Full Judgment Text
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PETITIONER:
A. K. T. K. M. VISHNUDATTA ANDHARJANAM REPRESENTEDBY. D.
Vs.
RESPONDENT:
COMMISSIONER OF AGRICULTURAL INCOME TAX,TRIVANDRUM
DATE OF JUDGMENT:
05/05/1970
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
SHAH, J.C.
HEGDE, K.S.
CITATION:
1970 AIR 2055 1971 SCR (1) 535
1970 SCC (2) 165
CITATOR INFO :
E 1980 SC 71 (12,14,17)
ACT:
Income or capital-Teak trees removed by their roots and
sold-Sale receipts whether income or capital.
HEADNOTE:
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; referred to.
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]
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JUDGMENT:
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.
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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.
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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.
178.
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 therefrom 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
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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.
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