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TMI Blog1968 (8) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... ant assessment years are 1963-64 and 1964-65; and the corresponding previous years are 1137 M.E. and 1138 M.E. The assessee planted teak in 1122 M.E. for the purpose of deriving income by the sale of trees. In 1137 M.E., the teak trees were sold for a sum of Rs. 76,500 out of which she received Rs. 43,250 in the same year, and the balance was received in the year 1138 M.E. The assessee's total agricultural income for the year 1963-64 was determined at Rs. 62,021 including the sum of Rs. 43,250 received by sale of teak trees, while her total agricultural income for the year 1964-65 was determined at Rs. 61,041 including the sum of Rs. 33,250 received in 1138 M.E. on account of the price of teak trees. The assessee contended that the trees were cut and removed from the land with their roots for the purpose of planting rubber, and that the amount received by the sale of the trees was, therefore, capital and not income. In the alternative the assessee contended that she was entitled to a deduction of Rs. 20,342.95 on account of expenditure is detailed below : (i) Expenses incurred from 1122 to 1125 for planting teak ... 7,750.00 (ii) Expenses for maintenance and upkeep of the plant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etching a future income, the receipt by sale of the trees would be capital. The assessee's learned counsel also cited the decisions of this court in State of Kerala v. Karimtharuvi Tea Estates Ltd. and Elixir Plantations Ltd. v. Commissioner of Income-tax. In the first case it was held that the amount received by sale of trees planted for providing shade for tea was capital and not income, obviously for the reason that the trees were not planted for deriving an income, but for providing shade for the tea plants. In the second case, it was held that the amount received by sale of dead and windfallen avenue trees from a coffee estate was capital. These decisions have no relevancy to the instant case. The learned counsel cited also the decision of the Allahabad High Court in Raja Jagadish Pratap Sahai v. State. In that case, the Talukdar of an estate sold a number of trees from his estate on the apprehension that he would be divested of the ownership of the land when the Zamindari abolition statute came into force. The court held, following the dictum of Sir George Lowndes in Commissioner of Income-tax v. Shaw Wallace Co., that the amount received by the Talukdar under the above c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut and sold in the usual course of the working of a teak plantation. There may be quite a number of varieties of plantations in which the income is only from the sale of the trees, which would not regenerate from their stumps, and the land has to be replanted after cutting and removing the trees with their roots. There can be no doubt that the amount received by sale of the trees in such a case would be income, though the sale may be with the roots of the trees. We have no doubt that, in a case where trees are planted for the purpose of deriving income by sale of the trees, the amounts received by the sale of the said trees would be income irrespective of the manner in which the trees are removed from the soil. The learned counsel advanced a further contention that planting of trees is arboriculture, and that the income received therefrom is not agricultural income. Such a contention was not raised before the Appellate Tribunal; and it seems to have been raised before us on the basis of an observation contained in the decision of the Privy Council in Raja Mustafa Ali Khan v. Commissioner of Income-tax. We have no doubt that income received by sale of trees planted for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no such qualification in the case of expenses falling under clauses (i), (j), (k) and (l) and that it was not, therefore, necessary for obtaining deduction of the aforesaid two amounts that they should have been expended in the previous year. This is a plausible argument in the light of the use of the words " in the previous year " in 10 out of the 14 clauses in section 5 of the Act, and the omission of the words in the remaining four clauses. However, there is difficulty in accepting this argument. Under the scheme of the Act each year is a separate self-contained period ; and for computing the income of an year, the expenditure incurred in that year alone can be deducted. In Commissioner of Income-tax v. Chitnavis the Privy Council said : " Although the Act nowhere in terms authorises the deduction of bad debts of a business, such a deduction is necessarily allowable. What are chargeable to income-tax in respect of a business are the profits and gains of a year; and in assessing the amount of the profits and gains of a year account must necessarily be taken of all losses incurred, otherwise you would not arrive at the true profits and gains. But the losses must be losses incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement with the municipality without taking into consideration the expenses that he had incurred prior to this assignment. If one were to ignore the expenses, then one would not arrive at the real profits which the assessee earned. Mr. Joshi on behalf of the department says that under the Income-tax Act only those expenses can be deducted under section 10 which were incurred in the previous year and if any expense was not incurred in the previous year but was incurred in previous years, then that expenditure is not a legitimate deduction under section 10. That, in our opinion, is a wrong approach to the question. What we have to consider is what are the commercial profits, the real profits, which have been earned in the year of account and which are liable to tax, and if those real profits can only be arrived at after taking into consideration the expenditure incurred in the prior years, then even though the expenditure may not strictly fall within the ambit of section 10, for the purpose of assessing the real profits credit must be given to the assessee in respect of the expenditure incurred in the prior years. " We respectfully agree with the above statement of the law. Applyin ..... 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