1951 (5) TMI 6 - HC - Income Tax

Summary

Issues Involved:
1. Assessability of income from the sale of timber.
2. Nature of the income (capital receipt vs. revenue receipt).
3. Whether the income is casual and non-recurring.
4. Deductibility of the cost of acquisition of timber.

Issue-wise Detailed Analysis:

1. Assessability of Income from the Sale of Timber:
The primary question referred to the High Court was whether the sum of Rs. 11,242 derived by the assessee company from the sale of timber was assessable income. The assessee, a limited company, purchased land partly cultivated with tea and partly consisting of jungle, which was cleared for further cultivation. The timber from this clearing was sold, and the resultant income was recorded in the company's accounts. The Tribunal held that this income was taxable, a decision the assessee contested, arguing it was either a casual receipt or a capital receipt.

2. Nature of the Income (Capital Receipt vs. Revenue Receipt):
The assessee contended that the income from the sale of timber was a capital receipt and thus not liable to income tax. The Court, however, referred to established principles and precedents, including Coltness Iron Company v. Black and Raja Bahadur Kamakshya Narain Singh v. Commissioner of Income-tax, which held that profits derived from the exhaustion of capital assets (such as timber) are taxable income. The Court emphasized that the sale of timber, even if it led to the exhaustion of capital assets, was considered revenue income and thus taxable.

3. Whether the Income is Casual and Non-Recurring:
The assessee also argued that the income was casual and non-recurring, thereby exempt from tax under Section 4(3)(vii) of the Income-tax Act. The Court rejected this argument, noting that the company's activities, including the clearing and selling of timber, were part of its regular business operations as outlined in its Memorandum of Association. The Court defined "casual" as something occurring by chance or accident, which did not apply to the systematic and planned sale of timber by the company. Therefore, the income was not considered casual or non-recurring but rather a part of the company's business operations.

4. Deductibility of the Cost of Acquisition of Timber:
The assessee argued that the cost of acquiring the timber should be deducted from the income. The Court dismissed this argument, stating that the company was not engaged in the trade of buying and selling estates but in exploiting the produce of its estates. The Court referred to British South Africa Company v. Commissioner of Income-tax, distinguishing between a company selling acquired rights and one exploiting its assets. The latter scenario applied to the assessee, and no deduction for the cost of acquisition was warranted. The income from selling timber was considered revenue income, not subject to deductions for capital expenditure.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the sum of Rs. 11,242 derived by the assessee company from the sale of timber was assessable income. The income was not a capital receipt, nor was it casual and non-recurring. Additionally, the cost of acquisition of timber was not deductible. The Court answered the reference in the affirmative, against the assessee, and awarded costs of Rs. 350 to the Commissioner of Income-tax.