Appeal No426 of 1957
Appeal from the judgment and order dated April 21 1955 of the Orissa High Court at Cuttack in Special Jurisdiction Case No 179 of 1951
A N Kripal R H Dhebar and D Gupta for the appellant
A V Viswanatha Sastri M section K Sastri and R Jagannatha Rao for the respondent
October 14
The Judgment of the Court was delivered by VENKATARAMA AIYAR J
This is an appeal against the judgment of the High Court of Orrissa in a reference under section 661 of the Indian Income tax Act 1922 hereinafter referred to as the Act and the point for decision is whether income received by the respondent by the sale of trees growing in his forests is agricultural income exempt from taxation under section 43viii of the Act
The respondent is the proprietor of the impartable zamin of Jaipur in Koraput District
The estate is of the area of 12000 sq
miles of which 1540 sq
miles are reserve forest and 100 sq miles protected forest
The respondent derives income from the forests by the sale of timber such as teak salwood lac myrabolam tamarind cashewnuts and firewood
There is no 23 178 dispute either as to the receipt of such income or as to its quantum
All tat appears in the account books of the respondent
The point in controversy is as to whether this income is chargeable to tax
It is the contention of the respondent that this is agricultural income as defined ins
21 of the Act and that it is in consequence exempt under section 43viii
By his 31 1943 the Income tax order dated January Officer held that the forests in question had not been proved to have been planted by the respondent that the trees were of spontaneous growth and that the income therefrom was not within the exemption under section 43viii and this order was confirmed on appeal by the Appellate Assistant Commissioner
The respondent took the matter in further appeal to the Appellate Tribunal and there put forward the contention that the Incometax Officer had failed to take into account a letter of the Dewan dated June 3 1942 which gave a detailed account of the operations carried on by the estate in the rearing and maintenance of forests and that on the facts mentioned in that letter his finding that there had been no plantation of trees was errolieous
By its order dated April 9 1946 the Tribunal accepted this contention and directed a fresh enquiry into the facts mentioned in the said letter
Pursuant to this order the Income tax Officer again enquired into the matter
He observed that though he gave ample opportunities to the respondent to prove that there was plantation of trees by the estate no materials were placed in proof of that fact and that neither plantation books nor any working plans for timber plantation had been produced
He accordingly held that the forests had grown naturally and that the income therefrom was assessable to tax
On this report the appeal again came up for hearing before the Tribunal
The main contention urged by the respondent at the hearing was that the facts showed that the forests which had yielded income during the year  of account could not have been the virgin forests which had originally grown spontaneously on the hills because they had been periodically denuded by the hill tribes in the process of Podu cultivation carried on by 179 them
What this Podu cultivation means is thus stated in the District Gazetteer Vishakapatnam 1907  This consists in felling a piece of jungle burning the felled trees and undergrowth sowing dry grain broadcast in the ashes without any kind of tilling for two years in succession and then abandoning the plot for another elsewhere
 The argument of the respondent was that as a result of the Podu cultivation the original forests should have disappeared and that the trees that had subsequently grown into forest and sold as timber must have been planted by human agency and their sale proceeds must accordingly be agricultural income
Dealing with this contention the Tribunal observed that though there had been extensive destruction of forests in the process of Podu cultivation nevertheless considerable areas of virgin forests still survived that the evidence of actual cultivation and plantation by the zamin authorities was meagre and unsubstantial that no expenses were shown to have been incurred on this account prior to 1904 that the amount shown as spent during that year was negligible that the trees planted then could not have been the trees sold as timber during the assessment years and that the respondent bad failed to establish facts on which he could claim exemption
It should be mentioned that this order covered the assessments for five years from 1942 43 to 1946 47 the facts relating to the character of the income being the same for all the years
On the application of the respondent the Tribunal referred the following question for the decision of the High Court   Whether on the facts and in the circumstances the income derived from forest in this case is taxable under the Indian Income tax Act
 The reference was heard by Panigrahi C J and Misra J who answered it in the negative
They observed   It appears to us that the cases as set out by both parties have been put too high
The department takes the view that unless there is actual cultivation of the 180 soil the income from the forest trees cannot be regard
led as agricultural income
The fact that the assessee has spent some money and planted valuable trees in some areas is not sufficient to free the income out of the extensive forests which owe their existence to spontaneous growth from its liability to taxation
The assessee on the other hand seeks to create an impression that there is not a single tree of spontaneous growth in these forests and such trees as now constitute forests have sprung up out of the stumps left by the hillmen as a result of the system of I Podu  cultivation adopted by them
It appears to us that neither of these claims can be regarded as precise or correct The learned Judges then observed that the forests in the Koraput area had been under Podu cultivation for a long period and that as the result of that cultivation they had practically disappeared even by the year 1870 that the trees had subsequently grown into forests and they had also been destroyed by about the year 1901 and that therefore there could not have been any virgin forest left surviving
Then they referred to the fact that the respondent had been maintaining a large establishment for the preservation of the forests and that there had been organised activities 1  in fostering the growth of the trees and preserving them from destruction by man and cattle 2 in cultivation of the soil by felling and burning trees from time to time 3 in planned exploitation of trees by marking out the areas into blocks 4 in systematic cutting down of trees of particular girth and at particular heights 5 in planting new trees where patches occur and 6 in watering pruning dibbling and digging operations carried on from time to time 
And they stated their conclusion thus  All these and similar operations which have been undertaken by the assessee through his huge forest establishment show that there has been both cultivation of the soil as well as application of human skill and labour both upon the land and on the trees themselves
It cannot be assumed therefore that all the trees are of spontaneous growth
The indications on 181 the other hand appear to be that most of them are sprouts springing from burnt stumps
There is no basis for the assumption made by the Income tax Department that all the trees are forty years old and that they owe their existence to spontaneous growth
Apart from that it will be noticed that what distinguishes the present case from all the reported decisions is that practically the whole of the forest area has been subjected to process of Podu  cultivation spreading over several decades so that it is impossible to say that there is any virgin forest left
The onus was certainly upon the department to prove that the income derived from the forest was chargeable to tax and fell outside the scope of the exemption mentioned in Section 43viii
 In this view they held that the Department had failed to establish that the income derived from the sale of trees was not agricultural income and answered the reference in favour of the respondent
The learned Judges however granted a certificate to the appellant under section 66A2 of the Act and that is how the appeal comes before us
At the very outset we should dissent from the view expressed by the learned Judges that the burden is on the Department to prove that the income sought to be taxed is not agricultural income
The law is well settled that it is for a person who claims exemption to establish it and there is no reason why it should be otherwise when the exemption claimed is under the Income tax Act
The learned Judges were of the opinion that their conclusion followed on the principle of the law of Income tax that  where an exemption is conferred by a statute the State must not get the tax either directly or indirectly  and support for this view was sought in the following observations of Lord Somervell L J in Australian Mutual Provident Society vs Inland Revenue Commissioners 1  The rule must be construed together with the exempting provisions which in our opinion must be regarded as paramount
So far as the rule if taken I 182 in isolation would have the effect of indirectly depriving the company of any part of the benefit of the exemption its operation must be cut down so as to prevent any such result and to allow the exemption to operate to its full extent
 These observations have in our opinion no bearing on the question of burden of proof
They merely lay down a rule of construction that in determining the scope of a rule regard must be had to the exemptions engrafted thereon and that the rule must be so construed as not to nullify those exemptions
No such question arises here
There is ample authority for the view that the principle that a person who claims the benefit of an exemption has to establish it applies when the exemption claimed is under the provisions of the Income tax Act
Vide the observations of the Lord President and of Lord Adam in Maughan vs Free Church of Scotland 1 and the observations of Lord Hanworth M R in Keren Kayemeth Le Jisroel Ltd vs The Commissioners of Inland Revenue 2 at p 36 that  the right to exemption under Section 37 must be established by those who seek it
The onus therefore lies upon the Appellants  and of Lord Macmillian at p 58 that  In my opinion the Appellants have failed to bring it within any one of these categories and consequently have failed in what was essential for them to make out namely that this Company is a body of persons established for charitable purposes only
 The decisions of Indian Courts have likewise ruled and quite rightly that it is for those who seek exemption under section 4 of the Act to establish it
Vide Amritsar Produce Exchange Ltd In re 3 and Sm
Charusila Dassi and others In re 4
So far as exemption under section 43 viii is concerned the matter is concluded by a decision of this Court given subsequent to the decision now under appeal
In Commissioner of Income tax vs Venkataswamy Naidu 5 this Court held reversing the judgment of the High Court of Madras that it 1  21 O 2 3  327
4  370
5  534 183 was for the assessee to prove that the income sought to be taxed was agricultural income exempt from taxation under section 43viii
Bhacgwati J delivering the  judgment of the Court observed   the High Court erroneously framed the question in the negative form and placed the burden on the Income tax Authorities of proving that the income from the sale of milk received by the assessee during the accounting year was not agricultural income
In order to claim an exemption from payment of incometax in respect of what the assessee considered agricultural income the assessee had to put before the Income tax Authorities proper materials which would enable them to come to a conclusion that the income which was sought to be assessed was agricultural income
It was not for the Income tax Authorities to prove that it was not agricultural income
It was this wrong approach to the question which vitiated the judgment of the High Court and led it to an erroneous conclusion
 On the inerits the question what is agricultural income within section 21 of the Act is the subject of a recent decision of this Court in The Commissioner of Income tax West Bengal Calcutta vs Raja Benoy Kumar Sahas Roy 1
There it was held that before an income could be held to be agricultural income it must be shown to have been derived from land by agriculture or by one or the other of the operations described in cls
i and ii of section 21b of the Act that the term St agriculture  meant in its ordinary sense cultivation of the field that in that sense it would connote such basic operations as tilling of the land sowing of trees plantation and the like and that though subsequent operations such as weeding pruning watering digging the soil around the growth and removing undergrowths could be regarded as agricultural operations when they are taken in conjunction with and as continuation of the basic operations mentioned before they could not apart from those operations be regarded as bearing the character of agricultural operations
1   155 158 160
184 It is only  observed Bhagwati J delivering the judgment of the Court  if the products are raised from the land by the performance of these basic operations that the subsequent operations attach themselves to the products of the land and acquire the characteristic of agricultural operations   But if these basic operations are wanting the subsequent operations do not acquire the characteristic of agricultural operations
 Dealing with trees which grow wild Bhagwati J observed   It is agreed on all hands that products which grow wild on the land or are of spontaneous growth not involving any human labour or skill upon the land are not products of agriculture and the income derived therefrom is not agricultural income
There is no process of agriculture involved in the raising of these products from the land
 The law being thus settled in order to decide whether the income received by the respondent by the sale of trees in his forests was agricultural income or not the crucial question to be answered is were those trees planted by the proprietors of the estate or did they grow spontaneously  If it is the latter it would be wholly immaterial that the respondent has maintained a large establishment for the purpose of preserving the forests and assisting in the growth of the trees because ex hypothes he performed no basic operations for bringing the forests into being
Now the Tribunal has clearly found that there were no plantations of trees by the estate authorities worth the name and that the trees the income from which is the subject matter of the assessments must have been of sponta neous growth
That is a finding of fact which is binding on the Court in a reference under section 661 of the Act
The learned Judges declined to accept this finding because they considered that the Tribunal had not appreciated the true significance of Podu cultivation
That in our opinion is a misdirection
If the point for decision had been whether the forest was a virgin forest or whether it had subsequently sprung up the evidence relating to Podu cultivation would have 185 been very material
But the point for decision is not whether the forests were ancient and primeval but whether they had been planted by the estate authorities and on that the Podu cultivation would have no bearing
As a result of the Podu cultivation the original forests would have disappeared
But the question would still remain whether the forest which again sprang up was of spontaneous growth or was the result of plantation
Now there is no evidence that as and when the jungle had disappeared under Podu cultivation the estate intervened and planted trees on the areas thus denuded
On the other hand the learned Judges themselves found that after the destruction of the original forests in the process of Podu cultivation there was a fresh growth of forests from the stumps of the trees which had been burnt
If that is the fact then the new growth is also spontaneous and is not the result of any plantation
In fairness to the learned Judges it must be observed that at the time when they heard the reference there was a conflict of judicial opinion on the question whether subsequent operations alone directed to the preservation and improvement of forests would be agricultural operations within section 21 of the Act and the view they took was that such operations when conducted on a large scale as in the present case would be within section 21 of the Act
It was in that view that they observed that it is therefore idle to regard tilling as the sole and indispensable test of agriculture 
The decision of the learned Judges was really based on the view that though trees in the forest had not been planted by the estate authorities the latter had performed subequent operations of a substantial character for the maintenance and improvement of the forest and that in consequence the income was agricultural income
This view is no longer tenable in view of the decision of this Court in The Commissioner of Income tax West Bengal Calcutta vs Raja Benoy Kumar Sahas Roy 1
It is contended by Mr Viswanatha Sastri for the 1   155 158 160
24 186 respondent that on the facts established in the evidence the proper conclusion to come to is that the trees sold by the respondent had been planted by the estate authorities and that the decision of the High Court that the income thus realised is within the exemption under section 43viii could be supported even on the view of law taken in The Commissioner of Income tax West Bengal Calcutta vs Raja Benoy Kumar Sahas Roy 1
The argument was that there was unimpeachable evidence that the old forests had disappeared under Podu cultivation that the estate had been regularly engaged in planting trees at least from the year 1904 as is shown by the accounts of the zamin that it was a reasonable inference to make that there had been similar plantations even during the years prior to 1904 notwithstanding that no accounts were produced for those years because it would not be reasonable to expect that such accounts would now be available that though the amount shown as spent for plantation might not be considerable that was understandable when regard is bad to the fact that the agricultural operations were conducted on the hills and not on the plains that on these facts it would be proper to conclude that the forests were in their entirety the result of plantation
It would be ail erroneous approach it was argued to call upon the assessee to prove tree by tree that it was planted
Now these are matters of appreciation of evidence on what is essentially a question of fact viz whether the trees were of spontaneous growth or were products of plantation
On this the Tribunal has given a clear finding on a consideration of all the material evidence and its finding is final and not open to challenge in a reference under section 66 1 of the Act
Even the learned Judges of the High Court who considered themselves free to review that finding and as already pointed out without justification could only observe that the trees must have mostly grown from the slumps left when the forests were burnt for purposes of Podu cultivations finding which is fatal to the contention now urged for the respondent that they I   155 158 160
187 were the result of plantation
We are of opinion that there are no grounds on which the finding of the Tribunal could be attacked in these proceedings
It remains to deal with one other contention urged on behalf of the respondent and that is based on the fact that the amounts spent in the upkeep of the forrests were large in comparison with the receipts therefrom
The following are the figures relating to the forest receipts and expenses for the years with which the present assessments are concerned Years Receipts Expenses 1942 43 Rs 438894 Rs 174437 1943 44 Rs 407447 Rs 209895 1944 45 Rs 552122 Rs 228830 1945 46 Rs 372971 Rs 247216 1946 47 Rs 689366 Rs 460369 The argument is that from the high proportion of the expenses in relation to the receipts it could be inferred that the income from trees planted by the estate formed a substantial portion of the income derived from the forests
And support for this conclusion is sought in the following observations in The Commissioner of Income tax West Bengal Calcutta vs Raja Benoy Kumar Sahas Roy 1  The expenditure shown by the assessee for the maintenance of the forest is about Rs 17000 as against a total income of about Rs 51000
Having regard to the magnitude of this figure we think that a substantial portion of the income must have been derived from trees planted by the proprietors themselves
 To appreciate the true import of these observations we must have regard to the context in which they occur
The facts found in that case were that portions of the forest which was originally of spontaneous growth had gradually been denuded that the propritor had planted trees in the areas so denuded that this had gone on for a period of over 150 years and that therefore  the whole of the income derived from 1   155 158 160
188 the forest cannot be treated as non agricultural income 
It was then observed that  If the enquiry had been directed on proper lines it would have been possible for the Income tax authorities to ascertain how much of the income is attributable to forest of a spontaneous growth and how much to trees Planted by the proprietors  but that in view of the long lapse of time it was not desirable to remand the case for enquiry into the matter
Then follow the observations on which the respondent relies and when read in the light of the findings that the plantations made by the proprietors were not negligible they mean nothing more than that out of the total income a substantial portion was likely to be agricultural income and that it was therefore not a fit case for ordering fresh enquiry These observations do not lay down that if considerable amounts are expended in the maintenance of forests then it must be held that the trees were planted by the proprietors
They only mean that if a considerable portion of the forests is found to have been planted a substantial portion of the forest income may be taken to have been derived therefrom
And this too it must be remarked is only a presumption of fact the strength of which must depend on all the facts found
In the face of the clear finding in the present case that the forests with which the assessment years are concerned were of spontaneous growth the observations quoted above can be of no assistance to the respondent
It is scarcely necessary to add that the observations  If the enquiry bad been directed on proper lines it would have been possible for the Income tax authorities to ascertain how much of the income is attributable to forest of spontaneous growth and how much to trees planted by the proprietors  quoted above cannot be read as was sought to be done for the respondent as throwing on the Department the burden of showing that the income sought to be taxed was not agricultural income
That in their context is not the true meaning of the observations and the law is as laid down in Commissioner of Income tax vs Venkataswamy Naidu 1  534 189 In the result this appeal is allowed the order of the Court below is set aside and the reference is answered in the affirmative
The respondent will pay the costs of the appellant here and in the Court below
Appeal allowed


Summary:
The petitioners claiming to be daily rated workmen of the respondent Corporation in a writ before the High Court demanded regularisation of their services and equal pay for equal work on the ground that they were discharging the same duties as the regular workers
Their claim was contested by the respondents on the ground that there was no work for them for a long time and they had been continued on rolls on humanitarian grounds
The High Court rejected their claim
In their counter affidavit to the special leave petition it was stated on behalf of the respondents that there was no vacancy in the establishment to absorb the petitioners that they were surplus to the requirement of the project and that it had proposed a scheme of voluntary retirement for their benefit which some of them had accepted
Dismissing the special leave petition the Court HELD 1
The principle of regularisation of a daily rated workmen and payment to him of the pay equal to that of a regular workman arises only when he is doing the same work as the regular workman and there being a vacancy available for him he is not absorbed against it or not even paid the equal pay for the period during which the same work is taken from him
620E F 2
In the instant case there were no vacancies or work available in the establishment for absorption of the peti tioners
The question of directing their absorption and regularisation therefore does not arise
However they be given the benefit of the voluntary retirement scheme and paid the specified amounts in addition to other dues
619H 620A G