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TMI Blog1971 (12) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee by holding that the receipts from the sale of the trees is income assessable under the head " Other sources ". The assessee is a Hindu undivided family which owns large agricultural lands. In 1905 it took in court auction some lands covering an area of 200 acres. In the lands so taken, there were two irrigational channels drawing water from a river. According to the sanad, there were about 772 trees of various kinds like karimpana, cocoanut trees, jack trees, tamarind trees, maruthu, etc. These were not in one block but were interspersed among the paddy fields. There were other trees of spontaneous growth. By an agreement dated November 28, 1960, the English translation of which is annexure " A ", the representatives of the assessee sold to one Velappa Rowther trees from about 60 acres of the land obtained by the assessee in court auction on certain terms and conditions mentioned in that agreement, annexure " A ". Two clauses of this agreement which have been relied on for the Tribunal for holding that the sale price is income are those in clauses 12 and 13 which we may extract : " (12) The trees in the reared forest have to be cut neatly and the relative stumps should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced, it was stated by the assessee's learned counsel that it was to prevent the purchasers leaving deep holes when allowed to cut the trees with roots, that such clauses were put ; that such a procedure would put the assessee to more expenses in filling the pits and reclaiming the lands for agricultural purposes. It was further represented that at the time of assessment, some 10 acres of land had been brought under paddy cultivation. It was contended that it was not a material consideration whether the assessee did it himself so long as the object was the reclaiming of the land for agricultural purposes and that in effect in either case there was sterilisation of the asset. The assessee's learned counsel sought to distinguish the case of Commissioner of Income-tax v. Venugopala Varma Raja. It was pointed out that the decision in that case proceeded on the interpretation of 'clear felling' as defined in the Madras Forests Preservation Act and that in the assessee's case, that Act had no application and that even according to the ratio of that decision, if there was no scope for regeneration the sale proceeds of the trees could represent only capital receipt. " A further contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not permit a removal of the trees along with their roots. On the other hand, the clear indications are that the felling of the trees under the clear felling method should be done in such a way as to permit the regeneration and future growth of the trees concerned. In other words, what is contemplated by the clear felling method is not the sterilisation of an asset, but the removal of a growth above a particular height, leaving intact the roots and the stumps in such a manner as to ensure regeneration, future growth, further felling and a subsequent income. " When the matter was taken up in appeal before the Supreme Court, their Lordships felt that the above conclusion was reached without adequate materials and therefore called for an additional statement of the case and after ascertaining the nature of the felling, their Lordships came to the same conclusion as this court did. They observed : " On the finding in the present case it is clear that the trees were not removed with roots. The stumps of the trees were allowed to remain in the land so that the trees may regenerate. If a person sells merely leaves or fruit of the trees or even branches of the trees it would be difficul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall. " After referring to the above test, the Supreme Court observed : " Once the teak trees were removed together with their roots and there was no prospect of regeneration or of any production of a return therefrom, it could well be said that the source ceased to be one which could produce any income. " Reference was then made to the decision of the Bombay High Court in Commissioner of Income-tax v. N. T. Patwardhan and the conclusion was reached that the receipt from the sale of the teak trees was not income. Their Lordships also referred to the contention that the assessee was prompted by profit motive in planting teak trees and in relation to this contention it was observed : " But it was overlooked that profit motive is not decisive of the question whether a particular receipt is capital or income. An accretion to capital does not become taxable income merely because an asset is acquired in the hope that it may be sold at a profit. It must also be remembered that trees so long as they are uncut form a part of the land. If they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is decision in this manner. The reference to that decision by the Supreme Court in Venugopala Varma Rajah's case is in these terms : " The company entered into an agreement with a timber merchant for clearing a part of the forest of all trees and for sale of the trees in the market. This was held to be a part of the business activity of the company. " This decision cannot, therefore, apply. It was not even remotely suggested that the assessee was engaged in the business of felling trees or had been in the business of buying lands and selling the timber on it. The facts indicate otherwise. The purchase was in the year 1905. The first sale had only been in 1960. In the letter that we have referred to, it was stated that " the present sale is the only sale and this will be the last sale ". The object of the sale was mentioned to be to convert the land for agricultural purposes. It was asserted that the land had been so converted. This fact is not disputed. It must also be mentioned that the terms in clauses 12 and 13 contained in the agreement between the assessee and the said Velappa Rowther cannot be conclusive for even if Velappa Rowther had no right to cut or remove the stumps t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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