Case: Commissioner of Income Tax, Kerala Vs. Ambat Echukutty Menon

the assessee and Velappa Rowther are as follows:-"(12) The trees in the reared f orest have to but cut neatly and the relative stumps should not be either pulled out or cut out. (13) No. 3 should not enter on the lands from where trees are cut or on the sprouts coming up from there. After the cuttings sprouts are not to be cut." 11. No. 3 referred in clause (13) is the said Rowther. On the face of the agreement, therefore, the transaction was not a sale of trees with roots and stumps. Rather there was a prohibition that after the cutting, sprouts were not to be cut. The agreement, however, did not indicate as to what was the object of the assessee in incorporating clauses (12) and (13) in the agreement. Was it the regeneration of the trees for earning more income or was it something e lse ? The subsequent conduct of the assessee as appeared from the facts placed before the Income-tax authorities without anything more will indicate that the object of the assessee was to protect the land falling vacant after the cutting of the trees from being damaged by the licensee by at random cutting of the stumps and uprooting of the roots. The trees sold were spread in an area of 60 acres of land only. Even in that area the trees were not in any thick or continuous forest. They were interspersed by paddy fields. In its very first communication to the Income-Tax Officer sent on 3-4- 1963 the assessee perhaps was made aware of the decision of the Kerala High Court in Commissioner of Income-Tax, Kerala v. Venugopala Varma Raj a (1) which was a case of private forest governed by the Madras Act. The assessee, therefore, claimed that there were no private forests in Cochin area of Kerala where the land was situated. The assessee asserted that in substance and in effect th e sale was of the entire standing timber i.e. totality of the trees and "the sale was effected with a view to extend wet or dry cultivation to that area as well since the standing trees were a hindrance for such extensions." In this very letter the a ssessee also asserted-"This is the very first time that our Thavazhi has sold the trees. The trees, the subject matter of the sale contract, were there at the time of the purchase of the agricultural lands by our Thavazhi in 1080 M.E. The trees were old trees. No tree had been sold after our Thavazhi became the owner of the agricultural lands. A large extent of agricultural lands was purchased and these trees formed part and parcel of such holdings. None of us know when the trees began to grow. After purchase of the lands we had developed the same and in the process we sold the trees with the object mentioned above. The present sale has been the only sale and it will be the last one also since our idea is to extend cultivation t o this area as well." 12. The Tribunal in its appellate order noticed the argument of the assessee that its sole occupation was agriculture and the attraction in the purchase of the land in the year 1905 was two irrigational channels contained therein. It also noticed the other facts stated in the letter aforesaid of the assessee and finally concluded on the basis of clauses (12) and (13) of the agreement-"It is clear from these that the assessee was reserving to itself t he results of the future growth and a source of income." 13. The case was squarely covered, in its opinion, by the decision of the Kerala High Court in Venugopalas case. It further observed that the assessee was claiming exemption and it was upto him to furnish all the information as to what trees would not regenerate, what kind of trees were sold etc. The assessee had failed to furnish these details. Yet it would be noticed that without rejecting the assessees stand that the transaction in question was the first and the last sale of trees by the assessee and without finding that the object of the assessee was not to convert the land for cultivation but to earn income by regeneration of trees, it upheld the view of the departmental authorities that the receipt was a revenue receipt assessable to income-tax. It should be noted that the assessment made was not for default of the assessee to produce any relevant material but a regular assessment on consideration of such materials as were produced by it. It was not asked to produce any other evidence or material to substantiate the stand taken by it. Nor was the stand rejected. In such a situation it was not a question of assessees claiming any exemption and failing to get it for its alleged failure to furnish any more details. But it was a case where in order to net the receipt as a revenue receipt it was for the department to reject the assessees stand and to hold that the object of the assessee in not allowing the licensee to cut the stumps and uproot the roots was a regeneration of the income. The High Court has also noticed the fact as found mentioned in the order of the Tribunal that by the time the assessment was completed by the Income-Tax Officer an area of 10 acres had been converted into cultivable land. In our opinion, therefore, the High Court rightly distinguished the decision in Venugopalas case (supra) and applied the ratio of that of Vishnudattas case (supra). As I have observed above the facts of this case were on a line which on the surface was blurred and indistinct, yet, on a careful examination of the matter I find that the dividing line, though thin, nonetheless , is distinct enough to make this case fit for application of the ratio of the decision of this Court in Vishnudattas case.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]On the face of the agreement, therefore, the transaction was not a sale of trees with roots and stumps. Rather there was a prohibition that after the cutting, sprouts were not to be cut. The agreement, however, did not indicate as to what was the object of the assessee in incorporating clauses (12) and (13) in the agreementThe subsequent conduct of the assessee as appeared from the facts placed before the Income-tax authorities without anything more will indicate that the object of the assessee was to protect the land falling vacant after the cutting of the trees from being damaged by the licensee by at random cutting of the stumps and uprooting of the roots. The trees sold were spread in an area of 60 acres of land only. Even in that area the trees were not in any thick or continuous forest. They were interspersed by paddy fieldsIn its very first communication to the Income-Tax Officer sent on 3-4- 1963 the assessee perhaps was made aware of the decision of the Kerala High Court in Commissioner of Income-Tax, Kerala v. Venugopala Varma Raj a (1) which was a case of private forest governed by the Madras ActThe assessee, therefore, claimed that there were no private forests in Cochin area of Kerala where the land was situated. The assessee asserted that in substance and in effect th e sale was of the entire standing timber i.e. totality of the trees and "the sale was effected with a view to extend wet or dry cultivation to that area as well since the standing trees were a hindrance for such extensions." In this very letter the a ssessee alsos is the very first time that our Thavazhi has sold the trees. The trees, the subject matter of the sale contract, were there at the time of the purchase of the agricultural lands by our Thavazhi in 1080 M.E. The trees were old trees. No tree had been sold after our Thavazhi became the owner of the agricultural lands. A large extent of agricultural lands was purchased and these trees formed part and parcel of such holdings. None of us know when the trees began to grow. After purchase of the lands we had developed the same and in the process we sold the trees with the object mentioned above. The present sale has been the only sale and it will be the last one also since our idea is to extend cultivation t o this area ase Tribunal in its appellate order noticed the argument of the assessee that its sole occupation was agriculture and the attraction in the purchase of the land in the year 1905 was two irrigational channels contained therein. It also noticed the other facts stated in the letter aforesaid of the assessee and finally concluded on the basis of clauses (12) and (13) of thet is clear from these that the assessee was reserving to itself t he results of the future growth and a source of income."The case was squarely covered, in its opinion, by the decision of the Kerala High Court in Venugopalas case. It further observed that the assessee was claiming exemption and it was upto him to furnish all the information as to what trees would not regenerate, what kind of trees were sold etc. The assessee had failed to furnish these details. Yet it would be noticed that without rejecting the assessees stand that the transaction in question was the first and the last sale of trees by the assessee and without finding that the object of the assessee was not to convert the land for cultivation but to earn income by regeneration of trees, it upheld the view of the departmental authorities that the receipt was a revenue receipt assessable to income-tax. It should be noted that the assessment made was not for default of the assessee to produce any relevant material but a regular assessment on consideration of such materials as were produced by it. It was not asked to produce any other evidence or material to substantiate the stand taken by it. Nor was the stand rejected. In such a situation it was not a question of assessees claiming any exemption and failing to get it for its alleged failure to furnish any more details. But it was a case where in order to net the receipt as a revenue receipt it was for the department to reject the assessees stand and to hold that the object of the assessee in not allowing the licensee to cut the stumps and uproot the roots was a regeneration of the income. The High Court has also noticed the fact as found mentioned in the order of the Tribunal that by the time the assessment was completed by the Income-Tax Officer an area of 10 acres had been converted into cultivable land. In our opinion, therefore, the High Court rightly distinguished the decision in Venugopalas case (supra) and applied the ratio of that of Vishnudattas case (supra). As I have observed above the facts of this case were on a line which on the surface was blurred and indistinct, yet, on a careful examination of the matter I find that the dividing line, though thin, nonetheless , is distinct enough to make this case fit for application of the ratio of the decision of this Court in Vishnudattas case.