1979 (4) TMI 21 - HC - Income Tax

Agricultural Income Tax Act Capital Or Revenue Receipt Capital Receipt Charitable Purpose Individual Income

Summary

Issues Involved:
1. Taxability of the sale of timber from planted groves prior to the introduction of section 6-A of the U.P. Agricultural Income-tax Act.
2. Nature of the sale proceeds of planted grove and trees as capital receipts and their taxability under the Agricultural Income-tax Act.
3. Inclusion of income from property held under trust wholly for religious and charitable purposes in the total income under section 8 of the U.P. Agricultural Income-tax Act.

Detailed Analysis:

Issue 1: Taxability of the Sale of Timber from Planted Groves
The primary issue was whether the sale of timber from planted groves prior to the introduction of section 6-A of the U.P. Agricultural Income-tax Act was liable to be assessed as agricultural income under the Act. The court examined the definition of "agricultural income" under section 2(1) of the Act, which aligns with the definition in the Indian Income-tax Act, 1922. The court reviewed various precedents, including Supreme Court decisions, to determine whether the sale of trees constituted a capital or revenue receipt. The court concluded that if trees sold were cut and removed with no chance of regeneration, the sale proceeds would be capital receipts and not agricultural income. In this case, there was no evidence that the trees were capable of regeneration. Therefore, the amount received by the assessee from the sale of timber was not liable to tax under the Act.

Issue 2: Nature of Sale Proceeds as Capital Receipts
The second issue was whether the sale proceeds of planted grove and trees represented a capital receipt and were thus not taxable under the Agricultural Income-tax Act. Given the court's conclusion on the first issue, it was determined that the sale proceeds were indeed capital receipts. The court reiterated that the primary onus of proving that a receipt is liable to be taxed under the taxing statute is on the department. Since there was no evidence to establish that the trees sold by the assessee were capable of regeneration, the sale consideration could not be classified as agricultural income. Consequently, the sale proceeds were capital receipts and not taxable under the Act.

Issue 3: Inclusion of Income from Trust Property
The third issue concerned the interpretation of section 8 of the U.P. Agricultural Income-tax Act, specifically whether income from property held under trust wholly for religious and charitable purposes should be included in the total income of the assessee and then exempted, or excluded altogether. The court analyzed section 8, which exempts income derived from property held under trust for religious or charitable purposes from liability to tax. The court noted that under the definition of "person" in section 2(11) of the Act, an individual and a trustee are separate entities. Since the trust property was held by the assessee as a trustee and not in his individual capacity, the income from the trust should not be included in the total agricultural income of the assessee. The Board of Revenue erred in clubbing the trust income with the individual agricultural income of the assessee.

Conclusion:
1. The assessee was not liable to tax for the sale of timber from planted groves as the sale proceeds were capital receipts.
2. The sale proceeds of planted groves and trees were capital receipts and not liable to tax.
3. The income from property held under trust for religious and charitable purposes should not be included in the total agricultural income of the assessee.

The assessee was entitled to costs assessed at Rs. 200, with counsel's fee assessed at the same figure.