V. Bhargava, J.
1. The following questions of law have been referred for the opinion of this Court:
1. Whether in the circumstances of the case the proceedings started for the assessment year 1945-46 under Section 34 of the Income-tax Act were valid in law?
2. Whether In the circumstances of the case, the price of timber trees received by the assessees was exempt from the income-tax either as,
(a) agricultural income under Section 4(3)(viii), I. T. Act, or as,
(b) casual income under Section 4(3) (vii), Income-tax Act.
2. This reference relates to assessment years 1945-46 and. 1946-47. The assessee was assessed for the year 1945-46 on 28th of November 1945 on a total income of Rs. 12,055/- on the basis of the return filed by him. The assessee owned certain blocks of forest in the district of Gorakhpur situate in villages Anantpur alias Bhadauna and Dumri which according to the assesses were follow land but had been converted into forest by planting trees on them. The trees on these lands were sold under an agreement to Tribeni Nath and Ramanand for a sum of Rs. 2,15,000/-and to Mohan Singh Autar Singh for a sum of Rs. 1,95,000/-.
Under this agreement certain sums were realised by the assessee for the sale of the trees during the two previous years corresponding to the two assessment years in question viz., 1945-46 and 1946-47. After the assessment for the year 1945-46 had been completed on 28th November, 1945 by the Income Tax Officer of Banaras, a letter dated 8th January 1946 was received by him from the Income Tax Officer, Gorakhpur informing him that the assessee had sold standing timber in the Zamindari at Gorakhpur to Tribeni Nath and Ramanand for Rs. 2,15,000/- and to Mohan Singh Ram Autar for Rs. 1,95,000/-. The Income Tax Officer, Banaras, thereupon, addressed a letter making inquiries from the assessee about the details of the transactions.
The information was supplied by the assessesand, thereafter on 23rd February 1946, the IncomeTax Officer, issued a notice under Section 34 of theIncome Tax Act in respect of the assessment for,the year 1945-46 calling upon the assessee to showcause why his income from the sale of these trees,which had escaped assessment, should not toebrought into assessment.
In the proceedings for the original assessment of 1946-47, a sum for the sale of trees by the assesses had been shown in his return and hence the assessee challenged the validity of the notice under Section 34. In addition, the assessee challenged the liability to tax of the income derived by him from the sale of forest trees and timber on the ground that it was agricultural income and in the alternative that it was casual income. The Income Tax Officer rejected these contentions and the appeal of the assessee to the Appellate Assistant Commissioner as well as to the Tribunal failed. Consequently, at the request of the assessee the questions mentioned above have been referred to this Court.
3. So far as the first question referred to us is concerned, the contention on behalf of the assessee was that, at the time when the notice under Section 34 of the Income Tax Act was issued to the assessee for the assessment year 1945-46, the Income Tax Officer had not received any definite Information in consequence of which he discovered that a part of the income had escaped assessment. The main contention was that the information, which was received by the income Tax Officer Banaras on 8th of January 1946, had already been present before him at the time of the original assessment which was made on the 28th of November 1945, and the income from the sale of the forest trees had not been assessed by theIncome Tax Officer on the view that it was not liable to be charged with income-tax.
This contention in effect was that the material, which came before the Income Tax Officer in January 1946, was not fresh material at all and, the issue of the notice was a mere change of opinion. Dealing with this contention, the Tribunal mentioned in its judgment that it had been pointed out by the Income Tax Officer who dealt with the proceedings under Section 34 that no books of account containing the items in question (i.e. entries relating to income from sales of trees) were produced before him in the revised assessment proceedings containing any signature of his predecessor-in-office in token of their examination by him.
It would appear from, this that the Income-Tax Officer; who had made the original assessment on the 28th November, 1945, was not thesame individual who received the letter dated 8thJanuary 1946 from the Income Tax Officer, Gorakhpur and who issued the notice under Section 34of the Income Tax Act. The officer being different pointed out in his order that the books ofaccount which were produced before him in proceedings under Section 34 did not contain any signature of his predecessor in token of the fact thatthese account books had been examined by thelatter.
The Tribunal also added that the Appellate Assistant Commissioner had pointed out that the assessee did not produce the Siahas and Jamabandis before him but only the books relating to Banaras in which the sale of timber was noted in Gorakhpur Khata, that the assessee had been taxed for Rs. 35,000/- as his receipts during the previous year, while the Gorakhpur Khata had a total of Rs. 1,58,625/- and that no details of the various items were given in the accounts except under the general head 'Amdani Ilaqua'.
After mentioning these facts which were pointed out by the Income Tax Officer and the Appellate Assistant Commissioner in their orders, the Tribunal did not proceed to record their concurrence with the views of the officers on these points. What the Tribunal stated was merely that they agreed with the Appellate Assistant Commissioner's view that, 'when the items in question were mixed up with such a mass of agricultural income as is admitted by the assesses's own Munim Ramji, no conscious knowledge of the existence and the character of such income could be attributed to the Income Tax Officer seized, of the original assessment. Neither the order sheet of the original assessment for the notes about the examination of accounts that were produced, nor even the rough notes on the miscellaneous file contain any iota of proof to show that the items in question were ever the subject of any consideration by the Income Tax Officer.'
4. On these facts found by the Tribunal, the Tribunal proceeded to give the ultimate finding, in the following words:
'We therefore hold that there is no reliable material before ui to hold that the items relating to the forest income were the subject of any conscious decision on the part of the Income Tax Officer that they were not assessable to tax. There is no indication in the original assessment order that the income from the forest trees had ever attracted the attention of the Income Tax Officer.'
5. This final finding was further reinforced by the Tribunal by making a reference to thestatement of Ramji, the Munim of the appellant,who had stated that he had shown the income from the sale of the forest trees and the income from the rent under the amalgamated account with the head 'Amdani Illaquas' and that he had sorted out the forest income from the rent income subsequently at the instance of the two sons of the assessee. On these findings the Tribunal went on to hold that in this case there was no question of any change of opinion by the Income Tax Officer or the reassessment of the income which had been previously held to be non-assessable by him and that in fact it appeared that the Income Tax Officer had no knowledge of the income from the forest until the Income Tax Officer, Gorakhpur informed him; vide the latter's letter dated 8-1-1948 that the appellant had sold the trees and earned an income therefrom.
The language in which the Tribunal recorded their findings clearly indicates that they did not repell the contention of the assessee that the entries relating to the income from the forest did exist in the account books. They must be held to have accepted this fact and their decision that the discovery that some income had escaped assessment was the result of the definite information received through the letter of the Income Tax Officer, Gorakhpur is based on their finding that there was no material to hold, that the items relating to the forest income were ever in the conscious knowledge of the Income Tax Officer. In thus proceeding, the Tribunal clearly committed an error of law as they lost sight of the principle of burden of proof In such a case.
Under Section 34 of the Income Tax Act, the jurisdiction of the Income Tax Officer to initiate proceedings depended on his receipt of definite information, the consequence of which was that he discovered that some income had escaped assessment. The Income Tax Officer could, therefore, proceed under that provision of law only on the clear finding that the Income Tax Officer did not have that definite information at the earlier stage of the original assessment. If that information was already available to the Income Tax Officer when he first made the original assessment, it is not possible to say that the subsequent discorery of escape of income from assessment is the result of receipt of the same information at the later stage. A mere possibility that that information had escaped his notice when he was making the original assessment is not sufficient to justify proceedings under Section 34 of the Indian income Tax Act. The principle that an Income Tax Officer cannot proceed under Section 34 of the Indian Income Tax Act on the basis of information which was already in his possession was laid down by the Bombay High Court in Haji Ahmad Haji Esak and Co. v. Commissioner of Income Tax, Bombay City : 19ITR331(Bom) , where it was held:
'The officer cannot act under this section even though assessment has escaped if he is acting on an information which was already in his possession. It must be an information which was not in his possession at the time when the original assessment was made, but an information which subsequently came into his possession.'
In this view, the burden lay upon the Department of proving affirmatively that the information about the income from forests in this case was not in possession of the Income Tax Officer when he made the original assessment. As we have pointed out earlier, the findings recorded by the Tribunal show that the income received by the assessee from forests was entered in the account books which were before the Income Tax Officer,and the presumption is that, at the time of making the assessment, he must have examined the account books, so that this information was available to him at that time and was in his possession. In these circumstances, no burden could have been placed on the assessee to establish that those entries in the account books had come to the conscious knowledge of the Income Tax Officer. The reverse presumption that the Income Tax Officer had no conscious knowledge of those entries cannot follow from the mere failure of the assessee to establish that the Income Tax Officer did have such knowledge.
The Department produced no material at all to prove that, in fact, the Income Tax Officer had not fully scrutinised the account cooks, so that his attention had not been attracted to those entries. There was in this case, therefore, no material at all on the basis of which a finding of fact could be recorded that the Income Tax Officer, who made the original assessment on the 28th of November, 1955, had no knowledge at all of the receipt of the income from forests by the assessee at the time of making that assessment, The Department having failed to discharge the burden that lay on it, the Tribunal committed an error in holding that the proceedings were validly taken under Section 34 of the Indian Income Tax Act. Those Proceedings were not valid and, consequently, the first question must be answered in favour of the assessee.
6. The second question has been divided into two parts: In the first part of the question, the point, raised is whether the income received by the assessee from forests was agricultural income under Section 4(3)(viii) of the Income Tax Act. On this point, the finding of fact recorded by the Tribunal on scrutiny of the evidence was that the evidence for short of proving that the forests were grown by the process of agriculture in the manner stated by the assessee's witnesses. The result of their examination of the evidence was that the assessee had failed to prove it as a fact that the forests in question were planted by him by means of any agricultural operations,
The forests consisted of timber trees which were natural products of many parts of this province and they were, therefore, of spontaneous growth like other natural products. On these findings, it is quite clear that the income of the assessee from forests in this case cannot be held to be agricultural income. Reference may be made to a decision of this Court in Pratap Singh Balbeer Singh v. Commissioner of income-tax, U.P. and C. P. : 22ITR1(All) , where it was held that the words 'agriculture' and 'agricultural purposes' with reference to land clearly imply that some operations must be carried on, the soil of the lands itself and human skill and labour should be used for the purpose of ploughing the soil, manuring it, planting the trees or some similar process.
Mere weeding, care and preservation of forest trees, which grow spontaneously, were not operations on the soil of the land which are necessary to constitute the process into a process of agriculture. Planned and scientific exploitation of a forest of spontanous growth, though it might yield regular income, would not be income from 'agriculture' as no operations are carried out and no human skill or labour is expended in such a case on the land itself. The assessee's evidence that the trees had been grown by operations performed on the land on behalf of the assessee and by actually planting seeds or seedlings was disbelieved by the Tribunal. In such circumstances.the income of the assessee from the forest land cannot be held to be agricultural income.
On behalf of the assessee reliance was placed on a decision of the Assam High Court in Jyotikana Chowdhurani v. Commissioner of Income-tax. Assam, . In that case, the learned Judges of the Assam High Court considered the decision of this Court in : 22ITR1(All) cited above and differed from the view taken in that case. The learned Chief Justice, delivering his judgment, divided the various cases on this point into three groups and was of the view that the case decided by this Court, cited above, fell in the second group in which it had been held that ploughing or tilling were not the only decisive factors in agricultural operations but that human labour and skill must be spent in operations upon the land itself, e.g., in the shape of sowing, planting, hosing, watering, manuring etc.
The third group of cases, the learned Chief Justice held, laid down the correct view that if human skill and labour is employed, to aid the growth of the trees, even if the trees are of spontaneous germination, the operations are agricultural operations. In this class the learned Chief Justice included cases where human labour and skill may have been so employed as to exploit the land to its best advantage and make it yield to its products or things growing on the land, its maximum nutriment--be it crop or fruit or vegetable or trees and the process in each case should and must be regarded as 'agricultural process'.
A similar view was taken by a Bench of the Orissa High Court in Vikram Deo Varma, v. Commissioner Of Income Tax, B and O : 29ITR76(Orissa) . Both these cases also proceed on the interpretation of the decision of their Lordships of the Privy Council in Mustafa Ali Khan v. Commissioner of Income Tax, U. P., Ajmer Merwara , which is the leading case on the point and which was followed by this Court in : 22ITR1(All) . It appears to be unnecessary for us to discuss all the decisions on this point again in detail.
It appears to us to be sufficient to refer to a decision of the Supreme Court in Civil Appeals Nos. 107-111 of 1949, Pateshwari Prasad Singh v. Commissioner of Income Tax, U. P., C. P. and Berar (F) which case was decided on the 26th of September, 1051, by a Bench consisting of their Lordships H. J. Kania C. J., Mehr Chand Mahajan J. and N. Chandra Sekhara Aiyar J., and which case does not seem to have been reported so far in any of the law reports. In that case, it was noted by the Supreme Court that the Income-tax Appellate Tribunal, in dealing with the matter had stated that counsel appearing on behalf of the assessee had conceded that there was no evidence on record as regards the actual cultivation of the soil and that there was, in fact, nothing to indicate that any human agency was employed in the matter of planting or rearing trees and that the Tribunal had concluded by saying that there being nothing to show that the trees had grown as a result of cultivation, they must hold that they were of spontaneous growth.
It was on the basis of this finding of fact recorded by the Tribunal that the Chief Court of Oudh had returned the answer that the income from the sale of those forest trees was net agricultural income. After noticing these circumstances, the Supreme Court went on to hold that Mr. Kunzru, who was appearing for the assessee, had quite properly conceded that the answer returned to the question referred could not be challenged. The Supreme Court thus clearly expressed a view that the concession by Mr. Kunzru was proper, indicating that they approvedof the principle that, on the facts found by the Tribunal in that case, the income from the sale of the forest trees did not amount to agricultural income.
The Supreme Court went on to add that this concession by Mr. Kunzru appeared to have been made in view of the decision of their Lordships of the Privy Council in . Earlier in their judgment, while mentioning the facts, the Supreme Court had also noted that no evidence had been led by the Tribunal to show that the Taungia Scheme adopted by the U.P. Government Forest Department, which had been adopted by the assessee, necessarily entailed plantation, or that the trees and other things were the outcome of human agency.
These views expressed by the Supreme Court support the view already taken by this Court in : 22ITR1(All) cited above and show that, in the opinion of the Supreme Court also, it was necessary to constitute income from forests into agricultural income that the process carried on should entail plantation or that the trees and other things should be the outcome of human agency, or that the human labour and skill should be employed in the matter of planting or growing trees. In the case before us as we have already mentioned, the findings recorded by the Tribunal clearly are that no human skill or labour was employed in any such manner and, consequently, the income derived from forests by the assessee cannot be held to be agricultural income.
7. The other contention raised by the assessee in the second question that it was casual income is based on the ground that the entire timber of the trees in all the areas in the two villages Anantpur alias Bhandauna and Dumri was sold at one time, so that it was one single transaction which did not result in any such income to assessee which could be charged with income-tax. The Tribunal rejected this contention holding that the income had accrued from the sale of trees, which became the stock-in-trade of the assessee as soon as they were severed from the forest ground with a view to earn an income from the sale of such trees as had reached, their cutting age. On behalf of the assessee, an agreement entered into by him with Tribeni Nath Tewari and Ram Anand Tewari was produced in this Court in connection with this reference.
The terms contained in that agreement show that the trees which were sold were to be removed by operations carried out over a number of years and the price of the trees was also to be paid to the assessee in instalments spread over a similar period. The period was of several years. While these facts existed, it is not possible for us to hold that there was no material for the finding given by the Tribunal that the income had arisen from sale of trees which had become stock-in-trade of the assessee when they were severed from the forest and this severance was with a view to earn an income from the sale of such trees as they reached their cutting age. This finding having been given by the Tribunal, the further view that it was not casual income but income from a business carried on by the assessee cannot be said to be at all unreasonable. That Income was, therefore, not exempt even as casualIncome. The second question must, therefore, be answered against the assessee.
8. As a result, we answer both the questionsIn the negative, in the circumstances of the case,we make no orders as to costs.