# PURTABPORE COMPANY LTD v. STATE OF UTTAR PRADESH

- **Citation:** [1971] 1 S.C.R. 426
- **Court:** Supreme Court of India
- **Decided:** 1970-04-28
- **Case number:** Civil Appeals Nos. 1192 and 1276 of 1966
- **Bench:** J. C. Shah, K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/purtabpore-company-ltd-v-state-of-uttar-pradesh-5066
- **Pages:** 8

## Headnote

U.P. A11rit:11/t11ral J11co111e-ti1x Act of 1948 '" 6(2) (iv)-Expenses
of <·11/tivalion-Wht1t t1re, ...
The ussessce- a sugar factory, cPrried on agricultu'ral farming on a
large scale and had several farll16.
It engaged on each farm a Manager
with necessary technical, clerical and menial staff to assist him.
These
persons were claimed to have been employed exclusively for the purpose
of the farm and were provided with accommodation, medical facilitiei;,
;ind the allowances. On the question whether the expenses on the manage·
ment charges of the Establish.ment. rent inspection, repairs of bunglows
and offices, expenses on car, travelli1:1g, postage periodicals, asse86ees' eon~
rrihution to Provident Fund, could be allowed as expenses of cultivation
under s. 6(2)(b)(iv) of •he U.P. Agricultural Income-tax Act,
1948,
this Court;
HELD : The amount claimed by the assessee as expenses on mana~c·
ment and miscellaneous expenses could be allowed under s. 6(2) (b) (tv)
if und to the extent that it was determined that they we're incurred for
the manaaemcnt, su~rvision, organisation, technical kn0wledge and al'iS·
lance and other allted matters for the purpose of the raising of crops,
their marketing and
trans11ortation.
An
apportionment
may
become
necessary if it was detcrmmed that the entire expense was not incurred
•trictly for those purposes. f433 A·C]
What has to be essentially determined under s. 6 (2)(b) (iv) is whether
the expenses were incurred on or for the purpose of the entire work and
-0perations involved in raising the crops. making the same fit for market·
ing and the transportation of the produce to the
market.
The word
"raising the crop" cannot be confined simply to the ploughing of the Jund,
sowing the seed and cutting the harvest. Section 6(2) (b) (iv) is not to
be construed in a narrow and pedantic sense and must be given its full
dfect in the background of modern large scale farming and the organi·
ution required for it. [432 F·H]
It Is well known that modern agricultural farming which has become
mechanised involves o high degree of organisotion, technical sKill etc .. in
the same way as a well run industry.
If agricultural production has to
be obtained with optimum results it is necessary that tl\ere should be a
proper supervisory ancl other staff as
also the
employment
of such
means as would be conducive to maximum, production and proper mar·
keting of the produce. It is axiomatic that the staff would require resi·
dential accommodation which will have to be kept in a proper state of
repair.
The staff will also need medical attention and other
ameniti.s
which are normally afforded to employees now a days. The benefit of
provident fund ca,n hardly be denied to them when it hH ,become the
accepted and normal feature in all forms of employment. in
modern
times.
If any motor vehicle is being maintained for enabling the super·
visory or other staff to look after the farm the expenses incu'rred there·
on cannot be regarded as foreign to farming operations. The expendi·
ture incurred on postage, telegrams, printing and stationery for the purpose
A
B
c
.D
E
F
G
H
A
B
c
D
E
F
G
H
PURTABPORE co. v. u. P, STATE (Grover, J.)
427
of and in connection with farming would also be allowable. If cortain
periodicals are being subscribed for obtaining technical knowledge and
up-to-date information in the matter of agricultural farming it is difl1cult
to see how that could be disallowed. <[432 C-F]
Agricultural Income-tax No. 3'66 of 1953 decided by the Allahabad
High Court on May 11. 1956 approved.
Mrs. Bacha F. Guzder,
Bo1nhay v.
Co1n111issioner of Inco111e.tax
Bombay, Income Tax Reports (Vol 27} 1955 page I, Commi.uinner of
lnco1ne-tax, West.Bengal, Calcutta v. ·Rajci Benoy Kun1ar Sahas
~o'" 32
1.T.R. 466 distinguished.

## Text

426
PURTABPORE COMPANY LTD.
v.
STATE OF UTTAR PRADESH
April 28, 1970
[J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.]
U.P. A11rit:11/t11ral J11co111e-ti1x Act of 1948 '" 6(2) (iv)-Expenses
of <·11/tivalion-Wht1t t1re, ...
The ussessce- a sugar factory, cPrried on agricultu'ral farming on a
large scale and had several farll16.
It engaged on each farm a Manager
with necessary technical, clerical and menial staff to assist him.
These
persons were claimed to have been employed exclusively for the purpose
of the farm and were provided with accommodation, medical facilitiei;,
;ind the allowances. On the question whether the expenses on the manage·
ment charges of the Establish.ment. rent inspection, repairs of bunglows
and offices, expenses on car, travelli1:1g, postage periodicals, asse86ees' eon~
rrihution to Provident Fund, could be allowed as expenses of cultivation
under s. 6(2)(b)(iv) of •he U.P. Agricultural Income-tax Act,
1948,
this Court;
HELD : The amount claimed by the assessee as expenses on mana~c·
ment and miscellaneous expenses could be allowed under s. 6(2) (b) (tv)
if und to the extent that it was determined that they we're incurred for
the manaaemcnt, su~rvision, organisation, technical kn0wledge and al'iS·
lance and other allted matters for the purpose of the raising of crops,
their marketing and
trans11ortation.
An
apportionment
may
become
necessary if it was detcrmmed that the entire expense was not incurred
•trictly for those purposes. f433 A·C]
What has to be essentially determined under s. 6 (2)(b) (iv) is whether
the expenses were incurred on or for the purpose of the entire work and
-0perations involved in raising the crops. making the same fit for market·
ing and the transportation of the produce to the
market.
The word
"raising the crop" cannot be confined simply to the ploughing of the Jund,
sowing the seed and cutting the harvest. Section 6(2) (b) (iv) is not to
be construed in a narrow and pedantic sense and must be given its full
dfect in the background of modern large scale farming and the organi·
ution required for it. [432 F·H]
It Is well known that modern agricultural farming which has become
mechanised involves o high degree of organisotion, technical sKill etc .. in
the same way as a well run industry.
If agricultural production has to
be obtained with optimum results it is necessary that tl\ere should be a
proper supervisory ancl other staff as
also the
employment
of such
means as would be conducive to maximum, production and proper mar·
keting of the produce. It is axiomatic that the staff would require resi·
dential accommodation which will have to be kept in a proper state of
repair.
The staff will also need medical attention and other
ameniti.s
which are normally afforded to employees now a days. The benefit of
provident fund ca,n hardly be denied to them when it hH ,become the
accepted and normal feature in all forms of employment. in
modern
times.
If any motor vehicle is being maintained for enabling the super·
visory or other staff to look after the farm the expenses incu'rred there·
on cannot be regarded as foreign to farming operations. The expendi·
ture incurred on postage, telegrams, printing and stationery for the purpose
A
B
c
.D
E
F
G
H
A
B
c
D
E
F
G
H
PURTABPORE co. v. u. P, STATE (Grover, J.)
427
of and in connection with farming would also be allowable. If cortain
periodicals are being subscribed for obtaining technical knowledge and
up-to-date information in the matter of agricultural farming it is difl1cult
to see how that could be disallowed. <[432 C-F]
Agricultural Income-tax No. 3'66 of 1953 decided by the Allahabad
High Court on May 11. 1956 approved.
Mrs. Bacha F. Guzder,
Bo1nhay v.
Co1n111issioner of Inco111e.tax
Bombay, Income Tax Reports (Vol 27} 1955 page I, Commi.uinner of
lnco1ne-tax, West.Bengal, Calcutta v. ·Rajci Benoy Kun1ar Sahas
~o'" 32
1.T.R. 466 distinguished.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1192
and 1276 of 1966.
· Appeals by special leave from the judgments and orders dated
September 30, 1965 and November 23, 1965 of the Allahabad
High Court in Agricultural Income-tax Reference Nos. 142 of
1954 and-232 of 1957.
Gopinath K11n:r11, V. K. S. Chaudhurv and Ganpat R11i, for
the appellant (in both the appeals).
'
C. B. Aganl'tl/c1 and 0. P. Rana, for the respondent( in both
the appeals).
The Judgment of the Cou~ was delivered by
Grover, J,
These appeals ~y special leave arise out of n common judgment of the Allahabad High Court in two references
made under the United Provinces Agricultural Income Tax Act,
194 8 (hereinafter called the Act).
As the points are common the facts in appeal No. 1276 of
1906 may be briefly stated :
The appellant is a sugar factory to which is attached a sugar
cane farm.
The appellant carries on agricultural farming on a
large scale in District Deoria and had several farms.
According
111 the case of the ap,Pellant it engages on each farm a Mana~er
with necessary technical, clerical and menial staff to assist him.
These persons are also provided accommodation and facilities for
mec!ical treatment and are given certain other necessary allowances. It is claimed that the whole establishment is maintained
exclusively for the purposes of the farm.
The appellant opted to be assessed u/s 6(2) (b) of the Act
for the assessment year 1357F, the Assessing Income Tax Officer
(Collector) assessed the appellant to Agricultural Income-Ta"
after dis.allowing e"penses on the management charges or
European Establishment etc., miscellaneous expenses, salary of
European staff, rent, inspection, repairs of bunglows and offices
-
SUPREME COURT REPORTS
[1971 J I S.C.R.
as not being admissible under the rules.
This Order was upheld
by the Agricultural Income Tax Commissioner maii:ily on the
ground that the number of persons employed and their salary was
not given and it was therefore not possible "to determine whether
those persons were at all necessary when the assessee had too many
other servants or labourers or the like".
He disallowed the
expenses on management and establishment and on the subscription on periodicals, on postage and telegram, printing and stationery. medicine etc.
[n his opinion these could not be regarded as
costs of cultivation ... A revision was filed before the Agricultural
Income Tax Board which was dismissed on the ground that the
aforesaid expenses could not strictly be called expenses of cultivation and were not permissible u/s 6(2)(b) (iv) of the Act.
The
appellant filed an application under Section 24(2) for reference
to the High Court.
The Agricultural Income Tax Board stated
the following question of law :
"Whether the amount claimed by the assessee as
expenses of management. miscellaneous expenses, detailed above can be allowed as expenses of cultivation u/>
6(2)(b)(iv) of the Act".
The items which had been disallowed and with regard to
which the reference was made are given below :
Senior Staff Establishment-Rs. 3, 180/-
R
c
D
Indian Establishment-Rs. 4.021/15/3
E
Indian Menial Staff-Rs. 6,825/6/-
Travelling Expenses-Rs. 833/6/3
Staff Allowance Rs. 207 /7 /6
Garden Maintenance-Rs. 1,062/2/3
Motor Car Maintenance-Rs. 360/-
Lighting Plant Expenses-· Rs. 1,844/ 11 /-
Firm Contribution to Provident Fund-Rs. 574/1 /-
Agency Allowance-Rs. 1,800/-/-
The assessee had showed certain other expenses as miscellaG
neous expenses.
They too were disallowed.
They were as
follows:-
Subscription & Periodicals-Rs. 159/-
Postage & Telegrams-Rs. 189/5/-
Printing & Stationery-Rs. 79/ 14/-
Medicines & Medicals-Rs. 1.529/3/~
Sundries-Rs. 2,838/3/8.
H
A
8
c
D
E
F
)
i
G
H
·1'URTABPORE co. v. u. P. STATE (Grover. J .. l
429·
,
The High Court relied largely on certain decisions of this.
Court in which the meaning of 'agricultural' and 'agricultural
purpose' was considered with reference to the provisions of the
Income Tax Act, 1922. It was held by the High Court that the
expenses which were claimed to be deductible could not possibly
be said to be directly or approximately connected with the raising
of the crops, .nor for making it fit for market or for transporting
it to the market. These expenses at best could only be said to
be remotely connected with the business side of marketing the
produce and ,had no connection with the raising of the crops. The·
question was therefore answered in the negative and against the·
assessee.
The Act was enacted to impose tax on agricultural income in· .
the United Provinces.
Section 2 ( l) defines 'agricultural income'.
It is first stated that this expression has the same meaning as has
been assigned to it in the Indian Income Tax Act,· 1922.
In
it>
adapted form. it is reproduced below :
(a) any rent. or revenue derived from land which b
used for agricultural purposes and . is either
assessed to land revenue in (Uttar Pradesh) or
is subject to a local rate or cess assessed and
collected by an officer of the (State Government)
(b) Any income derived from such land by-
(i) ......... .
(ii)
(iii)
( c) any income derived from any building ....... .
"
..................
Section 3 provides for the charge of agricultural income-tax,
section 4(A) for computation of agricultural income, sectiOn 5 for
detennination of such income and section 6 gives an option to the
assessee to have the computation of income done in accordance
with its provisions.
Sub-sectio11 2(b) says that the income shall
be the gross pro~eeds of sale of alJ the produce of the )and subject
to the foJlcwing deductions :-
( i) ......... .
( ii)
(iii)
(iv) the expenses incurred in the previous year in
rni';ing the crop from which the agriculturar
l30
SUPREME COURT REPORTS
[1971] 1 s.c.a.
income is derived, in making it fit for market and
A
in transporting it to market, including the main-
(v)
(vi)
tenance or hire of agricultural implements and
cattle required for these purposes;
. •, ........ .
(vii) any expenses incurred in the previous year on the
maintenance of any capital asset if such maintenance is required for the purpose of deriving the
agricultural income;''.
The provisions of Section 6(2)(b)(iv) came up for consideiration before the Allahabad High Court in Agricultural IncomeTax Reference No. 366 of 1953 decided on 11th May, 1956. In
.that case also the income was derived from large scale farming .
. It had been found by the Agricultural Income/fax Board that the
farm had been run under the supervision of a Manager and all
. the figures relating to receipts and expenditure had been properly
checked and scrutinized.
A number of items were involved
which we!C of an identical nature as are to be found in the present case !!nd with regard to which deductions had been claimed
·u/s 6(2) (b). The proyident fund whic11 represented the Com-
. pany's contribution was allowed by the High Court on the ground
that the employees were engaged at the firm and the contribution
to their provident fund was in a way remuneration or salary paid
to them.
The expenses on the maintenance and repairs to the
.Assistant Manager's bungalow were allowed u/s 6(2)(b)(vii).
Similarly the expenditure incurred on repairs to quarters allowed
to black-smiths, watchman, carpenters and clerks-an c1Jnnected
with cultivation was allowed under the aforesaid provision. · The
·expenses incurred on the maintenance of a Jorry used for transport-
. ing the harvest and the car which was provided to the managerial
'Staff to ·ensure proper supervision of the farm were also allowed
:by .the High Court.
It was considered that this expenditure was
necessary for the purpose of deriving the agricultural income.
As
regards the payments made to Directors, Managing Agents and
·expenses incurred on a general Office and the General Manager's
. commission, the position taken up on behalf of the assessee was
that all this expenditure had be~n incurred on controlling opera,
·tions in the Organization for the cultivation of land, raising, trans·
porting and marketing of the crops etc.
The High Court was of
the view that all this expenditure which represented only I/ 5th
of the total expenditure of the Company was deductible as it had
been incurred for the purposes of the farm.. As regards Mana-
·ger's salary, his travelling expenses, leave and passage allowance
-and clerical salaries, the High Court felt that unless there be rea-
. sons for bolding that the expense was so unreasonable as to justify
B
c
D
E
F
G
H
A
c
i>
:E
F
G
JI
-
Pl.'RTABPORE co. v. u. P. STATE (Grover, J.)
431
·a finding that it did not relate to the agricultural activities of the
company, the ~ssessing authority could not substitute its own views
of prudent management for the actual management by the Board
of Directors of the Company.
The following observations may
be referred to :
"The actual raising of the crop is certainly done by
the coolies who work on the farm but the brains that
direct and guide the operations, protect the crops and
arrange for its collection and disposal, are by no means
to be ignored and if payment is made by the company
to secure such assistance we do not find any justification
for holding th~t the expense is not incurred in raising
the crops''.
The above case was not followed by the High Court . in the
present. case.
In Mrs. Macha F. Guzder, Bombay v. Commissioner of Income
Tax, Bombay('), the questions which fell for determination were
of a different nature altogether.
The assessee there was a shareholder in certain tea companies 60%
of whose· mcome was
exempt from tax as agricultural income under section 4(3)(viii)
of the Indian Income-tax Act. 1922.
The assessee claimed that
60% of the dividend income received on those 'shares would also
be exempt from tax as agricultural income. It was held that the
dividend income was not agricultural income but was income
assessable under section 2 of the aforesaid act.
According to that
decision, the object underlying section 2 (1) of the Income-tax
Act was ni>t to subject to tax either the actual tiller of the soil or
any other person getting land cultivated by others for deriving
benefit therefrom, but to say that the benefit intended to be ~on
ferred upon .such persons should extend to those into whose hand
that revenue fall, however, remote the receiver of such revenue
might be, was hardly warrant~d
In the.other case, Commissioner uf Income tax West Bengal,
Calcutta v. Raja Benoy Kumar Sahas Roy(') the question was
whether income C:erived from the sale o~ sal and plyasa/ trees in
the forest owned by the assess~ which was originally a forest of
spontaneous growth "not grown by the aid of human skill · and
labour" but on which forestry operations described in the statement of case had been carried on by the assessee involving Considerable amount of expenditure of human skill and labour was
agricultural mcome within the meaning of s. 2( l) of the Indian
Income tax Act. 1922. It was in this connection that observations were made with regard to the primary sense in which the
(1) Income Ta. Reports (Vol 27) 1955, page(!),
(2) 321.T.R. 466.
432
SUPREME COURT REPORTS
[1971] 1 S.C.R.
word ·agricul!ure' was used and what the meaning of 'agricultural
operation' was.
It was said that the term 'agriculture' could not
be: extended to all activities which had some relation to the land
and were in any way connected with the land.
For instance the
application of the term ·agriculture' to denote such activities in
relation to the land including horticulture forestry, breeding and
rearing of live-stock, dairying, butter and cheese-making and
poultry farming was unwarranted distortion of the term.
The above two decisions relied upon by the High Court, with
respect, have no bearing on the question which arose in the present
case.
ft is well known that modern agricultural farming which
has become mechanised involves a high degree of organisation.
technical skill etc. in the same way as a well run industry. If
agricultural production has to be obtained with optimum results
it is necessary that there should be a proper supervisory and other
staff as also the employment of such means as would be conducive
to maximum production and proper marketing of the produce.
It is axiomatic that the staff would require residential accomodation which will have to be kept in a proper state of repairs.
The
staff will also need medical attention and other amenities which
·are normally afforded to employees now a days.
The benefit of
provident fund can hardly be denied to them when it has become
the accepted and normal feature in all forms of employment in
modern times. If any motor vehicle is being maintained for
enabling the supervisory or oilier staff to look after the farm the
expenses incurr.~d thereon cannot be
regarded as· foreign
to
farming operations. The expenditure incurred on postage, telegrams, printing and stationery for ,the purpose of and in connection with farming would also be allowable. If certain periodicals
are being subscriblld to for obtaining technical knowledge and
up-to-date informtion in the matter of agricultural farming it is
difficult to see how that could be disallowed.
It is not necessary
to refer to all other items the details of which have b.~en given
before. What has to be essentially determined under s. 6(2)(b)-
(iv) is whether the expenses were incurred on or for the purpose
of the entire work and operations involved in raising the crop.
making the same fit for marketing and the transportation of the
produce to the market.
The words "raising the crop" cannot be
confined simply to the ploughing of the land, sowing the seed and
cuttmg the harvest.
It must be emphasised that section 6(2)(b)-
( iv) is not to be construed in a narrow and pedantic sense and
must be given its full effect in the background of modern large
scale farming and the organization required for it.
We are generally in agreement with the views expressed in the previous unreported decision of _the Allahabad
High
Court referred
to
before. ·
·
•
A
~-··
B
c
I>
E
y·
H
B
c
l'l!RTABPORE co. JI. u .. P. STATE (Grover, i.)
433'
It would. appear that the authorities concerned have not considered the items in dispute from the correct angle and it would
have to be decided with regard to each item whether it was partl¥
or wholly expended for the purposes mentioned before.
An
apportionment ·may become necesary if it is determined that the
entire expense was not incurred strictly for those purposes.
The correct answer to the question referred would be : The
amount claimed by the assessee as expenses on management and
miscellane,9US expenses detailed before can be allowed u/s 6(2)-
(b) (iv) if and to the extent it is determined that they were incurred for the .management, supervision, organisation, technical knowledge and assistance and other allied matters for the purpose of
the raising of crops, their marketing and transportation, in the
light of the observartons made by us in this judgment.
The apepals are allowed with costs in this Court and the judgment of 1hc High Court is set aside.
One hearing fe~.
Y.P.
Ap11eals allowed.
. j
;'!
,~:.