AMRITLAL CHHAGANLAL Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THESE two references raise a common question of law and they are also based on substantially similar facts and it would, therefore, be convenient to dispose them of by a single judgment. We will first state the facts giving rise to Income -tax Reference No. 3 of 1970. The assessee in Income -tax Reference No. 3 of 1970, since deceased, was a partner in the firm called Messrs. Dalwadi and Company. The assessee owned a piece of agricultural land in or around the city of Ahmedabad. By an oral contract the assessee authorised Messrs. Dalwadi and Company to enter upon his land and to dig and remove earth from the land for being used for manufacturing bricks. The statement of the case does not show what was the consideration for which this authorisation was granted by the assessee but we were told by the counsel for the assessee, and this was not disputed on behalf of the revenue, that the consideration payable by Messrs. Dalwadi and Company was Rs. 2 per thousand bricks manufactured out of the earth removed by them. Pursuant to this contract, Messrs. Dalwadi and Company dug and removed earth from the land of the assessee to the extent of the value of Rs. 9,060 during Samvat year 2017, being the relevant previous year for the assessment year 1962 -63. The question arose in the assessment of the assessee to income -tax for the assessment year 1962 -63, whether this sum of Rs. 9,060 received by the assessee from Messrs. Dalwadi and Company constituted income liable to tax in the hands of the assessee. The assessee claimed that it was not so liable and the contention put forward by him was a two -fold contention. In the first place, it was contended by the assessee that the receipt of the sum of Rs. 9,060 was capital receipt and not revenue and the second contention was - and that was a contention in the alternative - that even if this receipt was income receipt, it bore the character of agricultural income and was, therefore, exempt from tax. Both these contentions were negatived by the Income -tax Officer and the sum of Rs. 9,060 was included in the total income of the assessee. The assessee being dissatisfied with this decision of the Income -tax Officer preferred an appeal to the Appellate Assistant Commissioner but the appeal was unsuccessful. The assessee thereupon carried the matter in further appeal to the Tribunal but this appeal also met with the same fate. The assessee thereupon made an application to the Tribunal for reference of certain questions of law which arose out of the order of the Tribunal and on the application, the following questions of law were referred for the opinion of this court :

(2.) THE same sequence of events also followed in the case of the assessee in Income -tax Reference No. 4 of 1970. The assessee in Income -tax Reference No. 4 of 1970 is the daughter -in -law of the assessee in Income -tax Reference No. 3 of 1970 and she too had entered into a similar contract with Messrs. Dalwadi and Company in respect of her agricultural land authorising Messrs. Dalwadi and Company to enter upon the land and to dig and remove earth for being used for manufacturing bricks on the same terms. The amount received by her during Samvat year 2017 from Messrs. Dalwadi and Company under this contract was the same, namely, Rs. 9,060 and the same question, therefore, arose also in her assessment for the assessment year 1962 -63. She raised the same contentions and they were rejected successively by the Income -tax Officer, the Appellate Assistant Commissioner and the Tribunal. She, therefore, made an application for reference and on her application, identical questions were referred to us for our opinion as in the case of the assessee in Income -tax Reference No. 3 of 1970.

(3.) NOW while dealing with this question it is merely at the outset to clear the ground by pointing out that merely because the earth would be consumed and exhausted in the process of digging and removal, that would by itself be no ground for holding that the consideration received for it is capital receipt and not income receipt. It is now well -settled since the decision of the House of Lords in Coltness Iron Co. v. Black, that profits from capital which is consumed and exhausted in the process of realisation may none -the -less be taxable as income. This principle has been applied in case of diverse kinds of wasting assets and it has been consistently held that income derived from mines and quarries, vide Kamakshya Narain Singh v. Commissioner of Income -tax, nitrate grounds, vide Alianza Co. Ltd. v. Bell, and timber -bearing forests, vide Kauri Timber Co. Ltd. v. Commissioner of Taxes is not realisation of capital but is taxable as income regardless of the consumption of capital involved in the process of profit earning. We may in this connection usefully refer to the following passage from the judgment of Lord Wright in Kamakshya Narain Singhs case :