Rule 7 — the law in short
What the courts have decided on section Rule 7, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Thiru Arooran Sugars Ltd v CIT, Madras
Supreme CourtHelps departmentValidity unconfirmed
I grow sugarcane and crush all of it in my own mill, so I never sell any cane. My cost of cultivation is higher than the market price. Can the Assessing Officer still deduct the market value of the cane under rule 7 instead of my actual costs?
Yes. Rule 7(2)(a) applies wherever the agricultural produce is of a kind ordinarily sold in the market in its raw state, and sugarcane is such a produce, so the deduction from composite profits is the average price at which cane was sold during the previous year, not the assessee's cultivation expenses. The Supreme Court held that 'market' in rule 7 does not require an open market where buyers and sellers congregate, that the controlled price under the Sugarcane Control Order is the market price, and that it makes no difference that the assessee was the only buyer in its region.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.