1954 (5) TMI 31 - HC - Income Tax

Forest lease receipts not agricultural income. Interest from grantees not exempt. Debt not business loss.

Sir Kameshwar Singh Versus Commissioner of Income-Tax, Bihar and Orissa

The court held that the receipts from the Bankura forest lease were taxable income and not agricultural income as the lease was essentially for selling ... - Issues Involved:1. Whether the receipts from Bankura forest lease are capital receipts or constitute agricultural income.2. Whether the receipts from Kharagpur forest are agricultural income.3. Whether the interest receipts from Babuana and Dayana grantees are agricultural income.4. Whether the debt amounting to Rs. 23,541 owed by P.E. Guzadar & Co. should have been allowed as a loss relating to the business carried on by the assessee.Issue-wise Detailed Analysis:1. Receipts from Bankura Forest Lease:The primary question was whether the receipts from the Bankura forest lease are capital receipts or agricultural income. The court noted that the forest was leased out by auction for short terms, allowing the lessee to cut down and remove certain trees. The assessee claimed that the receipts were capital receipts, arguing that the lessee effectively acquired the trees and jungle during the lease period, making the payment a capital receipt. Alternatively, the assessee argued that the income should be considered agricultural income as it involved human skill and labor.The court referred to several precedents, including the case of Raja Bahadur Kamakshya Narain Singh, where it was established that the nature of the payment (whether it is a capital receipt or income) depends on the facts and circumstances of each case. The court concluded that the receipts from the sale of forest trees were income and taxable, as the lease was essentially for the purpose of selling timber. The court held that the income from the Bankura forest was not agricultural income, as there was no evidence of human efforts in growing the trees. Thus, the court answered question No. 1 in the negative.2. Receipts from Kharagpur Forest:The second issue was whether the receipts from the Kharagpur forest constituted agricultural income. The assessee did not contest the income from bamboos and sabai grass but argued that the income from timber should be considered agricultural income. The court found that there was no evidence of human agency in the production of the plants, although there was some activity assisting the growth of trees. The court referred to the definition of 'agricultural income' under Section 2(1) of the Indian Income-tax Act and previous judgments, including Maharaja Pratap Udai Nath Sahi Deo, which required some measure of cultivation of the land or expenditure of skill and labor upon it.The court concluded that there was no material to show that the land was ever subjected to cultivation or that any skill or labor was spent upon it. The court held that the income derived from the sale of timber from Kharagpur forest was not agricultural income, as there was no evidence of cultivation or expenditure of skill and labor. Therefore, the court answered question No. 2 in the negative.3. Interest Receipts from Babuana and Dayana Grantees:The third issue was whether the interest receipts from Babuana and Dayana grantees were agricultural income. The court referred to the case of Commissioner of Income-tax, Bihar and Orissa v. Raja Bahadur Kamakshya Narain Singh, where it was held that such interest receipts were not agricultural income and therefore not exempt from income-tax. The court concluded that the interest receipts were neither rent nor revenue derived from land. Thus, the court answered question No. 3 in the negative.4. Debt Owed by P.E. Guzadar & Co.:The fourth issue was whether the debt amounting to Rs. 23,541 owed by P.E. Guzadar & Co. should have been allowed as a loss relating to the business carried on by the assessee. The court referred to the case of Sir Kameshwar Singh v. Commissioner of Income-tax, Bihar and Orissa, where it was held that such debts were not allowable as business losses. The court noted that this question was not seriously pressed before it and concluded that the debt should not be allowed as a business loss. Therefore, the court answered question No. 4 in the negative.Conclusion:In the result, the references and the applications were dismissed with costs. The court assessed one set of hearing fees at Rs. 250. The judgment was concurred by both judges, and the references were answered accordingly.