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Issues Involved:
1. Whether the receipts from the sale of forest trees are capital receipts not liable to tax. 2. Whether the receipts from the sale of forest trees constitute agricultural income. Issue-Wise Detailed Analysis: 1. Whether the receipts from the sale of forest trees are capital receipts not liable to tax. The primary issue addressed was whether the receipts from the sale of forest trees could be excluded from the assessee's total income on the ground that they constituted capital receipts not liable to tax. The assessee, a member of a former ruling family, received a jagir including forest land as a gift from his father. The forest trees were of spontaneous growth, and no human labor or skill was applied to their growth. The assessee claimed that the sale proceeds of these trees were capital receipts and not taxable. The Income-tax Officer rejected this claim, viewing the receipts as income from the sale of forest trees and thus taxable. The Appellate Assistant Commissioner confirmed this view. The Tribunal, however, apportioned the receipts, treating 1/3rd as capital receipts and 2/3rds as revenue receipts, relying on an earlier decision in a similar case. Mr. Joshi, representing the revenue, argued that the Tribunal erred in apportioning the receipts and treating any part as capital receipts. He cited previous decisions, including Commissioner of Income-tax v. N. T. Patwardhan and Vishnudatta Antharjanam v. Commissioner of Agricultural Income-tax, which held that income from spontaneously grown trees is revenue in nature. He emphasized that there was no evidence that the trees were sold with their roots, which would have indicated a diminution of capital assets. Mr. Patil, representing the assessee, contended that the entire sale proceeds should be regarded as capital receipts, arguing that the burden of proof lay with the department to show that the receipts were taxable. He cited Supreme Court decisions in Parimisetti Seetharamamma v. Commissioner of Income-tax and Udhavdas Kewalram v. Commissioner of Income-tax, which held that the burden of proving that a receipt is taxable lies with the department. The court held that the primary fact established was that the assessee received proceeds from the sale of forest trees, which were shown in his books as income. The manner in which the activity was conducted and accounted for indicated that the assessee treated the receipts as income. The court concluded that the entire sale proceeds should be regarded as income and thus taxable, rejecting the Tribunal's apportionment. 2. Whether the receipts from the sale of forest trees constitute agricultural income. The assessee also claimed that the receipts represented agricultural income. However, the Income-tax Officer, supported by the Supreme Court decision in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy, rejected this claim, stating that income from spontaneously grown trees does not constitute agricultural income. The Tribunal did not specifically address this issue in its apportionment decision. The court did not find sufficient grounds to consider the receipts as agricultural income, given the established legal principles that income from naturally grown trees is not agricultural income. The court focused on the nature of the receipts as income rather than agricultural income, ultimately concluding that the entire sale proceeds were taxable as revenue receipts. Conclusion: The court concluded that the entire sale proceeds from the forest trees should be regarded as revenue receipts and thus taxable. The apportionment done by the Tribunal was not justified in the absence of evidence that the trees were sold with roots, which would have indicated a capital nature. The assessee was ordered to pay the costs of the reference to the revenue.
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