RAM LABHAYA, J. - This judgment shall dispose of Income-tax References Nos. 1-9 of 1949. These are references by which certain questions of law have been referred to this Court under Section 28(2) of the Assam Agricultural Income-tax Act, 1939, hereafter called the Assam Act, by the Member, Assam Board of Agricultural Income-tax Shillong.
The references in all these nine cases were made as a result of petitioner filed by different assessees when they felt aggrieved by the orders of the Appellate Assistant Commissioner of Agricultural Income-tax, Assam. The following four questions are common in References Nos. 2-9.
(i) Whether the amounts realised by the petitioner from sale of Sal trees are capital receipts or revenue receipts ?
(ii) Whether, in the event of the amount realised by the petitioner from the Sal trees in question being held as revenue receipts, such receipts can be regarded as agricultural income within the meaning of Section 2(a) of the Assam Agricultural Income-tax Act, 1939 ?
(iii) Whether the amount received by the assessee as salami for settlement of agricultural holding is agricultural income within the meaning of Section 2(a)(1) of the Assam Agricultural Income-tax Act ?
(iv) Whether the petitioner is entitled to a deduction of 15 per ce nt. on the amount of salami as collection charges ?
In Reference No. 8 of 1949, besides the four questions mentioned above, there is another question (No. 5), which is as follow :-
"Whether the amount paid to the ladies mentioned in para. 11 above under the will of the late Raja P. C. Barua, and charged on Lakheraj Srijangram (Touzi No. 34 of Goalpara Collectorate) should be deducted from the agricultural income."
In Reference No. 1 of 1949, only three out of the first four questions have been referred. The third question was not included in the reference. But we have before us a petition was not included in the Assam Board of Agricultural Income-tax, be directed to refer this question to this court under Section 28(3) of the Act. This order shall dispose of this petition also.
The order of reference in all the cases are identical so far as common questions are concerned. These common questions were raised in all the cases before the Appellate Assistant Commissioner. The assessees in all these cases contended that the receipts from the sale of Sal trees in their forests were only capital receipts and in any case not agricultural income and therefore not subject to agricultural income-tax; that the receipts from salami were also capital receipts and not agricultural income and that if these receipts (from salami) were regarded as agricultural income, the assessees would be entitled to a deduction of 15 per cent. therefrom as collection charges. The Appellate Assistant Commissioner found against the assessees on all the points. Petitions were made under Section 28(2) requesting the Member, Assam Board of Agricultural Income-tax, to refer to the High Court. The Board, after recasting the questions required to be referred, formulated the questions reproduced above. No objection has been raised to the statement of the questions of law by the Member, Assam Board of Agricultural Income-tax.
The assessees in all the references are from Goalpara district. The following statement would show the income of each assessee under the disputed heads in regard to each year of assessment in the questions referred to us were raised.
Name of Owner.
Year of assessment
Qeceipts from the sale of the Sal trees (Bankar) RsH
Jotirindr Narayan Sinha Choudhury,
Co.sharer in Parbatjoar Estate
Kumar Jitendra Narayan Deb
1946-47 1947-48 1948-49
9,773 4,223 16,785
701 879 859
Sourindra Narayan Parbatjoar Yan Choudhury Mechpara
Co- sharer in parbat 12,036
46,131 Parbatjoa joar and
Jyotsna Nath Choudhury.
Co-sharer in Mechpar Estate.
1946-47 1947-48 1948-49
40,507 55,809 37,156
4,234 20,509 5,997
Jogadindra Parbatojour Narayan Mechpara Chowdhury
Co sharer in Parbatjou an Mechpar Estate"
18,737 yan Sinha Chou- Parbatjoar 1948-49 3,25,568 16,847 dhury, Estate.
2. Kumar Jitendra Do. 1946-47 9,773 701 Narayan Deb. 1947-48 4,223 879 1948-49 16,785 859
3. Sourindra Nara- Co-sharer 1946-47 46,131 Parbatjoa 5,337 Parbatjoar yan Choudhury in Parbat joar and Mechpara 12,036 1,295 Estate. 1947-48 21,678 554 1947-47 21,617 Parbatjou 555 Parbatjour 17,043 Mechpar 6,26y Mechpara 1948-49 93,123, Parbatjoa 6,605 Parbatjoar 11,353 Mechpar 1,83} Mechpar
4. Jyotsna Nath Co-sharer 1946-47 40,507 4,234 Choudhury. in Mechpar 1947-48 55,809 20,509 Estate. 1948-49 37,156 5,997
5. Jagadindra Co-sharer in 1946-47 54,484 Parbatojou 3,97q Parbatojour Narayan Parbatjou an 36,016 Mechpar 3,88} Mechpara Chowdhur Mechpar Estate"
1947-48 22,956 Parbatjoa 4,837 Parbatjoar
51,159 Mechpar 18,80x Mechpara
1948-49 93,254 Parbatjou 4,727 Parbatjoar 34,058 Mechpar 5,49y Mechpara
6. Ranjit Co-sharer in 1946-47 39,106 Parbatjoa 2,80q Parbatjoar 2,801 Narayan Parbatjoar Choudhury and Mechpara 36,015 Mechpar 3,88} Mechpara Estate 1947-48 16,886 Parbatjoa 3,51y Parbatjoar
51,159 Mechpar 18,80x Mechpara
1947-49 67,138 Parbatjoar 3,43 Parbatjoar
34,059 Mechpar 5,49y Mechpara
j 7H Raj Bhairaen dr Marayan Bijn Ra 1917-47 4,01,218 34,052 BhuN Bahadu Estats
8H Estate of late Zamindary 1945-4 56,056-5- 98,98y Raja Prabha Estat 1946-4y 60,14x 72,092 Chandra BaruaH a Gauripu 1947-47 50,31q 70,238 1948-48 39,91x 13,616
9. Sreejukta Chapor 1945-46 8,772 46,204 Bedabala Debi, Trust 1946-47 6,463 28,827 Trustee of Estate. 1947-48 20,421 66,531 Chapor Trust 1948-49 46,778 37,422 Estate.
The above statement shows that each assessee had receipts described as bankar (receipts from the sale of Sal trees) and salami in each year of the assessment covered by the reference in his case.
The first question is whether the amounts realised by the assessees from the sale of Sal trees are capital receipts or revenue receipts. From the statement given above, it will appear that receipts from sale of Sal trees were a recurring item in the case of each assessee for the years of assessment with which we are concerned. The years of assessments are not less than two and not more than four in any case. The Member, Assam Board of Agricultural Income-tax, in his reference stated that the receipts in question were derived from periodical sale of Sal trees grown on the land. This statement of fact has not been disputed. In spite of this, it is claimed on behalf of the assessees that the receipts from the sales of Sal trees represent capital and they could be regarded as income or revenue receipts for purposes of the Assam Agricultural Income-tax Act.
It is pointed out that when trees from a forest are sold the transaction is substantially a sale of a part of the forest which is the capital. It results in some diminution of the capital, however small. The receipts in these circumstances ought to be treated as capital receipts.
The Assam Agricultural Income-tax Act defines agricultural income as follow :- "(a) Agricultural income means - (1) any rent or revenue derived from land which is used for agricultural purposes, and is either assessed to land revenue in Assam or subject to a local rate assessed and collected by officers of the Crown as such.
(2) Any income derived from such land by - (i) Agriculture, or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily implied by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market, or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii); Explanatio :- Agricultural income derived from such land by the cultivation of tea means that portion of the income derived from the cultivation, manufacture and sale of tea as is defined to be agricultural income for the purposes of the enactments relating to Indian Income-tax."
Agricultural income-tax, according to the Act, means tax payable under this Act. Under Section 3 of the Act, agricultural income-tax is chargeable at the rate specified in the annual Assam Finance Acts subject to the provisions of Sections 6 for each financial year in accordance with and subject to the Act on the total agricultural income of the previous years. Agricultural income is exempt from taxation under the Income-tax Act. It is not included in the total income which is assessable under that Act by virtue of provisions contained in Sections 3 and 4 of the Act. The total income for purpose of section 4 includes all income any of the sub-clauses of clause (3) of Section 4. Sub-clause (8) exempts agricultural income from the scope of total income assessable. Agricultural income for the purposes of the Indian Income-tax Act is defined in Section 2(1) of the Act.
The Central Government has no power to tax agricultural income. Under the Government of India Act, 1935, it was excluded from the ambit of the jurisdiction of the Central Legislature. Agricultural income was one of the items included in the list of matters about which the Provincial Legislatures could alone legislate. The result was that the Indian Income-tax Act excluded agricultural income from being assessable to income-tax and the Provincial Income-tax Acts made the same liable to taxation. The position is the same under the Constitution of India which came into force on January 26, 1950. List No. 1, Union List of Schedule 7 enumerates matters with respect to which Parliament has exclusive power to make laws. Item 82 of this list deals with tax on income. This item is limited to income. This item is limited to income other than agricultural income. List 2 of the same Schedule enumerates matters in respect to which the State Legislatures to impose tax on agricultural income.
The word "income" has not been defined by the Statute. It must be taken to have been used in the Constitution on India as also in the other Acts, Central and Provincial, in its general sense. Again its meaning and connotation in all the enactments ought to be the same as the context in any of the enactments does not indicate anything to the contrary. The authorities bearing on the interpretation of the word as used in the Indian Income-tax Act will, therefore, govern the interpretation of the word as used in the Assam Act also. This position is not disputed and the learned counsel for the assessees has himself drawn our attention to all the authorities bearing on the meaning of the word as used in the Indian Income-tax Act treating as relevant to the question before us.
Income, According to its dictionary meaning means proceeds from labour, business, property or capital. The dictionary meaning however does not solve the difficulty. The question remains whether the proceeds from the sale of trees in a forest is conversion of capital into to what is conveyed by the expression "income "as used in the Indian Income-tax Act arose in Commissioner of Income-tax v. Shaw Wallace & Co.
Sir George Lowndes when delivering the judgment of their Lordships of the Privy Council observed as follow :-
"Income, their Lordships think, in this Act, connotes a periodical monetary return coming in with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a define return, excluding anything in the nature of a mere windfall. Thus income has been likened pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of something which is often loosely spoken of as capital. But capital, though possibly the source in the case of income from securities, is in most cases hardly more than an element in the process of production."
This definition was followed in Gopal Saran Narain Singh v. Commissioner of Income-tax Bihar and Orissa. In that case the assessee had transferred an estate in consideration of a lump sum and of the discharge of certain debts and of the payment to himself for life of an annuity of Rs. 2,40,000. This annuity was held to be the yearly income of the assessee. It was held in this case that the word "income" was not limited by the words "profit" and "gains" occurring in the Indian Income-tax Act and that anything which could properly be described as income was taxable under the unless expressly exempted.
In Kamakshya Narain Singh v. Commissioner of Income-tax Bihar & Orissa, the question before their Lordships of the Judicial Committee was whether royalty on mines being capital revenue should not have been excluded in computing the total income determined for income-tax. The payments, which under the mining leases were eligible by the lessor fell under three categorie : (1) The salami or premium; (2) the minimum royalty; (3) the royalties per ton. The contention raised before their Lordships was that on a true construction of the Indian Income-tax Act, mineral royalties depending on the tonnage of minerals raised and dispatched are not properly chargeable to tax because they are in their nature and quality capital and are not income or income derived from other sources within the meaning of sections 6 and 12 the Act. Their Lordship held that there was no real justification for treating the royalties as capital payments. They regarded the royalty as rent in substance, or as compensation which the occupier paid to the landlord for that species of occupation which the contract allowed. The fact that the mines were a wasting asset was considered irrelevant. Lord Wright in delivering the judgment of their Lordship observe as follow :-
"Income is not necessarily the recurrent return from a definite source, though it is generally of that character. Income again may consist of a series of separate receipts, as it generally does in the case of professional earnings. The multiplicity of forms which" income may assume is beyond enumeration."
Referring to the definition of the word "income" as given by Sir George Lowndes in Commissioner of Income-tax v. Shaw Wallace & Co., Lord Wright observed as follow :-
"Sir George Lowndes speaks of income being likened pictorially to the fruit of a tree or the crop of field. But it is clear that such picturesque similes cannot be used to limit the true character of income in general, and particularly when it is constituted by mining rent or royalties."
In Maharaja of Kapurthala v. Commissioner of Income-tax, one question referred to the Court was whether the assessees net receipts from the sale of forest trees were assessees income liable to income-tax or merely capital inverted into cash and not liable to income-tax. The annual profit over a period of 13 year was found to be Rs. 2,132 from grass and Rs. 4,425 from trees-covered land. The position appeared to have remained much the same until 1928 when wholesale cutting commenced with a view to clearing the forest in order to make the land arable. During the next ten years the whole forest was nut down and as it was cut, the land was let out to tenants. It was not until 1937-39 that the sale proceeds were assessed to income-tax. It was argued on behalf of the assessee that the trees were not sold in the course of a business but a matter of capital realisation. It was also argued alternately that at any rate, the last sale should be regarded in this light. This contention was repelled. In the course of the judgment, their Lordships observed as follow :-
"One general principle governing such cases is now well settled, being found in English and Indian authorities. It is that receipts from capital which is exhausted in the process of realisation may be none the less income."
Apart from the above observation of their Lordships of the Oudh Chief Court, it must be conceded that the facts of the Oudh case were somewhat different from the cases now before us. On the question whether receipts from the sale of trees constituted income and not capital, the learned Judges agreed with the Tribunal in holding that the receipts were income and not capital. In coming to this conclusion they relied on Kamakshya Narain Singh v. Commissioner of Income-tax Bihar and Orissa.
A Division Bench of the Nagpur High Court also relying on Kamakshya Narain Singh v. Commissioner of Income-tax, Bihar and Orissa held in Beohar Singh v. Commissioner of Income-tax, that whether a given receipt is capital receipt or income depends on circumstances so that what a is income in the hands of one man may be capital in those of another. But where the assessess sold timber annually from the forest and there was no reduction or loss any capital asset, viz., forest land, it was held that the receipts derived by sale of timber were income and not receipts of a capital of a capital nature.
In Kamakshya Narain Singh v. Commissioner of Inocme-tax, Bihar and Orissa, a Division Bench of the Patna High Court treated net receipts from the sale of forest as income liable to income-tax and not merely capital receipts.
In Commissioner of Income-tax v. Manavedan, a Special Bench of the Madras High Court had to deal with the question whether the amounts received by sale of timber trees are income liable as such to income-tax. The contention raised was that the assessee had purchased the forest with trees growing therein but as the trees were cut down and carried away, the capital was thereby decreased. The learned Judges did not make any distinction between the income derived from the sale of paddy which is grown on land and the income derived from the sale of timber cut in a forest and were of the view that income derived from the sale of paddy would be assessable but for the special exemption given to it under the Indian Income-tax Act. The amount received by the owner of unassessed forest lands by sale of timber trees thereon was held to be income and assessable as such.
The authorities referred to above yield the result that the forms which income may assume would baffle attempts at enumeration. A precise definition covering all cases is not possible and the Legislature has not attempted to define it. It is generally though not necessarily a recurrent return from a definite source. Receipts from capital which is exhausted in the process of realisation may once the less be income. The fact that the receipts are from a source which is a wasting asset like that of a mine is an irrelevant consideration and anything which could properly be described as income would be taxable unless expressly exempted from taxation.
Judged in the light of the above test, receipts from the sale of forest trees cannot be excluded from the scope of the word of the word "income" The only contention raised on behalf of the assessee is that these receipts represent capital in as much as the falling of trees causes a gradual exhaustion of capital. From the admitted facts of this case, it appears that the forests are not being worked in a way that the gradual sale of trees from portions of the forest would result in their extinction. In the references before us, the Member, Board of Agricultural Income-tax, observed that the assessees admitted that the Sal forest in question have to be nursed, reserved and developed at considerable expenses. The assessments show that sales are periodical. Exploitation is carried on in conformity with schemes which guard against the forest disappearing as a result of such sales. It was found as a fact by the Appellate Assistant Commissioner that the forest trees as they exist now were the result of operations in forestry that were undertaken for their growth and regeneration. The Member, Assam Board of Agricultural Income-tax, agreed with the finding and it is not now disputed. These forests, therefore, cannot even be regarded as wasting assets. But even if they are treated as wasting assets, the consideration is not relevant as held by their Lordships of the Privy Council in Kamakshya Narain Singh v. Commissioner of Income-tax, Bihar and Orissa. The capital in the case of the forests is land as held in Beohar Singh v. Commissioner of Income-tax. The sale of trees from the forest does not bring out or result in any diminution of the capital. So long as the capital remains, receipts from the sale of trees cannot be regarded as capital receipts. On the facts of the cases before us, I have no hesitation in holding that the receipts from the sale of forest trees being revenue receipts constitute income. They cannot be classed as capital receipts.
Again so far as receipts from the sale of forest trees are concerned, the point is concluded by authority and it an annuity obtained as part of the consideration from the sale of property and royalties on a mining lease which result in the gradual exhaustion of the mine are classed as income, there is much greater reason for holding that recurring receipts from the sale of trees from forests which are worked in such a way that their continued existence is assured are revenue receipts and as such taxable under the Assam Act if they can be regarded as agricultural in character.
Our answer to the first question, therefore, is that the amounts realised by the assessees from the sale of Sal trees are revenue receipts.
The second question is whether receipts from the sale of trees, which we regard as revenue receipts, constitute agricultural income for the purpose of the Assam Act.
In order that income should be described as agricultural under Section 2 of the Act, it is necessary that it should be rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in Assam or subject to a local rate assessed and collected by officers of the Crown as such or it should be income derived from such land by agriculture or by the performance by a cultivator or receiver of rent in kind of any process ordinarily employed by a cultivator or receiver of rent in kind to render the produce raised or received by him fit to be taken to market. It would appear from the definition of agricultural income given in the Act that the two ingredients which can make income agricultural are, (1) that the land from which income is derived should be used for agricultural purpose; and (2) that the land should either be assessed to land revenue in Assam or be subject to a local rate assessed and collected by officers of the Crown as such.
There is no dispute about the existence of the second ingredient. The references before us assume it. The controversy centres round the question whether on the facts of these cases the revenue in question was derived from land used for agricultural purposes. The decision of the question would depend on the meaning that the words "agricultural purposes" as used in section 2 of the Act should carry. This leads us on to an inquiry as to what the term "agriculture" connotes. The definition of the term "agriculture" given in the dictionaries varies in scope. The meaning assigned to it in Websters Dictionary is "farming, horticulture, forestry, butter and cheese-making, etc." In Bouviers Law Dictionary "agriculture" is defined as "the cultivation of soil for food products or other useful or valuable growth of the field or garden, tillage, husbandry; also by extension, farming including any industry practiced by a cultivator of the soil in connection with such cultivation, as breeding and rearing of stock, dairying, etc., the science that treats of the cultivation of the soil."
According to the Oxford Dictionary "agriculture" means "the science or art of cultivating soil including the allied pursuits of gathering the crop and rearing livestock, tillage, husbandry, farming in the widest sense."
It may be observe that in spite of the diversity as to the scope and purpose of agriculture as revealed by the different definitions, there is one feature which is essentially common to all of these. This is the application of human skill and labour without which there can be no agriculture. Thus trees or even forests of spontaneous growth cannot be regarded as the result of any agricultural process. Income derived from such trees cannot be regarded as agricultural income. This aspect of the matter was brought out clearly by their Lordships of the Nagpur High Court in Beohar Singh v. Commissioner of Income-tax, in the following passag :
"The dictionaries tell us that agriculture comes from ager, field and cultura, cultivation. This implies the use of human skill and labour; and that is exactly how the dictionaries define it. Webster says that agriculture is the science or art of cultivating the ground, and includes in it the rearing and management of live-stock, animal husbandry, farming and so forth. Other dictionaries, including the Oxford English Dictionary, imply the same basic conception. Some include forestry in the term. It is to be observed, however, that the word used when forestry is included, is forestry and not forests. The distinction is important because when one turns to the definition of forestry in the dictionaries, one finds that it is also an art of science. Thus, Webster says it is the art of farming or cultivating forests; the management of growing timber and the Oxford English Dictionary says much the same thing. Therefore, throughout we find that the essence of agriculture, even when it is extended to include forestry is the application of human skill and labour. Without that it can be neither an art nor a science. And that we feel must be the determining in this class of cases."
It is noteworthy that "agriculture" described by Webster as "an art or science of cultivating the ground" includes in it the rearing and management of livestock, animal husbandry, farming and so forth. "Forestry" which again is an art or science is included within the scope of agricultural by some dictionaries including Webster. Now, whether agricultural is an art or science, employment of human skill and labour must be its distinguishing feature.
The word "agriculture" examined etymologically means ager, a field and cultura, cultivation. If a restricted meaning is given to the word "agriculture", it would require cultivation of the land. The question then arises whether actual cultivation of the land. The question then arises whether actual cultivation or tilling of the soil is an essential process in agriculture. Their Lordships of the Privy Council did not consider tilling of the soil as an indispensable requirement of agriculture in Mustafa Ali Khan v. Commissioner of Income-tax. The assessee in that case was assessed to income-tax under the Indian Income-tax Act on his receipts from the sale of trees in a forest. His contention was that the income being agricultural was exempted from taxation under Section 4, clause (3), sub-clause (8). The question referred to the Chief Court of Oudh in that case was
"Whether income from the sale of forest trees growing on land naturally and without intervention of human agency, even if the land is assessed to land revenue, is agricultural income within the meaning of Section 2(1)(a) of the Income-tax Act and as such exempt from income-tax under Section 4(3)(viii) of the Act."
It is clear from the question that income in that case was derived from the sale of trees growing on land naturally. In this connection Lord Simonds, who delivered the judgment of their Lordships of the Privy Council tha :
"As appears from the form of the question, the income under the first head was derived from the sale of trees described as forest trees growing on land naturally, and the case has throughout proceeded upon the footing that there was nothing to show that the assessee was carrying on any regular operations in forestry and that the jungle from which trees had been cut and sold was a spontaneous growth."
On these admitted facts, their Lordships held that income derived from the sale of trees was not agricultural. It was necessary, in the view of their Lordships that whether exemption was claimed under Section 2(1)(a) or section 2(1)(b) of the definition of agricultural income given in the Indian Income-tax Act, the primary condition must be satisfied that the land in question was used for agricultural purposes. It was observed by Lord Simonds as follow :-
"It is sufficient for the purpose of the present appeal to say (1) that in their opinion no assistance is to be got from the meaning ascribed to the word agriculture in other statutes and (2) that, though it must always be difficult to draw the line, yet, unless there is some measure of cultivation of the land, some expenditure of skill and labour upon it, it cannot be said to be used for agricultural purposes within the meaning of the Income-tax Act."
Their Lordships have not laid down that some measure of cultivation is absolutely necessary before it can be said that land is used for agricultural purposes. In fact "some measure of cultivation" is placed on a par with some expenditure of skill and labour. If either of the two conditions exists, the land could be said as being used for agricultural purposes. Tillage or actual cultivation would not in their view be an essential of "agricultural" in its wider implication.
In Hedayet Ali v. Kamalanand Singh, it was held that the term "agriculture" was of wider import than the term "cultivation," which according to Murrays Oxford Dictionary means "tilling of land, tillage and husbandry." It seems fairly clear that land may be used for agricultural purposes without cultivation or tillage of any kind.
In Commissioner of Agricultural Income-tax v. Jagadish Chandra, the receipts of the assessee from the forest by sale of Sal trees amounted to over Rs. 90,000. He was assessed to agricultural income-tax on this sum. The Appellate Assistant Commissioner upheld the assessment but on appeal before the Appellate Tribunal it was held that income from the forest was not agricultural income and therefore not assessable. On the application of the Commissioner the following question was referred to the Calcutta High Cour :-
"Whether on the facts and circumstances of the case, the sum of Rs. 90,220-1-0 derived from the sale of Sal trees in the forest of the assessee can be treated as agricultural income within the meaning of Section 2 of the Bengal Agricultural Income-tax Act, 1944."
It may be noted that the relevant portion of the definition of "agricultural income" as given in Section 2(1) of the Bengal Agricultural Income-tax Act is in the same terms in which it is in the Assam Act. Their Lordships of the Calcutta High Court adopted the test laid down by their Lordships of the Privy Council in Commissioner of Agricultural Income-tax v. Jagadish Chandra, and observed as follow :-
"The Judicial Committee makes it clear that (1) no assistance is to be sought from the meaning of the word agricultural as given in other statutes and (2) unless there is some measure of cultivation of the land, some expenditure of skill and labour upon it, it cannot be said to be used for agricultural purposes.
It is, therefore, incontrovertible that income from a virgin forest or forest of spontaneous growth is not agricultural income. The view that tilling of the soil was the sine qua non for bringing within the term agriculture has also been exploded. If there is actual tilling of the soil for producing the product, it is the unquestionable result of agricultural pursuit."
The test brought out above was applied to the proved facts of the case which were as follow : (1) The total area of the forest was 14,000 acres. It was parceled out in blocks of 1000 acres each. Trees in each block were sold when the trees were about 15 years old. (2) To prevent damage of the new vigour to the new shoots and saplings, the ground is kept free from undergrowth of jungle and by removal of leaves. (3) During the early stages of the growth in each block, the areas cut down are closely guarded by forest guards at least for one year from the time when the block in question in cut down thus keeping out both men and cattle off from the lands so that they may not damage the growing shoots by trampling and or browsing as the case may be. (4) Cutting the trees in each particular block after 15 years in a particular season.
There was admittedly no cultivation on the soil. The test laid down by their Lordships of the Privy Council was interpreted. the meaning assigned to it was that it was not necessary, in the view of their Lordships, that there must always be some measure of cultivation of the land and some expenditure of skill and labour upon it, but that the proof of either would be sufficient to bring the case within clause (a) or clause (b) of Section 2(1) or the Bengal Agricultural Income-tax Act. In this view they found that the regular operations of forestry to which the forest in question was found to be subject, involved some expenditure of skill and labour and the income was therefore agricultural and as such assessable.
The review of the authorities considered above leads to the conclusion that purpose within the meaning of the Assam Act can be agricultural even if its achievement does not involve actual cultivation of the soil. In the words of their Lordships of the Privy Council in the case of receipts from the sale of forest trees, the income would be agricultural it there is some expenditure of skill and labour upon it. Regular operations in forestry necessarily involve expenditure of skill and labour. Where, therefore, such operations take place, the income from the sale of trees in the forest would be within the ambit of agricultural income as defined in the Assam Act.
It is now to been whether the income derived by the assessees in the cases before us can on the proved facts of the faces be held to be agricultural. This question arises in 55 appeals against the order of assessments covering different accounting periods commencing from 1945-46. All these appeals were disposed of by one order. Thirty-eight appeals were from 13 proprietors of Mechpara Wards Estate. The others were from co-sharers in Porbatjoar Estate and assessees of three other estates. The forests are all in the district of Goalpara. The Appellate Assistant Commissioner found that the forests in all the cases consisted mainly of Sal trees and though the history of their origin was not available, there was nothing before him to show that these Sal trees were of spontaneous growth. He recognized the possibility of the forests originally having been of spontaneous growth. He observed however that it was an admitted fact that forest trees are now protected and fostered in growth by the application of human labour and skill. In his view they were now under agricultural operations in order that they should yield income with some measure of regularity. In this connection he expressed himself as follow :-
"In these forests, operations in forestry such as clearing jungles, creepers and climbers, thinning by removal of less healthy trees from thickly grown areas, removal of unsound, crooked and diseased trees, burning of leaves to fertilize the ground, cutting of trees at special heights, reservation of blocks by turns and their operation in cycle order, preservation of mother trees for the spread of seed, protection of forests from fire, etc., are admittedly regularly carried on and this is further testified to by an Officer of the Mechpara Wards Estate."
According to him, the trees in these forests were not of spontaneous growth as regular operations were being undertaken for their growth, preservation and regeneration. The Member, Assam Board of Agricultural Inocme-tax, agreed with the finding of the Appellate Assistant Commissioner. He stated that it was admitted by the assessees that the Sal forests in question are to be nursed, preserved and developed at considerable expenses; labour and trouble on these forests had to be carefully looked after; the noxious creepers which kill Sal trees have to be cut and destroyed; the undergrowths which hinder the proper growth of plants have got to be destroyed every year and that various other steps have to be taken for their conservation. He further found that Silvicultural operations such as "burning", "Kukt felling", rains tending", "climber cutting", "affording fair protection" etc., were being resorted to in order to assist regeneration, whether natural or artificial, and for proper exploitation of the forests. The assessees according to him had further to keeps an eye on their conversion period and rotation.
The learned counsel for the assessees accepts these findings of fact and has stated that if receipts from the sale of forests trees are treated as in income as distinguished from capital receipts they would be covered by the expression "agricultural income". We have no manner of doubt that though no actual tilling of the soil is necessary for the growth and regeneration of Sal trees in these forests, it is obvious that elaborate operations in forestry are necessary for the maintenance of the forests and for the growth and regression of new trees in clearly conforms to working plans. Blocks of trees are sold in rotation. New trees take root and grow. In the case of all the assessees, there have been receipts from sale of Sal trees in all the years of assessment. The operations, which are considered necessary by the assessees with a view to being able to sell trees from these forests periodically involve both skill and labour. The expenditure of this skill and labour is of a substantial and impressive character. The different processes described by the Appellate Assistant Commissioner and by the Member, Assam Board of Agricultural Income-tax, indicate without any doubt that the extensive operations in forestry are being employed. In these circumstances there cannot be any manner of doubt that the income derived by the assessees in all these cases by the sale of Sal trees during the years in question was agricultural income and was correctly assessed.
The third common question is whether the amount received as salami for settlement of agricultural holdings is agricultural income within the meaning of Section 2(a)(1) of the Assam Agricultural Income-tax Act.
The assessees have been receiving varying sums of money under the heading salami during the years to which the assessment in question relate. The salami was assessed to tax under the Act. The assessees appealed from the order of the Agricultural Income-tax Officer. The Appellate Assistant Commissioner also held that the salami was income and that it could not be treated as capital receipt. In coming to this conclusion he observed as follow :-
"Salamis were realized by the appellants by granting settlement of waste lands and abandoned holdings. No loss or injury was caused to the land by such settlements. The land continued to remain the property of the appellants and the lessees were only granted the non-occupancy right for use and occupation. There was no transfer of any vital right and interest permitting waste to be committed on the land and thereby diminishing its capital value. So, salamis as realised by these landlords cannot be treated as capital receipts. Salamis are received by zamindars in course of their zamindary business. These flow from the lands as normal incidents arising in course of the life of the non-occupancy raiyats lease whenever landlords consent is required by law. These salamis are not non-recurring payments. The same land can yield salamis many times with changes of leases."
On these facts he found that the salamis were covered by the definition of "Income" given by their Lordships of the Privy Council in Gopal Saran Narain Singh v. Commissiner of Income-tax, Bihar and Orissa, which has been quoted above.
He also relied on a decision of a Division Bench of the Calcutta High Court reported in In re Jyotindra Narayan.
When referring the question to this Court, the Member, Assam Board of Agricultural Income-tax, expressed the opinion that in as much as salami was derived with some sort of regularity or expected regularity from land and flows therefrom or from the ownership thereof, it was "agricultural income" within the meaning of the Act. He relied on Birendra Kishore v. Secretary of State, and also on In re Jyotindra Narayan. The statement of facts contained in the order of reference is as follow :
"The amount assessed as salami in these cases were admittedly realised by the assesee landlord from his tenant in connection with settlement of waste or abandoned holding as single non-recurring premia. The zamindar granted leases of waste lands or previously abandoned holdings for the purpose of cultivation for periods which were not fixed. At the time of settlement a salami was charged and the rate of rent fixed. The rate of rent so fixed is seldom changed. The amount of salami charged varied according to demand and had no relation to the rate of rent. The salami, however, were not based upon any idea of damage done to the land. It will appear from the returns field that the zamindars received considerable sums from salami formed a normal and regular feature of the zamindars receipts from the agricultural lands in his estate. Such salamis were held to be agricultural income and not capital receipt in Birendra Kishore v. Secretary of State and Jyotindra Narayan v. Province of Assam.
Jyotindra Narayan was the assessee in 49 C.W.N. 472. He is one of the assessess in the reference before us. He was assessed to income-tax under the Assam Act on an item of Rs. 9,331-9-4, received by him as salami for settlement of waste land or abandoned holding at the time of the assessment in 1941-42. On his application two points of law were referred to the Calcutta High Court. These wer : (1) Whether salami received for settlement of agricultural holdings where the rate of annual rent reserved for such holdings is uniform and where the salami is taken once in the period of the occupation by a particular tenant but where the period of occupation is not ascertainable as no written leases are given is agricultural income and (2) Whether in view of the facts and circumstances of the case, the sum of Rs. 7,934 received by the assessee as salami for settlement of agricultural holdings is agricultural income within the meaning of Section 2(a)(1) of the said Assam Agricultural Income-tax Act ?
The answer to these questions were in the affirmative. The reasons for the answers were that the leases were relatively for small areas of land for the purposes of cultivation for periods which were not fixed. It also appeared to the learned Judges that the holdings so granted were at times abandoned. They could be let out again and the salamis could be charged. They were not based on any idea of damage done to the land. The amount varied according to the demand for the land. The rent in the case of these holdings was a fixed figure but the salami varied according to demand. The learned Judges also referred to the receipts of the assessee under this head for about three years and came to the conclusion that salamis received were a normal and regular feature of the zamindars receipts from his estate which comprised a considerable area of agricultural land.
The assessee appealed to the Federal Court. The appeal succeeded. The order of the Calcutta High Court was set aside by order dated May 16, 1949, in Civ. App. No. 30 of the 1948 not so far reported. In the view on their lordships of the Federal Court, the material on the record was insufficient for the High Court to return an answer to the questions referred to it. The case was, therefore, sent back with the direction that the reference be disposed of after obtaining from the Member, Assam Board of Agricultural Income-tax, a fuller statement of facts bearing on the nature of the salami receipts as indicated by questions specifically mentioned in the order of remand. These were as follow : (1) The number of settlements of waste lands and abandoned holdings during the accounting year and the maximum and the minimum extents settled and salami received. (2) Does the salami vary with the quality of the land, the facilities for irrigation and such other favourable factors (3) How many tenants were ejected under Section 69 during the accounting year and how long they had been in occupation before such evacuation (4) Is salami received when the lands are re-let after evacuation (5) Is the salami that is paid in the zamindary of the assessee in the nature of a "present" given by the tenant to the landlord for his permission to occupy the land, or whether it is in substance a premium payable by a lessee at the inception of the tenancy ?
In delivering the judgement of the Court, the learned Chief Justice observed as follow :-
"In my opinion, the difficulty bin deciding the question has arisen because the word salami had not a fixed or definite meaning. Because the lessor chooses to describe a receipt as salami, I do not think, in law, it is exempt from taxation. The nature of receipt has to be ascertained in each case and it is the duty of the Income-tax Officer to determine if the receipts amounts to income with the well recognised principals of law describing that word. I do not think because the word salami is used, in respect of a receipt, it is necessarily a receipt of a capital nature or is income liable to tax. As the authorities referred to in the above-mentioned three decisions show, the nature of a receipt described as salami in each has to be determined as a fact. I am unable to hold that the receipt described as salami, if nothing more is stated in respect of it, must be treated as a capital receipt equally so because a receipt is described as salami, it will be an error to treat is income and to assess it as such."
Mahajan, J., summed up the position as regards salami thu :-
"The question whether salami is in the nature of a capital receipt or is income depends on the facts and circumstances of each case and cannot be decided as a mere matter of law. The latest decision on the subject is in Bir Bikram Kishore v. Province of Assam. After giving a resume of the earlier cases on the subject it was said that it was impossible to give transactions the amount returned as salami was received. In my view the circumstances of the present case are similar to the case cited above and a similar solution of the problem would meet the end of justice."
The learned counsel for the assessees has urged that the position in the present case is exactly the same as it was in the case before their Lordships of the Federal Court. The orders of reference do not contain a complete and comprehensive statement of facts of the case and it is not possible for the Court on the material now available to determine whether the salami received in question could be treated as income or capital. The decision of the question depends on the facts and circumstances of each case. According to the decision of their Lordships of the Federal Court, salami cannot be treated either as capital or as income unless the nature of the restates itself is determined as a fact. He urges, therefore, that a fuller statement of facts on the lines indicated in the order of their Lordships of the Federal Court be obtained from the Member, Board of Assam Agricultural Income-tax, and questions (3) and (4) be decided after facts necessary for the determination of question (3) are made available to the Court.
The learned Advocate-General concedes that the statement of facts now available on the record is not complete and a supplementary statement is necessary before question (3) could be answered. He, therefore, agrees to the remand of the case to the Member, Assam Board of Agricultural Income-tax, as proposed by the Mr. Ghose, the learned counsel for the assessees.
We think the counsel for the parties are correct in their view. It seems to us that references made to us in this case do not bring out anything more than what was stated in the reference to the Calcutta High Court in Jyotindra Narayan Sinhas case (2) which arose out of the assessment for the year 1941-42. In any case it is obvious that the information which their Lordships of the Federal Court considered necessary for the decision whether receipts in a particular case constitute income or capital receipts is admittedly not before us. The learned counsel for the parties are agreed on this point. It is also clear that further inquiry into the facts bearing on the nature of these receipts in each case on the line indicated in the judgement of the Federal Court is necessary in order that an adequate statement of facts be furnished to this Court to enable it to determine the question, the material now available not being sufficient for the purpose.
We, therefore, direct that references 1 to 9 be referred back to the Member, Assam Board of Agricultural Income-tax, for furnishing us with as fuller statement of the case in the light of the judgment of their Lordships of the Federal Court after collecting necessary material on the five questions specifically stated in the order of that Court and also on the question (6) given below which is now added to that list by this order.
Question (6) which is added at the request of the learned Advocate General is as follow :-
"What amount, if any, has been received as salami by the assessee in each accounting year by the settlement of waste lands ?"
Question (4) contained in the references before us about collection charges is connected with question (3). In case it is ultimately found that receipts by way of salami are not taxable as agricultural income, the determination of question (4) would not be necessary. In these circumstances, it is advisable to defer its consideration till a fuller statement bearing on question (3) is received.
Reference No. 1 arises from the two assessments for the years 1947-48 and 1948-49 in the case of Jyotirindra Narayan Sinha Choudhury. Only three questions were referred to the Court in this reference. The question whether the amounts received by the assessee as salami for settlement of agricultural holdings is agricultural income was not included in the reference. Though the order of reference in his case does not clearly say so, it appears that this question was not included in the reference as the Calcutta High Court had decided on a reference arising from the assessment of 1941-42 in the case of this assessee that the salami receipts were income and were liable to taxation. The learned counsel for the assessees has now shown that the decision of the Calcutta High Court has been reversed and the question whether salami receipts of the year 1941-42 in the case of this assessee were income or not is still an open one. The question, therefore, he urged should have been included in Reference No. 1 also. The learned Advocate-General agrees and does not object to a direction to the Member, Assam Board of Agricultural Income-tax, to refer this question to the Court under Section 28(3) of the Assam Agricultural Income-tax Act.
We, therefore, direct under Section 28, clause (3), of the Assam Agricultural Income-tax Act that when sending a fuller statement of the case with respect to question (3) as regards the nature of the salami receipts, the question should be included in Reference No. 1 arising out of the assessments of Jyotirindra Narayan Sinha Choudhury.
There remains one more question to be answered. This is contained in Reference No. 8 above. This question is as follow :-
"Whether the amount paid to the ladies mentioned in para. 11 of the petition for reference under the will of the late Raja P. C. Barua and charged on Lakheraj Srijangram (Touzi No. 34 of Goalpara Collectorate) should be deducted from the agricultural income of the petitioners ?"
Permissible deductions are enumerated in Section 7 of the Assam Act. Clause (m) of Section 7 provides that the assessable income shall be subject to "such other deduction on account of depreciation or any other cause as may be prescribed by rules under Section 50."
Rule 2, clause (1), Assam Agricultural Income-tax Rules, 1939, describes deductions provided under clause (m) of Section 7 in addition to the deductions specifically allowed under Section 7 of the Act. Under sub-clause (5) of Rule maintenance allowance paid to a widow if it forms a charge on the estate is a permissible deduction. It is admitted that annuities in question are being paid not to widows but to the wives of existing proprietors. The deduction permitted is only on account of maintenance paid to a widow if the allowance is a charge on the estate. The annuities, which are being paid to wives, under the will of late Raja P. C. Barua, therefore, are obviously not covered by Rule 2(1)(v) as found by the Income-tax authorities.
The learned counsel has not contended for obvious reasons that a widow in the rule would include a wife. The only possible answer to the question, therefore, is that the amount paid to the ladies under the will of the late Raja P. C. Barua though charged on Lakheraj Srijangram shall not be deducted from the agricultural income of the petitioner. The answer to the question is in the negative.
Our answers to the questions are as follow : (1) That the amounts realised by petitioner in each case from sale of Sal trees are revenue receipts. (2) Being revenue receipts they can be regarded as agricultural income within the meaning of Section 2(a) of the Assam Agricultural Income-tax Act, 1939.
The consideration of questions (3) and (4) is deferred till a fuller statement of facts bearing on the point involved in question (3) is received.
The answer to question (5) in Reference No. 8 is in the negative.
THADANI, C.J. - I agree.
Reference answered accordingly.