Appeal No 810 of 1967
Appeal by special leave from the judgment and order dated August 3 1966 of the Kerala High Court in Income tax Referred Case No 49 of 1965
K Javaram for the appellant
ST Desai RN Sachthey and BD Sharma for the respondent
Sardar Bahadur Saharya for the Intervener
The Judgment of the Court was delivered by Shah J
In computing the income of the appellant s father to tax for the assessment year 1959 60 the Income tax officer included Rs 75000 received under an agreement for cutting and removing trees from 500 acres of Mangayam Katchithode forest
The Appellate Assistant Commissioner after calling for a report on certain facts confirmed the order
But the Tribunal held that the receipt was of a capital nature and deleted it from the taxable income
At the instance of the Commissioner of Income tax the Tribunal referred the following question to the High Court of Kerala Whether on the facts and in the circumstances of the case the Income tax Appellate Tribunal was correct in holding that Rs 75000 being income from felling of trees from forests is not subject to income tax  The High Court answered the question in the negative
We are of the view that the facts found by the Tribunal are not sufficient to enable us to record an answer to the question referred
The Income tax officer held that the income was taxable because 500 acres of forest land was leased for clear felling by the father of the appellant and this fetched an income of Rs 75000 
What the expression clear falling meant was not investigated by the Income tax officer
The Appellate Assistant Commissioner in dealing with the contention raised by the appellant that the receipt was of the nature of a Capital observed The claim is based on the reasoning that the clear felling of  forest trees amounts to sterilisation of a capital asset
In other words clear felling is said to involve total destruction of the 549 forest
It is admitted that the trees are of spontaneous growth and it has not been established that removal of trees has in any way affected the value of the property
As a matter of fact _clear felling is resorted to make the land more productive and more valuable
At any rate the claim has not been substantiated beyond doubt and hence there is no scope for any relief
 The Tribunal relying upon the observation of the Income tax officer that the trees were not cut together with the roots but only 6 above the ground and that they were later on destroyed held that there was nothing to show that there was a diminution of capital assets
On the other hand the Income tax officer had given a clear finding that this was a case of clear felling
After making an extensive quotation from the Judgment of the High Court of Bombay in Commissioner of Income tax vs
N Patwardhan1 the Tribunal stated that the observations applied to the facts in the case before them and on that account they upheld the claim of the appellant
The High Court observed that it was agreed that the Mangayam Katchithode forest was within the ambit of the Madras Preservation of Private Forests Act 1949 and the statutory rules on the subject and that the expression clear feeling is an expression with a definite and specific meaning as far as such forests are concerned
They then proceeded to quote r 7 framed under the Madras Preservation of Private Forests Act 1949 and after setting out conditions b  c observed that the felling of the trees under the clear felling method will not permit a removal of the trees along with their roots
On the other hand the clear indications were that the felling of the trees under the clear indications were that the felling of the trees under the regeneration and future growth of the trees concerned
In other words what is contemplated by the clear felling method is not 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 subsequent income
 On that view the Court held that the receipt of Rs 75000 was a revenue receipt and not a capital receipt as held by the Appellate Tribunal
The departmental authorities
the Tribunal and the High Court have expressed different views on the import of the expression clear felling and about the true effect of the agreement
The Income tax officer taxed the amount of Rs 75000 on the footing that the 500 acres of forest lands were leased for clear felling
The Appellate Assistant Commissioner held that the trees being of spontaneous growth and the falling of the trees not having 1 550 affected the value of the property as a result of the clearance the lands became more productive and the receipt was a revenue income
The Tribunal held that the case being one of clear felling and the trees having been cut 6 above the ground and that they were later on destroyed it was a case of clear felling and the receipt was of capital nature
The High Court was of the view that the clear felling of forest lands meant cutting trees and not removal of the roots so that there would be regeneration future growth of the roots and the stumps and on that account the receipt was of revenue nature
It appears that before the Income tax Officer the agreement dated Sept 11 1957 was not produced
After the Appellate Assistant Commissioner remanded the case to the Income tax Officer the latter submitted the remand report and at that time the agreement was produce
The Tribunal in support of its conclusion referred to the preamble of the document and the conditions thereof
The learned Judges of the High Court observed that they did not place any reliance on the extracts in the lease given in paragraph 2 of the statement of the case for coming to the conclusion they had reached
Why the High Court thought it fit to discard the recitals is not clear from the record
The facts found being not clear it is difficult to record any conclusion whether the receipt was of a revenue nature or of a capital nature
We therefore call upon the Tribunal to submit to this Court a supplementary statement setting out the terms of the agreement between the father of the appellant relating to the rights conveyed to the lessees in the forest lands and especially about the import of the term relating to clear felling
The Tribunal will submit the supplementary statement of the case only on the basis of the evidence on the record and will not take any additional evidence
The report to be submitted within three months from the date on which the papers reach the Tribunal
Shah J
By our order dated February 13 1969 we called for a supplementary statement of the case setting out the terms of the agreement conveying the rights in the forest trees to the lessees and the true import of the expression clear felling
The Income tax Appellate Tribunal has submitted a supplementary statement of the case
The Tribunal has set out the relevant terms of the agreement and has also observed that the import of the expression clear felling is that all trees except casuring are to be felled at a height not exceeding six inches from the ground the barks being left intact on the stump and adhering to it all round the stump without being torn off or otherwise changed
There is no suggestion that there were any casurina trees in the forest lands let out to the lessees
It is common ground also that the trees in the forest were of spontaneous growth
The 551 Tribunal has found that by the use of the expression clear felling it was stipulated that the trees are to be cut so that 6 of the trunk with the barks intact and adhering to it all round the stump is left
This is with a view to permit regeneration of the trees
The question whether receipts from sale of trees by an owner of the land who is not carrying on business in timber may be regarded as income liable to tax has given rise to
some difference of opinion in the High Courts
In Commissioner of Income tax Madras vs
T Manavedan Tirumalpad1 a Full Bench of the Madras High Court held that the receipts from sale of timber trees by the owner of unassessed forest lands in Malabar were revenue and not capital
The Court observed that if income from the sale of coal from a coal mine or stone won from a quarry or from the sale of paddy grown on land be regarded as income but for the special exemption granted under the Income tax Act there is no logical reason for holding that income from sale of trees is not income liable to tax
In re Ram Prasad2 a Division Bench of the Allahabad High Court held that receipt from sale of timber is income liable to be taxed and is not a capital receipt
The case arose under the Government Trading Taxation Act 3 of 1926
In Maharaja of Kapurthala vs Commissioner of Income tax CP and UP3 the Oudh Chief Court held that net receipt from the sale of forest trees is income liable to income tax eventhough the forest may be gradually exhausted by fellings
The Court further observed that income from the sale of forest trees of spontaneous growth growing on land which is assessed to land revenue is not agricultural income within the meaning of section 21  a of the Income tax Act and is not exempt from income tax under section 43viii of the Act
In Raja Bahadur Kamakshya Narain Singh vs Commissioner of Income tax Bihar and Orissa4 a similar view was expressed by the Patna High Court
In Fringford Estates Ltd Calicut vs Commissioner of Income tax Madrasb it was held that profits realised from the sale of timber were trade profits and were liable to income tax
In that case the assessee Company formed with the object of purchasing clearing and improving of estates and the cultivation and sale of tea coffee etc
in such estates purchased a tract of land part of which had already been cultivated with tea and the rest was a jungle capable of being cleared and made fit for plantation
The 1 ILR 54 Mad21
2 ILR52 All
3 4
5 552 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 m the market
This was held to be a part of the business activity of the Company
The cases on the other side of the line are to be found in Commissioner of Income tax Bombay South vs NT Patwardhan1 in which a Division Bench of the Bombay High Court held that when old trees which stood on the land of the assessee were disposed of with their roots once and for all the receipts were capital
The Court observed p 318 The asset of the man was the land with the wild growth of trees on it
If the land with the trees had been sold there could have been no doubt that the sale was a realisation of capital and it would not have been possible to argue that the transaction in so far as it involved a sale of the trees was a sale producing income and the remaining part of the transaction was a capital sale
In the present case the land is retained by the assessee but a part of the asset is disposed of in its entirety by selling the trees with roots once and for all
 In State of Kerala vs Karimtharuvi Tea Estate Ltd2 the Kerala High Court held in a case arising under the Kerala Agricultural Income tax Act 1950 that the amount realised by sale as firewood of old and useless gravelia trees grown and maintained in tea gardens for the purpose of affording shade to tea plants is capital receipt and not revenue receipt
The Court observed The gravelia trees were grown and maintained for the sole purpose of providing shade to the tea bushes in the tea estates of the assessee
That such shade is essential for the proper cultivation of tea cannot be disputed and the trees should hence be considered to be as much a part of the capital assets of the company as the tea bushes themselves or the equipment in its factories
Some of the gravelia trees became old and useless with the efflux of time and they naturally had to be cut down and sold
The sale proceeds of such trees cannot possibly amount to a revenue receipt In Commissioner of Income tax Mysore VHB Van Ingen3 the Mysore High Court held that the assessee who had purchased a coffee estate of which a part had been planted with coffee plants and the rest was jungle and had cleared the jungle 141 ITR 313
2 5 ITP 129
3 553 for the purpose of planting coffee and had sold the trees felled price realised by the sale of the trees was a capital and not a revenue receipt because the trees had grown spontaneously and the assessee had purchased the estate including the trees
It is not necessary for the purpose of this case to enter upon a detailed analysis of the principle underlying the decisions and to resolve the conflict
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 difficult subject to the special exemption under section 43viii of the Income tax Act 1922 to hold that the realization is not of the nature of income
Where the trunks are cut so that the stumps remain intact and capable of regeneration receipts from sale of the trunks would be in the nature of income
It is true that the tree is a part of the land
But by selling a part of the trunk the assessee does not necessarily realise a part of his capital
We need not consider whether in case there is a sale of the trees with the roots so that there is no possibility of regeneration it may be said that the realisation is in the nature of capital
That question does not arise in the present case
The appeal fails and is dismissed with costs
GC Appeal dismissed


Summary:
In computing the income of the appellant s father for the assessment year 1959 60 the Income tax Officer included Rs 75000 received under an agreement for cutting and removing trees from 500 acres of forest land in Madras State
The Income tax Officer held that the income was taxable because the land was leased for clear felling by the father of the appellant
What the expression clear felling  meant was not investigated by the Income tax Officer
The Appellate Assistant Commissioner confirmed the assessment order
But the Tribunal held that the receipt was of a capital nature and deleted it from the taxable income
In reference the High Court differed from the Tribunal
In appeal against the High Courts order this Court directed the Tribunal to submit to this Court a supplementary statement of case setting out the terms of the agreement between the father of the appellant relating to the rights conveyed to the lessees and especially about the import of the  term relating to clear felling
The Tribunal in its supplementary statement of case set out the relevant terms of the agreement and observed that the import of the expression clear felling  is that all trees except casurina are to be felled at a height not exceeding six inches from the ground the barks being left intact on the stump and adhering to it all round the stump without being torn off or otherwise changed
 It was not suggested that there were any casurina trees in the forest land let out to the lessees and it was common ground that the trees in the forest were of spontaneous growth
HELD The appeal must be dismissed
the finding in the present case it was 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 be1 difficult subject to the special exemption under section 43viii of the Income tax Act 19 22 to hold that the realisation is not of the nature of income
It is true that the tree is a part of the land
But by selling a part of the trunk the assessee does not necessarily realise a part of his capital
553 B C Commissioner of Income tax Madrs vs
T Manavedan Tirumalpad ILR  In re Ram Prasad ILR 52 All
419 Maharaja of Kapurthala vs Commissioner of Income tax CP  UP  Raja Bahadur Kamkshya Narain Singh vs Commissioner of Income tax Bihar  Orissa  Fringford Estate Ltd Calicut vs Commissioner of Income tax Madras  Commissioner of Income tax Bombay South vs
NT Patwardhan State of Kerala vs Karimtharuvi Tea Estate Ltd and Commissioner of Income tax Mysore vs
HB Van Ingen  referred to
548 Question whether in case of sale of trees with the roots so that there is no possibility of regeneration the realisation may be said to be in the nature of capital left open 553 D