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PETITIONER: ZILA PARISHAD KHERI

       Vs.

RESPONDENT: HINDUSTAN SUGAR MILLS & ANR.

DATE OF JUDGMENT26/08/1971

BENCH: GROVER, A.N. BENCH: 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. 121-  U.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.

JUDGMENT: 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

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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 situate 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

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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

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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.  Ahme- debhai 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  acti-               vities   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

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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. 428