This revision arises out of proceedings under the Agricultural Income-tax Act. The petitioner is Ouchterlony Valley Estates Ltd., a limited company engaged in growing tea and coffee and also in the manufacture of tea. It owns 1,400 acres of tea and 3,000 acres of coffee in Gudalur taluk in the Nilgiris District. This large area is divided into several sections, each being called an estate. The company is an assessee under the Madras Agricultural Income-tax Act (5 of 1955). For the assessment year 1960-61, the company filed a return showing a net income of Rs. 2,09,096. A month later, that is, on October 17, 1960, it filed a revised return showing a net loss of Rs. 93,018, stating that there were certain arithmetical inaccuracies in the earlier return. The Agricultural Income-tax Officer considered the return, checked the accounts, disallowed certain claims, added up the income from certain trees and made an assessment under section 17(3) of the Act. He determined the net agricultural income at Rs. 3,51,285.40 and levied a tax of Rs. 1,58,078.43.
The company preferred an appeal under section 31(1) of the Act to the Assistant Commissioner of Agricultural Income-tax, Ootacamund, contending that the Agricultural Income-tax Officer should not have included the sale proceeds of 2,146 trees amounting to Rs. 1,59,334, since they were forest trees of spontaneous growth and the income therefrom cannot be called 'agricultural income' within the scope of the Act. The Assistant commissioner negatived this contention and gave a finding that the trees sold by the company were not of spontaneous growth, that the sale proceeds would constitute agricultural income and the assessee is liable to pay tax on the income so earned.
The petitioner company took the matter on further appeal to the Tribunal once again contending that it is not liable to pay tax on the sale proceeds of the trees. The Tribunal also negatived its contention and confirmed the order of the Assistant Commissioner. It is against this order that the company has preferred this revision petition.
The short point that arises for our consideration is whether the income derived from the sale of trees is agricultural income.
It is necessary for us to refer to a few more facts in regard to the history of the estate and the origin of the trees which were sold by the company. The estate called the Ouchterlony Valley Estate seems to be an ancient estate which can be traced back to 1845 when Mr. James Ouchterlony first obtained a lease for a block of land for an annual rent of Rs. 20 and, subsequently, took another lease for the extensive block of land in the valley. There were certain proceedings between him and another leaseholder. Finally, the whole of the Ouchterlony Valley was settled in accordance with rule 13 of the Wynad Settlement Rules and the assessment imposed on the several estates comprised therein was consolidated, the rate fixed being Rs. 2 per acre on all cultivation at the time of the settlement plus 6 pies per acre on the uncultivated areas. According to the assessing officer the trees in this estate are about 100 years old. The Assistant Commissioner of Agricultural Income-tax made a personal inspection of certain survey numbers in the estate in order to verify whether the trees had grown in any recognisable pattern and whether the trees have been removed with roots and his finding was that the trees were scattered over a large area and there was no symmetry or recognisable pattern in their mutual bearings. He also observed that the Agricultural Income-tax Officer was not definite that the trees were planted by human agency and that it was also not proved that the trees were of 'spontaneous growth'. He also pointed out that neither side had led any expert evidence on the question of spontaneous growth or otherwise. He, therefore, took the trouble of referring to certain text-books on the subject for guidance in the matter. He referred to a series of books called Silviculture of Indian Trees by R. S. Troupe, copiously quoted passages from them for coming to the conclusion whether these trees could have been planted in those areas in the estate in which they are now found. In this state of evidence we have to consider whether the Agricultural Income-tax Officer and the Assistant Commissioner were right in coming to the conclusion that the sale proceeds of the trees sold by the company would come under 'agricultural income'.
What is agricultural income has come up for constant interpretation and discussion in several cases arising out of the Indian Income-tax Act. Originally our High Court was inclined to the view that income from forests was agricultural (vide Commissioner of Income-tax v. Zamindar of Singampatti) but this was obiter. The view taken in the above case was, however, doubted in a later case, Manavedan Tirumalpad v. Commissioner of Income-tax. In Province of Bihar v. Pratap Udai Nath Sahi Deo, it was decided that neither income from the sale of wood (spontaneously grown) in jungle nor that from letting land and trees for the cultivation of lac nor that from wild forest in the jungle is agricultural income, because none of them required cultivation in the ordinary sense. the Privy Council laid down certain principles for deciding whether income from forest trees is agricultural income or not. In Raja Mustafa Ali Khan v. Commissioner of Income-tax concurring with the decision in Pithapuram case the Privy Council held that there should be some measure of cultivation and expenditure of some skill and labour before land can be said to be used for agricultural purposes and, therefore, income from sale of forest trees growing naturally and without the intervention of human agency is not agricultural. In commissioner of Income-tax v. Sundara Mudaliar, our High Court has held that where the assessee carried on the operations of planting, rearing, watering, fencing, etc., and also there was some cultivation or prodding of the soil at the inception and subsequently also at intervals the income was clearly from agriculture. In Pratap Singh v. Commissioner of Income-tax, where there was a mere regeneration and preservation of spontaneously grown forest, where human skill and labour was not used for ploughing the soil, where operations such as pruning and weeding were not carried out either for protection of spontaneously grown trees or for the growth of the trees, the income is not agricultural income :
In Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy, the Supreme Court has reviewed the entire case law with regard to agricultural income with reference to the definition in the Income-tax Act and the nature of Income from forest trees. Bhagwati J., who delivered the judgment on behalf of the Bench, has exhaustively reviewed the cases in almost all the courts in India up to the date of his judgment. It is enough for our purpose to summarise the principles laid down in the judgment. They are :
(1) Some basic operation, such as tilling of the land, sowing of the seeds, planting and similar operations involving expenditure of human labour and skill should have been performed on the land.
(2) Mere performance of subsequent operations such as weeding, digging the soil around the growth, removal of undesirable growth and all operations which foster the growth and preserve the same not only from insects and pests but also from depradation from outside, even though they may involve human labour and skill, would not be themselves be agricultural operations unless the basic operations mentioned above have been performed on the land.
(3) It is only if the products are raised from the land by the performance of the basic operations that the subsequent operations attach themselves to the products of the land and acquire the characteristics of agricultural operations.
(4) The term 'agriculture' in its wider sense comprises within its scope the basic as well as the subsequent operations described above regardless of the nature of products raised on the land. These products may be grain or vegetables or fruits which are necessary for the sustenance of human beings including plantations and groves, or grass or pastures for consumption of beasts, or articles of luxury such as betel, coffee, tea, spices, tobacco, etc., or commercial crops like cotton, flax, jute, hemp, indigo, etc., or products of the land which have some utility either for consumption or for trade and commerce and would also include forest products such as timber, sal and piyasal trees, casuarina plantations, tendu leaves, horra nuts, etc.
(5) Human labour and skill spent in the performance of the basic operations only can be said to have been spent upon the land. Human labour and skill spent in the performance of subsequent operations cannot be said to have been spent on the land itself, though it may have the effect of preserving, fostering and regenerating the products of the land.
The law being thus settled, we have to consider whether the trees were planted by the predecessors of the present owner or whether the trees grew spontaneously. There is absolutely no evidence on record to show that the trees were planted by any human agency. Even according to the assessing officer, the trees in this area are more than 100 years old. The taxing authorities are not definite whether any human skill was used in protecting the forest trees. The Assistant Commissioner, while observing that neither side has led any expert evidence on the question whether the trees were spontaneously grown, has nevertheless held that the income derived from the sale of trees is agricultural income merely on the ground that the assessee has not proved that the trees were of spontaneous growth. It is true that under the Indian Income-tax Act the law is well settled that a person who claims the benefit of exemption has to establish it. But under the Madras Agricultural Income-tax Act, the burden of proving whether a particular income is 'agricultural income' is on the department. Therefore, the Assistant Commissioner is wrong in stating that the burden of proof lies on the assessee and that he has not discharged the burden of proving that the trees were of spontaneous growth. On the other hand, the taxing authority has to prove that the trees which were sold by the assessee were not of spontaneous growth. We are satisfied that the sale proceeds of the trees cannot be called agricultural income, as the trees were forest trees of spontaneous growth, and hence not liable to agricultural income-tax.
The revision is accordingly allowed. No costs.