TaxTMI 
TaxTMI 
1946 (8) TMI 18
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, so far as material to the present reference, were:- (a) that the receipts from the sale of forest trees were capital and not revenue receipts; (b) that in assessing the net income from forest, expenses incurred in preceding years should have been allowed as deferred revenue expenditure; (c) that interest on arrears of rent and cess relating to agricultural lands was agricultural income within the meaning of Section 2(1) of the Act and, as such, exempt from tax under Section 4(3)(viii). (d) that the statutory notice under Section 22(1) of the Act (as amended in 1939) was not properly and validly issued; that, therefore, the notice issued under Section 22(2) was also not legal and proper; (e) that the Income-tax Officer, Special Circle, Patna, had no jurisdiction to make the assessment and that the whole assessment was liable to be set aside as ultra vires and without jurisdiction. 4. The first contention of the assessee was repelled by this Bench of the Tribunal (as it then was constituted) which held that the receipt from forest was 'income' and not the realisation of capital asset. The second objection relating to the disallowance of expenses incurred ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which has been approved of by the Patna High Court in the case of Province of Bihar v. Maharaja Pratap Udai Nath Sahi Deo[**] , that question (iv) is academic in view of the finding by the Bench that the assessee failed to furnish particulars and prove the expenditure, and question (v) is too vague and general and it does not arise out of the appellate order of the Bench, for no question of jurisdiction has been raised and decided by the Bench. 7. Similarly the Commissioner of Income-tax has applied under Section 66(1) asking us to refer the following question of law to the Hon'ble High Court:- 'Whether interest on arrears of rent is agricultural income within the meaning of Section 2 of the Income-tax Act?' 8. The assessee, who is respondent to this application, in his reply under rule 54 of the Appellate Tribunal Rules, contends that the Hon'ble High Court has already answered this question in the affirmative in the appellant's case for the charge year 1939-40; and, as such, it has ceased to be a referable question of law. 9. As both the applicat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt whether expenses incurred on the protection or improvement of the forests in preceding years can be allowed in the assessment year under review as 'deferred revenue expenditure'. The amount of such expenses, according to the assessee, comes to Rs. 3,25,028. The establishment charges incurred during the relevant year of account as also a certain percentage of the gross receipts 'as incidental general management costs' were allowed. But the assessee's claim in regard to 'deferred revenue expenditure' was disallowed. The Income- tax Officer, in disallowing the claim, observed:- "As to the alternative claim, what exactly the nature of such expenses in the past was and in what way they can be treated as a revenue expenditure, which will have any bearing on earning of this year's income, are not proved, as the accounts are said to be filed in Court. But from the explanations offered by the assessee's representatives, however, it appears that heavy development costs were incurred in the past, which, by no means could be classed as revenue expenditure. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....venue expenditure which could be set off against the income of the relevant accounting year. Furthermore, the point, in so far as it raises a broad question of law, is concluded by the decision of their Lordships of the Judicial Committee in the case reported as Commissioner of Income-tax, U.P. v. Basant Rai[***] and, as such, ceases to be a referable question of law. In these circumstances, we refuse to refer this question to the Hon'ble High Court. 13. The last question, as framed by the assessee, does not arise out of the order under Section 33. Before we deal with the implications inherent in this question we would like to set out the facts on which the assessee's contention appears to have been founded. By a notification dated the 14th September, 1940, the Commissioner of Income-tax created a Special Circle at Patna, and under Section 5(5) of the Act he directed that the Income-tax Officer in charge of that Circle should perform the functions of an Income-tax Officer (i) in respect of such income and such classes of persons in the area comprised in the Province of Bihar and Orissa as were assessable to excess profits tax under the Excess Profits Tax Act, 1940, and (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ith the requirements of law. The assessee further urged that, in consequence of the notice under Section 22(1) being invalid, the notice issued under Section 22(2) also was illegal and without jurisdiction. The suggestion was that the issue of a notice under sub-section (2) was dependent for its validity on a legal and proper notice under sub-section (1). The contention had for its object the obtaining of a declaration that the proceedings conducted after the issue of the notice under Section 22(2) were null and void and, therefore, the assessment was liable to be annulled. The question appears to have been raised in the grounds of appeal before the Appellate Assistant Commissioner but there is no discussion of this point in his order. It may be that the plea was later abandoned. Be that as it may, the question was reagitated before the Tribunal and the Bench dealt with the contention which formed the first premise, namely, whether the notice under Section 22(1) was validly issued. It came to the following conclusion:- "It appears that the various Income-tax Officers have combined to issue....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is agricultural income and, as such, exempt from tax under Section 4(3) (viii) of the Act. The amount involved is Rs. 23,539 less 6 per cent. allowed as collection charges. This sum, of course, is inclusive of interest on cess and the Commissioner means to refer, in his application, to the aggregate amount. We have already set out the decision of the Tribunal which was to the effect that such interest is agricultural income within the meaning of Section 2(1) of the Act. The point is concluded by the decision of the Patna High Court in the case reported as Srimathi Lakshmi Daiji v. Commissioner of Income-tax, Bihar and Orissa[#], and we would not ordinarily have referred the question once again for the opinion of the Hon'ble High Court, but as we are referring certain other questions at the instance of the assessee and as the question raised by the department arises out of the same order and as the whole case will thus be before the High Court, we desire to refer the question formulated by the Commissioner of Income-tax as well. It may here be mentioned that the Commissioner's point of view is to keep the assessment alive by making it the subject of a pending reference so th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f Rs. 84,993 on account of price realised by the sale of forest trees in his zemindary. The claim of the assessee that the sale of forest trees should be treated as a sale of capital asset has been rejected by the Income-tax authorities. The question was examined by a Special Bench of this Court in the case of Maharaja Pratap Udai Nath Sahi Deo [1941] 9 I.T.R. 313. We referred with approval to the Madras case of Manavedan Tirumalpad** and another Madras case of Srimath Jagathguru Sringeri*** and the Full Bench case of the Allahabad High Court in Kesho Prashad Singh#; the latter case was approved by their Lordships of the Judicial Committee in I.L.R. 46 Allahabad 831. Mr. L.K. Jha appearing for the assessee contended that the sale of the forest trees must necessarily result in the diminution of the value of the estate of the assessee and, therefore, the amount realised should be treated as a capital receipt. This argument has been unsuccessfully advanced on a number of occasions as pointed out above and is similar to the argument advanced on behalf of this very assessee that royalties from coal mine should not be assessed to income-tax as the amount received resulted in diminu....