Forest tree sale proceeds treated as taxable income where agricultural operations on the land were not proved.

Sale proceeds from forest trees and forest produce were treated as taxable income because the trees and their spontaneous growth remained a source capable of yielding income, so the realisation was not a capital receipt. The assessee's claim that the receipts, or any part of them, were agricultural income also failed because agricultural income requires proof of actual integrated agricultural operations on the relevant land, such as cultivation or planting, and the evidence did not show that such operations were carried out during the accounting year. Both questions were answered against the assessee.

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Issues: (i) Whether the sale proceeds of forest trees and forest produce constituted capital receipt. (ii) Whether the receipts, or any part thereof, were agricultural income exempt from tax.

Issue (i): Whether the sale proceeds of forest trees and forest produce constituted capital receipt.

Analysis: The lands with trees had been gifted to the assessee long before the accounting year, but the forests were not static and there was substantial spontaneous growth thereafter. Sale proceeds from trees standing on the land, including those grown after the gift, represented realised income from a source capable of yielding income. Diminution of capital, even if assumed, did not convert the realisation into capital receipt where the trees were the source from which money was realised. The Tribunal's rough apportionment in favour of the assessee did not alter the character of the receipts as income.

Conclusion: The sale proceeds were not capital receipt and were taxable income.

Issue (ii): Whether the receipts, or any part thereof, were agricultural income exempt from tax.

Analysis: Agricultural income required proof of an integrated agricultural activity involving basic operations such as cultivation, tilling, planting or dibbling. The burden lay on the assessee to establish such operations on the relevant lands. The only material relied upon was an affidavit referring generally to sylvicultural operations in the State's forests, but it did not show that such operations were actually carried out on these lands during the accounting year. On the evidence, the claim to agricultural income was not proved.

Conclusion: The receipts, or any part thereof, were not agricultural income.

Final Conclusion: Both questions were answered against the assessee, and the receipts were held taxable as income.

Ratio Decidendi: Sale proceeds from forest trees may constitute taxable income rather than capital receipt, and a claim of agricultural income fails unless the assessee proves that an integrated agricultural activity was actually carried out on the relevant land.

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