C.S.P.Singh, J. - (1.) THIS is a reference under Section 24 of the U. P. Agrl. I.T. Act, 1949. The Board of Revenue has referred the following questions for the opinion of this court : " 1. Whether the sale of timber from the planted groves prior to the introduction of Section 6-A to the U. P. Agricultural Income-tax Act was liable to be assessed as agricultural income under the Act ? 2. If the answer to question No. 1 be in the affirmative, whether on the facts and in the circumstances of the case, the amount representing the sale proceeds of planted grove and trees was a capital receipt and as such not taxable under the Agricultural Income-tax Act ? and, 3. Whether, on the true interpretation of Section 8 of the U. P. Agricultural Income-tax Act, the income from the property which is held under trust wholly for religious and charitable purposes has to be included in the total income and then a relief is to be granted under Sub-section (2) of Section 3 or is it to be excluded altogether from the total income of the assessee ? "
(2.) THE reference relates to the assessment year 1360 Fasli, the relevant accounting period for which is 1359 Fasli. THE assessee returned an income of Rs. 21,63,075 under Section 5 of the Act. In this he did not include the income from the sale of grove and scattered trees. His contention was that the sale price of groves and scattered trees represented the price received from the sale of a capital asset, and, as such, was not exigible to tax. THE amount received, according to the assessee, from the sale of scattered trees was Rs. 2,58,984 and from the sale of grove trees, Rs. 88,280. THE assessing authority found that out of the amount aforesaid an amount of Rs. 78,267 represented the proceeds of sale in 1358 Fasli, and, as such, was not relevant for the accounting period 1359 Fasli. He, therefore, deducted this amount from the aggregate amount of the sale proceeds from scattered trees and grove trees. Taking the view that the particulars given regarding the break-up of the amount received from the sale of scattered trees and grove trees were not reliable, he apportioned the balance amount as under : Rs. 90,359 from the sale of planted trees and Rs. 88,280 from the sale of groves and other trees. He rejected the assessee's contention that this amount could not be included in the income as it was" an amount received, from the sale of a capital asset. Apart from this the assessee had claimed exemption in respect of trust properties, which was created by a registered trust deed for charitable purposes. The assessing authority allowed exemption in respect of these trust properties as he took the view that they were meant for religious and charitable purposes. An appeal was filed by the assessee before the Commissioner, Faizabad, challenging the inclusion of income from the sale of grove and planted trees, and the State also moved for inclusion of income from trust properties. The case taken up by the State was that the income from the trust properties should have been included in the total income and a proportionate exemption should have been given thereafter. It was contended that the assessing authority erred in excluding the income from the trust properties while determining the taxable income. The Commissioner allowed the appeals and remanded the cases on the view that the cases for the earlier assessment year, i.e., 1359 Fasli had been remanded, and the point raised in the appeal was similar to that raised in the earlier case. He also held that the income from the trust properties should be excluded altogether and, as such, rejected the contention on behalf of the State. The State then filed a revision before the Board. The Board, following its decision in an earlier case, held that the income from the sale of the trees should be included in the taxable income of the assessee. As regards the quesiton as to whether the income from the trust properties should first be included and then exempted, it took the view that the income should be included in the taxable income and then the exemption should be granted in respect thereof. The first two questions are inter-connected, and as such it will be convenient to take them up together. Section 3 is the charging section and brings to tax the total agricultural income of the previous year. Agricultural income has been defined in Section 2 of the Act and is to the following effect : " Definitions.--In this Act, unless there is anything repugnant in the subject or context,-- (1) ' agricultural income ' has the same meaning as is assigned to it in the Indian Income-tax Act, 1922, and which in its adapted form is reproduced below :-- (a) ' agricultural income ' means any rent or revenue derived from land which is used for agricultural purposes and is either assessed to land revenue in Uttar Pradesh or is subject to a local rate or cess assessed and collected by an officer of the State Government ; (b) any income derived from such land by...."
(3.) THIS Act has also been extended to Vindhya Pradesh with modifications (vide S. R. O. 1474 dated September 5, 1951, Pt. II, Section 3, p. 1632, published in the Gazette of India dated September 29, 1951). For modifications, please see also Appendix A). Section 3, which is the charging section, brings to tax the agricultural income of every person. Thus, before any income can be brought to tax it must be agricultural income as defined in Section 2(1) of the Act. From the facts narrated earlier the prescribed authority had estimated the income received from the sale of planted trees at Rs. 90,359 and from the sale of groves and other trees at Rs. 88,280. Before the amount can be brought within the purview of Section 2(1)(a) it must be, income, and not an amount received from the sale of a capital asset. The question whether sale of planted trees amounts to a capital transaction or revenue transaction has been considered by the Supreme Court and other courts on a number of occasions. It will be useful to refer to those decisions.;