Govinda Bhat, J.
1. These are three revision petitions preferred by an assessee under section 55 of the Mysore Agricultural Income-tax Act, 1957, hereinafter called the 'Act' against the common order dated January 30, 1967, made by the Commissioner of Agricultural Income-tax, Bangalore, by which, in exercise of his suo motu powers of revision, he set aside the orders of the Deputy Commissioner of Agricultural Income-tax and restored the assessment orders of the Agricultural Income-tax Officer, Coorg.
2. The assessee is the Consolidated Coffee Ltd., formerly known as the 'Consolidated Coffee Estates (1943) Ltd.' having its registered office at Pollibetta, Coorg. The assessee owns 10,610 acres of land of which 7,277 acres are under coffee, 277 acres under cardamom, 689 acres under paddy, etc., and 2,367 acres are abandoned coffee areas and now a jungle. The assessee company was formed in the year 1943. After the formation of the company, the assessee bought several coffee estates and consolidated them. During the relevant accounting period in respect of the assessment years 1961-62, 1962-63 and 1963-64, the assessee sold from its lands rosewood trees. The proceeds of sale of the said rosewood trees after deduction of expenditure was claimed to be not assessable to tax under the Act. The assessee in its return to the Income-tax Officer under the Central Income-tax Act claimed that the said amounts are not taxable on the ground that the they constitute capital and not income. The Income-tax Officer, the Coorg Circle, Mercara, rejected the contention of the assessee and assessed the amount to tax. Before the Agricultural Income-tax Officer, the assessee contended that the said amount had been assessed under the Central Income-tax Act and hence could not be assessed under the Act and, further, that the receipts are capital and as such not taxable as income. The Agricultural Income-tax Officer overruled the objections and assessed the receipts to tax under the Act. The Agricultural Income-tax Officer was of the opinion that the rosewood trees must have been planted as shade trees for growing coffee.
3. The Deputy Commissioner of Agricultural Income-tax,Mysore Division on appeals preferred by the assessee, allowed the appeals and set aside the assessment orders on the ground that there is no documentary evidence to prove that the trees were grown by using human labour or skill either at the time of planting or at the time of growth, and therefore, there was no justification to levy agricultural income-tax on the sale proceeds of the rosewood trees.
4. The Commissioner of Agricultural Income-tax,Bangalore, issued notices to the assessee to show cause why the orders of the Deputy Commissioner should not be revised on the ground that exemption from tax has been wrongly given. The assessee reiterated its contentions that the trees are of spontaneous growth and therefore the sale proceeds do not constitute agricultural income and further that the proceeds of sale constitute capital receipts. Before the Commissioner, the assessee field affidavits of experts in support of its contention that the trees are of spontaneous growth. One of the affidavits was by a retired chief conservator of forests who is also the owner of a coffee estate. The other affidavits were by two experienced planters in Coorg. The retired Chief Conservator of Forests in his affidavit stated that the rosewood trees standing on the lands of the assessee are not found in rows which would be the case if they had been planted by human agency and that, in his opinion, the trees cut and sold must be of age above 150 years. The affidavits of the two planters were to the effect that the trees in question were in existence even 45 to 50 years ago. The Commissioner overruled the objections of the assessee, set aside the orders of the Deputy Commissioner and restored the assessment orders of the Agricultural Income-tax Officer. The grounds for the decision of the Commissioner are :
(1) that the rosewood trees are not native to the Indian soil; rosewood is a Brazilian tree;
(2) Since rosewood is not native to Indian soil, the trees could not have come into existence in the coffee estates but for some human agency;
(3) That the assessee has not discharged its burden of proving that the trees were of spontaneous growth but on the other hand the entire history of the trees tend to show that they must have been planted by human agency and as the assessee has performed substantial agricultural operations on the trees the income from the sale of these trees is liable to be taxed as agricultural income.
5. In the meantime, the assessee had preferred appeals against the order of the Income-tax Officer to the Appellate Assistant Commissioner of Income-tax, who affirmed the orders of the Income-tax Officer. Against the order of the Appellate Assistant Commissioner, the assessee preferred appeals to the Income-tax Appellate Tribunal; the said appeals are pending disposal.
6. Against the common order passed by the Commissioner of Agricultural Income-tax in Mysore, the assessee preferred one Revision Petition under section 55 of the Act and that Revision Petition was numbered as C. R. P. No. 1008 of 1967. At the hearing, when it was brought to the notice of the assessee's learned counsel, that the common order made by the Commissioner relates to three assessment years and three revision petitions ought to have been filed, the assessee field Civil Revision Petitions Nos. 1939 and 1940 of 1969. Besides the revision petitions, the assessee has filed Writ Petition No. 2382 of 1967 impleading as respondents, the Commissioner of Agricultural Income-tax and the Income-tax Officer under the Central Income-tax Act. In the said writ petition, the assessee contended that the authorities under the Indian Income-tax Act and the Mysore Agricultural Income-tax Act were assessing the same sale proceeds of timber; that the assessing authority under the Central Income-tax Act has held that the rosewood trees are of spontaneous growth and the Commissioner under the Act has held that the said trees are not of spontaneous growth. In view of the extraordinary situation where one taxing authority in disregard of the order of the other authority is assessing the same receipts, the assessee has prayed for an appropriate writ against both the authorities.
7. The revision petitions were clubbed with the writ petition and they were posted together for hearing. At the hearing, Sri G. R. Ethirajulu Naidu, the learned counsel for the income-tax department, submitted that the writ petition may be disconnected from the revision petitions and heard after the disposal of the appeals by the Income-tax Appellate Tribunal. The learned counsel for the assessee had no objection to that course. Hence, we directed that the revision petitions may be disconnected from the writ petition. The arguments were confined to the revision petitions under the Act. We told Sri Ethirajulu Naidu, the learned counsel for the income-tax department that we would permit him to intervene in the revision petitions and address arguments; but the learned counsel did not intervene.
8. Two questions arise in these revision petitions. They are :
'(1) Whether the proceeds of sale of rosewood trees in the hands of the assessee is agricultural income liable to tax under the Act
(2) Whether the said amount is a capital receipt not liable to income-tax ?'
9. What is chargeable to tax under the Act is agricultural income. The term 'agricultural income' has been defined in section 2(1)(a) of the Act thus :
'(1) any rent or revenue derived from land which is used for growing all or any of the commercial crops and is either assessed to land revenue in the State or subject to a local rate assessed and collected by officers of the State Government as such;
(2) any income derived from such land by -
(i) agriculture, or
(ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market, or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him in respect of which no process has been performed other than a process of the nature described in paragraph (ii).'
10. It is common ground that the assessee is not receiving any rent or revenue and therefore clause (1) of section 2 (1) (a) is not applicable. The receipts in question can come only under clause (2) of section 2 (1) (a). In order to constitute agricultural income, two conditions have to be satisfied viz., (i) the land must be used for growing all or any of the commercial crops, and (ii) that the income should be derived from such land by agriculture. Unless both the conditions are satisfied, the receipts do not constitute agricultural income. It is not disputed that out of 10,610 acres 8,243 acres alone are cultivated under different crops and that the jungle land is of the extent of 2,367 acres. That the said jungle land is not cultivated under any crop is not disputed by the respondent. From the assessment order for the assessment year 1963-64 of the Agricultural Income-tax Officer, it is seen that the receipts from the cultivated area are Rs. 2,19,969.60 and the rest of the receipts are from the jungle area. Out of Rs. 11,91 509 about Rs. 9,71,000 and odd were derived from the sale of the rosewood trees from the jungle which is described as abandoned coffee area. Rosewood timber extracted from lands not under cultivation during the accounting year cannot be regarded as agricultural income since the primary condition that the land must be actually used for the agricultural purpose in the accounting year has not been satisfied. The Commissioner has not be stowed his attention to this aspect of the matter. He has nowhere held that the entire land from which the alleged income has been derived was actually used for agricultural purpose in the relevant accounting years. Therefore, under any circumstances, the receipts by sale of rosewood trees from land not under actual cultivation is not agricultural income under the Act and the authorities under the Act had no jurisdiction to levy tax on the proceeds of the said trees.
11. With regard to the receipts from sale of rosewood trees from the area under cultivation, the question of fact to be decided is whether the trees are of spontaneous growth or they were planted by human agency. The Commissioner, relying on Explanation (2) of clause (e) of section 2 of the Act, has held that the burden is on the assessee to prove that the trees are of spontaneous growth not involving any human labour or skill in their planting or growth. It is common ground that if the trees are of spontaneous growth, even if the trees had been retained in the estates for affording shade to the coffee bushes, the receipts from sale of timber of the said trees would not constitute agricultural income. Timber derived from the cultivated area satisfied the first condition that the land from which the timber is derived is used for growing commercial crops as defined under the Act, but it does not satisfy the second requisite condition, viz., that the income must be derived from such land by agriculture.
12. In Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy the Supreme Court has held that in order that income derived by an assessee should fall within the definition of agricultural income, two conditions are necessary to be satisfied and they were :
(i) that the land from which it is derived should be used for agricultural purposes and is either assessed to land revenue in the taxable territories or is subject to local rates assessed and collected by officers of the Government as such; and
(ii) that the income should be derived from such land by agriculture or by one or the other of the operations described in clause (ii) and (iii) of section 2(1)(b) of the Indian Income-tax Act.
13. The same decision has held that agriculture is the basic idea underlying the expressions 'agricultural purposes' and 'agricultural operations'; that the term 'agriculture' is understood as cultivation of the field and the term thus understood means cultivation of the land meaning thereby, tilling of the land, sowing of the seeds, planting and similar operations on the land and such operations would be the basic operations which would require the expenditure of human skill and labour upon the land itself.
14. The question therefore is whether the rosewood trees were planted by the predecessors in interest of the assessee or they are of spontaneous growth. That the rosewood trees were trees retained in the estates as shade trees is common ground. According to the assessee the rosewood trees in existence in the jungles when coffee plantations were opened, were retained as shade trees for coffee bushes. The findings of the Agricultural Income-tax Officer and the Commissioner for Agricultural Income-tax that the trees were planted by human agency is based on the view that rosewood trees are not native to the Indian soil but have been imported from Brazil and that the trees in question must have been planted by the planters after they opened the estates. There was no material either before the Agricultural Income-tax Officer or before the Commissioner to hold that the trees were planted for purposes of shade after the estates were opened. The finding that the trees in question are not of spontaneous growth but were raised by the planters as shade trees would ordinarily be a question of fact. But, the question of fact is one on which the jurisdiction of the authorities under the Act depends. The being a jurisdictional fact, we are entitled to examine the material on the basis of which the inference has been drawn by the Commissioner of Agricultural Income-tax.
15. That the rosewood tree is not a native of india and that it is not found in the forests but only in coffee plantations is clearly erroneous. In The Timber Trees-Timber and Fancy Woods as also the Forests of India and Eastern and Southern Asia by Edward Balfour (second edition) 1862, it is stated at pages 95-96 that the rosewood tree grows in the Peninsula and northern parts of India, in more or less abundance and that it is abundant in Wynaad and Coorg and that it is one of the most valuable woods of the Madras Presidency.
16. In the manual of Indian Timbers by J. S. Gamble (revised edition, 1902), it is stated at page 250 that the rosewood is found in most of the forests in the Western Ghats and that it is a tree of slow growth. The author further states that it takes usually not less than 100 years to reach a girth of 6 feet without bark.
17. In the book entitled Wealth of India by the Council of Scientific and Industrial Research, Government of India, it is stated at page 4 that the rosewood is found in the sub-Himalayan track from Oudh eastwards, Bihar, Orissa and Central, Western and southern India. It is also states that the minimum exploitable size is 6 feet girth. At page 6, table 1, the rate of growth of Indian rosewood is given. According to the said table, in about 150 years the tree attains the girth of 5ft. 9 inches.
18. In Sanskrit, rosewood tree is called shinshapayam. Mention of shinshapayam is made in the Vedas.
19. In Encyclopedia Britannica, it is stated that the rosewood trees are native to Brazil, Honduras, Jamaica, africa and India.
20. Having regard to the above authorities, it is clear that rosewood trees grow in abundance in the forests of the Western Ghats, that it is a tree of very slow growth and that, in order to attain the minimum exploitable size of 6 feet in girth, the tree must be more than 100 years old. In the affidavit of the retired Chief Conservator of Forests field before the Commissioner of Agricultural Income-tax, he has given the opinion that the trees in question must be above 150 years old.
21. In the Modern Coffee Production by A. E. Haarer, at page 7, the history of coffee plantation in India has been given. The relevant passage reads thus :
'According to the Indian tradition, coffee was introduced into India by a Moslem pilgrim by name Baba Budan, as early as 1600 or 1695; he, it is said, planted his seeds near his hut at Chickmagalur in the mountains of Mysore. The British are said to have introduced coffee to the Malabar Coast in 1700, obtaining their planting material direct from Aden, but this does not agree with reputable records to the effect that the Dutch took the plants from the malabar coast four years earlier in 1696. It seems that the plantations were laid down by a Mr. Cannon in 1830, and by a Mr. Glasson in 1840. The industry flourished, and by 1900 Arabian coffee was being cultivated in the State of Mysore and Coorg on the Southern slopes of the Western Ghats and the Nilgiri Hills, also in Travancore, and in the Shevaroy and Plain Hills of Madras.'
22. The authorities under the Act ought to have investigated as to when the coffee estates of the assessee were opened and that would have clinched the issue as to whether the rosewood trees were planted after the estates were opened or they were in existence before. According to the affidavit evidence of the retired Chief Conservator of Forests, the trees were more than 150 years old. The coffee estates in Coorg were opened within about 100 years according to the passage cited from Modern Coffee Production. The age of the trees as given by the retired Chief Conservator of Forests has not been disputed. If the coffee plantations were opened within about 100 years and if the trees in question are aged above 150 years, the inference is that the trees were in existence when the estates were opened. It is seen from the Modern Coffee Production by Haarer at page 373 that Dalbergia Latifolia (Rosewood) is one of the shade trees used in coffee plantations.
23. Coffee in India published by the Coffee Research Department also shows that rosewood trees is one of the permanent shade trees in the coffee plantations. Coffee estates are opened in jungles after carrying out what is called selective felling and by retaining those trees that are likely to be useful for shade for coffee.
24. The statement made by the retired Chief Conservator of forests in his affidavit that the trees were not found in the estates in question in regular rows is also indicative of the fact that the rosewood trees were not planted. Coffee plants are planted in coffee estates in regular rows with equal distances between one plant and another. Shade trees where they are planted are planted in a systematic manner at regular intervals. If the shade trees were in fact planted they should have been found in regular rows and not in an irregular manner as in the instant case. in the assessment orders under the Central Income-tax Act, the Income-tax Officer has found that the trees are old, aged more than 100 years, and that they are of spontaneous growth. The proper inference to be drawn from the material on record is that the rosewood trees were not planted by human agency or labour but they were in existence before the estates were opened and they were retained as shade trees for the coffee bushes. In our opinion, there was no material at all for the Agricultural Income-tax Officer and the Commissioner of Agricultural income-tax to come to the conclusion that the rosewood trees were planted by human agency. The Commissioner, therefore, was wrong in coming to the conclusion that the rosewood trees were planted by human agency and the receipts from the sale thereof are agricultural income.
25. The contention of the assessee that the receipts from sale of rosewood trees are not income but capital was rejected by the Agricultural Income-tax Officer and the Commissioner of Agricultural Income-tax. It is common ground that the rosewood trees were maintained as shade trees for the coffee bushes. Shade trees are absolutely essential for the protection of coffee bushes. It is not possible to grow coffee in India without the necessary shade trees. Shade trees prevent the soil from becoming hot and dry and help to maintain an even temperature. They increase the fertility of the soil because the fallen leaves add the much desired muck to the soil. Shade tree also protect the coffee plants from the direct beat of the rain and desiccating winds. They also transport from the lower layers of the soil the necessary minor and trace elements. According to the pamphlet published by the Coffee Board Research Department, the object of maintaining shade trees is to give filtered light, free passage of air and to minimise variations in day and night temperatures. They also help in avoiding the direct impingement of the sun's rays on the foliage. Thus, it will be seen that shade trees existing in a coffee estate are as much important as the coffee bushes which yield the coffee crop. Rosewood is one of the trees recommended for the purposes of shade in a coffee plantation.
26. The cost of planting coffee bushes and shade trees is not treated as revenue expenditure but as capital expenditure. Therefore, it is clear that the shade trees in a coffee estate are part of the fixed assets of the planter. The payment made on the acquisition or creation of a fixed asset or a sum received on its realisation is usually a capital sum. (vide Simon's Income-tax, Volume I, second edition, page 33).
27. In State of Kerala v. Karimtharuvi Tea Estate Ltd. the question was whether the receipts from the sale of gravelia trees grown and maintained for the purpose of providing shade to the tea bushes in the tea estates of the assessee were capital or income. The Kerala High Court held that the receipts constituted capital. In the course of the judgment, this is what has been stated :
'The gravelia trees were grown and maintained for the sole purpose of providing shade to the tea bushes in the tea estates of the assessee. That such shade is essential for the proper cultivation of tea cannot be disputed; and the trees should hence be considered to be as much a part of the capital assets of the company as the tea bushes themselves or the equipment in its factories. Some of the gravelia trees became old and useless with the efflux of time and they naturally had to be cut down and sold. The sale proceeds of such trees cannot possibly amount to a revenue receipt and we must answer the first question referred to in the negative and against the department.'
28. The above decision of the Kerala High Court was affirmed by the Supreme Court in State of Kerala v. Karimtharuvi Tea Estate Ltd.
29. In Commissioner of Agricultural Income-tax v. Kailas Rubber & Co. Ltd. the question was whether the proceeds of sale of rubber trees from a rubber estate after the trees had become old and useless constituted agricultural income or capital. The Supreme Court held that the rubber trees formed part of the capital assets of the respondent.
30. If the wood of the coffee bushes in the assessee's estates were sold when the coffee bushes become old and useless the receipts would constitute capital. So also the receipts from sale of the shade trees. We asked the learned Government Pleader as to how the instant case is different from the cases decided by the Supreme Court. He submitted that the distinction is that in State of Kerala v. Karimtharuvi Tea Estate Ltd. the trees were cut down and sold after they had become useless by the efflux of time but, in the instant case, there is no evidence that the rosewood trees had become useless by efflux of time. We do not think that the decision of the Supreme Court rested on the fact that the shade trees had become old and useless. The gravelia trees were not useless. The gravelia trees were old and money was realised. The business of the assessee is not to produce timber but to produce coffee and other plantation crops. It is clear that the assessee did not retain and foster the rosewood trees for the purpose of selling timber. The question whether the rosewood trees were planted by the assessee's predecessors or they were of spontaneous growth is irrelevant for the purpose of decision on the question whether the receipts are capital assets or not. In view of the common ground that the trees were maintained as shade trees for the coffee bushes, the shade trees, in our opinion, are capital assets as much as the coffee bushes and the proceeds of sale of timber of the shade trees is a capital receipt in the hands of the assessee and not taxable as income.
31. The fact that the assessee received the proceeds of sale of rosewood not in a lump sum in one year but in the course of more than one year is immaterial for the purpose of determining its nature. An income receipt is not necessarily recurring nor a capital receipt necessarily single. A single receipt may be an item of income and an annual receipt recurring over a number of years may be capital.
32. Therefore, both the objections raised by the assessee before the Agricultural Income-tax Officer and reiterated before the Commissioner of Agricultural Income-tax were well founded and the Commissioner was in error in overruling the said contentions.
33. For the above reasons, these revision petitions are allowed and the order of the Commissioner of Agricultural Income-tax is set aside. The respondent will pay the costs of the petitioner. Advocate's fee Rs. 250 one set.