TMI Blog1975 (8) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... is an individual whose main sources of income are a tea estate, a jagir in Punjab and a forest. It appears that in S.Y. 2002, i.e., in 1944, His Highness the Raja of Mandi, conferred a jagir in agricultural land and in forest area in perpetuity on his son, Shri Rajkumar Ashok Pal Singh Ji, the assessee. Under the terms of the grant, the assessee and his legitimate heirs and successors were to remain in possession and enjoyment of the gifted properties in perpetuity and they were to hold the same free from payment of land revenue. It was to be an inalienable and impartible estate governed by the rule of primogeniture. The assessee realised the following amounts by sale of forest trees during the accounting years relevant to the assessment years in question : Assessment years Gross receipts Net receipts Rs. Rs. 1955-56 28,336 19,572 1956-57 41,046 36,736 1957-58 26,052 17,612 1958-59 21,883 18,030 1959-60 11,548 8,839 The forest frees were admittedly of spontaneous growth and no human labour or skill or any basic operations were applied to help their growth. The assessee claimed that the amounts in question received by way of sale of forest trees were not liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of revenue receipt applied to the Tribunal for a reference restricting the reference to the finding of the Tribunal that 1/3rd of the proceeds of the sale of forest trees was of capital receipt not liable to tax and he desired that the question as to whether the Tribunal has misdirected itself in law in holding that 1/3rd of the proceeds of the sale of forest trees were not liable to tax should be referred to this court. But the assessee, on the other hand, feeling aggrieved by the Tribunal's finding that 2/3rds of the net receipts were of a revenue nature applied to the Tribunal for a reference confining it to that part of the claim which was rejected by the Tribunal. Ultimately, the Tribunal has referred the question set out at the commencement of the judgment for our opinion. Mr. Joshi, appearing for the revenue, has contended before us that having regard to the admitted facts which obtained in the case that the assessee after getting into possession of the forest had indulged in the activity of selling forest trees year after year, the assessee having treated the receipts from the sale of such forest trees as an income in his books of accounts and the assessee having claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich grew spontaneously on the land shall not be agricultural income and it was also well-settled that the income from the timber of forest where the trees grew naturally was an income in the nature of revenue. On the facts which obtained in the case though the court took the view that these well settled principles had no application to the facts of the case before it, this court observed that the judicial decisions to which reference was made on behalf of the revenue did not lay down the proposition that in each and every case a sale of a tree or trees growing spontaneously must constitute a sale producing income irrespective of the other facts and circumstances of the case. The court was of the view that whether a sale was a capital sale or a sale producing income must depend upon the facts and circumstances of the case. On the peculiar facts of that case this court took the view that by the sale once for all of the trees with roots, which were the assessee's assets, even though he did not invest any capital in growing them, the capital structure was affected and there was a diminution in his capital asset ; and the receipts from the sale of the trees were capital in nature. Mr. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attention to the decision of the Patna High Court in Sir Kameshwar Singh v. Commissioner of Income-tax [1954] 26 ITR 121 (Pat). In that case the assessee had leased out Bankura forest by auction on short terms for lump sums and according to the terms of the lease, the lessee was entitled to cut down and remove all sal trees but not those which were more than three feet in girth above three feet from the ground and all other jungle trees other than fruit bearing trees and valuable timber trees ; the lessee was further entitled to cut stumps not higher than five inches over ground so that new shoots may grow in rains and in time mature trees were produced. In other words, it was a case where a lease was given by the assessee for the purpose of selling timber in forest. It was conceded during the course of argument that if, instead of giving a lease, the assessee himself had sold the timber, the sale proceeds would be income and hence taxable. The court took the view that there was no difference in the two positions, in the one, the assessee sold himself and in the other, for the sake of convenience, he leased out the forest for the purpose of sale by the lessee. The assessee had cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was right to a certain extent but the court went on to observe that what the Tribunal appeared to have done and which it need not have done, was to say that since part of the proceeds of sale must have been from the trees which were the subject-matter of the gift, the assessee should be given the benefit of doubt by a somewhat ad hoc apportionment. From the findings by the Income-tax Officer and confirmed by the Assistant Commissioner, the Tribunal could well have held that the assessee had not chosen to say which part of the trees represented the trees that were originally standing on the land and which part represented the trees which had spontaneously grown, and, therefore, in the absence of any such data of the trees sold being the source of income, the entire proceeds were taxable income. At page 584 of the report the specific contention raised on behalf of the assessee has been dealt with by the Gujarat High Court thus---See [1965] 55 1TR 580, 584 (Guj) : " Nevertheless, Mr. Dwarkadas's point that the entire sale proceeds, whether they were from the trees which originally stood on these lands or whether they were from those that grew spontaneously after the date of the gift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in the hands of the assessee. On the other hand, Mr. Patil appearing for the assessee has contended that the forest land together with the trees which had spontaneously grown thereon had been gifted to the assessee by his father in the year 1944 and it constituted capital asset in his hands. He further urged that for nearly 7 or 8 years in the beginning nothing was done by the assessee qua the trees standing in that forest and it was only in the accounting years 1954-55, 1955-56, 1956-57, 1957-58 and 1958-59 that the assessee had effected sales of the trees from that forest. He, therefore, urged that the entire sale proceeds of the forest trees should be regarded as realisation of capital asset and that there was no material on record to show that this activity of selling trees from that forest had been undertaken by him as a trading activity or a profit making activity in the nature of any business and as such the entire sale proceeds ought to have been regarded as capital receipts in the hands of the assessee, and, therefore, not taxable. He further contended that the burden of proving that receipts from the sale of forest trees were all of income nature and, therefore, taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, the burden lay upon the department to establish that these receipts were taxable receipts, that is to say, these were of income nature, and, therefore, taxable and it was not for the assessee to establish that these receipts were of a capital nature, and, therefore, he urged that in the absence of any material on record, one way or the other---whether the trees had been sold together with roots or not---the department should fail and the assessee must get the benefit of lack of material on record in that behalf and the entire sale proceeds must be held to be capital receipts and, therefore, not taxable. He also placed reliance on two decisions, one of the Kerala High Court in the case of Ambat Echukutty Menon v. Commissioner of Income-tax reported in [1973] 87 ITR 129 (Ker) and the other of the Madras High Court in the case of Commissioner of Income-tax v. M. S. P. Nadar Sons reported in [1973] 87 ITR 202 (Mad). He pointed out that, in the former case, though the trees had not been sold with the roots and the stumps, the court took the view that the assessee was not engaged in the business of felling timber, and, therefore, the receipts from the sale of trees was not assessable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ramamma's case [1965] 57 ITR 532 (SC), that though by sections 3 and 4, the Income-tax Act imposes a general liability to tax upon all income, the Act does not provide that whatever is received by a person must be regarded as income liable to tax and in all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision but where a receipt is of the nature of income, the burden of proving that it is not taxable, because it falls within an exemption provided by the Act, lies upon the assessee. However, the question of burden of proof in a given case cannot be considered in isolation but the same has to be considered in the light of facts and circumstances which are obtaining in a given case. As against the principle on which reliance has been placed by Mr. Patil, Mr. Joshi has relied upon another general principle which has been enunciated by the Supreme Court in the case of Kale Khan Mohammad Hanif v. Commissioner of Income-tax reported in [1963] 50 ITR 1, 4 (SC), where the Supreme Court has observed thus : " It is well-established that the onus of proving the source of a sum of money found to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts which appear clear on record that the question of burden of proof will have to be considered and, in our view, having regard to the manner in which the activity of selling trees was indulged in by the assessee, having regard to the manner in which the accounts were maintained by the assessee in respect of this particular source of income and having regard to the way in which he has claimed expenditure which he had incurred year after year pertaining to the forest trees, it was reasonable for the taxing authorities to draw an inference that the initial burden that the sale proceeds of the trees were income in the hands of the assessee could be said to have been discharged, and, therefore, it was for the assessee to explain how he could claim these receipts as capital assets which of course he could have shown by pointing out that the trees in question had been sold together with roots and stumps which had resulted in diminution of capital asset in his hands but nothing of the kind was done by the assessee. In the absence of any material being brought on record by the assessee indicating how receipts could be treated as capital asset, it was perfectly open to the taxing author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that even the assessee himself had treated these sale proceeds as income in his hands and, therefore, if he wanted to show that these receipts were in the nature of capital receipts, it was up to him to prove the same which could have sustained his claim. Not having done so, we are clearly of the view that the entire sale proceeds which have been shown by the assessee in his books of account will have to be regarded as income in his hands, and, therefore, taxable under the provisions of the Income-tax Act. The two decisions on which reliance was placed by Mr. Patil---one of the Kerala High Court in Ambat Echukutty Menon v. Commissioner of Income-tax [1973] 87 ITR 129 (Ker) and the other of the Madras High Court in Commissioner of Income-tax v. M. S. P. Nadar Sons [1973] 87 ITR 202 (Mad)---are clearly distinguishable on facts. It is true that in the former case though the trees were not sold with the roots and the stumps, the Kerala High Court took the view that the assessee was not engaged in the business of felling timber and, therefore, the receipts from the sale of trees was not assessable as income. The court really addressed itself to the principal question as to whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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