Capital nature of proceeds where sale uproots and permanently extinguishes the productive source, not taxable as revenue.

Where a one-time disposal removes the existing productive source of naturally grown trees by uprooting roots, the receipt is treated as capital, because the transaction effects a realisation of the capital asset rather than revenue even though no capital was expended in growth. The possibility of remote future natural regrowth does not change the character of a present disposal that extinguishes the productive structure. The transaction cannot be split into revenue and capital parts when it effects a complete diminution of the asset represented by the trees and roots; consequently the proceeds are capital in nature.

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Issues: Whether, on the facts and circumstances of the case, the receipt from the sale of trees by roots is capital in nature and exempt from income-tax.

Analysis: The facts show a one-time disposal by auction of trees of spontaneous growth standing for many years, sold with a condition that the purchaser uproot the trees and remove the roots. The land was retained but the roots, which secured and constituted the productive source of the trees, were removed once and for all. Whether a receipt is capital or revenue depends on facts and circumstances. Where an asset comprising the source of future produce is disposed of in its entirety, the transaction is a realisation of capital even if the asset was naturally grown and no capital was expended in its growth. The possibility of remote future natural regrowth does not alter the character of a present disposal that extinguishes the existing productive structure. The transaction could not be split to treat part as revenue and part as capital when the disposal effected a complete diminution of the capital asset represented by the trees with roots.

Conclusion: The receipt from the sale of the trees by roots is capital in nature; question answered in the affirmative in favour of the assessee.

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