Judgment :- K. A. THANIKKACHALAM J. In pursuance of the order dated December 10, 1984, by this court the Tribunal referred the following question of law for the opinion of this court under section 256(2) of the Income-tax Act, 1961 "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sale proceeds of eucalyptus oil extracted by the assessee from the leaves of the eucalyptus trees grown by it was in the nature of agricultural income and hence it was not assessable to tax ?". The assessee company grows eucalyptus trees as shade trees and extracts eucalyptus oil from them. In the course of assessment proceedings for the assessment year 1978-79, the assessee contended that the sale proceeds of oil represented its agricultural income. The Income-tax Officer rejected this plea and treated the sale proceeds of the oil as miscellaneous receipts. However, on appeal, the Commissioner of Income-tax (Appeals) held that the extraction of oil was a process to render the leaves fit to be taken to market and, therefore, yielded agricultural income, which was not taxable. On further appeal by the Department, the Income-tax Appellate Tribunal, relying upon the decision of the Supreme Court in CST v. D. S. Bist 1980 AIR(SC) 169, 1980 (1) SCR 593 , 1979 (4) SCC 741 , 1979 (44) STC 392, 1980 UJ 220 , 9980 scc(Tax) 41 held that eucalyptus oil was agricultural produce. The Tribunal accordingly confirmed the order of the Commissioner of Income-tax (Appeals) Before us learned standing counsel appearing for the Department submitted that the eucalyptus leaves are having a market and, therefore, the sale of the oil extracted from the eucalyptus leaves cannot be considered to, be an agricultural produce. According to learned standing counsel, agricultural income means any rent or revenue derived from land which is situated in India and is used for agricultural purposes. Since the oil extracted from the eucalyptus leaves has no direct nexus to the land, it cannot be considered as agricultural produce. It was further submitted that since the eucalyptus leaves themselves have no market that would not mean that the oil extracted from the eucalyptus leaves which alone is marketable is to be considered as agricultural produce. In order to support the above said contentions reliance was placed upon the decisions in Dooars Tea Co. Ltd. v. Commr. Agrl. It was further submitted that since the eucalyptus leaves themselves have no market that would not mean that the oil extracted from the eucalyptus leaves which alone is marketable is to be considered as agricultural produce. In order to support the above said contentions reliance was placed upon the decisions in Dooars Tea Co. Ltd. v. Commr. Agrl. I. T 1962 AIR(SC) 186, 1962 (3) SCR 157 , 1962 (44) ITR 6 (Mad) and Seth Banarsi Das Gupta v. CIT 1977 (106) ITR 559, 1977 (106) ITR 804 (All). On the other hand, learned counsel for the assessee submitted that the eucalyptus leaves themselves have no market and, therefore, the assessee has got to extract oil and bring the oil to the market since the eucalyptus oil alone has got the market. Placing reliance upon the provisions contained in section 2(1A)(b)(ii) of the Act, learned counsel submitted that even after a process is employed by a cultivator to make the produce fit for marketability, it would not lose its character as an agricultural produce. According to learned counsel, since the leaves themselves cannot be sold and the oil extracted alone is fit for marketability and therefore, the eucalyptus oil is agricultural produce. Reliance was placed upon the decisions in CIT v. H. G. Date 1971 (82) ITR 71 (Bom), CIT v. Woodland Estates Ltd. 1965 (58) ITR 612 (Ker) and CIT v. S. L. Mathias 1937 (5) ITR 435 (Mad)We have heard both learned standing counsel as well as learned counsel for the assessee The point for consideration is whether the eucalyptus oil extracted from the eucalyptus leaves can be considered as an agricultural produce ? While considering sections 2(1)(b)(i), 4 and 6 of the Indian Income-tax Act, 1922, the Supreme Court in Dooars Tea Co. Ltd. v. Commr. of Agrl. I.T. 1962 AIR(SC) 186, 1962 (3) SCR 157 , 1962 (44) ITR 6 held as under "Going back to section 2(1)(b) it refers to income derived from land which means arising from land and denotes income the immediate and effective source of which is land. Section 2(1)(b) consists of three clauses. Let us first construe clauses (ii) and (iii). Clause (ii) includes cases of income derived from the performance of any process therein specified. Section 2(1)(b) consists of three clauses. Let us first construe clauses (ii) and (iii). Clause (ii) includes cases of income derived from the performance of any process therein specified. The process must be one which is usually employed by the cultivator or receiver of rent-in-kind ; it may be a simple manual process or it may involve the use and assistance of machinery. That is the first requirement of this proviso. The second requirement is that the said process must have been employed with the object of making the produce marketable. It is, however, clear that the employment of the process contemplated by the second clause must not alter the character of the produce. The produce must retain its original character and the only change that may have been brought about in the produce is to make it marketable. The said change in the condition of the produce is only intended to make the produce a saleable commodity in the market. Thus clause (ii) includes within the categories of income, income derived from the employment of the process falling under that clause. As we have just observed the object of employing the requisite process is to make the produce marketable but in terms the clause does not refer to sale and does not require that the income should be obtained from sale as such though in a sense it contemplates the sale of the produce." In the above cited decision it is clearly pointed out that the employment of the process contemplated by the second clause must not alter the character of the produce In South Arcot District Co-operative Supply and Marketing Society Ltd. v. CIT (supra) the assessee purchased paddy from some of its members, hulled the same and sold the resultant rice to its other members. The assessee's claim for exemption of the profits made on this transaction under section 14(3)(i)(c) of the Indian Income-tax Act, 1922, was negatived by the Department. The assessee's claim for exemption of the profits made on this transaction under section 14(3)(i)(c) of the Indian Income-tax Act, 1922, was negatived by the Department. On a reference this court held that the rice is not an agricultural produce and as it does not continue to have the same original character as paddy after hulling and further it cannot be said that the agricultural produce of the members is what was being sold as it is only the paddy that belonged to the members and hulling is not a necessary process for marketability of that produce and hence the assessee was not entitled to exemption. In Seth Banarsi Das Gupta v. CIT (Supra) the assessee sold part of the sugarcane raised on the land while the remaining part was converted into gur. On a reference, the Allahabad High Court held that the income from gur business was not agricultural income exempt from tax. In order to bring the case within the meaning of agricultural income as defined in section 2(1)(a) of the Indian Income-tax Act, 1922, it is necessary, inter alia, to establish that the nature of the goods remains the same even after the application of the process. When sugarcane is converted into gur, it results in the production of a different commodity. The conversion of sugarcane into gur, is not a necessary process performed by a cultivator to render sugarcane fit for being taken to the market. In CIT v. H. G. Date (supra) the assessee, who cultivated sugarcane on his land and converted it into jaggery for sale in the market, claimed exemption for the income received as agricultural income. On a reference, the Bombay High Court held that there was evidence before the Tribunal to justify its finding that there was no market for the sugarcane produced by the assessee in its natural condition. Hence, the income received by the assessee from sale of jaggery was exempt from income-tax as agricultural income. On a reference, the Bombay High Court held that there was evidence before the Tribunal to justify its finding that there was no market for the sugarcane produced by the assessee in its natural condition. Hence, the income received by the assessee from sale of jaggery was exempt from income-tax as agricultural income. In CIT v. Woodland Estates Ltd. (supra) while considering the provisions of section 2(1) of the Indian Income-tax Act, 1922, the Kerala High Court held that in order that an income might fall within the definition of agricultural income under section 2(1)(b)(ii) of the Indian Income-tax Act, 1922, two conditions have to be satisfied : (1) the process to which the agricultural produce is subjected whether manual or mechanical should be one which is ordinarily employed by a cultivator ; and (2) the said process should be employed in order to render the produce fit to be taken to market and not for any other purpose. The produce must retain its original character in spite of the process unless there is no market for selling it in that condition. If there is no market to sell the produce, then any process which is ordinarily employed to render it fit to reach the market, where it can be sold, would be covered by the definition. A combined reading of the decisions cited supra would go to show that even under processing the produce should not lose its identity and the assessee must establish that the agricultural produce itself has got no market and only by converting the same into some other product there can be a market. In the present case, the oil extracted from the eucalyptus leaves lost its original identity. According to the assessee, the eucalyptus leaves themselves have got no market, but, in the order passed by the Commissioner it is clearly stated that the leaves also have a ready market as evidenced by contract allowed by the forest department for cutting green leaves by private merchants. Even though the assessee contended that the leaves themselves have got no market, it was not substantiated before the Tribunal. In view of the foregoing reasons, we consider that the order passed by the Tribunal in coming to the conclusion that eucalyptus oil extracted from the eucalyptus leaves is also agricultural produce is not acceptable. Even though the assessee contended that the leaves themselves have got no market, it was not substantiated before the Tribunal. In view of the foregoing reasons, we consider that the order passed by the Tribunal in coming to the conclusion that eucalyptus oil extracted from the eucalyptus leaves is also agricultural produce is not acceptable. In that view of the matter, we answer the question referred to us in the negative and in favour of the Department. The tax case is ordered accordingly. No costs.