Taxability of forest tree receipts: standing timber sales were revenue income, and spontaneous forest growth was not agricultural income.

Receipts from the gradual sale of standing forest timber were treated as revenue income, not as a mere conversion of capital into cash, because the trees yielded recurring returns as a regular source of profit. Income from the sale of forest trees of spontaneous growth on land assessed to land revenue was not agricultural income, since agricultural use requires cultivation or preparation of the land and not mere natural forest growth. The receipts were therefore held taxable and not exempt as agricultural income.

---

---

Issues: (i) whether the net receipts from the sale of forest trees were income liable to income-tax or merely capital converted into cash; and (ii) whether income from the sale of forest trees of spontaneous growth on land assessed to land revenue was agricultural income within the meaning of the Act.

Issue (i): whether the net receipts from the sale of forest trees were income liable to income-tax or merely capital converted into cash.

Analysis: Receipts from the gradual sale of standing timber from a forest worked as a regular source of profit do not cease to be income merely because the forest is ultimately exhausted. Where the assessee possesses the land and derives recurring returns from the trees standing on it, the proceeds are treated as revenue receipts and not as a realization of capital in the sense contended for.

Conclusion: The receipts were income liable to income-tax, not mere capital converted into cash.

Issue (ii): whether income from the sale of forest trees of spontaneous growth on land assessed to land revenue was agricultural income within the meaning of the Act.

Analysis: To qualify as agricultural income, the revenue must be derived from land both assessed to land revenue and used for agricultural purposes. Although the land was found to be assessed to land revenue, spontaneous forest growth, without tillage, preparation of soil, or cultivation, was not regarded as land used for agricultural purposes. Forestry in such circumstances was held not to fall within the statutory expression.

Conclusion: The income was not agricultural income and was not exempt from tax.

Final Conclusion: The reference was answered against the assessee and the receipts from the sale of forest trees were held taxable.

Ratio Decidendi: Income from the sale of standing forest trees grown on land of spontaneous growth is taxable as revenue unless the land is shown to be used for agricultural purposes in the statutory sense, which requires cultivation and not mere conservation of a forest.

---