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TMI Blog1972 (2) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... 60. The assessee incurred expenditure by way of wages for clearing and uprooting the trees and entered into an agreement with one C. R. Nanjundan for the sale of 972 sandalwood trees so cut and uprooted. Under the said agreement the total quantity of the sandalwood including the roots, billets, etc., was estimated at 18 tons and the price agreed was at Rs. 4,500 per ton for roots and billets, and at Rs. 1,500 per ton for the scented chips, and the assessee was to carry out the felling operations at its own cost and get the necessary permits for clearing and removal of the trees. The total quantity of the sandalwood thus sold included the roots and billets of 12 tons and 16 cwts. and scented chips of 4 tons and 14 cwts. and the sale proceeds amounted to Rs. 64,920. The cost of felling operations came to Rs. 9,382 and the assessee thus realised a net sum of Rs. 55,538 from the sandalwood trees. The assesssee claimed that the said sum of Rs. 55,538 was a casual receipt and, therefore, exempt from taxation. It also contended alternatively that it was an agricultural income and that it was a capital receipt. The Income-tax Officer took the view that the purchase of the land by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trade. The learned counsel for the revenue contends that the finding of the Tribunal that the sale of the sandalwood trees by the assessee was not an adventure in the nature of trade is not conclusive, that this court has to come to its independent conclusion on a fresh approach to the basic or primary facts found in the case, and that the inference drawn by the Tribunal from the basic or primary facts can always be interfered with if it is found to be unreasonable or perverse. We are of the view that the revenue is right in the above submission. In G. Venkataswamy Naidu & Co. v. Commissioner of Income-tax, the Supreme Court, while considering the expression " adventure in the nature of trade " occurring in the definition of " business " in section 2(4) of the Income-tax Act, expressed that the said expression postulates the existence of certain elements in the adventure which in law would invest it with the character of trade or business, and that it would make the question whether a transaction is an adventure in the nature of trade a mixed question of law and fact. The Supreme Court in that case has clearly ruled that where the question is whether the transaction is in the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich involves the evaluation of the evidence of witnesses. In view of these decisions, we feel that the matter is no longer res integra and the question as to whether a transaction can be viewed as an adventure in the nature of trade is one of law and it is open to the High Court to examine whether the Tribunal had applied the relevant legal principles correctly or not in coming to the conclusion that it is or it is not an adventure in the nature of trade. Therefore, we proceed to consider whether the basic or primary facts found in the case will lead to a reasonable or rational inference that the sale of the sandalwood trees was an adventure in the nature of trade and whether the receipt is in the nature of capital as contended by the assessee or in the nature of revenue as urged by the department. Though the decisions on the question as to what is an adventure in the nature of trade are numerous, none of them has laid down a precise principle of universal application, but various rules have been evolved for guidance. The question, therefore, has to depend to a very great extent on the particular facts of each case, and in the nature of things, it is not possible to lay down any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sandalwood. There is no evidence that the forest as such was cleared apart from the cutting operations, is also indicative that the assessee's intention is to get the maximum price for the trees cut. The transaction of cutting and sale of the sandalwood trees by different categories such as roots, billets, and scented chips, etc., cannot be said to be of a casual or isolated transaction. As against these circumstances which have been pressed into service by the revenue in support of its contention that the cutting and selling operations in relation to the sandalwood trees amounted to either a trade or an adventure in the nature of trade, the learned counsel for the assessee submits that the process of expansion of its already existing area of plantation cannot be said to be in itself a trade or an adventure in the nature of trade, though the plantation itself is a business of the assessee, that the assessee's intention in purchasing the land with a view to extend its plantation area cannot be ignored or overlooked, that the operation of cutting and sale of the sandalwood trees done by the assessee in the process of clearing the forest to make the land fit for plantation cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the difference between the amount that he gave and the amount that he received from them. But, if instead of dealing with his property as owner he embarks on a trade in which he uses that property for the purposes of his trade, then he becomes liable to pay, not on the excess of sale prices over purchase prices, but on the annual profits or gains arising from such trade, in ascertaining which those prices will no doubt come into consideration. " In C. H. Rand v. Alberni Land Company Ltd., Rowlatt J. has stated : " If a land-owner, finding his property appreciating in value, sells part of it, and uses part of his money still further to develop the remaining parts, and so on he is not carrying on a trade or business ; he is only properly developing and realising his land. " In Roberts v. Lord Belhaven's Executors it was expressed : " It is, of course, true that a particular seller may be carrying on a trade or business in buying and selling land, stocks and shares, etc., so as to bring under taxation the profits or gains he thereby makes, as distinguished from the prices he receives ; but that is a different matter. Whether such a trade or business is being carried on or not mus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociated with the purchase and resale ; the similarity of the transaction to operations usually associated with trade or business, the repetition of the transaction, and the element of pride of possession. The Supreme Court was of the view that the presence of all these relevant factors may help the court to draw an inference that the transaction is an adventure in the nature of trade but it is not a matter of merely counting the number of factors and circumstances pro and con, and what is important to consider is their distinctive character and it is the total effect of all relevant factors and circumstances that determines the character of the transaction. In Commissioner of Income-tax v. Kasturi Estates (P.) Ltd., where the land-owner developed his land, expended money on it, laid roads and converted the land into house sites and, with a view to get a better price for the land eventually sold the plots for a consideration yielding a surplus, this court held that the said activity cannot be said to be an adventure in the nature of trade, that it is only a realisation of a capital investment or conversion of one form of asset into another, and the fact that such an activity was ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention was to extend his plantation and not to exploit the forest, we are of the view that the assessee did not intend to trade in the forest produce such as sandalwood trees. Though the learned counsel for the revenue attempted to bring in the transaction of cutting and sale of the sandalwood trees as part of the assessee's main business of plantation and the sale value of the trees cut and sold as income from the assessee's business of plantation, we are not inclined to accept that case. As a matter of fact, the department had at all stages proceeded on the basis that the transaction is an adventure in the nature of trade and not that it really constituted part of the assessee's business. We are also not inclined to agree with the contention advanced on behalf of the revenue that the assessee should be deemed to have been aware of the existence of the forest produce in the land and the likelihood or the possibility of the sale value of the forest produce being received by him and that, therefore, he should be deemed to have had the intention to trade in forest produce. As has been held in Commissioners of Inland Revenue v. Reinhold the fact that the property was purchased with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the question whether a particular receipt is capital or income and that the 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. In Consolidated Coffee Estates (1943) Ltd. v. Commissioner of Agricultural Income-tax the Mysore High Court in dealing with a case of the cutting and sale of shade trees in a coffee estate held that as the trees were part of the fixed assets of the planter, the proceeds of sale of timber of the shade trees is a capital receipt and not taxable as income. State of Kerala v. Karimtharuvi Tea Estate Ltd. was a case where the assessee who carried on the business of manufacturing and selling tea, grew grevelia trees in its tea estates solely for the purpose of affording shade to the tea bushes and when the trees became useless by efflux of time cut them down and sold. The question was whether the proceeds derived by the sale of grevelia tree so cut did constitute agricultural income under the Kerala Agricultural Income-tax Act, 1950. The Supreme Court expressed the view that the receipt would not constitute agricultural income as grevelia trees in the tea estate constituted capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of the present case. That decision was concerned with a case where a person owning the forest land was exploiting the forest by cutting or removing the trees and other forest produce. The contention put forward by the assessee in that case was that cutting down and carrying away the trees from the forest resulted in depletion of the capital and, therefore, should be treated as a capital receipt. But, that contention was rejected as the learned judges saw no distinction between the facts in that case and cases where income is derived from the sale of paddy which is grown on land, the sale of coal in a coal mine and sale of stone quarried in a quarry. The revenue also takes support from the decision of this court in Fringford Estates Ltd. v. Commissioner of Income-tax. In that case the assessee purchased a tract of land part of which had already been cultivated with tea and the rest of which was jungle capable of being cleared and made fit for plantation. The assessee began clearing the jungle and trees in order to make the land fit for cultivation. Subsequently, it entered into an agreement with a timber merchant for clearing the rest of the jungle and for the sale of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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