ISAAC, J -
(1.) THE following two questions have been referred for the decision of this court by the Kerala Agricultural Income-tax Appellate Tribunal under section 60(1) of the Agricultural Income-tax Act, 1950, on the application of the assessee :
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 the Agricultural Income-tax Act.
2. If the answer to the above question is in the negative, whether the expenses incurred in the prior years for the purpose of obtaining the said agricultural income is allowable as deduction from the proceeds of the trees.
(2.) THE relevant assessment years are 1963-64 and 1964-65; and the corresponding previous years are 1137 M.E. and 1138 M.E. THE assessee planted teak in 1122 M.E. for the purpose of deriving income by the sale of trees. In 1137 M.E., the teak trees were sold for a sum of Rs. 76,500 out of which she received Rs. 43,250 in the same year, and the balance was received in the year 1138 M.E. THE assessees total agricultural income for the year 1963-64 was determined at Rs. 62,021 including the sum of Rs. 43,250 received by sale of teak trees, while her total agricultural income for the year 1964-65 was determined at Rs. 61,041 including the sum of Rs. 33,250 received in 1138 M.E. on account of the price of teak trees. THE assessee contended that the trees were cut and removed from the land with their roots for the purpose of planting rubber, and that the amount received by the sale of the trees was, therefore, capital and not income. In the alternative the assessee contended that she was entitled to a deduction of Rs. 20,342.95 on account of expenditure as detailed below :
Rs. (i) Expenses incurred from 1122 to 1125 for planting teak ... 7,750.00 (ii) Expenses for maintenance and upkeep of the plantation ... 4,978.02 (iii) Interest on the above two amounts ... 7,640.93 Both the contentions of the assessee were rejected by the Appellate Tribunal and the subordinate authorities. Regarding the sum of Rs. 7,750 the Tribunal said that the expenses incurred for planting teak was capital expenditure. It also held that both this amount as well as the sum of Rs. 4,978.02 were not incurred in the previous year and were not therefore allowable under section 5 of the Act in computing the total agricultural income. Regarding the sum of Rs. 7,640.93 the Tribunal pointed out that the claim to deduct interest on the assessees own money expended for plantation was not tenable under the Act.
In support of the contention that the amounts received by the assessee by sale of teak trees did not constitute income, her learned counsel first cited the decision of this court in Commissioner of Income-tax v. Venugopala Varma Raja. The question for decision in that case was whether the amount received by sale of trees spontaneously grown in a forest land was income or capital. This court held that, in view of the fact that the trees were cut above a particular height from their root leaving intact the stumps in such a manner as to ensure regeneration, future growth, further felling and a subsequent income, the amounts received by the sale of the trees were income and not capital. Reliance was placed by the learned counsel on the following dictum contained in the above decision :
''The question for determination is whether the Rs. 75,000 was received by the assessee for the removal of the trees with their roots or whether it was for the felling of the trees in such a way as to permit and ensure their regeneration. If the latter was the case, as we think it is, then, the amount received should be considered not as a capital but as a revenue receipt.''
On the basis of the above statement, the learned counsel contended that the amounts received in the instant case were capital, as the trees were completely removed with their roots without the possibility of getting any future income therefrom. The passage cited above only states that, if the trees are felled in the manner mentioned therein, the receipt by sale of the trees should be considered as income and not capital. It does not follow therefrom that if the trees are removed without the possibility of regeneration and fetching a future income, the receipt by sale of the trees would be capital.
(3.) THE assessees learned counsel also cited the decisions of this court in State of Kerala v. Karimtharuvi Tea Estates Ltd. and Elixir Plantations Ltd. v. Commissioner of Income-tax. In the first case it was held that the amount received by sale of trees planted for providing shade for tea was capital and not income, obviously for the reason that the trees were not planted for deriving an income, but for providing shade for the tea plants. In the second case, it was held that the amount received by sale of dead and windfallen avenue trees from a coffee estate was capital. THEse decisions have no relevancy to the instant case. THE learned counsel cited also the decision of the Allahabad High Court in Raja Jagadish Pratap Sahai v. State. In that case, the Talukdar of an estate sold a number of tress from his estate on the apprehension that he would be divested of the ownership of the land when the Zamindari abolition statute came into force. THE court held, following the dictum of Sir George Lowndes in Commissioner of Income-tax v. Shaw Wallace & Co., that the amount received by the Talukdar under the above circumstances was not income. This decision has also no application to the controversy before us.
The last decision relied on by the learned counsel for the assessee was that of the Bombay high Court in Commissioner of Income-tax v. N. P. Patwardhan. That was a case where trees spontaneously grown in an extensive tract of grass lands were sold with a condition that the trees should be removed with their roots. It was held that the amount received by the sale of the trees was capital and not income. The reason of the decision is contained in the following statement :
''According to the Tribunal the trees which had stood on the land all these years having been disposed of with their roots once and for all, the receipts were merely a capital accretion. In our opinion, the view taken by the Tribunal is right. 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. As we have already stated earlier whether in a given case there is a capital sale or sale producing income must depend upon the facts and circumstances of the case and it seems to us that, in a case like the present, where a man, on whose lands a wild growth of trees had stood for a number of years without any attempt being made by him to realise any income therefrom, sells the trees once and for all with their roots the transaction is on account of capital and not of revenue, for by disposing of the roots of the trees he has disposed of the source from which a fresh growth of wood would spring up.''