Capital receipts from sale of shade trees were not taxable turnover, as the trees formed part of the plantation's fixed assets.

Sale proceeds from felling, sizing and disposal of shade trees in a coffee estate were treated as capital receipts because the trees formed part of the estate's fixed assets and remained shade trees essential to the plantation. Their disposal, even over time and in different forms, did not convert them into stock-in-trade. Under the then definition of business in the Karnataka Sales Tax Act, incidental or ancillary disposals were not enough to constitute trading activity before the enlarged definition applied. The receipts were therefore not taxable as turnover and were held to be of a capital nature.

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Issues: Whether the sale proceeds realised from felling, sizing and disposal of shade trees in a coffee estate constituted turnover from business liable to tax under the Karnataka Sales Tax Act, or were capital receipts arising from disposal of capital assets.

Analysis: The trees were maintained as shade trees essential to the coffee plantation and formed part of the estate's fixed assets. Their disposal, even when effected over several years and in forms such as logs, charcoal or firewood, did not convert them into stock-in-trade. Under the then definition of business in the Karnataka Sales Tax Act, the activity had to be primarily trade or commerce, and incidental or ancillary disposals did not, before the enlarged definition took effect, amount to business. Mere profit from advantageous disposal of unwanted capital assets was not enough to establish trading activity. The receipts were therefore of a capital nature.

Conclusion: The sale proceeds were not taxable as turnover under the Karnataka Sales Tax Act and were held to be capital receipts in favour of the assessee.

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