TMI Blog1970 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... " Whether, on the facts and in the circumstances of the case, the amounts of Rs. 17,250 and Rs. 18,752, representing the sale proceeds of timber cut and removed with roots constitute revenue receipts in the hands of the assessee and are taxable as such under the Income-tax Act, 1961 ? " and the facts of the case are the following. The assessee is a limited liability company doing rubber plantation business; and the assessee took on lease an extent of about 2,000 acres of forest land from the Senior Rani (the Valiya Thamburatti) of the Patinhare Kovilakam under two leases, the first of 3rd August, 1913, and the second of 9th July, 1937. The assessee agreed to pay an annual rent of Rs. 250, and an additional sum of Rs. 2 for every acre of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first decision cited before us was cited before the department and the Tribunal too; and that is Commissioner of Income-tax v. N. T. Patwardhan, of the Bombay High Court. On the grass lands of an area of 10 square miles belonging to the assessee stood for many years a large number of trees of spontaneous growth. The assessee sold the trees by favour actions with a condition that the purchasers should remove the trees with their roots. The purchase price was payable in a lump, but was realised only in instalments ; and in the relevant accounting years, different amounts were received ; and the question was whether these amounts werc capital returns or receipts of revenue nature. The Bombay High Court held that, since the sale was of the tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the capital assets or the profit-making apparatus of the assessee. If they did , by their sale the capital structure of the assessee will be affected and the moneys brought in by such sales will then constitute capital returns. In this connection, another line of thinking has also been suggested by referring to the decision of the Supreme Court in V. Venugopala Varma Rajah v. Commissioner of Income-tax. In that decision the Supreme Court held that where the trunks of trees of spontaneous growth were cut so that the stumps were allowed to remain in the land with the bark adhering to the stumps to permit regeneration of the trees, receipts from the sale of the trunks would be in the nature of income-would be revenue receipts. In the case b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trees themselves the timber. The facts and the circumstances clearly show that what was sold was the trees, the timber, and not merely the right to cut and remove the trees. If the assessee sold his leasehold right and the right to cut and remove the trees, the position would have been different, since the leasehold right itself was a capital asset of the assessee. From this discussion what emerges is that the trees did not constitute part of the capital assets of the assessee or part of the assessee's profit-making apparatus and, therefore, the amounts received by sale of the trees will not be capital receipts. The next question that arises is as to what is then the nature of these receipts. The contention of the revenue, which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrouds and whatsoever thereof ". This provision makes it clear that the lessee had the right to exploit all timber and other forest produce even otherwise than for purposes of cultivation. The intention then, evidently, was for the lessee to have a subsidiary business of exploiting the timber and other forest produce in addition to the main business of planting rubber. If so much is established (we feel that this is established beyond doubt), the cutting and removing of the trees with the roots thereof by entering into contracts with third parties, to whom the trees were sold for specific amounts, was in pursuance of, or in the course of the subsidiary business of exploiting the timber and the forest produce. The facts and circumstances do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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