1964 (8) TMI 79 - HC - Income Tax

Summary

Issues Involved:
1. Whether two-thirds of the sale proceeds of forest trees and forest produce sold by the assessee during the accounting year constitute capital receipt.
2. Whether the operations carried out by the assessee with reference to the lands in question constitute agricultural operations, making the sale proceeds agricultural income as defined by section 2(1) and being exempt from income-tax under section 4(3)(viii) of the Income-tax Act of 1922.

Detailed Analysis:

1. Capital Receipt Issue:

The primary contention was whether the sale proceeds of Rs. 72,611 from forest trees and forest produce constituted capital receipt. The assessee argued that these proceeds were capital receipts since the trees and forest produce were part of the capital assets gifted by his father. The Income-tax Officer rejected this claim, stating that the sale of forest produce, even if of spontaneous growth, did not amount to capital receipt. The Appellate Assistant Commissioner and the Tribunal upheld this view, noting that the trees sold were not part of the original gift but included spontaneous growth over time. The Tribunal apportioned the sale proceeds, treating two-thirds as income and one-third as capital receipt, although there was no concrete evidence for this apportionment. The court observed that the entire amount could have been treated as taxable income, as the assessee did not provide evidence distinguishing the original trees from the spontaneous growth. The court concluded that the sale proceeds were income since the trees were intended as a source of income, and the diminution of capital assets did not preclude the proceeds from being taxable income.

2. Agricultural Operations Issue:

The second issue was whether the operations conducted on the forest lands constituted agricultural operations, thereby making the sale proceeds agricultural income exempt from income-tax. The assessee relied on an affidavit stating that various sylvicultural operations were carried out, including planting and dibbling, which he claimed constituted agricultural operations. However, the court noted that the affidavit referred to practices before 1942 and did not provide evidence that these operations were conducted during the relevant accounting year. The court emphasized that the burden of proof was on the assessee to demonstrate that integrated agricultural activities were carried out, as required by the Supreme Court's decision in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy. The court found that the assessee failed to discharge this burden, as no satisfactory evidence was provided to show that such activities were performed on the lands in question. Consequently, the court concluded that the sale proceeds did not constitute agricultural income.

Conclusion:

The court answered both questions in the negative, ruling that the two-thirds of the sale proceeds did not constitute capital receipt and that the operations carried out did not make the sale proceeds agricultural income. The assessee was ordered to pay the costs of the reference to the Commissioner.