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Issues Involved:
1. Validity of re-assessment proceedings under Section 34 of the Indian Income-tax Act. 2. Taxability of income derived from the sale of forest trees as agricultural income. Detailed Analysis: 1. Validity of Re-assessment Proceedings under Section 34: The first issue pertains to whether the re-assessment proceedings initiated under Section 34 of the Indian Income-tax Act were valid. The assessee contended that the Income-tax Officer lacked "definite information" to proceed under Section 34. The High Court examined whether the information derived from the decision in the Kapurthala case constituted "definite information" as required by Section 34. The court noted that the Income-tax Officer had initially excluded forest income based on his belief that it was not taxable. However, upon learning from the Kapurthala case that income from the sale of forest trees of spontaneous growth was taxable, the Officer initiated re-assessment proceedings. The court held that information regarding the correct state of the law, derived from an authoritative external source, qualifies as "definite information" under Section 34. Therefore, the re-assessment proceedings were valid. 2. Taxability of Income Derived from Forest Trees as Agricultural Income: The second issue concerns whether the income derived from the sale of forest trees qualifies as "agricultural income" and is thus exempt from tax under Section 4(viii) of the Indian Income-tax Act. The Tribunal had held that the operations carried out by the assessee, except for the sowing of seeds, were necessary for any forest of spontaneous growth and did not constitute agricultural operations. The High Court disagreed, stating that operations such as weeding, cutting channels for rainwater, and sowing seeds after digging the soil in denuded areas involve the culture of land and qualify as agricultural activities. The court emphasized that the term "agriculture" does not necessarily require tillage but does require some expenditure of human skill and labor on the land. Consequently, the income derived from the forest was deemed agricultural income and thus exempt from tax. Conclusion: The High Court concluded that the re-assessment proceedings under Section 34 were valid as the information derived from the Kapurthala case constituted "definite information." Additionally, the court held that the income derived from the sale of forest trees was agricultural income and exempt from tax. The answers to the questions referred were: 1. Yes. 2. Yes. The assessee succeeded on the main question and was awarded the costs of the reference, although the court did not certify for two counsel.
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