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Commissioner of Income-tax, Bombay City-iii Vs. Rajkumar Ashok Pal Singh - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 30 of 1966
Judge
Reported in[1977]109ITR581(Bom)
ActsIndian Income-tax Act, 1922 - Sections 3, 4 and 66(1)
AppellantCommissioner of Income-tax, Bombay City-iii
RespondentRajkumar Ashok Pal Singh
Excerpt:
direct taxation - revenue receipt - sections 3, 4 and 66 (1) of indian income-tax act, 1922 - entire sale proceeds of trees spontaneously grown on forest land will have to be regarded as revenue receipts in hands of assessee and liable to tax - on facts and circumstances of case no part of receipts on account of sale of forest trees could be excluded from assessee's total income. - - commissioner of agricultural income-tax [1970]78itr58(sc) and the principles which are to be applied for determination of such question have been clearly indicated in those two decisions. it was further urged on behalf of the revenue that it was well-settled that the income from the trees which grew spontaneously on the land shall not be agricultural income and it was also well-settled that the income.....tulzapurkar, j.1. the question that has been referred to us by the tribunal under section 66 (1) of the indian income-tax act, 1922, at the instance of the commissioner of income-tax, bombay city-iii, bombay, runs as follows : 'whether, on the facts and in the circumstances of the case, the whole or any part of the receipts on account of sale of forest trees could be excluded from the assessee's total income on the ground that they constituted capital receipts not liable to tax ?' 2. the question relates to the assessment years 1955-56 to 1959-60 and the corresponding previous years are the financial years ending on march 31, 1955, march 31, 1956, march 31, 1957, march 31, 1958, and march 31, 1959, respectively. 3. the facts giving rise to the question lie in a very narrow compass. the.....
Judgment:

Tulzapurkar, J.

1. The question that has been referred to us by the Tribunal under section 66 (1) of the Indian Income-tax Act, 1922, at the instance of the Commissioner of Income-tax, Bombay City-III, Bombay, runs as follows :

'Whether, on the facts and in the circumstances of the case, the whole or any part of the receipts on account of sale of forest trees could be excluded from the assessee's total income on the ground that they constituted capital receipts not liable to tax ?'

2. The question relates to the assessment years 1955-56 to 1959-60 and the corresponding previous years are the financial years ending on March 31, 1955, March 31, 1956, March 31, 1957, March 31, 1958, and March 31, 1959, respectively.

3. The facts giving rise to the question lie in a very narrow compass. The assessee, a member of the former ruling family of Mandi, is an individual whose main sources of income are a tea estate, a jagir in Punjab and a forest. It appears that in S. Y. 2002, i.e., in 1944, His Highness the Raja of Mandi, conferred a jagir in agricultural land and in forest area in perpetuity on his son, Shri Rajkumar Ashok Pal Singh Ji, the assessee. Under the terms of the grant, the assessee and his legitimate heirs and successors were to remain in possession and enjoyment of the gifted properties in perpetuity and they were to hold the same free from payment of land revenue. It was to be an inalienable and impartible estate governed by the rule of primogeniture. The assessee realised the following amounts by sale of forest trees during the accounting years relevant to the assessment years in question :

Assessment years Gross receipts Net receiptsRs. Rs.1955-56 28,336 19,5721956-57 41,046 36,7361957-58 26,052 17,6121958-59 21,883 18,0301959-60 11,548 8,839

4. The forest trees were admittedly of spontaneous growth and no human labour or skill or any basic operations were applied to help their growth.

5. The assessee claimed that the amounts in question received by way of sale of forest trees were not liable to tax on two grounds : (1) that they were capital receipts; and (2) that they represented agricultural income. The Income-tax Officer rejected the claim for all the years. He took the view that the assessee derived income from the sale of forest trees and from contract for the extraction of resin from the forest trees and hence there was no question of receipts being capital receipts and that in view of the decision of the Supreme Court in the case of Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy : [1957]32ITR466(SC) the income was not agricultural income. The assessee preferred appeals to the Appellate Assistant Commissioner who confirmed the orders passed by the Income-tax Officer. The assessee carried the matter further in second appeal to the Tribunal and it was contended on his behalf that the forest was received as a gift from his father in S. Y. 2002 and that he had merely sold trees of spontaneous growth and thereby merely realised a portion of the gift which was the capital asset of the assessee and that he never intended to carry on the business of growing and selling the trees and, therefore, the receipts of sale of trees were capital receipts. The Tribunal took the view that at the time when the assessee got into possession of the forest lands they constituted capital assets in his hands, and that there was no evidence on record to show that the trees which were sold were the same which were standing at the time when the gift was made nor was there any evidence to show that it took nearly 40 years for the trees to mature. It was further of the view that since the date of the gift there had been vast spontaneous growth of trees in the forest and it had become a source of income to the assessee and, therefore, it would be reasonable to apportion the receipts between capital and revenue, 1/3rd of the net receipts being treated as of capital nature and the rest as of revenue nature. In making this apportionment it appears that the Tribunal relied upon its earlier decision in the case of H. H. Maharajasaheb Digvirendrasinghji I, Solanji of Bansda (I.T.A. No. 7997 of 1956-57) wherein a part of such receipts was taken as attributable to realisation of capital asset. The Commissioner of Income-tax feeling aggrieved by the apportionment of receipts in the proportion of 1/3rd being in the nature of capital receipt and 2/3rds being in the nature of revenue receipt applied to the Tribunal for a reference restricting the reference to the finding of the Tribunal that 1/3rd of the proceeds of the sale of forest trees was of capital receipt not liable to tax and he desired that the question as to whether the Tribunal has misdirected itself in law in holding that 1/3rd of the proceeds of the sale of forest trees were not liable to tax should be referred to this court. But the assessee, on the other hand, feeling aggrieved by the Tribunal's finding that 2/3rds of the net receipts were of a revenue nature applied to the Tribunal for a reference confining it to that part of the claim which was rejected by the Tribunal. Ultimately, that Tribunal has referred the question set out at the commencement of the judgment for our opinion.

6. Mr. Joshi, appearing for the revenue, has contended before us that having regard to the admitted facts which obtained in the case that the assessee after getting into possession of the forest had indulged in the activity of selling forest trees year after year, the assessee having treated the receipts from the sale of such forest trees as an income in his books of accounts and the assessee having claimed certain expenditure as and by way of deduction incurred during the aforesaid activity of selling trees and realising the sale proceeds thereof, the Tribunal was in error in coming to the conclusion that the receipts should be apportioned between capital and revenue and further erred in treating 1/3rd of the net receipts as being of capital nature and only the balance as of revenue nature. He pointed out that the question as to whether the income received from the sale of forest trees grown spontaneously in forest land was taxable or not had come up for consideration before this court in the case of Commissioner of Income-tax v. N. T. Patwardhan : [1961]41ITR313(Bom) , and before the Supreme Court in the case of Vishnudatta Antharjanam v. Commissioner of Agricultural Income-tax : [1970]78ITR58(SC) and the principles which are to be applied for determination of such question have been clearly indicated in those two decisions. In N. T. Patwardhan's case : [1961]41ITR313(Bom) , the facts were these. On the grass lands of the area of 10 sq. miles belonging to the assessee, stood for many years a large number of trees which had grown spontaneously. In the accounting year 1948-49, he sold all these trees by four auctions with a condition that the trees were to be removed with their roots. The purchase price was payable in a lump sum, but was realised by instalments over a period of time so as to suit the convenience of the purchasers. In the accounting years relevant to the assessment years 1951-52, 1952-53 and 1953-54, the assessee realised the sums of Rs. 53,490, Rs. 34,176 and Rs. 7,475 towards the sale proceeds. The Appellate Tribunal held that the amounts so realised by the assessee were merely capital receipts. On a reference, relying upon several earlier decisions including the decision of the Patna High Court in Sir Kameshwar Singh v. Commissioner of Income-tax : [1954]26ITR121(Patna) , a contention was urged that the condition imposed upon the purchaser that he had to uproot the trees sold to him was for the benefit of the vendor and not to his detriment and, therefore, there was no question of diminution of his capital asset and the condition did not in any way alter the real nature of the transaction which was a sale of trees of spontaneous growth. It was further urged on behalf of the revenue that it was well-settled that the income from the trees which grew spontaneously on the land shall not be agricultural income and it was also well-settled that the income from the timber of forest where the trees grew naturally was an income in the nature of revenue. On the facts which obtained in the case though the court took the view that these well settled principles had no application to the facts of the case before it, this court observed that the judicial decisions to which reference was made on behalf of the revenue did not lay down the proposition that in each and every case a sale of a tree or trees growing spontaneously must constitute a sale producing income irrespective of the other facts and circumstances of the case. The court was of the view that whether a sale was a capital sale or a sale producing income must depend upon the facts and circumstances of the case. On the peculiar facts of that case this court took the view that by the sale once for all of the trees with roots, which were the assessee's assets, even though he did not invest any capital in growing them, the capital structure was affected and there was a diminution in his capital assets, and the receipts from the sale of the trees were capital in nature. Mr. Joshi pointed out that because of peculiar facts obtaining in that case, namely that the sale of trees together with the roots thereof had been effected by the assessee once for all which resulted in diminution of the assessee's capital asset, the receipts from the sale of trees together with roots were regarded as capital receipts but otherwise Mr. Joshi emphasised that in the aforesaid decision this court accepted the well-established principle that the income from the timber of forest, where the trees grow naturally, is income in the nature of a revenue.

7. Mr. Joshi further pointed out that the aforesaid decision of this court in Commissioner of Income-tax v. N. T. Patwardhan : [1961]41ITR313(Bom) has been approved by the Supreme Court in the case of A. K. T. K. M. Vishnudatta Antharjanam v. Commissioner of Agricultural Income-tax : [1970]78ITR58(SC) . In this case the facts were that during the accounting periods relevant to the assessment years 1963-64 and 1964-65 the appellant received proceeds of the sale of teak trees which had been planted some time during 1946-47 on certain areas of her land. The trees were cut and completely removed from the land together with their roots for the purpose of planting the areas with rubber, and the court held that the sale of the trees affected the capital structure, because by removing the roots the source from which fresh growth of trees could take place was removed, and the sale could not, therefore, give rise to a revenue receipt and the receipt from the sale of the teak trees was capital in nature. He pointed out that at page 61 of the report, the Bombay High Court decision in N. T. Patwardhan's case : [1961]41ITR313(Bom) has been referred with approval by the Supreme Court. Relying upon these two decisions Mr. Joshi urged that there was nothing on record to show that when the assessee had sold trees in the forest land which was gifted to him by his father the sale of trees was together with roots nor had the assessee placed before the taxing authorities or the Tribunal any material showing the terms and conditions on which he had sold the trees in the relevant assessment years. In other words, according to Mr. Joshi, receipts from the sale of forest trees at the hands of the assessee must be regarded as an income in the nature of revenue and hence the entire receipts were taxable. In that behalf he invited our attention to the decision of the Patna High Court in Sir Kameshwar Singh v. Commissioner of Income-tax : [1954]26ITR121(Patna) . In that case the assessee had leased out Bankura forest by auction on short terms for lump sums and according to the terms of the lease, the lessee was entitled to cut down and remove all sal trees but not those which were more than three feet in girth above three feet from the ground and all other jungle trees other than fruit bearing trees and valuable timber trees; the lessee was further entitled to cut stumps not higher than five inches over ground so that new shoots may grow in rains and in time mature trees were produced. In other words, it was a case where a lease was given by the assessee for the purpose of selling timber in forest. It was conceded during the course of argument the sale proceeds would be income and hence taxable. The court took the view that there was no difference in the two positions; in the one, the assessee sold himself and in the other, for the sake of convenience, he leased out the forest for the purpose of sale by the lessee. The assessee had contended that the sale of forest trees should be treated as sale of capital asset, but that contention was negatived and after considering several earlier decisions, including the decision of the Privy Council, the Patna High Court took the view that the sale of the forest trees, which must necessarily result in exhaustion of the forest, for tax purposes, was income and was taxable.

8. Mr. Joshi has further pointed out that the earlier decision of the Tribunal itself in the case of H. H. Maharajasaheb Digvirendrasinghji I, Solanji of Bansda (I.Y.A. No. 7997 of 1956-57) on the basis of which the Tribunal in the instant case apportioned the receipts into 1/3rd and 2/3rds, the former being of capital nature and the latter being of revenue nature, had been carried to the Gujarat High Court in a reference and the Gujarat High Court decision in that matter has been reported in : [1965]55ITR580(Guj) H. H. Digvirendrasinghji of Bansda v. Commissioner of Income-tax and Mr. Joshi has pointed out that the Gujarat High Court has reversed the view taken by the Tribunal in that case and the Gujarat High Court took the view that the income derived from the sale of forest trees was not capital receipt and was liable to tax, even though there was an exhaustion of capital assets in the shape of valuable and long standing trees. In that reference it was urged on behalf of the assessee that the sale proceeds of the forest trees and produce were capital and not income receipts, that the lands and the trees standing thereon were the subject-matter of the gift in favour of the assessee and that what was sold were, therefore, the capital assets and the sale proceeds, therefore, amounted to conversion of part of the capital assets of the assessee. A further contention was also raised that the Tribunal was in error when it held that out of the amount of Rs. 72,611, trees of the 1/3rd value of it were the original trees while the rest, that is, of the 2/3rds value, were trees which had spontaneously grown since the date of the gift as there was no evidence before the Tribunal which would justify it to apportion the sale proceeds in the ratio of 1/3rd and 2/3rds. The Gujarat High Court observed that it was true that there was no evidence in the shape of any concrete date, such as any inventory of trees, from which the Tribunal could make such an apportionment and there, perhaps, counsel was right to a certain extent but the court went on to observe that what the Tribunal appeared to have done and which it need not have done, was to say that since part of the proceeds of sale must have been from the trees which were the subject-matter of the gift, the assessee should be given the benefit of doubt by a somewhat ad hoc apportionment. From the findings by the Income-tax Officer and confirmed by the Assistant Commissioner, the Tribunal could well have held that the assessee had not chosen to say which part of the trees represented the trees represented the trees that were originally standing on the land and which part represented the trees which had spontaneously grown, and, therefore, in the absence of any such data of the trees sold being the source of income, the entire proceeds were taxable income. At page 584 of the report the specific contention raised on behalf of the assessee has been dealt with by the Gujarat High Court thus-See : [1965]55ITR580(Guj) :

'Nevertheless, Mr. Dwarkadas's point that the entire sale proceeds, whether they were from the trees which originally stood on these lands or whether they were from those that grew spontaneously after the date of the gift, were capital receipts would still remain. In our view, however, there is a fundamental fallacy underlying the contention. There can be no doubt that when these lands together with trees standing thereon were gifted to the assessee, they were so gifted because the trees could be disposed of at some further date and income could be realised therefrom. The trees, therefore, whether those which stood there originally or which grew thereafter, were undoubtedly the source of income and any such income would be taxable income'.

9. Mr. Joshi naturally placed strong reliance on the Gujarat High Court decision and he contended before us that the same ratio could apply with equal force to the facts the instant case. According to Mr. Joshi, the relevant aspect which ought to have been considered by the Tribunal was whether the trees which were sold, irrespective of the question whether the trees originally stood on the land when the same was gifted or subsequently grown thereafter, had been sold by the assessee with roots or not and if the assessee had shown that the sale of trees was together with all their roots, then, perhaps, it would have been right on his part to contend that the receipts of such sales were in the nature of capital receipts but in the absence of any material on this aspect, normally the well-settled principle should apply, namely, that proceeds from the sale of forest trees which activity was indulged in by the assessee from year to year was an income received by the assessee and that the same was taxable. He further stated that undoubtedly the forest had been gifted to the assessee by his father. In other words, the forest land together with trees that were standing thereon as well as those trees which had grown spontaneously thereon should be said to have been the subject-matter of the gift to the assessee from his father but unquestionably such trees which had grown spontaneously on the forest land would be a source of income to the assessee and the sale proceeds of such trees must be regarded as income taxable in the hands of the assessee. He, therefore, urged that the Tribunal was in error in apportioning the receipt of sale proceeds into 1/3rd and 2/3rds and regarding the former in the nature of capital receipts and the latter only as revenue receipts. According to him, the entire sale proceeds should have been regarded as taxable income in the hands of the assessee.

10. On the other hand, Mr. Patil appearing for the assessee has contended that the forest land together with the trees which had spontaneously grown thereon had been gifted to the assessee by his father in the year 1944 and it constituted capital asset in his hands. He further urged that for nearly 7 or 8 years in the beginning nothing was done by the assessee qua the trees standing in that forest and it was only in the accounting years 1954-55, 1955-56, 1956-57, 1957-58 and 1958-59 that the assessee had effected sales of the trees from that forest. He, therefore, urged that the entire sale proceeds of the forest trees should be regarded as realisation of capital asset and that there was no material on record to show that this activity of selling trees from that forest had been undertaken by him as a trading activity or a profit making activity in the nature of any business and as such the entire sale proceeds ought to have been regarded as capital receipts in the hands of the assessee, and, therefore, not taxable. He further contended that the burden of proving that receipts from the sale of forest trees were all of income nature and, therefore, taxable was on the department, for, according to him, it was a well-settled principle that in all cases in which a receipt was sought to be taxed the burden lay upon the department to prove that it is within the taxable section. Strong reliance was placed upon two decisions of the Supreme Court, one in the case of Parimisetti Seetharamamma v. Commissioner of Income-tax : [1965]57ITR532(SC) and the other in the case of Udhavdas Kewalram v. Commissioner of Income-tax : [1967]66ITR462(SC) . He pointed out that in Parimisetti Seetharamamma's case : [1965]57ITR532(SC) , the Supreme Court has clearly laid down that by sections 3 and 4 the Income-tax Act imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. The court has further held that where, however, a receipt is of the nature of income, the burden of proving that it is not taxable, because it falls within an exemption provided by the Act, lies upon the assessee. Mr. Patil has also relied upon the further principle enunciated by the court which has been summarised in the second head-note thus-See : [1965]57ITR532(SC) :

'Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provision'.

11. He has pointed out that this principle has been reiterated by the Supreme Court in the other case. Udhavdas Kewalram v. Commissioner of Income-tax : [1967]66ITR462(SC) , and even this court in the case of Dilip Kumar Roy v. Commissioner of Income-tax : [1974]94ITR1(Bom) has accepted the above principle. He, therefore, urged that in the instant case the only material that has come on record is that the assessee was in receipt of certain sale proceeds of forest trees that had grown spontaneously on the forest land which had been gifted to the assessee by his father and, therefore, the burden lay upon the department to establish that these receipts were taxable receipts, that is to say, these were of income nature, and, therefore, taxable and it was not for the assessee to establish that these receipts were of a capital nature, and, therefore, he urged that in the absence of any material on record, one way or the other-whether the trees had been sold together with roots or not-the department should fail and the assessee must get the benefit of lack of material on record in that behalf and the entire sale proceeds must be held to be capital receipts and, therefore, not taxable. He also placed reliance on two decisions, one of the Kerala High Court in the case of Ambat Echukutty Menon v. Commissioner of Income-tax reported in : [1973]87ITR129(Ker) and the other of the Madras High Court in the case of Commissioner of Income-tax v. M. S. P. Nadar Sons reported in : [1973]87ITR202(Mad) . He pointed out that, in the former case, though the trees had not been sold with the roots and the stumps, the court took the view that the assessee was not engaged in the business of felling timber, and, therefore, the receipts from the sale of trees was not assessable as income. He further pointed out that in the Madras case, Commissioner of Income-tax v. M. S. P. Nadar Sons : [1973]87ITR202(Mad) , the assessee who had purchased 520 acres of forest land had cleared a considerable portion of that land by felling and removing the trees therein so as to facilitate cultivation of coffee, cardamom etc., and in the process of such clearing, 987 sandalwood trees were cut after obtaining permission from the forest officer and were sold realising a net sum of Rs. 55,538 therefrom. The Income-tax Officer treated this as an adventure in the nature of trade and assessed this amount as a revenue receipt rejecting the assessee's contention that it was a casual receipt. The Appellate Assistant Commissioner on appeal held that there was no adventure in the nature of trade and the receipts were of a capital nature and this was confirmed on further appeal by the Tribunal. On a reference at the instance of the department the Madras High Court held that on the peculiar facts of the case it was clear that the assessee did not trade in sandalwood trees and the transaction of cutting and sale of the trees did not amount to an adventure in the nature of trade and, that, therefore, the receipt was of a capital nature and not of a revenue nature. Relying on these two decisions he urged that the aspect whether the trees had been sold together with the roots and stumps or not was merely a relevant factor to be taken into account and was not a decisive factor, and, therefore, according to Mr. Patil, assuming that the burden lay upon the assessee to establish that he had sold the trees together with roots and on which aspect he did not lead any evidence, that aspect should not be regarded as conclusive or decisive of the matter and the question whether the sale proceeds should be regarded as capital receipt or not should be considered on the point of view of whether the activity of selling the forest trees was a trading activity or not and from that point of view he urged that the fact that the forest and the trees growing thereon had been gifted to the assessee by his (assessee's) father should weigh very much with the court and the court should come to the conclusion that the sale proceeds of the trees were of a capital nature and not of a revenue nature.

12. It is undoubtedly true, as has been pointed out by the Supreme Court in Parimisetti Seethramamma's case : [1965]57ITR532(SC) , that though by sections 3 and 4, the Income-tax Act imposes a general liability to tax upon all income, the Act does not provide that whatever is received by a person must be regarded as income liable to tax and in all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision but where a receipt is of the nature of income, the burden of proving that it is not taxable, because it falls within an exemption provided by the Act, lies upon the assessee. However, the question of burden of proof in a given case cannot be considered in isolation but the same has to be considered in the light of facts and circumstances which are obtaining in a given case. As against the principle on which reliance has been placed by Mr. Patil, Mr. Joshi has relied upon another general principle which has been enunciated by the Supreme Court in the case of Kale Khan Mohammad Hanif v. Commissioner of Income-tax reported in : [1963]50ITR1(SC) , where the Supreme Court has observed thus :

'It is well-established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Income-tax Act. In the absence of such proof, the Income-tax Officer is entitled to treat it as taxable income.'

13. As we have stated above, the question of burden of proof cannot be considered in isolation and will have to be considered in the light of facts and circumstances which were obtaining in a given case. The primary fact which has been established in the instant case is that the assessee has received proceeds from sale of forest trees which had grown spontaneously on the forest land which has been gifted to him by his father. In other words, the source of monies which the assessee had received has been clearly indicated, namely, that those monies were the sale proceeds of the forest trees which were sold by the assessee in the relevant assessment years. The other circumstances which have clearly come on record are that, admittedly, the trees which were sold by him had spontaneously grown on the forest land and there was no question of any human labour or skill being applied for the purpose of rearing the growth of the trees. The further fact is that these receipts have been shown by the assessee himself in his books of accounts as income received from the sale of trees. It will appear clear from the several assessment orders which have been passed by the Income-tax Officer for all the relevant assessment years that the assessee has shown these net sale proceeds in his profit and loss account. Further, in the books in regard to these sales that were effected the assessee has shown gross receipts as well as net receipts. In other words, he has debited and also claimed certain expenditure in the matter of realisation of these sale proceeds of forest trees which he had sold. There is the further fact that the forest land which contained these trees which had spontaneously grown thereon having been gifted by the father to his son (assessee), the assessee could be said to have come in possession of the source of income and it does appear from the record that he has exploited the source of income by indulging in selling of these trees year after year for about five years which are the subject-matter of the present reference. It is in the light of these facts which appear clear on record that the question of burden of proof will have to be considered and, in our view, having regard to the manner in which the activity of selling trees was indulged in by the assessee, having regard to the manner in which the accounts were maintained by the assessee in respect of this particular source of income and having regard to the way in which he has claimed expenditure which he had incurred year after year pertaining to the forest trees, it was reasonable for the taxing authorities to draw an inference that the initial burden that the sale proceeds of the trees were income in the hands of the assessee could be said to have been discharged, and, therefore, it was for the assessee to explain how he could claim these receipts as capital assets which of course he could have shown by pointing out that the trees in question had been sold together with roots and stumps which had resulted in diminution of capital asset in his hands but nothing of the kind was done by the assessee. In the absence of any material being brought on record by the assessee indicating how receipts could be treated as capital asset, it was perfectly open to the taxing authorities to come to the conclusion that the receipts were by way of income, and, therefore taxable in the hands of the assessee. The Tribunal has proceeded to apportion the total receipts of each year into 1/3rd and 2/3ds, the former being regarded as capital receipt and the latter being regarded as of revenue nature on ad hoc basis on the assumption that some of the trees which had been sold must have been in existence when the gift was made by the father of the assessee to him (assessee) while the rest might have grown spontaneously in the forest after the assessee had entered into possession of the forest land. In our view, the aspect as to whether some of the trees were already standing on the forest land at the time when the gift was made to the assessee by his father and whether some other trees had grown spontaneously after the assessee had entered into possession of the forest land was really beside the point. If at all, the relevant factor that was to be taken into account by the Tribunal was which of the trees had been sold together with roots and stumps and if there was any material giving any indication of that aspect of the matter, any apportionment would have been justified. In the absence of any such material being available on record, it is not possible for us to sustain the apportionment that had been done by the Tribunal. We are inclined to accept the contention of Mr. Patil that the aspect whether the forest trees had been sold together with roots or not cannot be regarded as decisive matter but would be a relevant factor to be taken into account. But, as we have indicated, on this aspect of the matter there is no material on record, one way or the other, but having regard to several factors which we have indicated above, it is difficult to accept Mr. Patil's contention that the activity of selling trees which was indulged in by the assessee was merely by way of realising his capital asset which he had received from his father, the manner in which the activity was indulged in successively year after year for a period of five years under consideration, the manner in which the accounts in respect thereof were maintained in his books, the way in which the expenditure was claimed by the assessee in respect of the activity of selling trees and above all, carrying net receipts from these sales to the profit and loss account would clearly go to show that even the assessee himself had treated these sale proceeds as income in his hands and, therefore, if he wanted to show that these receipts were in the nature of capital receipts, it was up to him to prove the same which could have sustained his claim. Not having done so. we are clearly of the view that the entire sale proceeds which have been shown by the assessee in his books of account will have to be regarded as income in his hands, and, therefore, taxable under the provisions of the Income-tax Act.

14. The two decisions on which reliance was placed by Mr. Patil one of the Kerala High Court in Ambat Echukutty Menon v. Commissioner of Income-tax : [1973]87ITR129(Ker) and the other of the Madras High Court in Commissioner of Income-tax v. M. S. P. Nadar Sons : [1973]87ITR202(Mad) -are clearly distinguishable on facts. It is true that in the former case though the trees were not sold with the roots and the stumps, the Kerala High Court took the view that the assessee was not engaged in the business of felling timber and, therefore, the receipts from the sale of trees was not assessable as income. The court really addressed itself to the principal question as to whether the activity of selling the trees which has spontaneously grown on the land which had been purchased by the assessee in a court auction in 1905 was really a trade activity or not and it was found as a fact by the court that the clause in the sale deed prohibiting the purchaser from removing the tree stumps had been introduced in order to prevent the purchaser from leaving deep holes in the land and not for purposes of regeneration of the trees. In other words, the removal of trees together with the stumps was not looked at from the point of view of diminution or exhaustion of the capital asset as such but non-removal of the stumps and the roots was regarded as having been insisted upon so that the paddy operations which the assessee wanted to undertake could be undertaken without any damage and with all facilities. The Kerala High Court has categorically observed that the assessee's idea was to convert the land for agricultural use and in order to facilitate those operations the stumps of the trees were not allowed to be cut so that deep holes in the land should not be left. The court took the view that felling of timber was not by way of any business activity undertaken by the assessee. So far as the other case is concerned, the Madras High Court has clearly observed that the sole aim of the assessee was to extend his plantation and he had no intention to keep the forest land as such and receive income therefrom and, as a matter of fact, by cutting and the sale of the sandalwood trees the assessee had recovered a part of capital which he had invested and that, therefore, in the special circumstances of the case, the court took the view that the receipt by way of sale proceeds of sandalwood was in the nature of a capital and not in the nature of a revenue. In our view, therefore, both these cases are clearly distinguishable on facts and do not assist Mr. Patil in furtherance of his contention.

15. Having regard to the above discussion, we are clearly of the view that the entire sale proceeds of the trees that had spontaneously grown on the forest land will have to be regarded as revenue receipts in the hands of the assessee and, in this view of the matter, the question will have to be answered thus : On the facts and in the circumstances of the case, no part of the receipts on account of sale of forest trees could be excluded from the assessee's total income.

16. The assessee will pay the costs of the reference to the revenue.


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