1971 (12) TMI 12 - HC - Income Tax

Court rules receipts from sale of trees not assessable as revenue income.

The court ruled in favor of the assessee, determining that the receipts from the sale of trees of spontaneous growth were not assessable as revenue ... Whether, on the facts and in the circumstances of the case, the receipts from the sale of trees of spontaneous growth were assessable to tax and if so, whether assessable under 'Other sources' - Tribunal decided the question against the assessee by holding that the receipts from the sale of the trees is income assessable under the head “Other sources ' – now question is answered in negative Issues Involved:1. Whether receipts from the sale of trees of spontaneous growth are assessable to tax.2. If assessable, whether they fall under the category of 'Other sources.'Issue-wise Detailed Analysis:1. Assessability of Receipts from the Sale of Trees of Spontaneous Growth:The core issue was whether the receipts from the sale of trees of spontaneous growth were assessable to tax. The Tribunal initially decided against the assessee, holding that the receipts from the sale of the trees were income assessable under the head 'Other sources.'The assessee, a Hindu undivided family owning large agricultural lands, had sold trees from about 60 acres of land obtained in a court auction. The agreement for the sale of trees included specific clauses (12 and 13) which stipulated that the trees should be cut neatly, and stumps should not be pulled out or cut out, indicating that the trees might regenerate.The assessee contended that the sale was a one-time event aimed at extending agricultural cultivation, as the standing trees were a hindrance. This was supported by the fact that 10 acres had already been converted into agricultural lands by the time of assessment.The Tribunal, however, relied on the precedent set by the case of Commissioner of Income-tax v. Venugopala Varma Raja, where it was held that receipts from the sale of trees capable of regeneration were of a revenue nature. The Tribunal dismissed the assessee's argument, stating that the subsequent intention to convert the land for agriculture was irrelevant.2. Classification under 'Other Sources':The assessee argued that the receipts were of a capital nature, not revenue income. They also contended that even if it was income, it was casual and non-recurring, thus exempt under section 10(3) of the Income-tax Act, 1961.The assessee distinguished their case from Venugopala Varma Raja, emphasizing that the trees were sold to convert the land for agricultural use, not for generating future income from regenerated trees. They cited the Supreme Court's decision in A. K. T. K. M. Vishnudatta Antharjanam v. Commissioner of Agricultural Income-tax, where the sale of trees with roots, preventing regeneration, was considered a capital receipt.The court noted that in Vishnudatta Antharjanam, the Supreme Court held that the sale proceeds from trees removed with roots, thus ceasing to be a source of income, were not taxable as revenue income. The court found this applicable to the assessee's case, as the intention was to convert the land for agriculture, not to generate future income from tree regeneration.The court rejected the department's argument that the clauses in the agreement indicated an expectation of regeneration. The facts showed that the assessee intended to and did convert the land for agricultural use, negating the possibility of future income from the trees.Conclusion:The court concluded that the principle from Vishnudatta Antharjanam applied, and the receipts from the sale of trees were not assessable as revenue income. The question was answered in the negative, in favor of the assessee and against the department. The parties were directed to bear their respective costs, and a copy of the judgment was to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.