9911796707
TMI Blog1971 (12) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... e were about 772 trees of various kinds like karimpana, cocoanut trees, jack trees, tamarind trees, maruthu, etc. These were not in one block but were interspersed among the paddy fields. There were other trees of spontaneous growth. By an agreement dated November 28, 1960, the English translation of which is annexure " A ", the representatives of the assessee sold to one Velappa Rowther trees from about 60 acres of the land obtained by the assessee in court auction on certain terms and conditions mentioned in that agreement, annexure " A ". Two clauses of this agreement which have been relied on for the Tribunal for holding that the sale price is income are those in clauses 12 and 13 which we may extract : " (12) The trees in the reared forest have to be cut neatly and the relative stumps should hot be either pulled out or cut out. (13) No. 3 should not enter on the lands from where trees are cut or on the sprouts coming up from there. After the cuttings sprouts are not to be cut. " No. 3 referred to in clause 13 is the said Vellappa Rowther. The terms relating to payment stipulated in annexure " A " were not adhered to by Velappa Rowther. There were further agreements deferri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f land had been brought under paddy cultivation. It was contended that it was not a material consideration whether the assessee did it himself so long as the object was the reclaiming of the land for agricultural purposes and that in effect in either case there was sterilisation of the asset. The assessee's learned counsel sought to distinguish the case of Commissioner of Income-tax v. Venugopala Varma Raja. It was pointed out that the decision in that case proceeded on the interpretation of 'clear felling' as defined in the Madras Forests Preservation Act and that in the assessee's case, that Act had no application and that even according to the ratio of that decision, if there was no scope for regeneration the sale proceeds of the trees could represent only capital receipt. " A further contention was raised which had also been noticed by the Tribunal that some of the trees cut at least were incapable of regeneration. The contention of the departmental representative was that the receipts represented the sale proceeds of trees of spontaneous growth and that various authorities had laid down that such receipts were of a revenue nature. The Tribunal came to the conclusion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... growth above a particular height, leaving intact the roots and the stumps in such a manner as to ensure regeneration, future growth, further felling and a subsequent income. " When the matter was taken up in appeal before the Supreme Court, their Lordships felt that the above conclusion was reached without adequate materials and therefore called for an additional statement of the case and after ascertaining the nature of the felling, their Lordships came to the same conclusion as this court did. They observed : " On the finding in the present case it is clear that the trees were not removed with roots. The stumps of the trees were allowed to remain in the land so that the trees may regenerate. If a person sells merely leaves or fruit of the trees or even branches of the trees it would be difficult (subject to the special exemption under section 4(3)(viii) of the Income-tax Act, 1922) to hold that the realization is not of the nature of income. Where the trunks are cut so that the stumps remain intact and capable of regeneration, receipts from sale of the trunks would be in the nature of income. It is true that the tree is a part of the land. But, by selling a part of the trunk, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the source ceased to be one which could produce any income. " Reference was then made to the decision of the Bombay High Court in Commissioner of Income-tax v. N. T. Patwardhan and the conclusion was reached that the receipt from the sale of the teak trees was not income. Their Lordships also referred to the contention that the assessee was prompted by profit motive in planting teak trees and in relation to this contention it was observed : " But it was overlooked that profit motive is not decisive of the question whether a particular receipt is capital or income. An accretion to capital does not become taxable income merely because an asset is acquired in the hope that it may be sold at a profit. It must also be remembered that trees so long as they are uncut form a part of the land. If they are cut with roots once and for all a part of the assets is disposed of. The sale proceeds on account of their disposal cannot constitute revenue because by removing the roots the source from which fresh growth of trees can take place is also removed. The sale of such trees thus affects capital structure and cannot give rise to a revenue receipt. " It is unnecessary to refer to the numero ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply. It was not even remotely suggested that the assessee was engaged in the business of felling trees or had been in the business of buying lands and selling the timber on it. The facts indicate otherwise. The purchase was in the year 1905. The first sale had only been in 1960. In the letter that we have referred to, it was stated that " the present sale is the only sale and this will be the last sale ". The object of the sale was mentioned to be to convert the land for agricultural purposes. It was asserted that the land had been so converted. This fact is not disputed. It must also be mentioned that the terms in clauses 12 and 13 contained in the agreement between the assessee and the said Velappa Rowther cannot be conclusive for even if Velappa Rowther had no right to cut or remove the stumps the assessee himself could have done so. His claim that the land was intended to be converted into agricultural land and the fact that it was so converted indicated that he never expected or wanted regeneration. This cannot be characterised as a subsequent intention. From the facts and circumstances it is clear that the stumps and the roots were intended to be removed by the assessee and w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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