1957 (5) TMI 12 - SC - Income Tax

Whether on the facts and in the circumstances of this case the receipts from the sale of sal trees can be said to be agricultural income under section 2(1) and exempt from taxation under section 4(3)(viii) of the Income-tax Act ? Held that - Out of the categories (a) to (g) set out in the statement of facts, none of the operations was assimilated to basic operations in agriculture and unless and until there was even one basic operation on the land itself the rest of the operations could not be tacked on to them so as to convert the whole of them into agricultural operations. We are of opinion that the ratio adopted by the majority of the judges of the High Court was erroneous and the referred question ought to have been answered in the negative. Appeal allowed.

Summary

Issues Involved:
1. Whether the receipts from the sale of sal trees can be considered agricultural income under section 2(1) and exempt from taxation under section 4(3)(viii) of the Indian Income-tax Act.

Detailed Analysis:

Issue 1: Definition of Agricultural Income

The central question referred to the court was "Whether on the facts and in the circumstances of this case the receipts from the sale of sal trees can be said to be agricultural income under section 2(1) and exempt from taxation under section 4(3)(viii) of the Income-tax Act?" This question arose from the assessments made by the Income-tax Officer, Gauhati, on various respondents for the year 1946-47, who were co-sharer proprietors of estates in Assam with vast areas of forest tracts covered mainly by sal trees of spontaneous growth.

Facts and Arguments:

1. Spontaneous Growth:
The trees in the forests were of spontaneous growth, with no planting, sowing, or employment of human agency for tilling the soil. This was a crucial point as it indicated that the income was derived from naturally occurring resources rather than cultivated land.

2. Human Skill and Labour:
The respondents claimed that human skill and labour were employed for the maintenance, preservation, nursing, improving, and rearing of the forests. Specific activities included:
- Reservation and cyclic operation of forest blocks.
- Marking trees fit for felling.
- Cutting creepers and climbers.
- Thinning and removing diseased trees.
- Clearing jungles and undergrowth.
- Allowing grazing and burning undergrowths to fertilize the soil.
- Protecting from fire and maintaining fire lines.
- Closing forests to men and cattle during the rainy season.
- Preserving mother trees.

3. Financial Expenditure:
The expenses on forest establishment were relatively low compared to the gross receipts. For instance, in the Mechpara Estate, the expenses were estimated at Rs. 15,000 against gross receipts of Rs. 1,70,000. Similarly, in the Parbatjoar Estate, the expenses were Rs. 14,057 against gross receipts of Rs. 3,32,414.

Judgment:

1. Majority Opinion:
The majority of the High Court judges (Sarjoo Prasad, C.J., and Ram Labhaya, J.) held that even though there was no tilling of the land or planting of seeds, the operations carried on by the assessees were conducive to the growth and development of the trees. They considered these operations as "agricultural operations" and concluded that the land was used for "agricultural purposes." Consequently, the income from the sale of the trees was deemed "agricultural income" and exempt from taxation under section 4(3)(viii) of the Income-tax Act.

2. Dissenting Opinion:
Deka, J., dissented, noting that there was no evidence to support the respondents' claims and that the statements made on affidavit could not be accepted without means to test them. He did not agree that the operations performed could be classified as agricultural operations.

3. Supreme Court's Analysis:
The Supreme Court applied the principles from the judgment in Commissioner of Income-tax, West Bengal v. Raja Benoy Kumar Sahas Roy to the facts of this case. The Court found that there were no basic agricultural operations performed by the assessees on the forest lands. The operations described were subsequent operations performed after the trees had sprouted spontaneously. These operations were aimed at maintaining and improving the forests but did not involve cultivation or basic agricultural activities.

The Court concluded that the forestry operations performed were of insignificant value compared to the gross receipts and were mainly for facilitating the spontaneous growth of the trees. Therefore, these operations could not be assimilated to agricultural operations.

Conclusion:

The Supreme Court held that the majority opinion of the High Court was erroneous. The referred question was answered in the negative, indicating that the receipts from the sale of sal trees could not be considered agricultural income and were not exempt from taxation. The appeals were allowed, and the appellant was awarded costs.

Appeals Allowed.