A. K. T. K. M. Vishnudatta Andharjanam
Vs. Commissioner of Agricultural Income Tax, Trivandrum  INSC 125 (5 May
05/05/1970 GROVER, A.N.
CITATION: 1970 AIR 2055 1971 SCR (1) 535 1970
SCC (2) 165
CITATOR INFO :
E 1980 SC 71 (12,14,17)
Income or capital-Teak trees removed by their
roots and sold-Sale receipts whether income or capital.
in the course of the appellant's assessment
under the Kerala Agricultural Income-tax Act, 1950, for the years 1963-64 and
1964-65, the Agricultural Income-tax Officer included in the appellant's income
an amount realised from the sale-of teak trees which had been planted in the
year 1946-47 and were removed from the appellant's land and sold during the
assessment years. The Appellate Assistant Commissioner as well as the Tribunal
confirmed the assessment. On a reference under s. 60(1) of the question whether
the receipt from the sale of teak trees was capital in nature and exempted from
agricultural income-tax, the High Court found against the appellant.
On appeal to this Court
HELD: Allowing the appeal, The form of the
question referred to the High Court itself showed that the trees were cut and
completely removed from the land together with their roots for the purpose of
planting rubber. There wag no question of any further regeneration or growth of
the trees which had been cut and removed. In other words there was no
possibility of recurring income from these trees.
The sale of such trees thus affects capital
structure and cannot give rise to a revenue receipt.
V. Venugopala Verma Rajah v. Commissioner of
Income-tax, Kerala C.A. 1810 of 1967 decided on 24-9-69; The Commissioner of
Income-tax, Bengal v. Messrs Shah Wallace and Company, 6 I.T.C. 178;
Commissioner of Income-tax, Bombay South v. N. T. Patwardhan 41 I.T.R. 313;
The 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 [538, B-E]
CIVIL APPELLATE JURISDICTION : CiVil Appeals
Nos. 2327 and 2328 of 1968.
Appeals by special leave from the judgment
and order dated August 21, 1968 of the Kerala High Court in Income-tax Referred
Cases Nos. 28 and 29 of 1967.
53 6 K. P. Radhakrishna Menon, for the
appellant (in both the appeals).
M. C. Chagla and M. R. K. Pillai for the
respondent (in both the appeals).
The Judgment of the Court was delivered by
Grover, J. These appeals by special leave from a judgment of the Kerala High
Court arise out of the assessment of agricultural income of, the assessee made
under the Kerala Agricultural Income tax Act, 1950, hereinafter called the
"Act", in respect of the assessment years 1963-64 and 1964- 65.
For the assessment year 1963-64 the assessee
filed a return showing a net agricultural income of Rs. 12,558-76. When the
matter came up for hearing before the Agricultural Income tax Officer another
statement showing an amount of Rs. 43,250-00 as income from teak trees was
filed. The Agricultural Income tax Officer disallowed certain expenses and
assessed the income for the year 1963-64 at Rs. 62,021-
00. For the assessment year 1964-65 a return
was filed declaring a net agricultural income of Rs. 25,733-63. No income was
shown from the sale of teak trees. The Agricultural Income tax Officer found
that teak trees had been sold for a lump sum of Rs. 76,500-00 out of which Rs.
43,250-00 had been received in the previous
year 1963-64 and he included the said amount in that year's income. The balance
amount of Rs. 33,250-00 was received in the previous year corresponding to the
assessment year 1964-65. In determining the assessable income for that year
this amount was added to the income which had been returned and after
disallowing certain amount which had been claimed by way of expenses the net
income was determined at Rs. 61,041-00.
The assessee filed appeals before the
Additional Appellate Assistant Commissioner who confirmed the assessment and
dismissed the appeals. Further appeals were taken to the Agricultural Income
tax Tribunal. The Tribunal held that the amount in dispute was agricultural
income and not capital. The expenses which were claimed were also disallowed.
On an application made under S. 60(1) of the Act the following two questions
were referred to the High Court "1. Whether on the facts and in the
circumstances of the case, the receipt from the sale of teak trees for the
purpose of planting the area with rubber is capital in nature and exempt from
Agrl. Income-tax Act.
2. If the answer to the above question is in
the negative, whether the expenses incurred in the prior 537 years for the
purpose of obtaining the said agrl. income is allowable as a deduction from the
sale proceeds of the trees." The High Court did not agree with the
contention of the assesses that the amounts received by sale of the teak trees
constituted capital and were not agricultural income.
Certain amounts were, however, allowed as
deductions by way of expenses for the assessment year 1963-64.
The principal point that has to be determined
is whether the sale proceeds of the teak trees constituted capital or revenue.
It appears to have been common ground before the High Court that the assessee
planted the teak trees sometime in the year 1946-47. The form of the question
itself showed 'that the trees were cut and completely removed from the land
together with their roots for the purpose planting rubber. There was no
question of any further regeneration or growth of the trees which had been cut
and removed. In other words there was no possibility of recurring income from
these trees. In V. Venugopala Verma Rajah v. Commissioner of Income tax
Kerala(1) the question before this Court was whether trees which had not been
removed with the roots and the stumps of which had been allowed to remain in
the land was in the nature of income. This is what was observed in that case
"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, the assessee does not necessarily realise a part of his capital.
We need not consider whether in case there is a sale of the trees with the
roots so that there is no possibility of regeneration, it may be said that the
realisation is in the nature of capital. That question does not arise in the
present case." The present question was apparently left open and was not
decided as the point which arose there did not relate to sale of trees of which
the roots had also been taken out for the purpose of planting some other kind
of trees e.g., rubber as in the present case.
It seems to us that the well known test laid
down by the Privy Council in The Commissioner of Income tax, Bengal v. Messrs.
Show, Wallace and Company (2) to find out whether a (1) C.A. 810 of 1967
decided on 24-9-69 (2) 6 I.T.C.
538 ,particular receipt is income is not
satisfied in the facts and circumstances of the present case. According to that
test income con-notes a periodical monetary return coming in with some sort of
regularity or expected regularity from definite sources. The source is not
necessarily one which is expected to be continuously productive but it must be
one whose object is the production of a definite return excluding anything in
the nature of a mere windfall. Once the teak trees were removed together with
their roots and there was no prospect of regeneration or of any production of a
return there from it could well be said that the source ceased to be one -which
could produce any income. The Bombay High Court in Commissioner of Income-tax,
Bombay South v. V. T. Patwardhan(1) said that from the point of view of a
person engaging himself in the business of sale of trees the capital structure
would be not only the land on which the trees stood but also the roots ,of the
trees from which the wood yielded income. If the trees 'were sold off with the
roots the capital structure would be affected.
The High Court in the judgment under appeal
was particularly impressed with the profit motive of the assessee in, planting
teak trees although that, was done several years ago. But it was overlooked
that profit motive is not decisive of the question whether a particular receipt
is capital or income, An accretion to capita 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.
For the reasons given above the answer to the
first question will be in the affirmative and in favour of the assessee.
It is unnecessary to return any answer to the
second question. The appeals are accordingly allowed and the judgment of the
High 'Court is set aside with costs. One hearing fee.
R.K.P.S. Appeals allowed.
(1) 41 I.T. R. 313.