VENUGOPALA VARMA RAJAH Vs. CIT KERALA

JUDGEMENT

(1.) BY our order dated February 13, 1969, we called for a supplementary statement of the case setting out the terms of the agreement conveying the rights in the forest trees to the lessees, and the true import of the expression the "clear felling". The Income-tax Appellate Tribunal has submitted a supplementary statement of the case. The Tribunal has set out the relevant terms of the agreement and has also observed that the import of the expression clear felling" is that "all trees except casurina are to be felled at a height not exceeding six inches from the ground, the barks being left intact on the stump and adhering to it all round the stump without being torn off or otherwise changed".

(2.) THERE is no suggestion that there ware any casurina trees in the forest lands let out to the lessees. It is common ground also that the trees in the forest were of spontaneous growth. The Tribunal has found that by the use of the expression "clear felling" it was stipulated that the trees are to be cut so that 6" of the trunk with the barks intact and adhering to it all round the stump is left. This with a view to permit regeneration of the trees. The question whether receipts from sale of trees by an owner of the land who is not carrying on business in timber may be regarded as income liable to tax has given rise to some difference of opinion in the high Courts In Commissioner of Income-tax Madras v. T. Manavedan Tirumalpad i. L. R. 54 Mad. 21, a Full Bench of the Madras High Court held that the receipts from sale of timber trees by the owner of unassessed forest lands in Malabar were revenue and not capital. The Court observed that if income from the sale of coal from a coalmine or stone won from a quarry or from the sale of paddy grown on land be regarded as income, but for the special exemption granted under the Income-tax Act, there is no logical reason for holding that income from sale of trees is not income liable to tax. 3 In re Ram Prasad ILR. 52 All. 419 a Division Bench of the Allahabad High Court held that receipt from sale of timber is income liable to be taxed and is not a capital receipt. The case arose under the Government trading Taxation Act 3 of 1926. In Maharaja of Kapurthala v. Commissioner of Income-tax, c. P. & U P. 13 I. T. R. 74, the Oudh Chief Court held that net receipt from the sale of forest trees is income liable to income-tax, even though the forest may be gradually exhausted by feelings. The Court further observed that income from the sale of forest trees of spontaneous growth growing on land which is assessed to land revenue is not agricultural income within the meaning of S. 2 (1) (a) of the Income-tax Act and is not exempt from income-tax under S. 4 (3) (viii)of the Act. In Raja Bahadur Kamakshya Narain Singh v. Commissioner of income-tax, Bihar and Orissa 14 ITR. 673 a similar view was expressed by the Patna High Court. In Fringford Estates Ltd, Calicut v. Commissioner of income-tax Madras 20 I. T. R. 385 it was held that profits realised from the sale of timber were trade profits and were liable to income-tax. In that case the assessee Company formed with the object of purchasing, clearing and improving of estates and the cultivation and sale of tea, coffee etc. in such estates, purchased a tract of land part of which had already been cultivated with tea and the rest was a jungle capable of being cleared and mad; fit for plantation. The Company entered into an agreement with a timber merchant for clearing a part of the forest of all trees and for sale of the trees in the market. This was held to be apart of the business activity of the Company.