Case: State of Tamil Naduv. Messrs Shakti Estates Vs. Shanmugham Estate, Tamil Nadu

of the tract developed, the extent and value of the trees standing on the land, the inevitability of the jungle having to be cleared and the standing trees disposed of before commercial crops could be grown, the manner in which the forest trees were disposed of are all, we think, insignia that mark out the entire set of activities as a concern in the nature of trade. 9. It is true that, in the area of income tax law, it has been held that no adventure to the nature of trade can be spelt out where all that a person does amounts to a mere realisation of his capital assets. It has been held thus that an owner of a huge estate who does not want to retain it any longer cannot be taxed on the surplus accruing to him on the sale of his capital assets even though he might carry out the realisation to best advantage in a commercial manner such as by forming a company, developing the lands, plotting them out, advertising them for sale, waiting for a favourable market and selling them over a period of several years. But this line of cases is if no help in the context of the facts of the present case and in the view we have taken above of the assesses transactions. Here the assesses did not merely realise the value of a capital asset belonging to them. They went in for the acquisition of an asset fully realisation its potentialities for exploitation not merely as a plantation but also, incidentally, by disposing of the existing growth on the land. It seems impossible to say that they did not intend to do this also while going in for the acquisition. If one purchases an asset with a view to turn it to account in such manner, we think, one is certainly carrying out an adventure in the nature of trade. 10. Moreover, we have also to give full affect to the definitions in the statute we are concerned with. The definition of a "business" also includes "any transaction in connection with or incidental to or ancillary" to a trade and thus, even on the assessees own arguments, these activities were incidental and ancillary to the business which the assessee was carrying on or definitely intended to carry on. It is also immaterial, on this definition, that the assessee may not have had a "motive of making a profit or gain" on these sales though on the facts, it is clear that such motive must have existed and, in any event, could not be ruled out. The reference to a "casual" dealer in the second definition also renders it immaterial that the assessees may not have intended to be regular dealers in sleepers, timber, firewood or charcoal but that this was something casual or incidental to the acquisition and exploitation of a forest for running a plantation. 11. Before concluding, we may refer to the decision cited before us. The decisions of the High Court in the present cases and in Kuttirayin case ((1976) 38 STC 282 (Ker) HC)) support the assessee contention but, for reasons given above, we are unable to accept them as correct. The decision of the Madras High Court in L. N. Plantation Co. v. State ((1981 52 STC 7 (Mad) supports the departments contention and we approve of the same. In Tamil Nadu Trading Co. v. State of T. N. ((1981) 52 STC 7 (Mad) the Madras High Court was dealing with a case where the assessee was found to be a dealer in timber. But, in the course of their judgment, the court made the following observations which support the case of the department. Even if it were to be assumed, without accepting for the sake of argument, that the assessee purchased the land for the purpose of coffee plantation, the sale of timber and fuel would fall under "any transaction" in connection with or incidental or ancillary to the business of coffee plantation and would therefore fall within the definition of "business" under Section 2(d) of the Act. We agree. 12. Three decisions of this Court were also referred to by counsel. State of T. N. v. Burmah Shell Oil Storage and Distributing Co. ((1973) 3 SCC 511 : 1973 SCC (Tax) 269 : (1973) 31 STC 426 ) and District Controller of Stores, N. Rly. v. Assistant C. T. O. ((1976) 1 SCC 660 : 1976 SCC (Tax) 98 : (1976) 37 STC 423 ) were cases where an assessee, carrying on a business, had to dispose of unserviceable or useless material and such disposals were held taxable as "business" sales, the transactions being incidental or ancillary to the principal business carried on by the assessee. The disposals effected by the Shakti Estate whose plantation business had started in full swing will certainly fall squarely within the principle of these decisions. But, as we have discussed above, in our view, even the sales effected before the plantation started yielding results would be covered by the definitions as the venture undertaken by the assessee has to be considered as an integral whole and there can be no doubt that the sale of the forest produce was part of the activities in the contemplation of the assessee right from the beginning. 13. As against the above decisions, reliance was placed, on behalf of the assessee, on Deputy Commissioner v. Palampadam Plantation (Dy. Commr. of Agrl. Income-tax & Sales Tax v. Palampadam Plantations Ltd., (1969) 1 SCC 662 : (1969) 24 STC 231 ) where, it is said, it was held that an assessee could not be held taxable as a dealer on the sale of trees of spontaneous growth in a plantation. But that decision clearly turned on the specific language of the definition of "dealer" contained in Section 2(viii)(e) of the Kerala General Sales Tax Act, 1963, and does not lay down any general proposition as contended for on behalf of the assessee.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]9. It is true that, in the area of income tax law, it has been held that no adventure to the nature of trade can be spelt out where all that a person does amounts to a mere realisation of his capital assets. It has been held thus that an owner of a huge estate who does not want to retain it any longer cannot be taxed on the surplus accruing to him on the sale of his capital assets even though he might carry out the realisation to best advantage in a commercial manner such as by forming a company, developing the lands, plotting them out, advertising them for sale, waiting for a favourable market and selling them over a period of several years. But this line of cases is if no help in the context of the facts of the present case and in the view we have taken above of the assesses transactions. Here the assesses did not merely realise the value of a capital asset belonging to them. They went in for the acquisition of an asset fully realisation its potentialities for exploitation not merely as a plantation but also, incidentally, by disposing of the existing growth on the land. It seems impossible to say that they did not intend to do this also while going in for the acquisition. If one purchases an asset with a view to turn it to account in such manner, we think, one is certainly carrying out an adventure in the nature of trade10. Moreover, we have also to give full affect to the definitions in the statute we are concerned with. The definition of a "business" also includes "any transaction in connection with or incidental to or ancillary" to a trade and thus, even on the assessees own arguments, these activities were incidental and ancillary to the business which the assessee was carrying on or definitely intended to carry on. It is also immaterial, on this definition, that the assessee may not have had a "motive of making a profit or gain" on these sales though on the facts, it is clear that such motive must have existed and, in any event, could not be ruled out. The reference to a "casual" dealer in the second definition also renders it immaterial that the assessees may not have intended to be regular dealers in sleepers, timber, firewood or charcoal but that this was something casual or incidental to the acquisition and exploitation of a forest for running a plantation