VIKRAM DEO VARMA Vs. COMMR.OF INCOME-TAX

JUDGEMENT

(1.) THIS is a reference made under Section 66 (1), Indian Income -tax Act by the Appellate Tribunal Calcutta Branch, of certain questions of law raised by the assessee, the Maharaja of Jeypore.

(2.) THE first and the most important of the questions raised by the assessee is whether the income derived from the extensive forest areas is liable to tax. He has been assessed to income -tax in respect of his forest income for the years 1942 -43 to 1946 -47. His case is that the income that he derives from the forests is exempt from taxation as it is agricultural income. The assessee is the proprietor of the impartible estate of Jeypore in Koraput district and has a forest area of 1540 sq. miles of reserved and 100sq. miles of protected forests. The income that he made from these forests during the assessment years resulted from the sale of timber such as teak, sal wood, lac, myrabolam, tamarind, cashew -nuts, and firewood. The Income -tax officer rejected the assessees claim on the ground that there was no plantation book maintained by the Estate. On appeal, by the assessee, the Appellate Assistant Commissioner also took the view that there was no evidence that any cultivation or tilling had been done periodically, and that the forest being a spontaneous growth the income made by the assessee was liable to be taxed. The Income -tax Tribunal which heard the appeal against the order of the Appellate Assistant Commissioner was not satisfied that the assessees case had been properly considered and, therefore, by an order of remand asked the Income -tax officer to enquire and report about the allegations of the assessee contained in his statement, Ex. F, (printed at page 250 of the Paper Book) in which the assessee claimed that the Estate had been actively adopting for decades a progressive forest policy and had done a lot of spade work such as cultivation, settlement and demarcation of boundaries, prevention of theft, timely removal of dead and dying trees so as not to interfere with the proper growth of other trees, protection against fire (and other causes of decay), planting of new trees, growing grass, collection of seeds, replacement of casualties, adoption of improved fellings, clearing of bushes, cutting of climbers and numerous other operations. The assessee claimed that very large amounts had been spent in replacement, tilling, ploughing, manuring, burning, construction of roads and buildings, and making other improvements in the management of the forests. The estate maintained a very big Forest Department under Experts. The Department consisted of 17 ranges managed by four subdivisional officers, controlled by a chief Forest officer with foreign qualifications. The field establishment consisted of 21 rangers, 56 foresters, 49 gate gumasthas, 358 forest guards and other personnel. The assessee also asserted that he had employed systematic and modern methods for cultivation of lac, and planted teak, sandal, Avaram, cashewnuts etc. The Income -tax officer by his order (Ex. H - printed at page 326 of the Paper Book) observed that "most of these items were such as by no stretch of imagination can be regarded as agricultural operation." He examined the assessees claim only under three heads: (i) propagation of forest; (ii) cultivation. ploughing, tilling and manuring, and (iii) planting of new trees, growing grass, collection of seeds and replacement of casualties. He held that the bulk of the expenditure was devoted to the maintenance of the Forest Establishment and for looking after the Cinchona, Coffee and Orange plantations and for the preservation of the forest area. There was no forest cultivation as such, and the large forest income was not due to any agricultural operations. On receipt of the report from the Income -tax officer the Income -tax Appellate Tribunal again heard the assessee, but agreed with the view taken by the Income -tax officer and rejected the assessees claim. The Tribunal observed that the assessee had not produced any accounts prior to February 1904 and that, therefore, he had failed to prove that he had adopted any forest operations or incurred any costs for plantation of the trees sold in 1941. The Tribunal assumed that a tree is not fit for sale unless it is forty years old and that the trees sold by the assessee in the year of accounting were all 40 years old. Both the Income -tax officer and the Tribunal proceeded on the footing that the income of the assessee arose from forests of spontaneous growth and was therefore not agricultural income. The question of law that arises out of the order of the Tribunal and referred to us is: "whether on the facts and in the circumstances the income derived from forests in this case is taxable under the Indian Income -tax Act". Subsequent to the submission of the report of the Income -tax officer after remand, the assessee filed a further statement and enclosed a volume of correspondence, but these have not been printed as a part of the Paper Book.

(3.) SIMILARLY , the assessee had business transactions with Messrs. Shaw Wallace and Co., of Calcutta in the assessment year 1945 -46 and the question referred to us, for opinion, is: