TaxTMI 
TaxTMI 
1979 (9) TMI 2
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....ovember 28, 1960, the assessee sold to one Velappa Rowther trees from about 60 acres of land forming part of the 200 acres aforesaid. Since the original term stipulated in connection with the payment of money by Rowther could not be adhered to by him, further agreements were entered into deferring and spreading the payments over some years. The assessee under the impression that the money which it received from Rowther on account of sale of trees was not chargeable to income-tax under the Indian I.T. Act did not file any voluntary return. On February 28, 1963, the ITO, Palghat, wrote to the karanavan of the assessee-family pointing out that he had information that the assessee had leased certain private forests to Velappa Rowther for cutting timber; and that the assessee had received Rs. 75,000 during the relevant year. The corresponding assessment year would be 1961-62. The assessee was asked to explain why no voluntary return had been filed. In reply to the letter of the ITO the assessee wrote a letter dated the 3rd April, 1963, stating therein that there was no lease but an out and out sale of the entire standing timber trees except certain specified varieties and that the sale ....
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....urt is in the following terms : " Whether, on the facts and in the circumstances of the case, the whole of the sum of Rs. 1,75,000 was not assessable to tax in the previous year ending on March, 31, 1961, relevant for the assessment year 1961-62 ? " Since the High Court in the main reference opined that the receipt from the sale of the trees were of a capital nature this reference was also answered in favour of the assessee. Civil Appeal No. 2242 arises out of Reference No. 29 of 1970. The ITO initiated penalty proceedings against the assessee, one under s. 271(1)(a) of the Act and the other under s. 273(b), the former being for the alleged failure of the assessee to furnish the return for the period in question and the latter for its alleged failure to furnish an estimate of the advance tax payable. In relation to the penalty proceeding, under s. 271(1)(a) of the Act, two references were made to the High Court, one at the instance of the revenue and the other at the assessee's instance and two references were similarly made in relation to the penalty proceeding under s. 273(b). As a consequence of the main judgment of the High Court in Reference No. 30 of 1970 all these f....
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....pts from the sale of such trees retained the same character. In CIT v. N. T. Patwardhan [1961] 41 ITR 313, the Bombay High Court was dealing with a case of the sale once for all of the trees with roots even though they were of spontaneous growth. The receipts from such sales were held to be capital in nature. The Kerala High Court in State of Kerala v. Karimtharuvi Tea Estate Ltd. [1964] 51 ITR 129 was concerned with the sale of firewood of gravelia trees grown and maintained in tea gardens for the purpose of affording shade to tea plants. Even sale proceeds of forest trees felled for the purpose of coffee plantation in the land were held to be capital receipts by the Mysore High Court in the case of CIT v. H. B. Van Ingen [1964] 53 ITR 681 and the Madras High Court in the case of CIT v. M. S. P. Nadar Sons [1973] 87 ITR 202. Similarly, sale of dead and wind-fallen trees and trees planted for shades were held to be bringing receipts of capital nature : vide Elixir Plantations Ltd. v. CIT [1969] 71 ITR 741 (Ker) and Consolidated Coffee Estates (1943) Ltd. v. Commr. of Agrl. LT. [1970] 76 ITR 29 (Mys). In CIT v. Venugopala Varma Raja [1968] 67 ITR 802, the Kerala High Court was co....
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....land. But by selling a part of the trunk, the assessee does not necessarily realise a part of his capital. We need not consider whether in case there is a sale of the trees with the roots so that there is no possibility of regeneration, it may be said that the realisation is in the nature of capital. That question does not arise in the present case. " The question, however, of sale of trees with roots arose before this court shortly after in A. K. T. K. M. Vishnudatta Antharjanam v. Commr. of Agrl. I.T. [1970] 78 ITR 58 (SC). Shah J., as he then was, who had delivered the judgment in Venugopala's case [1970] 76 ITR 460 (SC) was a party in this case also, the judgment of which was delivered by Grover J. The test laid down by the Privy Council in CIT v. Shaw Wallace and Company [1932] 6 ITC 178; 2 Comp Cas 276; AIR 1932 PC 138, was applied and it was said at page 61 : " According to that test, income connotes a periodical monetary return coming in with some sort of regularity or expected regularity from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return exclu....
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.... coming up from there. After the cuttings sprouts are not to be cut. " No. 3 referred in clause (13) is the said Rowther. On the face of the agreement, therefore, the transaction was not a sale of trees with roots and stumps. Rather there was a prohibition that after the cutting, sprouts were not to be cut. The agreement, however, did not indicate as to what was the object of the assessee in incorporating clauses (12) and (13) in the agreement. Was it the regeneration of the trees for earning more income or was it something else ? The subsequent conduct of the assessee as appeared from the facts placed before the income-tax authorities without anything more will indicate that the object of the assessee was to protect the land falling vacant after the cutting of the trees from being damaged by the licensee by at random cutting of the stumps and uprooting of the roots. The trees sold were spread in an area of 60 acres of land only. Even in that area the trees were not in any thick or continuous forest. They were interspersed by paddy fields. In its very first communication to the ITO sent on April 3, 1963, the assessee perhaps was made aware of the decision of the Kerala High Cour....
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....assessee was not to convert the land for cultivation but to earn income by regeneration of trees, it upheld the view of the departmental authorities that the receipt was a revenue receipt assessable to income-tax. It should be noted that the assessment made was not for default of the assessee to produce any relevant material but a regular assessment on consideration of such materials as were produced by it. It was not asked to produce any other evidence or material to substantiate the stand taken by it. Nor was the stand rejected. In such a situation it was not a question of the assessee's claiming any exemption and failing to get it for its alleged failure to furnish any more details. But it was a case where, in order to net the receipt as a revenue receipt, it was for the department to reject the assessee's stand and to hold that the object of the assessee in not allowing the licensees to cut the stumps and uproot the roots was a regeneration of the income. The High Court has also noticed the fact as found mentioned in the order of the Tribunal that by the time the assessment was completed by the ITO an area of 10 acres had been converted into cultivable land. In our opinion, the....