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Issues Involved:
1. Nature of Receipts from Sale of Forest Trees: Whether the receipts from the sale of forest trees are capital or revenue receipts. 2. Deferred Revenue Expenditure: Whether expenses incurred for the protection of forest trees in preceding years can be allowed as deferred revenue expenditure. 3. Validity of Statutory Notice: Whether the statutory notice under Section 22(1) of the Income-tax Act was validly and properly issued. 4. Jurisdiction of Income-tax Officer: Whether the Income-tax Officer, Special Circle, Patna, had the jurisdiction to make the assessment. 5. Interest on Arrears of Rent and Cess: Whether interest on arrears of rent and cess relating to agricultural lands is agricultural income and exempt from tax. Detailed Analysis: 1. Nature of Receipts from Sale of Forest Trees: The Tribunal held that the receipts from the sale of forest trees are revenue receipts and not capital receipts. The Tribunal reasoned that the land on which forest trees grow remains intact, and the sale of trees, which grow spontaneously, does not diminish the capital asset. This view was supported by the decision in the case of Province of Bihar v. Maharaja Pratap Udai Nath Sahi Deo, which concluded that receipts from virgin forests are not agricultural income and are liable to income-tax. The High Court upheld this view, citing previous cases such as Maharaja Pratap Udai Nath Sahi Deo and Manavedan Tirumalpad, which established that the sale of forest trees does not result in the diminution of the estate's value and should be treated as revenue receipts. 2. Deferred Revenue Expenditure: The Tribunal disallowed the claim for deferred revenue expenditure on the grounds that such expenses can only be treated as the expense of the year in which they were incurred. The Tribunal further noted that the assessee failed to furnish particulars and prove the expenditure. The High Court agreed with this finding, emphasizing that the assessee could not substantiate the claim that the total amount of expenditure was revenue expenditure that could be set off against the income of the relevant accounting year. The Judicial Committee's decision in Commissioner of Income-tax, U.P. v. Basant Rai also supported this view, concluding that the point was not a referable question of law. 3. Validity of Statutory Notice: The Tribunal found that the combined notice issued under Section 22(1) by the Commissioner of Income-tax was a sufficient compliance with the terms of the section. The Tribunal reasoned that the notice, although signed by the Commissioner, was essentially issued on behalf of the Income-tax Officers, specifying their respective jurisdictions. The High Court declined to answer this question, noting that the assessee had responded to the notice under Section 22(2) by filing a return, and thus, it did not lie in the assessee's mouth to object to the assessment on the ground of irregular notice under Section 22(1). 4. Jurisdiction of Income-tax Officer: The Tribunal did not consider this contention as it had already found the notice under Section 22(1) to be valid. The High Court did not address this issue separately, as it was inherently linked to the validity of the statutory notice, which was already dealt with. 5. Interest on Arrears of Rent and Cess: The Tribunal held that interest on arrears of rent and cess relating to agricultural lands is agricultural income within the meaning of Section 2(1) of the Income-tax Act and is exempt from tax under Section 4(3)(viii). This decision was based on the precedent set by the Patna High Court in Srimathi Lakshmi Daiji v. Commissioner of Income-tax, Bihar and Orissa. The High Court affirmed this view, agreeing that interest on arrears of rent and cess is agricultural income and exempt from tax, consistent with the earlier decision. Conclusion: - Question 1: The assessee's net receipts from the sale of forest trees are liable to income-tax and are not capital receipts. - Question 2: The High Court declined to answer the question regarding the validity of the statutory notice under Section 22(1). - Question 3: Interest on arrears of rent and cess relating to agricultural lands is agricultural income and exempt from tax under Section 4(3)(viii). Each party was directed to bear its own costs in the High Court.
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