1971 (9) TMI 31 - HC - Income Tax

Sale of earth dug and removed from assessee s land - consideration from the sale of earth - such amount cannot be treated as revenue receipt

Summary

Issues Involved:
1. Whether the receipt of Rs. 9,060 from the sale of earth dug out from agricultural land is agricultural income.
2. Whether the said receipt amounts in law to a receipt of capital nature or revenue nature.

Issue-wise Detailed Analysis:

1. Agricultural Income:
The first issue was whether the receipt of Rs. 9,060 constituted agricultural income. This issue was not pressed by the learned counsel for the assessee in view of the Supreme Court's decision in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy. Therefore, the court did not address this issue further.

2. Capital Receipt vs. Revenue Receipt:
The core issue debated was whether the receipt of Rs. 9,060 was a capital receipt or a revenue receipt. The court noted that the determination of whether a particular receipt is capital or revenue is a frequent question in income tax cases and often falls on the borderline. The court referred to several precedents to establish the principles guiding this determination.

The court emphasized that merely because the earth would be consumed and exhausted in the process of digging and removal, it would not automatically mean that the consideration received is a capital receipt. The principle established in Coltness Iron Co. v. Black, and applied in various cases involving wasting assets, was that profits derived from such assets could still be taxable as income.

The court then referred to the test formulated by Lawrence J. in Greyhounds case, which states that if the sum in question is received for the user of capital assets and not for their realization, it is a revenue receipt. This test was adopted by the Privy Council in Kamakshya Narain Singh's case and approved by the Supreme Court in Chintamani Saran Nath Sah Deo v. Commissioner of Income-tax.

Applying this test, the court examined whether the amount received by the assessee was for the occupation and use of the land for digging and removal of earth or for the realization of the value of the earth, which was part of the capital asset. The court found that the transaction was a simple sale of earth, with Messrs. Dalwadi and Company authorized to dig and remove the earth, and the consideration was calculated based on the volume of earth removed.

The court concluded that the transaction was one for the sale of earth and the amount received was by way of realization of the value of the earth, thus constituting a capital receipt. The court distinguished this case from others where the transaction involved more complex arrangements, such as setting up a brick kiln on the land, which might have indicated a revenue receipt.

Judgment:
The court held that the amount of Rs. 9,060 realized by the assessee from the sale of earth dug out from the agricultural land represented a capital receipt and not a revenue receipt. Consequently, the first question did not need to be answered, and the Commissioner was ordered to pay the costs of the assessee in both references.