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PETITIONER: A.   K. T. K. M. VISHNUDATTA ANDHARJANAM REPRESENTEDBY.  D.

       Vs.

RESPONDENT: COMMISSIONER OF AGRICULTURAL INCOME TAX,TRIVANDRUM

DATE OF JUDGMENT: 05/05/1970

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, J.C. HEGDE, K.S.

CITATION:  1970 AIR 2055            1971 SCR  (1) 535  1970 SCC  (2) 165  CITATOR INFO :  E          1980 SC  71  (12,14,17)

ACT: Income  or  capital-Teak trees removed by  their  roots  and sold-Sale receipts whether income or capital.

HEADNOTE: in the course of the appellant’s assessment under the Kerala Agricultural Income-tax Act, 1950, for the years 1963-64 and 1964-65, the Agricultural Income-tax Officer included in the appellant’s income an amount realised from the sale-of  teak trees  which had been planted in the year 1946-47  and  were removed  from  the  appellant’s land  and  sold  during  the assessment  years.  The Appellate Assistant Commissioner  as well  as  the  Tribunal  confirmed  the  assessment.   On  a reference under s. 60(1) of the question whether the receipt from  the  sale  of teak trees was  capital  in  nature  and exempted from agricultural income-tax, the High Court  found against the appellant. On appeal to this Court HELD:Allowing the appeal, The  form of the question referred to the High Court  itself showed  that the trees were cut and completely removed  from the  land  together  with their roots  for  the  purpose  of planting  rubber.   There  wag no question  of  any  further regeneration  or growth of the trees which had been cut  and removed.   In  other  words  there  was  no  possibility  of recurring income from these trees. The  sale  of such trees thus affects capital structure  and cannot give rise to a revenue receipt. V.   Venugopala  Verma Rajah v. Commissioner of  Income-tax, Kerala   C.A.   1810  of  1967  decided  on   24-9-69;   The Commissioner  of Income-tax, Bengal v. Messrs  Shah  Wallace and  Company,  6  I.T.C. 178;  Commissioner  of  Income-tax, Bombay South v. N. T. Patwardhan 41 I.T.R. 313; referred to.  The profit motive is not decisive of the question whether a particular  receipt is capital or income.  An  accretion  to capital  does  not become taxable income merely  because  an asset  is  acquired  in the hope that it may be  sold  at  a profit [538, B-E]

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JUDGMENT: CIVIL  APPELLATE JURISDICTION : CiVil Appeals Nos. 2327  and 2328 of 1968. Appeals  by special leave from the judgment and order  dated August  21,  1968  of the Kerala High  Court  in  Income-tax Referred Cases Nos. 28 and 29 of 1967. 53 6 K.   P.  Radhakrishna Menon, for the appellant (in both  the appeals). M.   C.  Chagla and M. R. K. Pillai for the  respondent  (in both the appeals). The Judgment of the Court was delivered by Grover, J. These appeals by special leave from a judgment of the  Kerala  High  Court  arise out  of  the  assessment  of agricultural  income of, the assessee made under the  Kerala Agricultural  Income tax Act, 1950, hereinafter  called  the "Act", in respect of the assessment years 1963-64 and  1964- 65. For the assessment year 1963-64 the assessee filed a  return showing  a net agricultural income of Rs.  12,558-76.   When the  matter  came  up for hearing  before  the  Agricultural Income  tax Officer another statement showing an  amount  of Rs.  43,250-00  as income from teak trees  was  filed.   The Agricultural Income tax Officer disallowed certain  expenses and assessed the income for the year 1963-64 at Rs.  62,021- 00.   For  the assessment year 1964-65 a  return  was  filed declaring  a net agricultural income of Rs.  25,733-63.   No income  was  shown  from  the  sale  of  teak  trees.    The Agricultural  Income tax Officer found that teak  trees  had been  sold for a lump sum of Rs. 76,500-00 out of which  Rs. 43,250-00 had been received in the previous year 1963-64 and he  included  the said amount in that  year’s  income.   The balance amount of Rs. 33,250-00 was received in the previous year  corresponding  to  the assessment  year  1964-65.   In determining the assessable income for that year this  amount was  added to the income which had been returned  and  after disallowing certain amount which had been claimed by way  of expenses  the  net income was determined at  Rs.  61,041-00. The  assessee filed appeals before the Additional  Appellate Assistant  Commissioner  who confirmed  the  assessment  and dismissed  the appeals.  Further appeals were taken  to  the Agricultural  Income tax Tribunal.  The Tribunal  held  that the  amount  in  dispute was  agricultural  income  and  not capital.    The  expenses  which  were  claimed  were   also disallowed.   On an application made under S. 60(1)  of  the Act  the following two questions were referred to  the  High Court               "1.   Whether   on  the  facts  and   in   the               circumstances  of the case, the  receipt  from               the  sale  of teak trees for  the  purpose  of               planting  the area with rubber is  capital  in               nature and exempt from Agrl.  Income-tax Act.               2.    If  the answer to the above question  is               in the negative, whether the expenses incurred               in the prior                537               years  for the purpose of obtaining  the  said               agrl. income is allowable as a deduction  from               the sale proceeds of the trees." The  High  Court did not agree with the  contention  of  the assesses that the amounts received by sale of the teak trees constituted  capital  and  were  not  agricultural   income.

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Certain amounts were, however, allowed as deductions by  way of expenses for the assessment year 1963-64. The principal point that has to be determined is whether the sale  proceeds  of  the teak trees  constituted  capital  or revenue.   It appears to have been common ground before  the High Court that the assessee planted the teak trees sometime in the year 1946-47.  The form of the question itself showed ’that  the  trees were cut and completely removed  from  the land  together  with their roots for  the  purpose  planting rubber.   There was no question of any further  regeneration or  growth of the trees which had been cut and removed.   In other  words  there was no possibility of  recurring  income from   these  trees.   In  V.  Venugopala  Verma  Rajah   v. Commissioner  of  Income tax Kerala(1) the  question  before this Court was whether trees which had not been removed with the roots and the stumps of which had been allowed to remain in  the land was in the nature of income.  This is what  was observed in that case               "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  present question was apparently left open and  was  not decided  as  the point which arose there did not  relate  to sale of trees of which the roots had also been taken out for the  purpose  of  planting some other kind  of  trees  e.g., rubber as in the present case. It  seems  to us that the well known test laid down  by  the Privy  Council in The Commissioner of Income tax, Bengal  v. Messrs. Show, Wallace and Company (2) to find out whether a (1)  C.A. 810 of 1967 decided on 24-9-69       (2) 6  I.T.C. 178. 538 ,particular receipt is income is not satisfied in the  facts and  circumstances of the present case.  According  to  that test income con-notes a periodical monetary return coming in with  some sort  of regularity or expected  regularity  from definite  sources.  The source is not necessarily one  which is expected to be continuously productive but it must be one whose  object  is  the  production  of  a  definite   return excluding  anything in the nature of a mere windfall.   Once the  teak trees were removed together with their  roots  and there  was no prospect of regeneration or of any  production of a return therefrom it could well be said that the  source ceased  to  be  one -which could produce  any  income.   The Bombay  High  Court in Commissioner  of  Income-tax,  Bombay South  v. V.  T. Patwardhan(1) said that from the  point  of view of a person engaging himself in the business of sale of trees  the capital structure would be not only the  land  on which the trees stood but also the roots ,of the trees  from which the wood yielded income.  If the trees ’were sold  off with the roots the capital structure would be affected. The High Court in the judgment under appeal was particularly impressed  with  the  profit  motive  of  the  assessee  in, planting  teak trees although that, was done  several  years ago.   But  it  was overlooked that  profit  motive  is  not

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decisive  of  the question whether a particular  receipt  is capital  or income, An accretion to capita does  not  become taxable  income merely because an asset is acquired in  ’the hope  that  it  may be sold at a profit.  It  must  also  be remembered that trees so long as they are uncut form a  part of the land.  If they are cut with roots once and for all  a part  of  the assets is disposed of.  The sale  proceeds  on account of their disposal cannot constitute revenue  because by removing the roots the source ,from which fresh growth of trees  can  take place is also removed.  The  sale  of  such trees thus affects capital structure and cannot give rise to a revenue receipt. For the reasons given above the answer to the first question will  be in the affirmative and in favour of  the  assessee. It  is  unnecessary  to  return any  answer  to  the  second question.   The  appeals  are accordingly  allowed  and  the judgment  of the High ’Court is set aside with  costs.   One hearing fee. R.K.P.S.                                             Appeals allowed. (1) 41 I.T. R. 313. 5 3 9