Sale of dead and windfallen trees treated as capital receipt where removal exhausts the asset and future growth ends.

Proceeds from the sale of dead and windfallen trees removed from a coffee estate were capital receipts because the trees had no further growth potential and their removal exhausted the asset without leaving a continuing source of income. The Court distinguished this from cases where cutting leaves stumps capable of regeneration, in which the receipt may be revenue in nature. On that basis, the amount was not taxable as revenue income and was treated as a capital receipt.

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Issues: Whether the amount received on sale of dead and windfallen avenue trees from a coffee estate was correctly brought to tax as revenue income or was a capital receipt.

Analysis: The receipt arose from the sale of dead and windfallen trees cut and removed from an estate recently purchased by the assessee. Since such trees had no further growth potential and their removal exhausted the asset without leaving a source capable of yielding future income, the proceeds could not be treated as trading or revenue receipts. The distinguishing principle was that where cutting leaves stumps capable of further growth, the receipt may be revenue, but where the trees are dead and windfallen, the transaction exhausts the asset and the receipt is capital in nature.

Conclusion: The amount was not correctly brought to tax as revenue income and was held to be a capital receipt, in favour of the assessee.

Ratio Decidendi: Proceeds from the sale of dead and windfallen trees that exhaust the asset and do not leave any source of future growth are capital receipts and not revenue receipts.

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