2012 (11) TMI 892 - HC - Income Tax

Capital receipts vs Revenue Receipts - Sale of trees/timber of spontaneous growth - held that - Assessee was held to be an agriculturist and not found engaged in any business activity. Secondly, the cutting and selling of the trees was made after obtaining prior permission from the competent authority (Collector) under the M.P. Land Revenue Code read with Rules and sale of the trees was made to the State. further both cutting and selling was governed by the provisions of the Code and Rules framed thereunder which inter alia provided that no one could either cut or/and sell any tree without obtaining prior permission of the competent authority. Price of trees was determined by the State authorities in which the assessee had no role to play. In other words, it was not a private sale between the two parties and hence, there was no scope for any price negotiations. Rules provided that the trees had to be cut in a particular manner and the same was also done by the assessee accordingly. certificate given by the Tahsildar (which was not disputed) in clear terms stipulated that so far as the trees in question are concerned, they would not regenerate in near future because they do not belong to the categories of a species which have a spontaneous growth and land was put to use for cultivation by the assessee after cutting the trees. looking to the nature of trees (Sagon) which were cut above the root, it did not result in its spontaneous growth. - held as capital receipt - not chargeable to tax - Decided in favor of assessee. Unexplained Investment - held that - It is essentially a question of fact involving no issue relating to law much less substantial question of law. When the explanation given by the assessee of the investment made in the transaction found acceptance to the authority concern including to the Tribunal, then, this Court in its appellate jurisdiction cannot again probe in to sufficiency of factual explanation given. It will amount to examining the factual appreciation of issues which is not permissible - answered against the appellant as not arising in the case being question of fact and not of law - once we answer the main question in assessee s favour and against the revenue (appellant) then it is not necessary to examine the second question framed because the said question then becomes academic for its answer - once it is held that the assessee was not liable to pay any tax on the income earned out of sale of trees in question then the question of payment of any interest etc would not arise - Decided in favor of assessee.

Summary

Issues:
1. Whether the income earned from the sale of trees of spontaneous growth is a capital receipt or a revenue receipt?
2. Whether the investment made by the assessee in agricultural land was explained for the Assessment Year 1994-95?

Analysis:

Issue 1:
The main issue in this case revolved around determining the nature of income earned by the assessee from the sale of trees of spontaneous growth. The assessee sought permission to cut and sell trees hindering cultivation on agricultural land. The Assessing Officer considered it a revenue receipt, but the CIT (Appeal) and Tribunal deemed it a capital receipt. The court referred to the Supreme Court's decision in Commissioner of Income-Tax v. Ambat Echukutty Menon, emphasizing the importance of intention and conduct in such cases. The judgment highlighted that if trees are cut in a manner preventing regeneration, income is a capital receipt; otherwise, it may be a revenue receipt. The court analyzed various factors like intention, manner of cutting, regeneration potential, and profit element to conclude that the transaction was a capital receipt, not taxable.

Issue 2:
Regarding the investment in agricultural land, the court found it to be a question of fact rather than a substantial question of law. Since the explanation provided by the assessee was accepted by the authorities, the court held that reexamining factual explanations in appellate jurisdiction was impermissible. Consequently, the second question was deemed irrelevant once the first issue was decided in favor of the assessee. The court dismissed the appeal, emphasizing that the assessee was not liable to pay tax on the income from tree sales, rendering further considerations unnecessary.

In conclusion, the court upheld the decisions of the CIT (Appeal) and Tribunal, ruling in favor of the assessee on the nature of income from tree sales. The judgment emphasized the importance of intention, conduct, and legal provisions governing the transaction, ultimately determining it as a capital receipt. The court dismissed the appeal, finding it devoid of merit and not requiring any further examination.