9911796707
TMI Blog1970 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... imited 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 land brought under rubber cultivation. And the lease was for a term of 99 years. The second lease deed of 1937 provided, in clarification of the provisions in the earlier lease deed, that the assessee had the right to cut, remove and sell trees, bamboos and the forest produce from the land held on lease subject to the condition that, in respect of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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 trees with roots once and for all, the amounts realised from such sales were in the nature of capital returns, because the trees themselves constituted part of the capital assets of the assessee and by cutting and selling them the capital structure was affected causing diminution in the capital assets. Another decision brought to our notice is Consolidated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 before us, the trees were cut and removed, root and all without any possibility of sprouting or regeneration. Now, the position in the case before us is quite clear ; and none of those decisions can help the assessee. In the case before us, the assessee was not the owner of the trees cut and sold ; he had only a right to cut and sell the trees. And the ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accepted by the Tribunal, is that these returns were from a subsidiary business of the assessee, or, at least, from a venture in the nature of business. In Commissioner of income-tax v. P. K. N. Co. Ltd., the Supreme Court observed that the quest ion whether a taxpayer entered upon a business activity or not had to be determined in the light of the facts a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting 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 indicate that. It follows then that the amounts received by the sales are revenue receipts. The counsel for the assessee has argued that the cutting and removing of the trees in these cases was not part of any subsidiary business, because the assessee had no such subsidiary business. The counsel has proceeded to contend that the cutting and removing was on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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