JUDGMENT
Smt. Sujata Manohar J.
1. This income-tax reference pertains to the assessment years 1962-63, 1963-64 and 1965-66. The following questions are before us for consideration under section 256(2) of the Income-tax Act, 1961 :
“1. Whether, on the facts and in the circumstances of the case, the expenses of running the railway lines should be allocated between the agricultural operations and the non agricultural operations on the basis of ‘tonnage carried’ in respect of the said two operations as held by the Tribunal ?
2. Whether the Tribunal’s basis of apportioning the expenses incurred on railway lines was correct in law ?
3. Whether, on the facts and in the circumstances of the case, the ‘tonnage carried’ was the correct basis for allocating depreciation on railway lines as between the agricultural and the manufacturing activities of the assessee-company and, on such basis, whether the Income-tax Officer was justified in allowing depreciation on railway lines to the extent of one third of the total depreciation in respect of the railway lines against the assessee’s manufacturing profits ?”
2. Assessment year 1962-63 :
“Whether, on the facts and in the circumstances of the case, the railway transport receipts amounting to Rs. 20,788 being freight receipts were fully assessable as income from manufacturing business of the assessee ?”
3. Assessment year 1965-66 :
“Whether, on the facts and in the circumstances of the case, the railway transport receipts amounting to Rs. 15,075 being freight receipts were fully assessable as income from manufacturing business of the assessee ?”
4. As far as question Nos. 1, 2 and 3 are concerned, similar questions were considered by our High Court (Kantawala C.J. and Tulzapurkar J.) in the assessee’s own case in Income-tax Reference No. 26 of 1965, by their judgment dated July 26, 1974. The High Court in that case held that the allocation between agricultural operations and non-agricultural operations on the basis of only the tonnage carried was not the proper basis. The proper basis was “tonnage-mileage” as set out in the above judgment. In view of this judgment, questions Nos. 1 and 3 are answered as follows :
5. The expenses of running the railway lines should be allocated between agricultural operations and non-agricultural operations on the “ton-mileage basis” as set out in the above judgment. Similarly, allocation of depreciation on railway lines as between agricultural and manufacturing activities of the assessee-company should also be done on the “ton-mileage” basis as set out in the above judgment.
6. In view of the above, question No. 2 is answered in the negative and in favour of the assessee.
7. Regarding the questions raised for the assessment year 1962-63 as also for the assessment year 1965-66, the only facts which are before us are as follows :
8. The assessee recovered freight charges for carriage of sugarcane purchased from outsiders from their farms to its factories. According to the terms of the contract as between the assessee and such cane-growers, the obligation to pay the freight was of the cane-growers. For the assessment years 1962-63 and 1965-66, the freight charges recovered were Rs. 62,364 and Rs. 54,134, respectively.
9. In the assessment year 1962-63, the assessee claimed that two-third of the freight receipts were referable to manufacturing activities and one-third to the agricultural activities. Thus, out of the receipt of Rs. 62,364, the assessee showed Rs. 31,576 as income from manufacturing activity and the balance of Rs. 20,788 as income from agricultural activities.
10. For the assessment year 1965-66, the assessee claimed that, out of the receipts so obtained amounting to Rs. 54,134, the sum of Rs. 31,522 exclusively related to the manufacturing activity of the company. Of the balance of Rs. 22,612, one-third thereof, viz., Rs. 7,537, related to manufacturing activities and the balance of Rs. 15,075 related to agricultural activity.
11. The Tribunal has held that the balance amount of Rs. 20,788 which is shown as income from agricultural; activity in the assessment year 1962-63 as also the balance amount of Rs. 15,075 which is shown as income pertaining to agricultural activity for the assessment year 1965-66 cannot be considered as income pertaining to agricultural activities because these amounts are also in respect of recovery of freight charges for carriage of sugarcane purchased from outsiders from their farm to the factory which charges were required to be paid by the outsiders to the assessee as per the terms of the agreement. This income, therefore, cannot be attributed to any agricultural activity of the assessee, since the sugarcane was carried to the assessee’s factory for manufacturing sugar. Since these are the only facts before us, the question of allocation of such freight between agricultural activities and manufacturing activities does not arise. These amounts represent the freight charges recovered only in respect of sugarcane of outsiders carried to the assessee’s factory.
12. Hence, both these questions are answered in the affirmative and against the assessee. No order as to costs.