1. The question involved in this Reference under Section 63(1) of the Bengal Agricultural Income-Tax Act relates to three sums of money which, according to the contention of the Respondent Commr. & the finding of the Appellate Tribunal, are agricultural income of the assessee but according to the assessee himself, not income at all. For reasons presently to be stated he has not sought to argue further that even if the sums concerned be income receipts, they are still not agricultural income within the meaning of Section 2(1) of the Act.
2. Although there is a single reference, it covers three assessments made for three consecutive assessment years, viz. 1944-45, 1945-46 and 1948-47. As the monies received by the assessee in the three relevant accounting years were derived from transactions of an identical character, a common question of law has been referred, although the amounts involved naturally differ.
3. The facts are as follows. The assessee, the Maharaja of Dharbhanga, is one of the bigger landlords of the country and among his possessions is a tract of forest land extending over 50 square miles and grown mostly with sal trees. In respect of each of the three years mentioned above, the Maharaja filed a return of his agricultural income in this Province, but in none of them did he include any income derived from forest lands. The Income-tax Officer, however, discovered that in each of the three years the Maharaja had collected a fairly substantial amount by disposing of sal trees, standing on one part or another of the forest tract and acting on the view that the receipts constituted agricultural income he included them in the appropriate assessments, after allowing certain deductions. The sums so brought under assessment were Rs. 17,719/4/ as for the assessment year 1944-45, Rs. 4,200 for 1945-46 and Rs. 17,032/2 as for 1946-47. Before the Income-tax Officer, the assessee objected to the inclusion of these sums in his assessable income and after the assessments had been made, he appealed successively to the Appellate Assistant. Commissioner and the Appellate Tribunal, but without success. He then applied for a reference to this Court of a question of law formulated by him, but the Appellate Tribunal, although it made the present reference, altered the form of the question. While the assessee required the Tribunal only to ask whether the sums concerned were capital receipts, the Tribunal re-framed the question in the widest possible form and has asked this Court to say whether the sums can be treated as agricultural income, assessable under the Bengal Act. The question actually referred is as follows:
'Whether on the facts and circumstances of the case and upon a true construction of the Ekrarnamas (agreements), the money received by the assessee on account of sale of jungle woods in his zemindary can be treated as agricultural income, assessable under the Bengal Agricultural Income-tax Act, 1944?'
4. In spite of the wide terms in which the question has been framed, I think we are not required, in the circumstances of the case, to deal with anything more than one aspect of it. The only point ever urged by the assessee, either before the Tribunal or the Departmental authorities, was that the sums in question were capital receipts and therefore not assessable as income. That this was so is abundantly clear from the various orders and the grounds of appeal, both before the Appellate Assistant Commissioner and the Tribunal. The question of law formulated by the assessee for reference to this Court was limited to that one point and when he found that the question, as referred by the Tribunal, made no reference to the sums being alleged to be capital receipts, he applied to the Tribunal for an amendment of the question.
On being told by the Tribunal that it was functus officio, he made an application to this Court which was placed before us along with the reference. In that application the assessee stated that his contention had always been that the money was a capital receipt and that it was on that question that he had sought a reference to this Court and he prayed that the question referred by the Tribunal might be suitably amended so as to bring out that character of the controversy. At no stage did the assessee contend that the sums concerned, even if income, were not agricultural income and he made no attempt to do so before us, not, as his learned advocate put it, because he admitted the income to be agricultural, but because to make it out to be non-agricultural, would be only to invite assessment under the Indian Income-tax Act at a higher rate of tax. The learned Advocate for the Commissioner also naturally did not ask us to pronounce on the second question as well, because the decision of the Tribunal is in his favour. In the above circumstances, it appears to me that as to the receipts being agricultural or otherwise, there is no question between the Department and the assessee and all that we are required to consider is whether the sums concerned are capital receiptsNor is it necessary to amend the question, as prayed for by the assessee, for, the point sought to be introduced by him is covered by the question, as framed.
5. The facts relevant to the question to be considered by us may now be stated. It is unfortunate that the Tribunal should not have included a full statement of the facts found by it in the case stated, out should have left them to be collected partly from the statement of the case and partly from the appellate order. Be that as it may, the facts found are that the assessee owns forest lands covering an area of 50 square miles. The trees in these forests are mostly sal trees, some of which have a girth of more than 3 feet at a height of 3 feet above the ground, but there are other trees as well, fruit-bearing and valuable timber trees. These latter are not sold, but every year, the sal and other jungle trees in those blocks of the forest which have become mature for extraction, are sold to contractors by auction, with the reservation that sal trees with a girth of more than 3 feet at 3 feet above the ground are excepted and must not be cut.
The consideration for a block or blocks is always a lump sum, but it is allowed to be paid by instalments or parts, the scheme, broadly stated, being that a period of about two years and a half is fixed within which the entire consideration must be paid & the trees sold, cut down & removed. In cutting down the trees the purchaser is required not to leave stumps more than 5 inches higher than the ground and not to disturb the roots, so that new shoots may spring from the stumps. Such shoots grow into mature sal trees and become fit for extraction in about 10 years' time and then the particular block is auction-sold again and bring in a further sum to the assessee. The trunks of the trees so sold are used as posts and rafters of kutcha huts or for making fences, while the branches are used as fuel.
6. The tribunal recorded certain further findings which are not relevant to the question we are required to decide, but which it is necessary to set out in order to explain how it dealt with & disposed of the case. It was pointed out that the trees which had been sold in the years in question were coppice growths from stumps of trees cut down ten or twelve years earlier and so it was held that they were not trees of wild and spontaneous growth. In the opinion of the Tribunal, human labour and skill had been expended on promoting the growth of those trees, because the contractors who had purchased and cut down trees on the earlier occasion had had to take care not to leave stumps higher than five inches from the ground and also because, during the rains, the forest had to be guarded carefully against trespass by men and animals so that the growing shoots might not be damaged.
7. It was contended before the Tribunal, as before us, that what the assessee had conveyed to the contractors by the transactions in question was not merely a right to cut down and remove trees but an interest in land and accordingly, the sums he had received for parting with such interest were capital receipts. Reference was made to the terms of the deeds by which the transactions were evidenced. The Tribunal held that what the assessee had granted to the contractors was a 'mere right to cut & collect the fuel wood' and nothing more and since, in the opinion of the Tribunal, there was nothing in the present case to exclude the application of the decision in the -- 'Commissioner of Agricultural Income-tax, West Bengal v. Jagadish Chandra'. 53 Cal W N 596: 17 ITR 426, it followed thatdecision and held the receipts in question to be agricultural income of the assessee.
8. The question whether when a Zemindar sells trees from his forests, the proceeds are capital or income receipts in his hands was not raised in 'Jagadish Chandra Deo's case : 17ITR426(Cal) . It proceeded on the footing that the receipts were income and held on the facts, which were largely similar to those of the present case, that the income was of an agricultural character. For reasons already stated, we are not dealing with the latter question, but since on that question 'Jagadish Chandra's case' was followed by the Tribunal in the order out of which the present reference has arisen, I desire to make it clear that as to whether that case was rightly decided or whether even if rightly decided, it concludes the present case on the second, question, I must not be understood to express any opinion.
9. Reverting now to the question before us, the broad contention of the assessee was that the sums in question were capital receipts, though he does not appear to have advanced it always in the same form. In what shape it was urged before the Income-tax Officer is not clear, but before the Appellate Assistant Commissioner it was said that the sums in question were 'the price of the trees' and as such, capital receipts. What was meant must have been that the trees themselves were capital assets which, by the sales, had been converted into cash. Before the Appellate Tribunal, the ground was changed and it was then urged that the transactions concerned were in fact leases whereby the assessee had granted a portion of his zemindary rights to the contractors for a limited period, with the right to cut down and. remove certain types of trees. Before us the contention was repeated and, to a certain extent, developed. As a result of some interrogation by us, a second branch was added to it and it was said that the sums in question were capital receipts either in the strict sense that they represented replacement of a capital asset or in the loose sense that they were of a casual and non-recurrent nature or in both. We shall deal with those contentions separately.
10. In support of the first contention, it was stated that the capital asset parted with was possessory interest in the jungle lands for a specified period with the right to enjoy the lands by cutting down & removing certain specified varieties of trees and that that interest had been transferred on receipt of a single payment. All the elements of Section 105 of the Transfer of Property Act were therefore present and what was granted in each case was a lease. The transactions, as already stated, are evidenced by deeds, one of which has been included in the paper-book as typical of all. The translation which has been made by a pleader of Laheriasarai is not very happy or always accurate, but there was no dispute as to the true meaning of any expression and the parties readily accepted such corrections as we had occasion to suggest. It will be convenient to refer at this stage to the terms of the deed.
11. The deed begins by describing itself as an agreement for the purchase of jungle wood and also an instalment bond for the payment of Rs. 8261/4, which is stated to be the balance of the purchase money. It is noticeable that the transaction is referred to as a purchase and the subject matter, as specified, is not land, nor even trees, but only jungle-wood (Jangler Koshtha). The document proceeds to recite that there had been a proclamation for sale by auction of jungle wood' from the jungles of the Maujas mentioned in theSchedule and the highest bid of Rs. 11,015, offered by the executant, had been accepted. In the Schedule, a number of jungle plots, situated in the district of Bankura, are mentioned in groups and in the case of each group, particulars of the plots, together with their area, are first given, the total area is mentioned next, then the Zemindary right of the assessee is recited and lastly the subject-matter of transfer is described in the carefully limited words, 'only the wood over it' (Uparistha Kashtha matra). In body of the deed, the 'wood' is further specified and it is stated that out of the jungle mentioned in the Schedule and excluding all fruit-bearing and valuable timber trees (of which 21 varieties are particularly mentioned), as also sal trees of a girth of more than 3 feet at 3 feet from the ground, the executant is purchasing sal, Parashi and Jhanti trees for a period of two and a half years from a certain date to a certain date. The consideration of Rs. 11,015, is described as the 'price of the wood of the Jungle purchased by me' (Amar Khorida jangler Kashther mulya) and a scheme of graduated payment and graduated appropriation of the trees is set out.
The jungle and the price are both divided into three parts and it is provided that the initial payment which has already been made, will entitle the executant to cut down trees only from the first part of the jungle described in Schedule 'A' that he will be entitled to cut trees from the second part (Schedule B) only on payment of the second instalment of the price and that similarly before he can cut down trees from the third part (Schedule C), he will have to pay the third instalment of the price fixed. There are a number of other undertakings which embody the duties of the purchaser and the restrictions imposed on him. He must not cut trees at a height of more than 5 inches from the ground and must not disturb the roots of the stems. He must not cut any tree a second time and must not cut any tree at all from the end of Jaitha to Sraban. He must remove all trees cut down by him within the month of Jaistha subsequent to the cutting and thereafter will have no right to enter the area, from which the trees have been cut, again. He must complete the cutting and removal of all trees within the period of the deed and if he fails to do so, he will not be entitled, after the expiry of the period, to cut any trees or even to remove trees already cut down. Such trees, cut or uncut, will pass to the khas possession of the assessee. After the expiry of the period of the deed, the whole jungle will revert to the khas possession of the assessee & even during that period the excepted trees will remain in his khas possession.
12. I am entirely unable to hold that the parties to the deed, the terms of which have been set out above, ever contemplated a lease, or that in spite of themselves, they created one by the form of the words used or that they agreed to terms which created a lease in law. The document is plainly what it purports to be, viz., an agreement embodying the terms & conditions of an auction-sale of certain trees and also an instalment bond regarding payment of the balance of the price. It conveys no interest in the land, save and except the right to enter upon particular areas for the purpose of cutting down and removing trees therefrom, but that also after the portion of the consideration assigned to the particular area sought to be entered upon, has been paid. Neither exclusive possession of the land, nor a right to all the trees is conferred. The various restrictions imposed on the executant of the document andthe reservations in favour of the executee are entirely inconsistent with the notion of a lease, apart from the fundamental feature, apparent on the face of the document and every part of it, that the subject-matter is only certain specified varieties of trees and the transaction is a sale.
13. Mr. Banerjee who appeared on behalf of the assessee, contended that if the transaction provided for an instant cutting down and removal of the trees, it would have been a sale of goods, viz., the trees, but the fact that a period of two and a half years was allowed, made a difference. He referred to the decision of the Privy Council in -- 'Kauri Timber Co., Ltd. v. Commissioner of Taxes', (1913) 9 AC 771 and on the authority of that decision contended that when, as in this case, a purchaser of timber was allowed to let it remain on the land for a certain period, during which it derived sustenance from the soil & the trees grew, entitling the purchaser to the additional growths, an interest in land was conveyed. The same argument was also put forward in a slightly different form on the language of the deed and it was contended that the provision that the executant was purchasing the trees 'for two and a half years' indicated that he was acquiring an interest in the land for that period. I do not see that the Privy Council decision has any application to the facts of the present case.
The law reports show that that decision has been the unfortunate cause of a mistaken line of argument in many cases and not always has it been borne in mind that the question there related to not the seller, but the purchaser & the question was whether the purchaser, who carried on a business of cutting, milling and selling timber, could, in striking the annual profits of his business for the purpose of taxation under a certain New Zealand Act, deduct from the gross proceeds the proportionate price assignable to the timber cut down during the year out of the total price paid for a large stock of standing timber which had been purchased by him with the right to cut and remove it at any time during specified period, generally ninety-nine years. It was in dealing with that question that the Privy Council said that looked at from the point of view of common law, the transaction under which the standing timber had been acquired was not one under which a mere possession of goods by a contract of sale had been given to the purchaser, taut an interest in, and possession of, land had been conveyed to him; and looked at from the point of view of accounting and finance, the proportionate price of the trees cut down during the year was not a business but capital expenditure of the purchaser and it was not a proper debit item as against revenue.
The question in the present case is not whether the price paid for the trees was a capital expenditure in the case of the purchaser, but whether it was a capital receipt in the hands of the seller. Still, even assuming on the basis of the first part of the proposition laid down by the Privy Council, that if the purchaser acquired an interest in land he could have done so only if the seller parted with such an interest I am unable to hold that the facts of the present case attract the principle laid down by the Privy Council. In the first place, where, as in the Privy Council case, a person purchases a bush property in the form that he purchases the timber with the right of cutting it any time within ninety-nine years & therefore with the right of letting it remain on the land till the end of that period, it may fairly be said that what was conveyed was the right to exploit the bush, together with its natural accretions, foralmost a century & therefore an interest in the land which nourished the trees and begot accretions during that period was necessarily conveyed. That principle can hardly apply to a case where the purchaser purchases only some among many varieties of trees standing on the land and is required to cut and remove the trees purchased by him within two years and a half and where, further, in the case of some of the trees, his right to appropriate them actually arises not at the date of the instrument, but on later dates when he pays further instalments of the price, so that he has really much less than two years and a half.
Mr. Banerjee cited the decision in --'Seeni Chettiar v. Santhanathan Chettiar', 20 Mad 58 where the period was four years, but the seller in that case was the lessee of two shares in a village and in the trees and the grass and other vegetation standing in the village tank and what he conveyed was 'the said two shares, together with the tank and the bed of the tank' and the right given to the purchaser was not merely the right to cut down and remove the grass and the trees but also to enjoy the produce of all the trees, such as gum and nuts etc. and also the reeds and the grass (see p. 59 of the report where the document is set out). In the present case, no land or interest in the land is mentioned in the deed and the right to enjoy the fruit-bearing & valuable timber trees remains with the seller. But apart from these considerations, it appears to me, in view of the scheme of payment and the manner and time of the cutting and removal of the trees, that the period of two years and a half was fixed only for the sake of convenient payment and convenient appropriation, which the seller took care to hedge in with suitable safeguards and penalties and that it was not the intention to convey any interest in the trees on the basis that such interest was to last for a certain time.
The deed in this case is, in some respects, very Similar to that in the case of --'Rajindra Bahadur Singh v. Malhoo Khan', 112 I. C. 156 , which also related to trees subject to periodical cutting and in my opinion, it ought to be held, as it was held in that case, though for the purposes of the Registration Act, that it conveyed no interest in land. The intention in giving the purchaser some time for cutting and removing the trees was not that the trees should continue to stand for such period so that he might enjoy them as such and benefit by their further growth. In substance, it was a case of sale with immediate effect and the time allowed was only for convenient clearance of the goods and payment of the price in convenient instalments. The sale was a bare sale of the trees.
14. If no interest in land was conveyed by the transaction, there was no other capital asset which the assessee parted with and the consideration he received cannot obviously be said to have replaced any capital. Under the definition of 'Agricultural income', such income is, except in the case of income derived from buildings occupied by cultivators or rent-receivers, rent or revenue derived from land or income derived from land directly by agricultural operations or by the sale of agricultural produce. The capital in the case of agricultural income is thus land. It could not therefore be said in the present case that the capital was the forest trees. But even if the trees were taken to be capital, the receipts in question could not be said to be not income on the ground that by the transactions which yielded them, the capital was exhausted, for it is well settled now thatreceipts from capital which is exhausted in the process of realisation may well be income, as in the case of mines and quarries. This argument which was only casually mentioned by Mr. Banerjee was not pressed by him and indeed on the facts of the case there is no room for it. In the first place, the forest is not the capital. In the second, the forest is not in fact exhausted by the periodical sales of trees, but in spite of the sales it remains a standing asset. It does so because what happens is that trees of a particular block or blocks are sold in the course of the normal management and enjoyment of the forest, as & when they become mature for extraction and those blocks become filled with new trees which become saleable again in about ten years' time.
15. Mr. Banerjee did not overlook the fact that agricultural income included rent or revenue derived from land and that where the income concerned was rent, the landlord had certainly parted with some interest in land in favour of the tenant. He therefore laid emphasis on the fact that what the assessee had received in the present case from each transaction was a single payment and proceeded to equate the receipt with selami of the kind which is a capital payment and has no connection with rent. Proceeding further, he placed before us an uncertified copy of the imreported decision of the Federal Court in the case of --'Jyotirindra Narayan Sinha v. Commr. for the Board of Agricultural Income-tax, Assam', Civil Appeal No. 30 of 1948, D/. 16-5-1948, in which the question was whether selamis or premia received for the settlement of waste lands or abandoned holdings, were agricultural income within the meaning of the Assam Agricultural Income-tax Act and their Lordships remanded the case for further findings as to certain matters. I do not think that the receipts with which we are concerned in the present case have any similarity or affinity with the selami amounts which the Federal Court had to consider in the case cited and I am unable to see that any assistance can be derived from that decision. Nor do I think that any further enquiry of the kind directed by the Federal Court is necessary here. There is a deed and all the facts bearing on the nature and composition of the receipts, as also the general course of dealing in respect of the forest trees, are before us. On the facts, the consideration received from the contractors is not premium for the right to enjoy the land, but the price of the trees.
16. Passing on now to the Second branch of Mr. Banerjee's argument, I am of opinion that the receipts cannot be held to be of a casual or non-recurring nature. According to the finding of the Tribunal which is based on a statement by an officer of the assessee, he owns a forest area of 50 square miles, the whole of which is covered mostly by sal trees. Every year the trees in some blocks of the forest become mature for extraction and every year the assessee sells such trees to contractors by auction. Blocks which are sold out once do not cease to be sources of receipts, for, new shoots spring from the stems of trees cut down and those shoots grow into saleable trees in about ten years' time when they are sold again. Blocks into which the forest has been divided are thus sold in rotation in such manner that every year trees in some blocks are sold and receipts come in. On those facts, it appears to me that the assessee enjoys a regular flow of annual receipts from sales of forest trees and the receipts of any particular year cannot be said to be of a casual character. It is true that the same block of forest does not yield a return every year and the receipts in different years are from different blocks, but it is no more necessary for a receipt, in order to be agricultural income, that it should be one of an annual series, coming from the identical field, than it is necessary for a business receipt to come from the same transaction or transactions of an identical character in order to be business income. It is enough if it comes from a definite source which in this case is the forest. To my mind, the position is as if the assessee owns a number of forest blocks which yield a ten-yearly crop, but each year is the tenth year for some block or blocks so that each year there is, so to say, a harvest and a receipt from a sale of the crop. In those circumstances, the receipts are recurring receipts and since they were not obtained in replacement of capital, but out of working it, they are income.
17. I may add, though it is not necessary to do so in the present case, that there is no absolute rule that a receipt, in order to be income, must always be of a recurrent nature. Income has an infinite variety of forms and a single receipt may be income. Recurrence, again, is a matter of degree. If, for example, a cultivator has an odd acre of land which grows only sugar-cane and he grows a cane crop in that field once in four or five years. I cannot see why his receipt from the sugar-cane, where so grown, should not be income. In the present case, the assessee has other agricultural income; and even if forest trees were not sold every year, the receipt, when the trees were sold, would be income, at least if sales took place periodically.
18. Towards the close of his argument, Mr. Banerjee submitted that all the 50 square miles of forest were not situated in the province of West Bengal and that we should send the case back to the Tribunal for a further finding as to what area lay within this province, because according to him, in judging the character of the receipts, the course of dealing in respect of only the area lying within this province would be relevant. I am unable to accede to that suggestion. At no stage of the proceedings was it ever suggested that any part of the forest lay outside this province and Mr. Banerjee was frank enough to admit that he himself did not know of it till he was told late in the course of the hearing of the reference. In those circumstances, it would be unusual to allow the assessee to raise a new point which involved a fresh investigation of facts; but, in any event, the point does not seem to me to be material. There is no dispute that the plots from which the receipts of the three years before us came, are all situated within this province and even if some part of the 50 square miles be situated outside, it is not easy to see why, for the purpose of ascertaining the incidents of the receipts, the totality of the assessee's dealing with the entire forest area cannot be taken into account. The officer of the assessee who gave the facts about the forest and the manner of sales spoke of all the 50 square miles and did not make any distinction between one area and another.
19. It remains now to refer to the authorities cited at the Bar. Cases in which the only question was whether the income from the sale of forest trees was of an agricultural character may be left out of account, for that question is not being considered by us. In the case of -- 'Messrs. Mohanlal Hargovind v. Commr. of Income-tax', C. P. 54 Cal W. N. 33: 17 ITR 473 , where the question was whether a manufacturer of bidis was entitled to claim as business expense the sum spent by him on acquiring the grant of a right to collect tendu leaves from a forest, the PrivyCouncil had to consider whether the grant conveyed an interest in land, but as the question was considered from the point of view of the purchaser and the grant comprised only leaves, no assistance on the question before us could be derived from that decision. The question whether the receipts of a land-owner from sales of forest trees were capital or income, was raised before the Privy Council in the case of -- 'Mustafa Ali Khan v. Commissioner of Income-tax', U. P. Ajmer & Ajmer-Merwara 53 Cal W. N., 590: 16 I. T. R. 330 , but was not decided, as their Lordships held that the question was not open to the assessee in the appeal. The question was raised and decided under the Indian Income-tax Act in. the cases of -- 'Commissioner of Income-tax, Madras v. Manavadan Tirumalpad', 54 Mad 21 , -- 'Maharaja of Kapurthala v. Commissioner of income-tax', C. P. & U. P. (1945) 13 ITR 74 . In the matter of Ram Prasad 52 All 419 and --'Kamakshya Narain Singh v. Commissioner of Income-tax', B. & O. : 14ITR673(Patna) Pat, and under the Assam Agricultural Income-tax Act in the case of -- 'Jyotirindra Narayan v. State of Assam . In each case the answer was that the receipts were not capital. It may be mentioned, however, that in the cases of the 'Maharaja of Kapurthala' and 'Ram Prasad' (in fact the Tehri State), there appears to be a finding that the assessee was carrying on a business or carrying out a scheme of profit-making, though in the former case, it looks like an interpretation of what the assessee did rather than a finding of actual business. In 'Kamakshya Narain Singh's case', no reasons are given.
20. In the result I hold, both on principle and authority, that the receipts in question are not capital receipts, but income. Accordingly, the answer to the question referred must be in the affirmative, but subject to the proviso that the question whether the receipts, even if income, are income of an agricultural character, was not canvassed before us and we must not be understood as expressing any opinion thereon.
21. The Commissioner of Agricultural Income-tax is entitled to the costs of this Reference. We assess the hearing fee at 30 Gold Mohurs.
22. No orders on the application are necessary.
23. Before concluding, I cannot help making an observation on the form in which the case has been stated by the Tribunal. Unfortunately, this is the form usually adopted. A statement of case is expected to contain a narration of the facts found by the Tribunal which bear upon the question referred and the contentions of the parties on those facts, out of which the question between them arises. On the one hand, it must be self-complete and on the other hand, there is no room in it for irrelevant matters. What the Tribunal has sent up is not a statement of case at all, but only its order on the application for a reference which, besides the question referred, comprises a discussion of other matters and of another question, not referred. If I may make a suggestion, statements of cases drawn up by the General or Special Commissioners in England, examples of which are to be found in the Tax Cases, may usefully be adopted as models.
S.R. Das Gupta, J.
24. I agree.