Skip to content


Bombay Burmah Trading Corporation Ltd. Vs. Commissioner of Income-tax, Bombay City-ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 111 of 1963
Judge
Reported in[1971]81ITR777(Bom)
ActsIncome Tax Act, 1922 - Sections 10 and 10(2)
AppellantBombay Burmah Trading Corporation Ltd.
RespondentCommissioner of Income-tax, Bombay City-ii
Appellant AdvocateF.N. Kaka, Adv.
Respondent AdvocateR.J. Joshi, Adv.
Excerpt:
direct taxation - capital asset - sections 10 and 10 (2) of income tax act, 1922 - whether forest leases are acquisition of source of income thereby constituting capital asset - forest leases were transactions by assessee for acquiring benefit of enduring and lasting duration - assessee-company had the necessity of obtaining forest leases to get timber for ultimate sale in its business - transactions essentially made for acquiring source of income -forest lease must held to be capital asset. - - (2) 2,946 tons against depreciable assets like land and buildings, launches, furnitures and stores. (3) 12,067 tons against livestock like elephants, etc. 1,41,156 was liable to tax under the second proviso to section 10(2) (vii) of the income-tax act, and whether there was any evidence that.....k.k. desai, j.1. this consolidated reference under section 66(1) of the indian income-tax act, 1922, arises out of these separate orders of the income-tax appellate tribunal, the first two dated november 17, 1962, and the third dated november 19, 1962. the above three orders relate, respectively, to the assessment years 1950-51, 1951-52 and 1953-54, the accounting years, respectively, ending with may 31, 1950, may 31, 1951, and may 31, 1953. 2. the question of law arising for decision in respect of each of the above assessment years are mentioned at paragraph 13 of the statement of the case and it is convenient to mention them after relating some of the relevant facts. 3. the facts appear in the regard statement of the case. the facts which must be stated as introductory facts are as.....
Judgment:

K.K. Desai, J.

1. This consolidated reference under section 66(1) of the Indian Income-tax Act, 1922, arises out of these separate orders of the Income-tax Appellate Tribunal, the first two dated November 17, 1962, and the third dated November 19, 1962. The above three orders relate, respectively, to the assessment years 1950-51, 1951-52 and 1953-54, the accounting years, respectively, ending with May 31, 1950, May 31, 1951, and May 31, 1953.

2. The question of law arising for decision in respect of each of the above assessment years are mentioned at paragraph 13 of the statement of the case and it is convenient to mention them after relating some of the relevant facts.

3. The facts appear in the regard statement of the case. The facts which must be stated as introductory facts are as follows :

The assessee is a public limited company, limited by shares. It derives income from several sources including certain business operations. These operations are carried out in India and abroad and used to be carried out, inter alia, at Burma and Siam. The assessee-company carried on business in Burma from 1862 onwards. In connection with its business of selling timber, the assessee-company had to make contracts which are mentioned in the above orders of the Appellate Tribunal as 'forest leases' with the Government of Burma. In the year of account ending on May 31, 1950, the assessee-company was the owner of about 15 forest leases. A copy of the forest lease dated October 28, 1925, is annexure 'A' to the statement of the case. The agreed position between the parties is that all the other forest leases contained provisions and clauses exactly similar to the above specimen copy dated October 28, 1925. In connection with the arguments advanced in this reference, several of the provisions and the clauses in the forest leases will have to be noticed in detail. At this stage, it is sufficient to state that the forest leases were for the duration of 15 years and in respect of extremely large areas. Under these leases, the assessee-company was authorised to fell the teak trees and convert them into logs and, upon completion of the extraction thereof, to remove the logs after payment of royalty to the Government of Burma for its own purposes. Clause 27 in these lease authorised the assessee-company even after the expiry of the period of the 15 years of the lease to remove the logs in respect whereof extraction had been completed upon payment of royalty. The period for such removal under clause 27 was fixed at three years after the expiry of the lease period mentioned in clause 4. These leases contained renewal clauses. The forest leases of the ownership of the assessee-company did not commence on the same date and related to different parts of the forests in Burma. These leases were first made in 1862, and had been continuously renewed from time to time. Five business organisation similar to the assessee-company were obtaining forest leases from the Government of Burma for their business in timber. Before the period of 15 years mentioned in these leases expired, the Second World War started and the Japanese army overran Burma. The then Government of Burma then extended the periods of the current leases until such time as it became possible to resume forest operations and for such further periods as might be required for settlement of the new forest leases to be executed between these business organisation and the Government. Upon termination of the hostilities, in connection with the resumption of the forest operations, the Government made provisional arrangement in terms of what is referred to in paragraph 7 of the statement of the case as 'weight agreement'. Forest exploitation was nationalised in Burma. The Union of Burma came into existence on January 4, 1948. Under section 44(2) of the Constitution of Burma, there was a directive for nationalization, inter alia, of the forest exploitations. Correspondence took place, inter alia, between five European companies who were exploiting forests in Burma under the various leases and the Government in connection with the taking over of the forest exploitation by the Government of Burma. Reference has been made to that correspondence in the arguments advanced in this reference and it will be convenient to refer to the relevant correspondence whilst dealing with such arguments. On June 1, 1948, a third of the total teak area mentioned in the 15 forest leases of the ownership of the assessee-company was taken over by the Government of Burma. Forest exploitation in respect of the rest of the 2/3rds area was also taken over by the Government on or about June 10, 1949. In that connection, certain correspondence had been addressed by the assessee-company to the Government. The union of Burma on the one hand and the assessee-company and Steel Brothers & Company Ltd. on the other executed on agreement dated June 10, 1949, on the footing that the forest leases hand been already terminated. A copy of this agreement forms part of annexure. 'H' to the statement of the case. This agreement provides for making over by the assessee-company to the President of the Government of Burma of the assessee-company's 'residuary rights' under the forest leases together with the non-duty paid logs wherever found and also for making over of all the assets pertaining to the forest leases, viz., headquarters, elephants, cattle, stores, buildings, dwelling houses, motor transport, tractors, launches, etc., and for certain other incidental matters. The agreement provides for handing over by the President of the Government of Burma to the assessee-company of 50,000 tons of teak logs of the specified qualities mentioned in clause 7 of the agreement. There is no dispute between the parties that in pursuance of the agreement the assessee-company made over to the Government of Burma the assets mentioned in clause 1 of the agreement. There is no dispute that in pursuance of the agreement the Government of Burma handed over (delivered) in all 43,860 tons of logs to the assessee-company. There is no dispute that these 43,860 tons of logs were delivered against three kinds of assets in the following specified quantities :

(1) 28,847 tons against non-duty paid logs handed over by the assessee-company to the Government.

(2) 2,946 tons against depreciable assets like land and buildings, launches, furnitures and stores.

(3) 12,067 tons against livestock like elephants, etc.

4. The account of these 43,860 tons of logs delivered by the Government was maintained by the assessee-company in what is described in the Income-tax Officer's report as 'Burma forests assets realisation reserve account.' These 43,860 tons of logs were sold off by the assessee-company from time to time in the accounting years 1949, 1950, 1951, and 1952. The aggregate sale proceeds during the above four years came to Rs. 1,35,55,611 as appears from the assessment order, copy whereof is annexure 'K' to the statement of the case. In connection with these sale proceeds, the Income-tax Officer stated that, as the receipts and sales of logs had taken place over a period of four years, the amount realised had to be allocated amongst the various years. He further stated that the basis of the allocations was agreed to by the assessee. He proceeded to make the allocation on the footing that the assessee had incurred costs for getting delivery of these logs at the rate of Rs. 225 per ton on June 10, 1949. He then considered the proceeds realised and made the allocations for the assessment years 1950-51 and 1951-52 in the manner appearing in paragraph 9 of the statement of the case. Upon allocation made in the above manner, his finding was that in the year ending May 31, 1950, the assessee had received 18,676 tons of logs. The sale proceeds of Rs. 65,52,153 were received in respect of non-duty paid logs delivered to the assessee-company. The sale proceeds of Rs. 31,980 were received in respect of logs received against the depreciable assets, stores and livestock. For the accounting year ending May 31, 1951, he held that the assessee had received in all 16,299 tons of logs. The sale proceeds of these logs were allocated as follows :

'Rs. 5,78,896 in respect of non-duty paid logs handed over by the assessee-company to the Government. Rs. 2,69,975 in respect of the logs delivered against handing over of depreciable assets, stores and livestock.'

5. The question that arose upon allocations having been made in the above manner was as to whether the receipt of Rs. 65,52,153 in the accounting year ending May 31, 1950, and Rs. 5,78,896 in the accounting year ending May 31, 1951, was exempt from tax as being a receipt of capital nature as contended by the assessee-company. Similarly, the further question which arose was as to whether the sale proceeds amounting to Rs. 31,980 in the accounting year ending May 31, 1950 and Rs. 2,69,975 in the accounting year ending May 31, 1951, in respect of depreciable assets were liable to tax under the Act or were altogether free from such liability. The Income-tax Officer as the Appellate Assistant Commissioner made findings against the assessee-company in connection with these amounts. On behalf of the assessee-company contentions were made before the Appellate Tribunal that the entire receipt and delivery of the 43,860 tons of logs were on capital account. The submission was that the assessee's business of dealing in timber in Burma had got sterilized and the above quantity of logs was received only in respect of the said sterilization or loss of capital asset. In connection with that submission, the Appellate Tribunal held against the assessee-company that the assessee's business had not stopped and there was no question of sterilization of its business. The forest leases owned by the assessee-company had expired and were not bound to be renewed and the 'residuary rights' available to the assessee-company under clause 27 of the forest leases was merely a right to remove the extracted logs within a period of three years from the forest areas. The assessee-company had no interest in land of the forest areas. It observed :

'Though the agreement refers to certain residuary rights under clause 27, ..... there is nothing to show that any compensation was paid in respect of any rights available to the assessee under clause 27 of the lease agreement.'

6. The contention that the realisation were in respect of capital assets was rejected. It further held that the realisations in respect of logs received against depreciable assets, stores and livestock were profits and liable to tax. In calculating the profits it was held that the logs received by the assessee-company were received by it at the cost value of Rs. 225 per ton.

7. Having regard to the findings made by the Tribunal, the following questions are referred to us in this reference. The parties are agreed that the question No. 1 in respect of the assessment years 1950-51 and 1951-52 is elaborated in questions Nos. 2, 3 and 4 in the first assessment year and questions No. 2 and 3 in the next assessment year and that the question No. 1 for these assessment years need not be answered. The questions referred run as follows :

'I. Assessment year 1950-51 :

1. ......

2. Whether, on the facts and in the circumstances of the case, the amount of Rs. 65,52,153 or any part thereof was exempt from tax as being a receipt of a capital nature

3. Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,41,156 was liable to tax under the second proviso to section 10(2) (vii) of the Income-tax Act, and whether there was any evidence that the conditions of the application of that proviso were all satisfied

4. Whether, on the facts and in the circumstances of the case, the amounts of Rs. 5,250, Rs. 1,025 and Rs. 25,705, being the excess realisations over Rs. 225 per ton for logs received in respect of depreciable assets, stores and livestock, respectively, were liable to tax under the Act ?'

'II. Assessment year 1951-52 :

1........

2. Whether, on the facts and in the circumstances of the case, the amount of Rs. 5,18,896 or any part thereof was exempt from tax as being a receipt of a capital nature

3. Whether, on the facts and in the circumstances of the case, the amounts of Rs. 44,407, Rs. 8,639 and Rs. 2,16,929, being the excess realisations over Rs. 225 per ton for logs received in respect of depreciable assets, stores and livestock, respectively, were liable to tax under the Act ?'

8. In connection with these questions, Mr. Kaka for the assessee-company has made the following contentions :

'Under the terms and conditions of the forest leases, the assessee-company had no right, title or interest in the completely extracted logs until they were measured and royalty was paid. In respect of the completely extracted 2,02,000 tons non-duty paid logs which were lying in the forest (lease) areas upon termination of and expiry of the extended period of the leases, the assessee-company had no right, title or interest except the right given to it under clause 27 of the forest leases. The logs were the property of the Government under the leases and continued to remain so. The residual rights in respect of these 2,02,000 tons of logs were completely and wholly destroyed because of the nationalisation of the forest operations in Burma. Even so, correspondence was addressed by the assessee-company about its right to those logs under clause 27. The ultimate result was the agreement dated June 10, 1949. The agreement was that the assessee-company agreed to hand over its residuary rights under clause 27 and all the relevant assets to the Government. The forest leases of the ownership of the assessee-company were all and singular capital assets. These forest leases were made for obtaining source of income and were not in the nature of any trading agreements. The provision in clause 27 regarding 'residuary rights' was incidental to the acquisition of the source of income, i.e., the forest leases. The forest leases being capital assets, these incidental rights under clause 27 were also of the nature of capital assets. The compensation if any paid in respect of the loss of these rights accordingly would be on capital account.'

9. In this connection, he particularly relied upon the contents of the agreement dated June 10, 1949, and submitted that, on a true construction of this agreement, it was clear that the assessee-company had under the agreement delivered up its three years' option of acquiring the ownership of the extracted logs to be Government along with all the other assets that the assessee-company had owned in connection with the forest operations under the forest leases of its ownership. The 43,860 tons of logs delivered to the assessee-company in connection with the handing over of the residuary rights under clause 27 and the assets was accordingly in respect of capital assets and accordingly on capital account.

10. His second submission was that delivery of the 43,860 tons of logs was an entire single consideration in respect of all the rights that the assessee-company had under the forest leases at the date of the agreement dated June 10, 1949. The provision in clause 10 of the agreement that a certain quantity of logs was being delivered by the Government in respect of the residuary rights and a certain quantity was being delivered in respect of the other assets was for determination of the manner of handing over of the logs by the Government and for determining the time when the same was to be done. This provision in clause 10 could not justify splitting up of the compensation agreed to be paid by delivery of the 43,860 tons. His submission was that since the entire consideration was for all these surviving would be on capital account. The delivery of the 43,860 tons of longs had the nature of slump price for transfer of the entire business of the assessee-company to the Government as a going concern. On these facts, the question of income and profits from the transaction mentioned above did not arise. He relied upon the decision in the case of Commissioner of Income-tax v. Mugneeram Bangur & Co., in support of his contention that when slump price is paid for transfer of an entire business the price paid must be held to be capital receipt.

11. In connection with his first submission mentioned above, her relied upon the decisions in the case of Commissioner of Income-tax v. Vazir Sultan & Sons and P. H. Divecha v. Commissioner of Income-tax,

12. In reply, Mr. Joshi for the revenue contended that the forest leases granted to the assessee-company were trading agreements made by it in the ordinary course of business and did not constitute the assessee's capital assets or profit-making apparatus. He emphasised that in connection with its timber business the assessee-company had made the forest leases with the Government of Burma continuously from time to time from 1862 onwards. In his submission, the repeated necessary of these agreements for the timber business of the assessee-company clearly indicated that the forest lease were agreements to acquire for a number of years raw materials and/or stock-in-trade. In this connection, he relied upon the decision of the Privy Council in the case of Mohanlal Hargovind v. Commissioner of Income-tax, and argued that agreements for removal of forest produce for the purpose of the ordinary business of an assessee must be held to be on revenue account. Such agreements were not purchase and/or acquisition of a capital asset or source of income. In his submission, on a true construction, the agreement dated June 10, 1949, provided for adjustment of the rights arising to the assessee-company under trading agreements of forest leases made in the ordinary course of business. Delivery of the 43,860 tons of logs was merely towards adjustment of the trading rights acquired by the assessee-company under clause 27. The delivery of logs by the Government to the assessee-company was accordingly on revenue account. The agreement had not the effect of sterilizing and/or damaging and/or affecting in any manner the business structure of the assessee-company. The first contention of the assessee-company should not, therefore, be accepted. In support of this submission, he referred to the decision in the case of Commissioner of Income-tax v. Rai Bahadur Jairam Valji. His further submission was that even if the forest leases like the specimen lease dated October 28, 1925, are held to be capital assets, the delivery of the 43,860 tons of logs cannot be held as capital receipt. The submission was that the periods mentioned in the result was that the profit-making apparatus that was obtained under the forest leases by the assessee-company had come to an end when the agreement dated June 10, 1949, was made. The residuary rights under clause 27 of the forest leases were towards enabling the assessee-company to take away non-duty paid 1,02,000 tons of logs upon payment of duty from the forest areas. These logs were stock-in-trade for the timber business of the assessee-company. He emphasised that all the 2,02,000 tons of logs had been completely extracted and had only remained to be removed by the assessee-company from these areas upon payment of royalty. The extraction having been completed, this quantity of 2,02,000 tons of logs would be stock-in-trade for the timber business of the assessee-company. Towards adjustment of the rights of the assessee-company of removal of these logs, after payment of royalty, the assessee-company had received delivery of a part of the above 43,860 tons of logs. The agreement dated June 10, 1949, accordingly was not for termination of any source of income or profit-making apparatus obtained by the assessee-company. He, therefore, submitted that the logs delivered to the assessee-company for adjustment of the residuary rights under clause 27 should be held to be on revenue account. In support of his submission, he relied upon the decision in the cases of Senairam Doongarmall v. Commissioner of Income-tax; and Hood Barrs v. Commissioner of Inland Revenue (No. 2).

13. It is first necessary in connection with these rival contentions to notice the relevant contents of the specimen forest lease dated October 28, 1925. This lease in made between the Secretary of State for the Government of India and the assessee-company which is described as contractor in the lease. The relevant parts of clause 1 run as follows :

'1. The contractor shall within the series of coupes into which the forest area....... shall be sub-divided....... and during the period for extraction..... prescribed...... have the sole right and licence to -

(a) fell the teak trees girdled or marked in that behalf.........;

(b) convert into logs all such trees........; and

(c) remove all such logs and all logs left unextracted from former operations :......'

14. Under clause 4, the period of agreement is 15 years from January 1, 1926. The proviso to this clause runs as follows :

'Provided that in respect of the rights conferred by clause 27 or by sub-clause (2) of this clause and in respect of every liability incurred under this agreement it shall continue in force for such further period as is necessary for the enjoyment of such rights and the enforcement of such liabilities.'

15. Under sub-clause (2) of this clause, first option is reserved to the assessee-company for obtaining renewal of the lease in respect of the forest area mentioned in the lease. The scheme of clause 6 provides for completing extraction in respect of trees lying in any coupe within three calender years from the start of the felling operations in such coupe. Under clause 7, right is reserved to the Government to take over for public purpose the extracted timber upon payment of expenditure incurred plus 10 per cent. thereon for profit to the assessee. Clause 9, 10 and 11 relate to rules for felling, logging and removal. Sub-clause (d) of clause 11 provides :

'All logs shall as soon after extraction as is practicable be removed to a measuring station; and no log brought to a measuring station shall be removed therefrom until it has been measured for royalty.......'.

16. Clause 20 provides for payment of royalty to the Government at the rates specified in Schedule IV. In case of disputes about a quantity of timber being 'refuse', the scheme in the clause provides for sale of such timber and division of the sale proceeds in the proportions mentioned in the clause. Clause 21 provides :

'The contractor shall be entitled to have the timber which has been measured for royalty marked at the time of measurement with a Government hammer-mark denoting that the timber has been so measured and after payment of such royalty the timber thus marked shall become the property of the contractor.'

17. Clause 23 provides :

'Until teak timber has been marked and royalties have been paid thereon...... it shall be deemed to be the property of the Government and the contractor shall have no right to sell, mortgage or hypothecate it or create any charge or lien thereon.'

18. Under clause 25, the assessee is prevented from assigning the benefit of the contract without the previous sanction in writing of the Government. Under clause 26, the Government reserved to itself liberty to terminate the lease by giving summary notice in writing in certain events. Under sub-clause (b) of this clause, the Government reserved right to terminate the lease 'after two years' notice in writing if in the opinion of the Government the contractor is not carrying on his operations under this agreement in a satisfactory manner'. Clause 27 runs as follows :

'27. On the conclusion of the period specified in clause 4 or on the termination of this agreement under clause 26 of clause 29, as the case may be, -

(a) the contractor shall be allowed a further period of three years for delivering at a measuring station and removing therefrom after payment of royalty on or otherwise dealing as provided in clause 20 with any timber bearing his authorised hammer-marks the extraction of which has in accordance with the terms of this agreement been completed before the date of such conclusion or termination and on the expiry of such further period he shall cease to have any rights whatever in timber not yet so delivered :

Provided that the rates of royalty payable under this clause shall be the same as the rates fixed for the concession area under any new agreement whether with the present contractor or with other parties subsequent to this agreement or in the event of no new agreement being entered into at the rates of royalty set out in clause 20 of this agreement; (b) the contractor shall be given such reasonable time as in the opinion of the Government may be necessary to allow him to dispose of such of his buildings, mills, railways or other structures erected for the purposes of his business under this agreement as are standing on land at the disposal of the Government.'

19. Under clause 29, the assessee is given a right to terminate the agreement at any time by giving two years notice in writing.

20. The question is whether the submission made on behalf of the assessee-company that the forest leases having provisions as above were acquisition of source of income and accordingly capital asset is correct. Conversely, the question is whether the forest leases containing the provisions of the above nature are ordinary trading agreements made by the assessee-company in the ordinary course of business and whether these agreements are of the nature of the agreement mentioned in the case of Mohanlal Hargovind v. Commissioner of Income-tax, for removal of stock-in-trade and/or forest produce and accordingly for purchase and/or procreation of stock-in-trade in the ordinary course and accordingly not capital asset. In this connection, the following principles require to be borne in mind :

As held in the case of John Smith & son v. Moore, 'fixed capital is what the owner turns to profit by keeping it in his own possession; circulating capital is what he makes profit of by parting with it and letting it change masters'. Accordingly, 'circulating capital is capital which is turned over, and in the process of being turned over yields profit or loss.' Circulating capital is, accordingly, the same as stock-in-trade or trading asset. Now, it is true that what is capital asset in the hands of one person may be a trading asset in the hands of another. Accordingly, as was observed by Romer L. J., in Golden Horse Shoe (New) Ltd. v. Thurgood, 'the determining factor must be the nature of the trade in which the asset is employed.'

21. Again, compensation received for immobilisation, sterilization, destruction or loss, total or partial, of a capital asset would be capital receipt. Where compensation is recovered for an injury inflicted on a man's trading, so to speak, a hole in his profits, the compensation would go to fill that hole and would be a trading receipt. On the other hand, where the injury is inflicted on the capital assets of the trade, making, so to speak, a hole in them, the compensation recovered is meant to be used to fill that hole and is a capital receipt. Cases of termination resulting in loss of employment or cessation of business must he distinguished from cases of cancellation of contract which are of trading nature or are entered into in the course of business. If a sum represents profit in a new form, then that is income. But, where the agreement relates to the structure of an assessee's profit-making apparatus and affects the conduct of his business, the money received for the cancellation or variation of such an agreement would be a capital receipt. In the case of Hopwood v. C. N. Spencer Ltd., (this is not cited at the Bar), the purchase price of standing timber was held to be revenue expenditure, because the transaction constituted of stock-in-trade. But in the case of Hood Barrs v. commissioners of Inland Revenue (No. 2), where the assessee entered into a contract with a company under which he acquired a right to select and, thereafter, to cut and carry away such trees standing on the company's land as fell within the size and description mentioned in the agreement, and there was no time-limit fixed within which the right of cutting the trees had to be exercised, the House of Lords held that the money paid under the agreement represented capital expenditure and was not revenue expenditure for the purchase of stock-in-trade. In that connection, Lord Keith considered the following matters, viz., the nature of the right, the indefiniteness of the period for its exercise, and the lack of identification of the trees on which the right was to be exercised, the size of the transaction and the absence of any evidence of intention or means to complete it within any foreseeable time.

22. As has been stated almost in all decisions the question is of determining the nature of the transaction between the parties in a particular case. The question is a question of fact and must be decided by ascertaining the true nature and object of the transaction made between the parties.

23. The true nature and the object and the main features of the forest leases including the specimen forest lease dated October 28, 1925, made by the assessee company with the Government of Burma will be evident from the following discussion :

'The Government of Burma was always the grantor, apparently this was so because the forests were always of the ownership of the Government. The Government was the single owner of all the forests. These forests were never intended to be transferred to any grantee at any time. The forest leases were always of duration of 15 years or more. They always related to extremely large areas which were sub-divided into large coupes. These coupes were also not to be worked at the some time, but according to schedule fixed in respect thereof. Each specified group of coupes was to be worked within three years. The extraction of the trees was to be completed within the fixed period of three years. The schedule fixed was compulsorily to be adhered to. The work of extraction was to be done in accordance with the rules prescribed for felling, logging and removal. The Government was accordingly not a seller of any stock-in-trade and the assessee was not a purchaser of any stock-in-trade. The assessee undertook the obligations of various kinds so as to complete the work of extraction as indicated in the contract. The assessee had to maintain extremely large establishments and headquarters at various places and had it that connection put up various premises including dwelling houses and buildings. It had to maintain diverse sorts of mechanical appliances and had, inter alia, owned motor transport, tractors, launches, elephants, cattle and diverse assets for the purposes of working these forest leases. The Government was not concerned in any part of the operations relating to the extractions done by the assessee. The main concern of the Government was only to charge royalty before the logs, whereof extraction was completed, were removed by the assessee from the contract area. It is of importance that the right of extraction and/or to fell, convert and remove that was given to the assessee was to be exercised in respect of the growing forest trees and/or uncut timber. There was a further right to log all felled teak timber left unlogged from former operations. The consideration that was charged by the Government was only the royalty agreed to be paid to the Government.'

24. Now, the above discussion makes it clear that these forest leases were not ordinary trading agreements for sale of any stock-in-trade. There is no doubt that having regard to its necessities of obtaining stock-in-trade for its timber business the assessee-company made these forest leases from time to time during the period 1862 to 1940. The number of such forest leases obtained during the above period by the assessee-company was accordingly numerous. It appears to us that these forest leases were transactions and/or contracts for acquisition by the assessee-company of benefit of enduring and long lasting duration. These were essentially and necessarily made for acquiring a source of income. By their very nature these leases were not made for transfer by the grantor thereof of any stock-in-trade of timber to the grantee - the assessee-company. The duration of the leases was always long. The operations under the leases were always to be done only by one side, viz., the assessee-company. To get the timber produce of the forest areas of these leases for ultimate sale in its ordinary business the assessee-company had the necessity of obtaining these forest leases. These leases by themselves did not give any produce of timber to the assessee-company. As already stated, all and singular, all the operations for extraction of timber from the forest areas of these leases had to be done by the assessee-company alone. The Government had no concern with any operations at all. Under the above circumstances, the true nature of the contracts and transactions at the date of their making by the assessee-company appears to us to be contracts and transactions for acquisition of a source of income. These forest leases must accordingly be held to be capital assets.

25. We accordingly accept Mr. Kaka's submission that these forest leases were of the nature of the transactions mentioned in the case of Hood Barrs v. Commissioner of Inland Revenue (No. 2). These leases were transactions which obtained to the assessee-company a profit-making apparatus for its ordinary business in timber. The interest which the assessee-company obtained in the growing forest trees and uncut timber, if not interest in land, was almost of the same nature. Now, it is true that in the case of Mohanlal Hargovind v. Commissioner of Income-tax, in respect of a contract authorising the assessee to carry away from the lands of the grantor tendu leaves for his bidi business, the Privy Council came to the conclusion that this contract was not a capital asset and the expenditure incurred by the assessee-company in connection with that contract was on revenue account. In our view, however, the facts of the present forest leases as discussed above involve important facts which are distinguishable from the facts in the case of Mohanlal Hargovind v. Commissioner of Income-tax, Having regard to these facts, the ratio of that decision is not applicable to the present forest leases.

26. In this connection, the observations of the Supreme Court in the case of Commissioner of Income-tax v. Rai Bahadur Jairam Valji, as quoted hereunder, are relevant :

'The question whether a receipt is capital or income has frequently come up for determination before the courts. Various rules have been enunciated as furnishing a key to the solution of the question, but as often observed by the highest authorities, it is not possible to lay down any single test as infallible or any single criterion as decisive in the determination of the question, which must ultimately depend on the facts of the particular case, and the authorities bearing on the question are valuable only as indicating the matters that have to be taken into account in reaching a decision.'

27. Similarly, in the case of Senairam Doongarmall v. Commissioner of Income-tax, in the judgment of the court given by Hidayatullah J., the cases cited at the Bar in this matter is well as other important cases were discussed and the observation thereafter made was :

'All these cases were decided again on their special facts. Though they involved examination of other decisions in search for the true principles it cannot be said that they resulted in the discovery of any principle of universal application. To summarise them : South India Pictures case was so decided because the money received was held to be in lieu of commission which would have been earned by the business which was still going, and the receipt was treated as the fruit of the business. The same reason was given in Jairam Valji's case and the Shamsher Printing Press case. In Vazir sultan's case, the compensation was held to replace loss of capital, and in Godrej's case, the compensation was said not to have any relation to the likely income or profits but to loss of capita. Each case was thus decided on its facts.

We have so far shown the true ratio of each case cited before us, and have tried to demonstrate that these cases do no more than stimulate the mind, but none can serve as a precedent, without advertence to its facts. The nature of the business, or the nature of the outlay or the nature of the receipt in each case was the decisive factor, or there was a combination of these factors. Each is thus an authority in the setting of its own facts.'

28. Having regard to these observations, it is quite clear that much useful purpose cannot be served by out discussing in this judgment the authorities cited at and relied upon at the Bar. Mr. Kaka had relied upon the decision in the case of Commissioner of Income-tax v. Vazir Sultan & Sons, the ratio whereof is already mentioned in the judgment of Hidayatullah J. referred to above. Mr. Kaka also relied upon the case of P. H. Divecha v. Commissioner of Income-tax, which also related to termination of agency rights granted to the assessee-company by Philips Electrical Company. At page 231, the principles on which compensation paid on termination of agency may be held to be capital receipt or revenue receipt are discussed. Mr. Kaka particularly relied upon the fact that the agreement in that case was liable to be determined by either part by giving three months' notice. Even so Rs. 40,000 paid as compensation for goodwill upon termination of agency was held to be capital asset. The court found that the agreement between the assessee-firm and the Philips Electrical Company created a monopoly right of purchase for and monopoly right of sale in certain areas. It secured to the firm an advantage of an enduring nature and was not an ordinary trading agreement.

29. Mr. Joshi relied upon the case of Commissioner of Income tax v. Rai Bahadur Jairam Valji, where the court observed :

'Generally, payments made in settlement of rights under a trading contract are trading receipts and are assessable to revenue. But where a person who is carrying on business is prevented from doing so by external authority in exercise of a paramount power and is awarded compensation therefore, whether the receipt is a capital receipt or a revenue receipt will depend upon whether it is compensation for injury inflicted on a capital asset or on a stock-in-trade.'

30. He particularly relied upon the observation, at page 163, which runs as follows :

'In our opinion, therefor, when once it is found that a contract was entered into in the ordinary course of business, any compensation received for its termination would be a revenue receipt, irrespective of whether its performance was to consist of a single act or a series of acts spread over a period, and in this respect, it differs from an agency agreement.'

31. Having come to the conclusion that the forest leases obtained by the assessee-company were capital assets the next question which we have to consider is as follows :

'Whether the 28,847 tons of logs delivered to the assessee-company under clause 10(a) against the 2,02,000 tons of logs made over by the assessee-company to the Government of Burma were rightly held by the Appellate Tribunal to have not been received in respect of the residuary rights under clause 27 of the forest leases.'

32. In the alternative, the question is, 'whether the submission made by Mr. Kaka that these 28,847 tons of logs were delivered to the assessee-company in lieu of its rights under clause 27 is correct ?' In this connection, the finding of the Appellate Tribunal was that at the date of the agreement dated June 10, 1949, the assessee-company had completed extraction of 2,02,000 tons of logs. It had the right under the forest leases to remove these logs to the measuring station and then upon payment of royalty to acquire complete ownership of these logs and remove them from the forest areas to desired destinations for trade purposes. The Tribunal accordingly held that the delivery of 28,847 tons of logs was merely made at Rangoon free of any costs of royalty and transport in lieu of the existing stock-in-trade of 2,02,000 tons of logs. As the delivery was made in exchange for stock-in-trade, the goods delivered had not any element of capital. The transaction involved only delivery of stock-in-trade. Before discussing this question, it requires to be stated that the sum of Rs. 65,52,153 mentioned in question No. 2 for the first assessment year and the sum of Rs. 5,18,896 mentioned in question No. 2 in the second assessment year relate to the above 28,847 tons of logs. In connection with this question, Mr. Joshi emphatically submitted that at the date of the delivery of these logs, the periods mentioned in the forest leases had already expired. Even the extended period had already expired had already expired. The profit-making apparatus obtained by the assessee in the shape of forest leases had thus come to an end. What had remained was merely residuary rights mentioned in clause 27 of the forest leases. In this submission, the provisions in clause 27 were of the nature of a clause independent of all other provisions in the forest leases. In accordance with the scheme of the forest leases, at the date of the agreement dated June 10, 1949, the 2,02,000 tons of logs of which extraction had been completed had been marked as logs of which the assessee-company had completed extraction. The assessee-company had finished all the extraction operations in respect of these logs. No further expenses were required to be undertaken by the assessee-company in respect of these logs except of payment of royalty. Under clause 20 of the forest lease, the assessee-company was entitled to become complete owner of these logs upon payment of royalty. In his submission, on these facts, it was quite clear that the 28,847 tons of logs delivered in accordance with clause 1(a) of the agreement dated June 10, 1949, were delivered against stock-in-trade of 2,02,000 tons of logs already extracted. These goods must be accordingly held to be on revenue account and did not represent any capital asset. In that connection, he relied upon the letter dated February 4, 1948, addressed on behalf of the assessee-company, where at paragraph, 5, the company pointed out that under the forest leases it was 'left with specific rights in respect of logs in course of extraction on the termination of the agreements' and had stated that in implementing the policy of nationalising natural resources under article 8 of the constitution, the Government was liable to provide equitable compensation to the parties affected. The assess-company had accordingly suggested that it would be necessary to arrive at a comprehensive agreement on the sums to be paid to the assessee-company in respect of purchase and compensation. He referred to the reply dated February 10, 1948, where at paragraphs 5 and 6 on behalf of the government it was stated that the advisory committee would naturally consider any claims to residuary rights under the expiring agreements and advise Government in that connection. The committee would also provide the Government with a list of the assets of all kinds to be acquired and that in the matter of valuation the committee was enjoined to arrive at equitable assessments, so as to enable departmental extraction to continue. At paragraph 7 of the letter, the assessee was informed that as soon as the Government was in possession of materials sufficient to assess the financial implications of residuary rights and to provide a reasonable approximation of the value of the assets, the Government would be in a position to proceed with a comprehensive agreement about the sums to be paid and the time and the form of payments. He relied upon the fact that the ultimate agreement of June 10, 1949, was the result of the above correspondence exchange between the assessee-company and the Government.

33. In connection with this question, it is relevant to refer to the Government's press communique dated March 7, 1948, which is annexure 'G' to the statement of the case. This communique, inter alia, stated :

'It is the aim of the Government to take over extraction in these areas as a going concern on June 1 and to work the concessions by a state organisation on a commercial basis in much the same way as the industrialists have worked them in the past.

Government will, therefore, require the services of all indigenous officers and subordinates hitherto employed by the companies in the areas concerned; it will also require to employ elephant contractors with their elephant herds on hire as formerly and to engage local workmen on fair rates pay as formerly.'

34. The contents of clause 27 in the forest leases run as follows :

'27. On the conclusion of the period specified in clause 4 or on the termination of this agreement under clause 26 or clause 29, as the case may be :

(a) the contractor shall be allowed a further period of three years for delivering at a measuring station and removing therefrom after payment of royalty on or otherwise dealing as provided in clause 20 with any timber bearing his authorised hammer-marks the extraction of which has......... been completed before the date of such conclusion or termination and on the expiry of such further period he shall cease to have any rights whatever in timber not yet so delivered :........

(b) the contractor shall be given such reasonable time as in the opinion of the Government may be necessary to allow him to dispose of such of his buildings, mills, railways or other structures erected for the purposes of his business under this agreement as are standing on land at the disposal of Government.'

35. The clauses 1, 7 and 10 of the agreement dated June 10, 1949, run as follows :

'The lessees hereby agree :

1. To make over forthwith to the President -

(a) their residuary rights in the said forest areas, together with all non-duty paid logs wheresoever found............;

(b) all other assets pertaining to the said forest areas and adjacent headquarters, including elephants, cattle, stores, buildings, dwelling houses, motor transport, tractors, launches, etc., but excluding -

(1) dwelling houses and buildings in Mandalay and Maymyo, and

(2) all logs wherever found on which lessees have paid duty, both (1) and (2) remaining the property of the lessees...........'

'The President hereby agrees :........

7. to hand over in Rangoon to the lessees 50,000 tons of teak logs of average quality and cube from Irrawaddy outturn free of cost and free of royalty, rehabilitation contributed and any other form of tax on timber.......... to permit the lessees to mill and market the teak logs handed over in the manner specified in clause 10 hereof...... and to permit the lessees to retain, in the country or countries where earned, the proceeds from the sale of timber from the said logs......' It is further agreed by both parties in order to implement this agreement;.....

'10. That the said 50,000 tons of teak logs shall be regarded as being divided in the following manner :

(a) 34,000 tons as against the logs to be made over to the President under clause 1(a);

(b) 16,000 tons as against all assets other than logs which are to be handed over by the lessees to the President pro rata as the assets concerned change hands in accordance with the Schedule B hereto attached.......'

36. The Schedule B runs as follows :

'Schedule `B'[Clause 1(b) of the Agreement] Subject to the limit of 16,000 tons logs when available in Rangoon will be handed over to the lessees in exchange for the following assets as they are transferred to the President at a rate of :

20 tons for each male elephant 18 years and over and under 55 years of age.

12 tons for each female elephant 18 years and over and under 55 years of age.

12 1/2 tons for each trained male calf under 18 years of age.

8 tons for each trained female calf under 18 years of age.

3 1/3 tons for each untrained calf.

3 1/3 tons for each tusker 55 years of age and over.

1 ton for every Rs. 225 worth of assessed value of assets other than elephants, referred to in clause 1(b).'

37. In connection with these rival contentions advanced on behalf of the parties, it is necessary to ascertain the true construction and effect of the provisions in clause 27 of the forest leases and the agreement made in connection with the rights in that clause by the contents of clauses 1, 7 and 10 of the agreement dated June 10, 1949. The clause 27 relates to the periods of termination mentioned in clauses 4, 26 and 29 of the forest leases. In spite of the expiry of these periods and what is described as the termination of the forest leases under sub-clause (a) of clause 27, right and liberty is reserved to the assessee-company to continue to operate in the forests of the government for a further period of three years. Such a right was absolutely essential, because for the whole of the period of 15 years mentioned in the leases, the assessee-company was authorised to carry on the general operations of felling the teak trees and converting them into logs and removing the logs from the forest areas. Under the leases, from the felling of trees till the final measurement and payment of royalty was a continuous series of operations, each operation forming an integral part of the series. On the termination of the lease what ended was only the earlier operations of the series relating to extraction, but the remaining tail part of the series was permitted to be continued and completed by the provisions of the series was permitted to be continued and completed by the provisions of the residual rights under clause 27. That clause 27 provides for a period of three years for this part is understandable if it is borne in mind that logs are very heavy, they had to transported through forest and the available motive power would be, not mechanical, but elephants. The record shows that the assessee had 1,100 elephants. Though the period of the leases is fifteen years, the provision for residual rights under clause 27 is an essential part of the bargain between the parties. The trees and/or timber on which much labour would be expended and large expenses would be incurred during the last period of three years would fetch no benefit of any kind to the assessee-company without reservation to it of the rights and liberties as provided by clause 27. This right was ordinarily not a transferable and assignable right. This is so, notwithstanding the provision in clause 25 of the forest leases, because after the period of the forest leases expired, the Government would never permit the assessee-company to assign rights and liberties reserved to it under clause 27. Now, the important fact to be remembered is that under section 44(2) of the Constitution of the Union of Burma, the Government had decided to take over the exploitation of forests. In fact, 1/3rd of the forest area given to the assessee-company was taken on June 1, 1948, and the remaining was taken over if not earlier in any event as of June 10, 1949. The result of this policy of the Government was that the rights and liberties reserved to the assessee-company under clause 27 were altogether ended as from June 29. It is this policy of the Government which is reflected in the following words of clause 1 of the agreement dated June 10, 1949 :

'The lessees hereby agree to make over forthwith to the President their residuary rights in the said forest areas, together with all non-duty paid logs......'

38. In so far as the assessee-company is a party to the agreement, it looks as if the agreement was the result of negotiations and consent given by the assessee-company. Even so, one cannot forget that in fact the background of the above provision was that the government had decided to take over the forest operations and nationalise them and the assessee-company was in pursuance of that policy as from June 10, 1949, entirely prevented from exercising any rights of any kind under the forest leases of its ownership. The clause 1 provides for the entire transfer of the rights and liberties reserved to the assessee-company under clause 27. The ownership of the 2,02,000 tons of logs of which extraction had been completed was in the government under the forest leases, because clause 23 of these leases provided that 'until teak timber has been marked and royalties have been paid thereon...... it shall be deemed to be the property of the Government and the contractor shall have no right to sell, mortgage or hypothecate it or create any charge or lien thereon. 'The possession of these teak logs was with the assessee-company, but the ownership thereof was in the Government. The main purpose of clause 1 in the agreement of June 10, 1949, was to record that the assessee-company was left with no rights of any kind under the forest leases as from the date of the agreement, i.e., June 10, 1949. The rights and liberties reserved to the assessee-company under clause 27 were part and parcel of the asset of the forest leases. It is not possible to accept Mr. Joshi's contention that this clause was a separate independent clause and could be worked out as such. Under clause 10(a) of the agreement of June 10, 1949, the assessee-company received 28,847 tons of logs against 2,02,000 tons of logs which were lying completely extracted in the forest areas held by the assessee-company. Parties had not discussed nor settled the true value of these 2,02,000 tons of logs or of the residuary rights agreed under clause 27. The Government of Burma thought it fit that in respect of all the residuary rights and liberties reserved to the assessee-company (and Steel Brothers and available to them on June 10, 1949, the assessee-company (and Steel Brothers) should be handed over 50,000 tons of teak logs as mentioned in clause 7. That these 50,000 tons of teak logs represented compensation agreed to by any negotiations or by any Tribunal has not been proved. The entire quantity of 50,000 tons of teak logs was accepted by the assessee-company (and Steel Brothers) in lieu of the assets mentioned in clause 1(a) and (b) of the agreement dated June 10, 1949. The provision in clause 1(a) and (b) relates to handing over by the assessee-company (and Steel Brothers) of all residuary rights and other assets to the Government, so that the Government could carry on its operations in forest areas sin the same manner as the assessee-company (and Steel Brothers) were doing. The handing over was towards completing the policy of taking over of the forest operations as a going concern. We find it difficult under the circumstances to accept Mr. Joshi's submission that the 28,847 tons of logs were handed over as true compensation for 2,02,000 tons of logs whereof extraction was completed. In our view, the 50,000 tons of teak logs mentioned in clause 7 and the total quantity of 43,860 tons of logs which were delivered by the Government to the assessee-company were towards completely taking over all the residuary rights of the assessee under the forest leases and the assets also belonging to the assessee-company as mentioned in sub-clause (b) of the clause. These residuary rights formed an inseparable part of the asset of forest leases acquired by the assessee-company. As the 28,847 tons of logs were delivered merely towards taking over of these residuary rights, it is impossible to accept Mr. Joshi's submission that this was delivery of stock-in-trade and, accordingly, must be held to be on revenue account. Mr. Joshi is not right in his submission that by the above handing over of the residuary rights the business structure of the assessee's operations in the forest areas in Burma was not affected. On the contrary, the result of the above agreement was that all the rights of the assessee-company under the forest leases were completely annulled and cancelled and the whole of the business structure of the assessee-company in connection with its operations in forest areas in Burma came to an entire stop. Mr. Kaka, accordingly, is right in his submission that the 28,847 tons of logs were delivered to the assessee-company towards cancellation of its residuary rights under the forest leases. These logs were of the nature of capital receipt in the hands of the assessee-company.

39. The result of the above findings is that the sum of Rs. 65,52,153 mentioned in question No. 2 for the assessment year 1950-51 and the sum of Rs. 5,18,896 mentioned in question No. 2 for above 28,847 tons of logs were which both sums admittedly relate to the above 28,847 tons of logs were exempt from tax as being receipt of a capital nature.

40. The question No. 3 in the assessment year 1950-51 has arisen an account of certain findings of the Income-tax Officer that were accepted and confirmed by the Appellate Tribunal. As is admitted, all the assets of the assessee-company mentioned in sub-clause (2) of clause 1 in the agreement dated June 10, 1949, were handed over to the Government. In connection with these assets, the Income-tax Officer held that from the wording of schedule 'B' to the agreement it was clear that the logs delivered to the assessee represented payment by the Burma Government by taking every 225 rupees of assessed value of the assets as equivalent to one ton of teak logs. The figure of Rs. 225 per ton represented the market value of the logs as at the time of the agreement. He then observed :

'The monetary value arrived at by converting the logs received against the various items at the rate of Rs. 225 per ton gives the sales proceeds arising to the assessee on the date of the agreement in respect of various items and profit under section 10(2) (vii) and capital profit in excess of cost is determined in respect of the various assets on the basis of this sale value realised.'

41. Proceeding in the above manner, he brought to tax a sum of Rs. 1,41,156 describing it as profit under section 10(2) (vii) in respect of assets (assumed as) sold to the Burma Government. In connection with that finding, on behalf of the assessee, the submission made to the Appellate Tribunal was that the assessee-company never sold any assets to the Government. The assets were taken over on nationalisation. Some argument was advanced before us and reliance was place in that connection on the correspondence which we have referred to above and the provision in the agreement dated June 10, 1949. The Appellate Tribunal rejected the contention made by holding that the agreement dated June 10, 1949, was a transfer for consideration. Mr. Kaka has rightly with some emphasis submitted that there is no evidence in the agreement dated June 10, 1949, about any price agreed between the parties and, accordingly, about any sale of the assets mentioned in clause (b) by the assessee-company to the Government. There is no dispute that for levying balancing charge under section 10(2) (vii) of the Income-tax Act, it is absolutely necessary that the depreciable assets should have been sold at a price agreed to between the parties. In the case of Commissioner of Income-tax v. Motors & General Stores (P.) Ltd., the Supreme Court was concerned with the question of balancing charge in respect of a transaction of exchange effected by the assessee in that case. The Supreme Court held that in essence the transaction between the respondent-company (assessee) and the zamindar was one of exchange and there was no sale of the assets of the cinema house for any money consideration and, therefore, the provisions of section 10(2) (vii) did not apply. In this connection the Supreme Court further observed that the sale would involve transfer of property in goods as immovable property for a money consideration.

'But in exchange there is a reciprocal transfer of interest in immovable property, a corresponding transfer of interest in movable property being denoted by the word 'barter'. The difference between a sale and an exchange is this, that in the former the price is paid in money, whilst in the latter, it is paid in goods by way of barter.'

42. Now, Mr. Kaka is right in his submission that the agreement dated June 10, 1949, had resulted from the enforcement of the Government's policy of nationalising forest operations and that the agreement does not involve any transaction of sale between the assessee and the Union of Burma. The assessee-company was never paid any money by way of price in respect of the assets delivered by it to the Government. The Appellate Tribunal was, accordingly, in error in holding that the agreement dated June 10, 1949, involved sale of assets for price. To the assets delivered under the above agreement the provisions of section 10(2) (vii) were not applicable. In the result, it must be held that amount of Rs. 1,41,156 could not be brought to tax against the assessee-company under the second proviso to section 10(2) (vii). There is no evidence on the basis whereof the provisions could be applied to this amount of Rs. 1,41,156. The above question No. 3 will be answered accordingly.

43. The question No. 4 in the assessment year 1950-51 and the question No. 3 in the assessment year 1951-52 relate to the delivery of 2,946 and 12,067 tons of logs to the assessee-company in respect of the depreciable assets, stores and livestock, mentioned in sub-clause (b) of clause 1 of the agreement dated June 10, 1949. The Income-tax Officer held that the above two quantities were received by the assessee-company when the market value thereof was Rs. 225 per ton. These logs having been received in respect of the depreciable assets, stores and livestock, were received by the assessee-company on revenue account. These logs were timber and stock-in-trade in the hands of the assessee-company. To the extent that upon resale thereof the assessee-company received profits at a rate higher than the rate of Rs. 225 per ton the assessee-company was bound to pay tax as on revenue receipts. This finding is discussed by the Appellate Tribunal in paragraph 18 of its judgment. The Tribunal held that in these cases 'the excess over Rs. 225 will be taxable on the principles of the decision of the Supreme Court in Commissioner of Income-tax v. Bai Shirinbai K. Kooka. Now, Mr. Kaka has contended that the Appellate Tribunal was wrong in applying to the facts of the present case the observations of the Supreme Court in the above case. His submission was that these logs were received by the assessee-company over a period of four years ending May 31, 1952. An entirely separate account of these logs was maintained by the assessee-company under the title 'Burma forests assets realisation reserve account'. These logs were held separately and not mixed up with any logs held by the assessee-company as stock-in-trade in its business. These logs had been received towards capital assets and remained a capital receipts. Mr. Joshi has on the contrary, submitted that since the assessee-company was carrying on ordinarily business of sale of timber logs, the logs received by it would, in ordinary course, form part of its stock-in-trade. These logs were sold by the assessee-company in the ordinary course of its business. Its line of business was to sell logs of timber. The sale of these logs must be, therefore, held to be part of ordinary trading activity of the assessee-company. Since at the date of delivery of these logs the market rate was Rs. 225, the assessee-company was bound to pay tax on the realisations which were in excess of the costs arrived at the market rate of Rs. 225 per ton. In this connection, it is important to remember that the assessee-company did not get the delivery of these logs as purchaser thereof or in the ordinary course of its business. These logs came into the possession of the assessee-company in consequence of the arrangement made under the agreement dated June 10, 1949, against delivery of all its outstanding or residuary rights and assets to the Government. The arrangement was in consequence of nationalisation of forest operations in Burma. As already discussed above, the whole of the quantity of 43,860 tons of logs delivered to the assessee-company was in lieu of the asset of the forest leases and the other diverse assets which were handed over by the assessee-company to the government on June 10, 1949. For the reasons already discussed, all these logs were received by the assessee-company not on revenue account at all. The further fact is that the assessee-company did not mix up these logs with any of the stock-in-trade held by it in its ordinary course of business as timber dealer. These logs were received by the assessee-company in the course of about four years and held by it in the account which is described as 'Burma forests assets realisation reserve account'. Under these circumstances, the sale proceeds of these logs could not be held to have been received by the assessee-company on revenue account. The contrary finding of the Appellate Tribunal was accordingly wrong. In the result, the answer to the question No. 4 in the first year and the question No. 3 in the second year will be against the revenue and in the negative.

44. In respect of the assessment year 1953-54, the questions referred are as follows :

'1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 5,58,188 or any part thereof was exempt from tax as being a receipt of a capital nature

2. Whether, on the facts and in the circumstances of the case, the amount of Rs. 9,493, being the amount of compensation received for stores acquired by the Burmese Government, was liable to tax under the Act ?'

45. The facts relating to this assessment year are that nothing was paid by the Government to the assessee-company in connection with the 1/3rd of the forest areas which the Government had taken over from the assessee-company on June 1, 1948. The assessee-company filed a suit against the Government in connection with the timber logs and stores taken over by the Government on June 1, 1948. The facts in connection with the delivery of these goods appear in the letter of the Government to the assessee-company dated January 24, 1948, which is annexure 'C' to the statement of the case. Now, in the suit filed by it, the assessee-company succeeded to obtain decree for Rs. 5,58,188. The Tribunal held that the timber taken over by the Government in respect of this 1/3rd area was stock-in-trade and the proceeds were taxable. Mr. Kaka is right in his submission that the timber taken over was towards the residuary rights in respect of and the assets lying within 1/3rd area taken over on June 1, 1948. The price of the timber as such was never paid by the Government. In the decree, this sum is awarded in lieu of the rights which the assessee-company had under clause 27 in respect of 1/3rd area taken over by the Government. To these facts, what we have discussed about the delivery of 43,860 logs of timber delivered under the agreement dated June 10, 1949, is applicable. This sum of Rs. 5,58,188 could not, therefore, be held to be receipt on revenue account and was not taxable.

46. As regards the sum of Rs. 9,493, Mr. Kaka has not advanced any arguments on the ground that the amount involved is small. The question No. 2 in the assessment year 1953-54 will, therefore, be answered in the affirmative.

47. In the result, our answers to the questions will be :

I. Assessment year 1950-51 :

Question No. 2 : Affirmative. Entire amount.

Question No. 3 : Negative.

Question No. 4 : Negative.

II. Assessment year 1951-52 :

Question No. 2 : affirmative. Entire amount.

Question No. 3 : Negative.

III. Assessment year 1953-54 :

Question No. 1 : Affirmative.

Question No. 2 : Affirmative.

48. Revenue will pay costs.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //