, 1961 s.
121U.P. District Boards Act, 1922, s.
114--Regular purchase of raw material in a rural area whether amounts to
carrying on business in that area.
HEADNOTE:
The appellant Zila Parishad sought to impose
circumstances and property tax on the respondent whose factories for
manufacturing sugar were situated outside the area of appellant's jurisdiction
but who regularly made purchases of sugar cane in the said area. On the
question whether such purchases amounted to carrying on business in the area
within the meaning. of s. 121 of the U.P. Kshettra Samitis and the Zila
Parishads Adhiniyam, 1961.
HELD : The buying of raw material in the
shape of sugarcane may be a process or activity of a continuous character but
it cannot be said that the respondent company was making any separate profits
or income by means of purchasing sugarcane.
Nor was the sugarcane so purchased subjected
to any process resulting in a product which by itself could earn profits.
If a manufacturing concern continuously
acquires raw material not only from different parts of India but also from
other parts of the world it cannot be said that it was carrying on business in
all those places from where the raw materials were acquired or purchased. Such
a wide connotation cannot be given to the words 'carrying on business" in
s.121 (a) of the Adhiniyam [426 H-427 F] Chas J. Webb Sons & Co. Inc.
Philadelphia v. Commissioner of Income-tax, East Punjab, 18 I.T.R. 33,
Commissioner of Income-tax, Bombay v. Ahmedebhai Umarbhai & Co. Bombay,
[1950] S.C.R. 335 and Zila Parishad. Muzaffarnagar & Anr. v. Jugal Kishore
Ram Swarup & Anr., (1969) All. L.J. 24, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1893 and 1894 of 1968.
Appeals by special leave from the judgment
and order dated August 7, 1967 of the Allahabad High Court, Lucknow Bench in
Special Appeals Nos. 60 and 61 of 1966 and Civil Appeal No.172 of 1969.
Appeal from the judgment and decree dated
April 23, 1968 of the Allahabad High Court, Lucknow Bench in Special Appeal No.
22 of 1966.
Kripa Shankar Bazela, Naunit Lal and
Swaranjit Sodhi, for the appellant (in all the appeals).
M. C. Chagla, Bishan Singh, N. N. Sharma and
C. P. Lal, for the respondent no. 1 (in C.As. Nos. 1893 and 1894 of 1968).
424 The Judgment of the Court was delivered
by Grover, J. These are connected appeals from a judgment of the Allahabad High
Court. Civil Appeals Nos. 1893-1894/68 are by special leave and Civil Appeal
No. 172/69 is by certificate. The point which has to be decided is common to
all of them.
It is necessary to refer to the facts in
Civil Appeal No. 1893/ 68 only. The Hindustan Sugar Mills Ltd. is a company
manufacturing sugar. Its factory is situating in Gola Gokaran Nath in District
Kheri in the State of U.P. For manufacturing sugar the company purchases sugarcane
in the District of Kheri. It maintains some staff and also makes certain
advances to cultivators within the rural area of the said district. It was
assessed to what is known as the circumstances and property tax. The relevant
provision under which this tax could be levied was s. 114 of the District
Boards Act, 1922 which was repealed by the U.P.
Kishettr a Samitis and Zila Parishads
Adhiniyam, 1961, hereinafter referred to as the "Adhiniyam" but a
similar provision, s. 121 was enacted in that statute. The material portion of
S. 121 is as follows :" 121. Conditions and restrictions for tax on
Circumstances and Property.-The power of a Parishad to impose a tax on
circumstances and property shall be subject to the following conditions and
restrictions, namely(a) the tax may be imposed on any person residing or
carrying on business in the rural area provided that such person has so resided
or carried on business for a total period of at least six months in the year
under assessment;
(b)..........................
The company objected to the levy of the
aforesaid tax but the assessing authorities did not accept its, objections and
made the assessment for the years 1961-1962 and 1962-63.
The company filed an appeal to the
Commissioner, Lucknow Division, who held that the tax had been wrongly imposed.
Thereupon the Zila Parishad, Kheri, filed a
petition under Art. 226 of the Constitution challenging the order of the
Commissioner. A learned single Judge of the High Court dismissed that petition.
The matter was taken by way of special appeal to a Division Bench. That appeal
also failed.
The short question which the High Court was
called upon to decide and which has to be determined by us is whether on the
admitted and undisputed facts any tax could be levied under 425 s. 121 of the
Adhiniyam on the company. whose factory for manufacturing sugar was situate
outside the jurisdiction of the Zila Parishad. On behalf of the Zila Parishad
it was maintained that the company was purchasing sugarcane in the rural area
within its jurisdiction for the purpose of manufacturing sugar in its factory
and since the purchases were made within the rural area it was "carrying
on business" in that area and was thus liable to the levy and payment of
tax. All that has to be decided, therefore, is whether the company was carrying
on business in the rural area within the jurisdiction of the Zila Parishad when
the activity attributed to it consisted of regularly buying or purchasing
sugarcane for the business of manufacturing sugar in its factory which wag
outside the rural area. It was not disputed before the learned single Judge
that the business of the company consisted of manufacturing sugar. For that
purpose it was essential to purchase the raw material at the mill gate and in
the mofussil area including the rural area in the district of Kheri. The
reasoning of the learned Judge was that in the same business it may be
necessary for the company to purchase some machinery or spare parts from
different places. in the country or to purchase fuel wood and lubricating oil
from different places. It could hardly be said that the business of
manufacturing sugar was being conducted or carried on at all those places from
where these commodities or articles were purchased. Merely because the purchase
of sugarcane was essential for the carrying on of business of manufacturing
sugar it did not mean that any business was being carried on in the places
where the sugarcane was being purchased. The Division Bench distinguished the
cases which had been relied upon on behalf of the Zila Parishad arising under
the Income tax Act, 1922.
It was pointed out that the question had to
be looked at from the standpoint of a business man. If a person manufactured
sugar in the district of Kheri but collected sugarcane which 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
material was being acquired.
Before us it has been contended on behalf of
the Zila Parishad that the continuous and regular activity of buying sugarcane
which extended for the period mentioned in clause (a) of S. 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 & Co. Inc.
Philadelphia v. Commissioner of Income tax,
East Punjab(1).
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 (1) 18 I.T.R. 33.
426 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 S. 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 S.
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 reasonably 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
word "carrying on business" used in s. 121 (a) of the Adhiniyam. In
Commissioner of Income tax, Bombay v. Ahmedebhai Umarbhai & Co., Bombay(1),
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 of 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 Zila
Parishad. The buying of raw material in the shape of sugarcane may be a process
or activity of a continuous character but even according (1) [1953] S.C.R. 335,
376.
427 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 Zila Parishad has relied as they are totally
distinguishable on facts except to notice the decision in Zila Parishad,
Muzaffarnagar & Anr. v. Jugal Kishore Ram Swarup & Anr. (1) There a
firm had set up crushers in certain rural areas from where it purchased
sugarcane. The sugarcane was crushed and converted into juice. That juice was
sent to the town of Mirzapur 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 Zila 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 S.
121 (a) of the Adhiniyam.
The appeals fail and are dismissed with
costs. One hearing fee.
G.C. Appeals dismissed.
(1) (1969) All. L. J. 24.
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