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

2. The respondent assessee in each of these cases acquired reserve forest. It is common ground that the acquisition was effected with a view to raise a coffee and cardamom plantation thereon. For doing this assessee had to clear a portion of the forest and in the process fell the unwanted trees standing thereon as natural growth. The cut trees were sold by the assessee in the form of firewood as well as in the form of cut sizes of timber as well as sleepers. Some of the growth was also converted into charcoal and the result and charcoal sold. On these facts, the question arose in each of these cases whether the price realised by the assessee on the sale of firewood, timber, sleepers and charcoal was assessable to sales tax3. We are concerned with the assessment year 1969-70. The assessees turnover, in respect of these items in the case of Shanmugam Estate was Rs. 3, 00, 396.16 which included a turnover in charcoal of Rs. 86, 829.29. In the case of Shakti Estate, the disclosed turnover was as followsFirewood .. .. .. 1, 98, 678.08Sized timber .. .. .. 83, 490.89Sleepers .. .. .. 28, 164.003, 10, 341.97The Deputy Commercial Tax Officer added 5 per cent towards omissions and assessed a turnover of Rs. 3, 25, 859.074. The further facts disclosed in the case of Shakti Estate are these. The assessee is a firm of 10 individuals. It had not purchased the forest but had got a lease which entitled them to enjoy the usufruct of the forest by its exploitation. Clause (4) of the partnership deed recites that "the firm will carry on the development and exploitation of the lands". The firm had been functioning for the past 7 years and had been paying sales tax on its sales of firewood, timber and sleepers. But for the first time in assessment year 1968-69, it put forward a claim that the above turnover was not assessable in its hands.

Court's reasoning:
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