TaxTMI 
TaxTMI 
1955 (4) TMI 36
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....40 sq. miles are reserved and 100 sq. miles are protected forest. The gross receipts from forest amounted to Rs. 4,38,894 and the expenses claimed Rs. 1,74,437, leaving a net income of Rs. 2,64,457 subject to allowance for a proportion of land revenue and tribute charges. The income results from sale of timber, lac and other forest produce. The trees include not only teak and sal wood but also other trees whose produce such as myrobalam, tamarind and fire-wood have contributed to the income from forest. No separate figures for the various kinds of timber or forest produce have been furnished. 4. For the assessment year 1942-43 the Income-tax authorities sought to include the income from forest as liable to income-tax. At the assessment stage the Income-tax Officer remarked: "No plantation book nor any working plan for timber plantation has been maintained by the Estate. On the other hand it has been remarked by the Conservator of Forests of Orissa, who was appointed on special duty to survey the forest area of the Estate that 'sylviculture and working plans are conspicuous by their absenc....
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...., to 30th June, 1941. The Income-tax Officer accordingly sought to look for planting and sowing operations in the opening years of the century. On this point even before the Tribunal no entries of expenses earlier than February, 1904, were produced, but there were entries from February, 1904, to August, 1905, showing expenditure of very small sums on collection and conveyance of teak seeds etc. The Tribunal held that these operations would be insufficient for planting even a very small portion of the forest areas owned by the assessee and the assessee could not establish in what particular forests or forest areas any particular operation was carried out. Even in respect of the accounting year out of the total expenses claimed amounting to Rs. 1,74,437, the major portion of the expenses was incurred for the maintenance of the forest and general development in the shape of facilities of transport, etc. There was an item of expense under the head "sowing and planting", which on analysis showed only Rs. 77-15-0 as expenses on sowing and planting teak and bamboos. Similarly for the accounting year 1st July, 1941, to 30th June, 1942, the expenditure under the head "sowing and planting" a....
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....duced it appeared that the applicant entered into a contract with the Ceylon Government and payment was to be received at Rs. 7-3-0 per maund of rice ex-mill which belonged to the assessee at Borigumma. Jagannadiah did not enter into any contract with the Ceylon Government for the supply of rice but only acted as a miller for the milling of the assessee's paddy and that too under an agreement between the assessee and Jagannadiah. The Dewan's letter dated 3rd June, 1942, contains a definite request for the Estate being allowed to act as the exporter of the surplus of the Upper Division of the Koraput District and not merely of the Estate paddy or rice. In this letter the Dewan also mentioned that though the normal surplus of this area would be 3 lakhs maunds of rice, since the export had already begun, the available quantity would be only about a lakh of maunds. The letter of the Agent of the Government of Ceylon dated 19th July, 1942, is in confirmation of the discussion with the Collector of Koraput and the applicant's Dewan. This refers to the Estate's willingness to place at the Ceylon Government's disposal 1,800 garces of Estate paddy equivalent to 34,000 ma....
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....f 2 lakhs maunds of rice (including 60,000 maunds from the Estate's cists collection). Speaking about the rates, it indicated that the price would be between Rs. 7-3-0 and Rs. 8 per Bengal maund of rice. Another paragraph of this letter referred to the fairness of the present contract entered into through their contractor and assuring that the Estate's part of the contract would always be executed by one of its contractors. On 30th December, 1942, and 31st December, 1942, there were proceedings of the Dewan and the Maharaja leasing out the Estate's Borigumma Rice Mill to Jagannadiah from that date for a period of three years on a monthly rental of Rs. 250. On 28th February, 1943, the Dewan applied for a permit for exporting 50,000 maunds of rice from Borigumma to Bobbili and there were observations that Jagannadiah had undertaken to mill the paddy and deliver the required quantity of rice to the Ceylon Government Outdoor Assistant at Jeypore. On 28th April, 1943, a further proceeding was issued by the Dewan stating that a flat rate of Rs. 135 per garce was payable for paddy to be sold to Jagannadiah. 11. The contention of the assessee was that the supply of rice to t....
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....eginning and we have no hesitation in holding that the assessee carried on the business of supplying rice to the Ceylon Government and the Department rightly treated the income arising thereunder as a business profit." There is no dispute about the quantum of the income assessed or the basis of the allowance of the market value of paddy as a deduction. 12. We think questions of law do arise from the order of the Tribunal. The questions formulated are as follows: (1) "Was there any material for the Tribunal to hold that the contract for the supply of rice was entered into by the applicant?" (2) "Whether the sums of Rs. 38,157 and Rs. 6,647 are taxable under the Income-tax Act under the head 'business' for the respective years 1944-45 and 1945-46?" Assessment Year 1945-46. 13. A firm of brokers, Chaudri&Co., arranged for the sale of 50,000 maunds of rice to Messrs. Shaw Wallace&Co., under their sold note dated Calcutta, the 26th June, 1943, in the following terms: "We have this day sold by your order and for your account to Messrs. Shaw Wallace&Co., Produce Department, the following:- &n....
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....rtained for the reason that the assessee was not in a position to show what was the price of paddy when he received it as income and that the provisions of rule 23 were correctly invoked. The second point arises in this way. The sale took place f.o.r. Bobbili. The Income-tax Officer computed the market value prevailing at Koraput and if the market value had to be taken with reference to a sale at Bobbili the assessee did not dispute the correctness of the market rate allowed as deduction from the sale proceeds of rice in estimating the income. The assessee's contention was that the goods having been despatched to Calcutta the market value of the paddy prevailing at Calcutta should be allowed as deduction and not the market value at Koraput or Bobbili. We think the following question of law arises from the order of the Tribunal:- "Whether in the circumstances of the case the market value of the paddy received by the assessee as rent in kind should be the market value at Calcutta for the purpose of computing the income from the sale of rice to Shaw Wallace&Co., under the provisions of rule 23 of the In....
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.... with one Mr. Gaggar for the supply of rice. It was claimed that the contract was entered into under the impression that Mr. Gaggar was acting under the direction of Messrs. Shaw Wallace&Co., and that when it became known that Mr. Gaggar wanted the supply of rice as the principal, the Dewan repudiated the contract. On this Gaggar filed a suit in the Calcutta High Court claiming damages for breach of contract. The suit was finally settled on the assessee paying a sum of Rs. 65,500. The Income-tax Officer had disallowed the payment, but no ground was taken before the Appellate Assistant Commissioner on this point. Though the Tribunal made a passing reference that the counsel for the assessee did not cite any authority supporting the claim for deduction, the Tribunal refused to go into the matter holding that the assessee was not entitled to raise the question before the Tribunal without having raised the plea before the Appellate Assistant Commissioner. We accordingly refer the following question: "Whether in the circumstances of the case the Tribunal erred in law in refusing to go into the questi....
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....cer rejected the assessee's claim on the ground that there was no plantation book maintained by the Estate. On appeal, by the assessee, the Appellate Assistant Commissioner also took the view that there was no evidence that any cultivation or tilling had been done periodically, and that the forest being a spontaneous growth the income made by the assessee was liable to be taxed. The Income-tax Tribunal which heard the appeal against the order of the Appellate Assistant Commissioner was not satisfied that the assessee's case had been properly considered and, therefore, by an order of remand asked the Income-tax Officer to enquire and report about the allegations of the assessee contained in his statement, Exhibit F (printed at page 250 of the paper book) in which the assessee claimed that the Estate had been actively adopting for decades a progressive forest policy and had done a lot of spade-work such as cultivation, settlement and demarcation of boundaries, prevention of theft, timely removal of dead and dying trees so as not to interfere with the proper growth of other trees, protection against fire (and other causes of decay), planting of new trees, growing grass, collec....
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....not agricultural income. The question of law that arises out of the order of the Tribunal and referred to us is: "Whether on the facts and in the circumstances the income derived from forests in this case is taxable under the Indian Income-tax Act?" Subsequent to the submission of the report of the Income-tax Officer after remand, the assessee filed a further statement and enclosed a volume of correspondence, but these have not been printed as a part of the paper book. 3. The second question referred to us relates to the years 1945-46 and 1946-47 during which period the assessee sold rice to the Ceylon Government and made some profits. The assessee's case was that the contract was really between one Jagannadiah and the Ceylon Government and that the assessee was merely helping to bring about the arrangement between the parties. The question of law referred to us is: "Whether the view taken by the Tribunal that the assessee was one of the contracting parties is correct." 4. Similarly, the assessee had business transactions with Messrs. Shaw Wallace & Co., of Calcutta in the assessment year 1945-46 and the question referred to us for opinion is: "Whether the market value of....
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....as been felled and cultivated, the village is deserted and the cultivators move off to other tracts to carry on the same ruinous system." Mr. Francis, I.C.S., who compiled the District Gazetteer observed, in Chapter V. under "Forests", as follows: "Wherever one travels through Jeypore one sees wide tracts of hillside which once were forest-clothed, now covered only with blackened stums, leafless dead trees, bare ash covered with soil, and protruding barren rock." In addition to this "podu" cultivation the assessee carries out several operations such as weeding, clearing, cutting back climbers and protection from fire, atmospheric agencies, grazing, insects, fungi and parasites. The Forest Department also takes steps to protect the forests from damage by man through faulty exploitation, prevention of "podu" cultivation, damage by animals, damage by floods, torrents and excessive water in the soil, and prevention of landslides. It is accordingly claimed that there is no virgin forest worth the name and such as there was has been destroyed by the hill tribes, through the process of "podu" cultivati....
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....n 1941 by Mr. Bell, I.C.S. There it is said (in Chapter VI) that about 1393 sq. miles of reserved and protected forests lie in the Koraput Sub-Division, and only 251 sq. miles in the Rayaghada Sub-Division. The following extract from the report of Mr. J.W. Nicholson, Conservator of Forests, Orissa, quoted at page 99, is instructive: "The forest on the 2000 foot plateau is typically sal of a moist peninsular type, the average quality being III. A few patches of teak occur locally. The whole crop was at one time under shifting cultivation and the forests now comprise pole crops in various stages of growth. Large trees are scarce..................... In the north of Malkanagiri taluk there is sal forest mainly of quality III, but equalling II in places. It is very remote from any market. The sal disappears about 14 miles north of Malkanagiri, giving way to forest of a dry, mixed type. The forest are usually very open and grassy, and economically are of little value except for their excellent grazing. The taluks of Koraput and Pottangi are on an undulating plateau averaging 3....
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.... less absent at first, and for some years rank grass and much thorn and coarse undergrowth hold away and fires periodically sweep through, and it is not till the growth arrives at an age of some twenty years or more, that there is any chance of much humus being added to the surface soil and then fires are soon excluded, seedlings have a chance, and shortly afterwards rattans and tree-ferns appear. The ever-green trees increase in number and the undergrowth quite changes its character.... When a tract is allowed forty or fifty years to recover it appears to return almost to its pristine vigour and form, and many seedling trees in time make way; and unless the base of the older trees be observed, a forester even might be deceived, and fancy that he was in a virgin forest. It is, however, only in a few tracts, chiefly on the eastern and western ghats of the plateau where the hills form chaos, that the forests are allowed a rest of any long duration. About the more accessible and less densely forested portions they are felled every eight, ten, or fifteen years and never have a chance of recovering. They have a wretched, stunted appearance, are very dry and more or less impenetrable fro....
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....d been planted, generated, protected, developed and maintained only with the aid of active human agency, was incorrect. In 1903 the Forest Establishment had consisted of 203 persons while in 1939-40 it was 1913. The Dewan also requested the Income-tax Officer to inspect some of the plantations so that he may have a definite idea of the various duties and activities of the Forest Officers. It does not appear from the records, however, that the Income-tax Officer took the trouble to inspect any of these plantations. Along with the statement a list of the files showing the action taken by the officials of the Samasthanam for planting and transplanting of forest trees was filed, but no reference has been made by the Tribunal to these papers. Annexure VI to the Dewan's statement contains a list of files showing the plantations of timber. These files indicate that estimates and sketch-maps are prepared for plantations, seeds are purchased, and money is spent for watering them. Annexure VII shows the steps taken by the estate from time to time for preventing "podu" cultivation and bringing the area under "reserved" and "protected" forests by notification after obtaining the approval o....
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.... "As appears from the form of the question, the income under the first head was derived from the sale of trees described as forest trees 'growing on land naturally' and the case has throughout proceeded upon the footing that there was nothing to show that the assessee was carrying on any regular operations in forestry and that the jungle from which trees had been cut and sold was a spontaneous growth." This case has absolutely no application to the facts before us. In the case before us it is not only not admitted that the trees have grown on land naturally, but the assessee claims that he has been carrying on regular operations in forestry under expert advice. Then again their Lordships of the Privy Council referred to the expression "used for agricultural purposes", and observed as follows: "It is sufficient for the purpose of the present appeal to say (1) that in their opinion no assistance is to be got from the meaning ascribed to the word 'agriculture' in other statutes and (2) that though it must always be difficult to draw the line, yet, unless there is some....
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....araja Pratap Udai Nath ([1945] 13 I.T.R. 75) which arose under the Bihar Agricultural Income-tax Act, the Court accepted the contention for the assessee that the land from which the income of bankar, lakhar and phalkar was derived was not used for agricultural purposes, as they were the natural produce of the soil. The Court observed that it was due to the absence of cultivation that the area developed into a jungle. This view was adopted in Maharaja of Kapurthala's case(3). In that case it was admitted by the general agent of the estate, Shri Hara Chand Das, that the forest was of spontaneous growth and that nothing in the nature of preparing the land for the growth of trees was done. It was accordingly held that if trees grow naturally on land without being fostered by tillage, the rent derived from the sale of such trees could not be said to be "income from land used for agricultural purposes." In the Pithapuram case [1946] 14 I.T.R. 92 the Madras High Court distinguished its earlier decision in the Singampatti case**, and held that the income derived from trees which have grown wild is not agricultural income. This case went up to the Privy Council and its decision is repor....
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....n used for the purpose of agriculture. The facts proved in Raja Jagadish Chandra's case** were: parcelling out of 14,000 acres into blocks of about 1,000 acres each, the trees on each being sold when they were about 15 years old; the ground was kept free from under-growth and jungle and, by removal of roots to prevent damages to the new shoots; the area cut down was closely guarded by forest guards at least for one year; and final cutting down at nearabout 15 years and removal of older trees. There was admittedly no tilling of the soil nor sowing of seeds, nor watering. None the less, Mookherji, J., said that "The application of human efforts is somewhat different in the present case. But there is no doubt that the assessee was carrying on a regular operation in forestry". The growing of new shoots appearing during the rains without any human intervention, and the use of particular blocks at fixed and stated intervals were held tantamount to "tending." Removal of trees of certain description was an operation depending upon technical skill and experience of officers, for the proper utilization of the produce of earth. In these circumstances, their Lordships held that there was n....
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....s v. The State of Assam* the forests consisted mainly of sal trees and the history of their origin was not available. There was nothing to show that these sal trees were of spontaneous growth. It was proved, however, that the forest trees were protected and fostered in their growth by the application of human skill and labour. These operations consisted of clearing of jungle-creepers and climbers, thinning by removal of less healthy trees from thickly grown areas, removal of diseased trees, burning of leaves, cuting of trees at particular heights, reservation of blocks by turns, and their operation in cyclic order, protection of forests from fire, etc. In these circumstances their Lordships held that elaborate operations in forestry were necessary for the maintenance of the forests and for the growth and regeneration of new types in place of those cut every year. These operations were undertaken with a view to enable the assessee to sell trees from the forests periodically and involved both skill and labour; and the income was held to be agricultural income. In the second case Jyotikana Chowdhurani v. Commissioner of Income-tax, Assam [1954] 26 I.T.R. 424 the facts found were th....
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....r operations which have been undertaken by the assessee through his huge forest establishment show that there has been both cultivation of the soil, as well as application of human skill and labour, both upon the land and on the trees themselves. It cannot be assumed therefore that all the trees are of spontaneous growth. The indications, on the other hand, appear to be that most of them are sprouts springing from burnt stumps. There is no basis for the assumption made by the Income-tax Department that all the trees are forty years old and that they owe their existence to spontaneous growth. Apart from that it will be noticed that what distinguishes the present case from all the reported decisions is that practically the whole of the forest area has been subjected to a process of "podu" cultivation spreading over several decades so that it is impossible to say that there is any virgin forest left. 18. The onus was certainly upon the Department to prove that the income derived from the forests was chargeable to tax and fell outside the scope of the exemption mentioned in section 4(3)(viii). Neither the word "agriculture" nor the expression "agricultural purposes" is defined in th....
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....e of paddy during the years in question, that he made several purchases from tenants, and supplied the rice by a series of sales. We are therefore in agreement with the view taken by the Tribunal that the assessee was carrying on the business of supplying rice to the Ceylon Government and that the income derived therefrom constituted business profits. We would accordingly answer the question formulated at pages 7 and 8 of the paper book, in paragraph 12 of the referring order, in the affirmative. 21. With regard to the next question referred to us, in paragraph 17 of the Tribunal's referring order (vide page 9 of the paper book), we are satisfied that the Tribunal was right in computing the taxable profits in regard to the business of the assessee with Messrs. Shaw Wallace & Co., Calcutta. The market value of the paddy sold by the assessee should be the rate obtaining at Koraput and not at Calcutta. This question is accordingly answered in the negative. 22. The next question is whether the sum of Rs. 1,00,000 paid by the assessee every year to the Andhra University is liable to be included in the total income of the assessee. Section 4(3)(i) of the Indian Income- tax Act ....