1. In the above five cases, the following common question of law has been referred to this court under s. 256(2) of the I.T. Act, 1961 :
'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the receipts from clearing the forest trees for planting the cleared area with plantations and the sale proceeds of timber logs of such felled trees would only amount to realisation of capital ?'
2. One A. K. P. Doraiswamy Nadar and his four sons on acquiring an estate called 'Aruna Group of Estates' consisting of 1,856 acres of cardamom, coffee and pepper plantations and also about 887 acres of forest land with standing timber for a sum of Rs. 6,45 lakhs, formed a partnership among themselves on May 17, 1960, under the name and style of Pandian Plantations, and the objects of the partnership are stated as follows :
'The objects of the partnership are owning, working, developing and planting of cardamoms, coffee, tea and other agricultural and horticultural products, raising, harvesting and including the sale of gathered produce such as coffee, cardamom, pepper, etc., in such places as afford a fair market for those goods.'
3. By a deed dated July 31, 1965, the managing partner of the assessee-firm entered into an agreement with one A. Sulaiman for clearing the forest for raising cardamom, coffee, tea, rubber plantations and betel nuts at varying rates per acre depending upon the situation of the land. The agreement also provided for the period during which the clearance has to be made by the contractor. Similar agreements have also been entered into between the firm and other contractors. For the assessment years 1965-66 to 1969-70, the amounts received from the contractor for clearance of the trees by the assessee were found to be Rs. 3,733, Rs. 18,642, Rs. 53,310, Rs. 1,28,500 and Rs. 60,652, respectively.
4. The ITO considered these receipts from the contractor as income taxable in the hands of the assessee. The assessee contested the assessability of the income before the AAC. The AAC upheld the order of the ITO for the first four years; but, however, disagreed with the ITO in respect of the subsequent one year 1969-70 where he held that when the trees have been removed with roots, the intention of the assessee is clear and the rearing of the trees is not the sole object. In relation to the first four years, the assessee took the matter on appeal, and the Revenue took the matter in appeal in respect of the fifth year of assessment.
5. The Tribunal having heard the rival contentions of both the parties held that all the receipts in these cases are only realisation of capital and they cannot be treated as revenue receipts. The Tribunal also referred to the terms of the partnership to find out the intention of the parties and after finding out that the intention of the assessee was only to raise plantations after the clearance of the trees, it held that the receipts should be taken to be capital in nature. Aggrieved by the decision of the Tribunal, the Revenue has come before this court.
6. In these cases, on the facts found by the Tribunal, the receipts got by the assessee from the contractors for clearance of the trees, in our view, have rightly been held as capital in nature. The Tribunal after going through the terms of the agreement entered into between the assessee and the contractor, found that the said agreement has been entered into for the purpose of making the land suitable for plantation after felling the trees and removing them from the area. It is also found by the Tribunal that as per the agreement, even the roots are to be cleared. On the basis of the affidavits filed by the contractor, the assessee and the officials of the Department, the operation of clearance was done only for the purpose of making the land fit for plantation purpose. Having regard to the object for which the clearance of the trees was effected, the receipts by the assessee from the contractor can only be considered as capital in nature. On the facts found, the Tribunal applied the ratio of the decision in Vishnudatta Antharjanam (A.K.T.K.M.) v. Commr. of Agrl. I.T. : 78ITR58(SC) , which has held that such receipts are only capital in nature. The facts in these cases also attract the ratio laid down by this court in CIT v. M. S. P. Nadar Sons : 87ITR202(Mad) , where the facts are almost identical. The decision of this court in the M. S. P. Nadar Sons' case : 87ITR202(Mad) , which squarely applies to the facts of these cases has been approved by the Supreme Court in CIT v. Ambat Echukutty Menon : 120ITR70(SC) . In the case, Supreme Court has held that even if the roots have been left intact allowing further growth if the intention of the party in clearing the trees is only to make the land fit for further plantation, the intention of the parties cannot be ignored, since the object of clearance of the trees was not regeneration of the trees, but the protection of the same eventually to be used for the purpose of cultivation. In view of the said decisions, we have to uphold the decision taken by the Tribunal in this case. The question is, therefore, answered in the affirmative and against the Revenue. The assessee will have its costs from the Revenue. Counsel's fee Rs. 500 (one set).