1957 (3) TMI 79 - HC - Income Tax

Invalid Reassessment under Income-tax Act: Timber Trees Sale not Agricultural Income

Raja Priyanand Prasad Singh Versus Commissioner Of Income-Tax, U.P.

The High Court found the proceedings under Section 34 of the Income-tax Act invalid as the Income-tax Officer did not have new information justifying ... - Issues Involved:1. Validity of proceedings under Section 34 of the Income-tax Act for the assessment year 1945-46.2. Exemption of the price of timber trees from income-tax as:a. Agricultural income under Section 4(3)(viii) of the Income-tax Act.b. Casual income under Section 4(3)(vii) of the Income-tax Act.Detailed Analysis:Issue 1: Validity of Proceedings under Section 34 of the Income-tax ActThe primary contention was whether the Income-tax Officer had received 'definite information' leading to the discovery that part of the income had escaped assessment. The Tribunal noted that the original assessment officer did not have the books of account containing the relevant entries, which were later examined by his successor. The Tribunal agreed that the original officer lacked 'conscious knowledge' of the income from the forest trees, thus justifying the notice under Section 34.However, the High Court found that the Tribunal erred in law by not considering the principle of the burden of proof. The Court emphasized that the jurisdiction of the Income-tax Officer under Section 34 depended on the receipt of new information, not previously available. Since the income from the forests was recorded in the account books available during the original assessment, it was presumed that the officer had examined these books. The Department failed to prove that the information was not in the officer's possession during the original assessment. Consequently, the proceedings under Section 34 were deemed invalid, and the first question was answered in favor of the assessee.Issue 2: Exemption of Timber Tree Income from Income-taxPart a: Agricultural Income under Section 4(3)(viii)The Tribunal found that the evidence did not prove that the forests were grown through agricultural operations. The trees were of spontaneous growth, not planted by the assessee through any agricultural process. The High Court referred to its earlier decision in Pratap Singh Balbeer Singh v. Commissioner of Income-tax, which held that spontaneous growth without human skill or labor does not constitute agricultural income. The Supreme Court's unreported decision in Maharaja Sir Pateshwari Prasad Singh v. Commissioner of Income-tax reinforced this view. Thus, the income from the forests was not considered agricultural income, and the first part of the second question was answered against the assessee.Part b: Casual Income under Section 4(3)(vii)The assessee argued that the income from the one-time sale of all timber trees was casual income. The Tribunal rejected this, stating that the trees became stock-in-trade once severed from the forest with the intent to earn income. The agreement terms indicated that the sale and removal of trees were planned over several years, and payments were made in installments. The High Court found the Tribunal's conclusion reasonable, holding that the income was not casual but from a business activity. Therefore, the second part of the second question was also answered against the assessee.Conclusion:Both questions were answered in the negative, with the proceedings under Section 34 deemed invalid and the income from timber trees not exempt as agricultural or casual income. No orders as to costs were made.