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TMI Blog2019 (5) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... timber including the income from the sale of spontaneous growth trees and only the income from sale of spontaneous growth was excluded from total income, only because of the reason that this is not under the preview of income tax Act and hence not liable to tax. 4. The Ld. CIT (A) ought to have considered fact that the assessee was periodically earning income from sale of trees of spontaneous growth without any human aid or efforts, which should be brought under taxable income. 5. The Ld. CIT (A) ought to have seen that the Judgment of Hon'ble High Court of Kerala in the case of Travancore Rubbers & Tea Co. Ltd. reported in (1996) 221 ITR 585 (KER.) which in turn relied on the decision of Apex court in the case of CIT Vs. G.R. Karthikeyan (1993) 201 ITR 866 wherein discussed the definition of income in detail and held that the definition of income as in section 2(24) is of inclusive character, the purpose is not to limit the meaning of the term but to widen its net and even id a receipt did not fall within the ambit of any of the clauses, it might still be income if it partook the nature of the income. 6. The Ld. CIT (A) failed to appreciate in facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trees were grown spontaneously. The judgments referred to by the ld. representative for the assessee are in respect of business, concerns and not in respect of trees grown spontaneously. The judgment of the Apex Court in the case of Maharajadhiraj Sir Kameshwar Singh vs CIT (1957) 32 ITR 587 (SC), the ld. DR submitted that when the trees are sold, which are grown spontaneously, the receipt of the same has to be taxed as casual and non recurring income of the assessee. 11. We have considered the rival submissions on either side and also perused the material available on record. It is not in dispute that the trees were grown spontaneously in the property purchased in the year 2001. The question arises for consideration is - whether the sale consideration received on sale of the trees which were grown spontaneously without any human aid could be treated as a casual receipt or capital receipt? We have carefully gone through the judgment of the Apex Court in the case of Maharajadhiraj Sir Kameshwar Singh (supra) before the Apex Court. In that case various trees grown spontaneously without any human aid and labour were sold. The Apex Court, after referring to the judgment of the Privy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. DR submitted that the assessee received income from the sale of spontaneous growth of trees. According to the ld. DR, the assessee has not performed any agricultural activities so as to aid the spontaneous growth of trees. The ld. DR submitted that the spontaneous growth of trees was a regular activity and year after year, the assessee earned substantial income from the same. The Ld. DR submitted that the concept of income as per section 2(24) of the Act is an inclusive one. It was submitted that this aspect was reiterated in the judgment of the Supreme Court in the case of Emil Webber vs. CIT (200 ITR 483) wherein it was observed that definition of 'income' in section 2(24) is an inclusive definition. Anything which can properly be described as income is taxable under the Act unless it is exempted under one or other provisions of the Act. Further, it was submitted that in the case of CIT vs. G.R. Karthikeyan (211 ITR 866), the Supreme Court held that even if a receipt does not fall within the ambit of any of the sub clauses in section 2(24), it may still be income if it partakes the nature of the income - the word 'income' is of widest amplitude and must be given its natural a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the area was also done as per the directions of the Government of India , Ministry of Environment & Forests. She drew our attention to the copy of letter dated 11.09.2007 of Ministry of Environment & Forests , Government of India issued on Subject Draft Management Plan for Forest Plantations of the assessee for the period 2007-08 to 2011-12. According to her, from the attached Schedule of Harvesting it could be seen that the assessee had to give all the particulars regarding the Plantation - Division, Location, , Year of Plantation , Extent, Expected yield ,etc. 6.1 She drew our attention to the copy of the letter dated 28.06.2013 on the approval of Management Plan of the assessee for the period 2013-14 issued by the Ministry of Environment & Forests, Government of India. According to her, from the same, Clause 1, it could be seen that felling is an integral part of the plan and there are specific conditions to clear the area by felling. She also drew our attention to the copy of Replanting Schedule for the year 2011-12 & 2012-13. According to the Ld. AR, when the main plantation in a particular area is cut the assessee also carries out felling spontaneous grown trees to clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n work done in each area. The Ld. AR submitted the sample copy of the Plantation Journal and the Planting Completion Report in respect of the area where spontaneous growth felling is done for the above mentioned agreements as other area where felling is done and replantation is done. The Ld. AR also submitted Plantation Journal for Subunit IV, Pathanapuram, Block III, Bit 1, 2 & 3 Kudappanakulam and Plantation Journal and Completion Report for Subunit IV, Pathanapuram , Block IV, Bit 1 & 2, Kudappanakulam. 6.4 It was therefore submitted that from the above particulars it could be seen that the assessee undertakes felling of spontaneous growth as per the plantation plan of the Government, which is not of a regular nature. It was submitted that once an area is cleared and plantation done it will take along period for replantation of that area since plantation of a particular plant will take long period to reach its reaping/cutting stage and there is no periodicity in respect of the spontaneous growth sale as well.. 6.5 It was submitted that there is no revenue from spontaneous growth from the financial year 2013-14 onwards. Hence, it was submitted that the amount received towards t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. AR relied on the judgment of the Supreme Court in the case of Vishnudatta Antbrjanam v. Commr. of Agrl. I.T. [1970] (78 ITR 58) where the trees were sold with their roots, and it was held by this Court that removal of roots the source from which the fresh growth of trees could take place has also been removed and, therefore, the sale of such trees affected the capital structure, and could not give rise to a revenue receipt. In the said case, teakwood trees had been sold for Rs. 76,500/-, The trees planted in the year 1946-47 were cut and completely removed from the land with roots for the purpose of planting rubber and there was no question of further re-generation and growth of trees which had been cut and removed. No possibility of recurring income from this. The Ld. AR submitted that the Supreme Court took note of the fact that the test laid down by the Privy Council in CTT Vs Shaw Wallace Co - AIR 32 PC 138 found out whether particular receipt is income or not is that there should be a periodical monetary_return giving any regularity or expected regularity but from definite source. Source must be one whose object is production of definite return excluding in the nature of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght to cut the trees and after cutting the trees sale was to be effected only to Forest Dept. of the State. The High Court held that: 1.The appellant is an agriculturalist and do not have any other business activities. 2.Cutting and selling of trees was made after obtaining permission from competent authorities. 3. Sale of trees was made to the State. 4. Cutting and selling was governed by the Courts and rules. 5. Price of trees was determined by State Authorities. 6. It was not a profit sale. 7. Certificate was given by the Tahsildar that the trees would not be regenerated in the near future. 8. The land was put to use for cultivation after cutting the trees. 9. There is no evidence to show that any profitable event in the transaction was noticed. 10. The Hon'ble High Court in the ground that the appellant did not intend to earn my profit out of the sale of such trees nor his intention was to indulge in any profit making activities by sale of such trees. Considering the ratio of the above decision it was clear that the amount received by the assessee is only Capital receipt in nature . 6.9 It was submitted that there was no profit making activity and henc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rental to Government as per the Order. It was submitted that the word income includes capital gains chargeable u/s. 45". Therefore, only capital gains which is chargeable u/s. 45 is income under the Income Tax Act. The question whether the aforesaid nature of sale would be covered under capital gains was considered by the Supreme Court in the case of B.C. Sreenivasa Shetty (128 ITR 294) wherein it was held that "What is contemplated is an asset in the acquisition of which it is possible to envisage a cost goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class, it may, on the facts of a certain case, be acquired without the payment of money. That kind of case is covered by s. 49 and its cost, for the purpose of s. 48, is determined in accordance with those provisions. There are other provisions which indicate that s. 48 is concerned with an asset capable of acquisition at its cost. Section 50 is one such provision. So also is sub-s. (2) of s. 55. None of the provisions pertaining to the he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of acquisition, it cannot be assessed as taxable income. The ITAT held that "this judgment of the Calcutta High Court is directly on the point regarding the taxability of the trees grown spontaneously without any human aid. Since the Apex Court in the case of Maharajadhiraj Sir Kameshwar Singh (supra) is silent with regard to cost of acquisition and it only deals with the issue whether it is agricultural income or not, this Tribunal is of the opinion that the Calcutta High Court judgment in the case of Suman Tea & Plywood Industries (P) Ltd (supra) may be squarely applicable to the facts of the case. Therefore, the sale of trees grown spontaneously has to be treated as capital in nature and since there is no cost of acquisition, it is not liable for taxation as found by the Calcutta High Court." It was submitted that the above judgment is squarely applicable to the facts of this case also. Therefore, the amount cannot be assessed under the head capital gains. It was submitted that whether the fact that amount was received in more than one year will alter the nature of receipt. The assessing Officer had observed that the assessee had received the amount in more than one year an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e audited Profit & Loss account for the relevant years was submitted and from the above it can be seen that even though the amount of spontaneous growth sale seems to be substantial, compared to the area planted by the assessee and the total agricultural receipt spontaneous growth sale is negligible which also confirmed the fact that there was no intention to make any profit from spontaneous growth sale, receipt was only incidental. Thus, it was submitted that there was no intention at all to grow spontaneous trees or to earn any income in a systematic from the sale of such trees. 6.9.6 The Ld. AR distinguished the case laws relied on by the Department in support of its contention that income earned from sale of trees of spontaneous growth without human aid or efforts should be brought under taxable income. (a) High Court of Kerala in the case of Travancore Rubbers & Tea Company Limitecl (221 1TR 585 Ker) in which case Earnest Money of Rs. 75,000/- was received by the assesse in respect of sale of old and uneconomic rubber trees, consequent to termination of the agreement for breach thereof by the parties. it was held by the High Court that the E.M.D. forfeited was taxable. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this, it was submitted that there is no such finding in the judgment. It was specifically held in the judgment that "the principles on the basis of which consideration received for sale of trees of spontaneous growth is to be treated as revenue receipt or capital receipt was laid down in CIT vs. Ambat Echukutty Menon cited supra. The High Court noted that there were certain ambiguity whether the trees in the previous year relevant to the assessment year were trees standing at the time of acquisition or trees which grow on roots and trunks existing at the time of acquisition and cut subsequently. In this case, the Inspecting Assistant Commissioner had no such data before him to conclude that there was no cost of acquisition. It is also for consideration whether the spontaneous growth required any care or attention by way of protection from animal and the like and, if so, whether the assessee did not incur any cost in this regard. It was observed that "any decision either way without considering these aspects would be erroneous and any decision in favour of the assessee without considering these aspects would be prejudicial to the interest of the revenue." 6.9.7 Therefore, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the High Court was correct, because the object of the sale was not the regeneration of the trees but protection of the land eventually to be used for the purpose of cultivation. Held also, that this was not a case where the assessee claimed an exemption and failed to furnish details, but this was a case where in order to net the receipt as a revenue receipt it was for the department to reject the assessee's stand and to hold that the object of the assessee is not allowing the licensee to cut the stumps and uproot the roots was regeneration of the income.". 7.1 In our opinion, this issue was settled by the above judgment wherein it was held that receipts from sale of spontaneous growth of trees is a capital receipt not liable to tax. The order of the Tribunal cited supra relied on by the CIT(A), was in conformity with the above judgment of the Supreme Court. Even section 55(2)(a) has no relevance in the case of spontaneous growth of trees. This issue was considered by the ITAT, Ahmedabad Bench in the case of Natraj, Ahmedabad vs. DCIT dated 06/09/2010 in ITA No.3063/Ahd/2010 wherein it was held as under: "......we find that the provision of section 55(2)(a) shall apply in rela ..... X X X X Extracts X X X X X X X X Extracts X X X X
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