TMI Blog1951 (5) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Tribunal:- Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the income of ₹ 11,242 derived by the appellant company, on the sale of timber from forest lands, was assessable income? 3. The facts of the case are that the assessee which is a limited company purchased a big estate for the cultivation of various commodities such as tea, oranges, cardamom, coffee, etc. The area agreed to be purchased, according to the Memorandum of Association, constituted partly of land on which tea was already cultivated, partly of jungles and the rest was reserve land. In order to increase the cultivation of tea etc. the assessee company had to clear up the forest timber which was sold and an income of ₹ 11,242 was derived therefrom. Of this sum, ₹ 7,474 was what is called kuttikanam or part realisation for the disposal of the trees and the balance represented the appellant's share of profit on the sale of timber, the details are given in a statement styled Timber Operation Account . It was argued before the Tribunal that the appellant not being a dealer in timber, the income was not a bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company. The expenses of cutting the trees incurred by Mammu Hajee came to ₹ 8,866-0-7 and the transport charges came to ₹ 10,956-11-0. There were other expenses incurred in connection with the transport and sale of the timber. The price realised by the sale of timber was ₹ 39,215-0-1 and the resultant net profit of ₹ 8,817, less a deduction for a reserve fund and for bonus to employees, was divided equally between the assessee company and Mammu Hajee, each getting ₹ 3,877-11-10. The total net realisation of the company from the sale of timber including the kuttikanam amount credited to it in the accounts was ₹ 11,242. It was not and it could not be contended that the income derived from the sale of jungle trees of spontaneous growth was agricultural income. The assessee company claimed that this sum was a capital receipt and therefore not liable to income-tax as profits or gains. Secondly, the company contended that the receipt of ₹ 11,242 was a casual and non-recurring receipt and therefore exempt from income-tax. These contentions were negatived by the revenue authorities as well as the Appellate Tribunal. Hence this reference. In our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the nature of a receipt may vary according to the nature of the trade in connection with which it arises. The price of the sale of a factory is ordinarily a capital receipt, but it may be an income receipt in the case of a person whose business it is to buy and sell factories. Here the business of the company is not to sell the plantations which it acquires, but it is its avowed object and purpose to keep and develop them and sell the produce of the estates. Even though the existence of a large quantity of timber trees--in this case they have realised a sum of ₹ 39,215--might have determined the price paid by the company for the acquisition of the estate, still the profits made by cutting down the timber over a period of three years and making them marketable and selling them in the market are not a realisation of capital. We consider the argument of the learned advocate is merely an attempt to get round the well-known principle repeatedly laid down m income-tax cases both in England and here, that exhaustion of capital by the working of mines, quarries and forests, however it might be treated on strict actuarial principles or on strict principles of economics, may for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, this decision has no application to a case like the present where the company is not engaged in the trade of buying and selling estates or plantations but its business is to turn to account the produce of the estate, both of the cultivated portions and of the jungle. The company retains the whole of the estate and sells the trees which are the produce of the jungle, and tea, coffee and cardamom which are the produce of the plantations. Even though the trees are cut and sold they may grow up again on the stumps left intact and new trees may also spring up in the jungle and these trees can again be sold. This is what happens in Malabar forests. Even if all the timber is sold away beyond the possibility of any replenishment and the timber is considered as part of the original capital asset of the company as suggested by Mr. Venkatarama Ayyar, in our opinion, the true analogy is to be found in cases where the courts have held that where the income of a taxpayer is derived from the exhaustion of a capital asset, it is none the less income. In such cases no deduction can be claimed from the income in respect of the diminution or exhaustion of the capital asset from which that income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on a business is not a casual receipt. This is not a casual profit made on isolated buying or selling of an article not amounting to a trade or business. This is not the case of an individual selling a plantation after holding it for a considerable time at a price greater than what he paid for it. The assessee is a public company whose sole raison d'etre is to have a business, to carry it on for profit and to divide the profit among the shareholders as dividends. Prima facie, therefore, any profit that the company makes otherwise than by sale of its plantation must be the taxable profit of its business. In the case of the assessee company the object of its existence is, among other things, to turn the forest to profit and thereby benefit its shareholders. The fact that the operation of cutting the trees and selling timber may not be carried out again, or may not be carried out for a considerable time hereafter, does not make any difference. The company was formed to carry on this business of acquiring, clearing and developing estates, clearing the land purchased of trees and selling them as timber. Necessarily the profits arising from these operations must be profits of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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