D.N. Baruah, J. - (1.) IN this reference under Section 256(1) of the Income Tax Act, 1961 (for short the "Act")," at the instance of the assessee, the following question has been referred by the Income Tax Appellate Tribunal, Guwahati, for opinion of this court : " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the regeneration expenditure of Rs. 4,70,615 incurred by your -appellant was capital expenditure although preparation of seedlings for replacement of trees before felling them down as per the agreement requires your appellant to incur such an expenditure -
(2.) THE assessee, Arunachal Pradesh Forest Corporation Limited, is a Government undertaking. It has taken on lease an area of 719,72 acres of forest land for a period of 10 years from the Forest Department of the Government of Arunachal Pradesh by an agreement dated March 9, 1979, for raising and for maintenance of plantation of various species by various methods. It has a business of sale of timber after cutting down the trees already existing. It has certain wood -based industries also. During the previous year relevant to the assessment year, the assessee cut down the grown up trees and replanted the saplings of trees of various species at vacant places pursuant to the terms of the lease. The assessee claimed Rs. 8,58,554 towards the regeneration expenses as revenue expenditure. According to the Assessing Officer, the expenditure incurred towards creation of Rudrakasha plantation, creation of central nursery, avenue plantation was purely agricultural in nature and, as such, he disallowed the claim attributable to these as agricultural activities. According to him, the expenditure incurred towards creation of plantation was capital in nature. Though the assessee tried to establish tea and coffee plantations with the forest plantation, the Assessing Officer was not satisfied. He, therefore, disallowed a sum of Rs. 4,70,615 out of the total regeneration expenses of Rs. 8,58,545. Situated thus the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) observed that if the regeneration expenditure was treated as revenue expenditure the stock should have been shown in the closing balances of stock. But no such closing stock was accounted for. Accordingly, he dismissed the appeal. The assessee preferred yet another appeal before the Income Tax Appellate Tribunal. The Tribunal also held that the expenditure incurred towards creation of plantation, nursery, etc., could not be considered as revenue expenditure. According to the Tribunal, growing of trees and selling the timber after getting them felled and replanting the trees at these places and other vacant places were for enduring benefit. Accordingly, the Tribunal affirmed the orders of the authorities below. Hence, the present reference. We have heard Dr. A.K. Saraf, learned counsel appearing on behalf of the assessee, and Mr. G.K. Joshi, learned counsel appearing on behalf of the Revenue.
(3.) THE assessee took on lease forest land for a period of 10 years. As per the terms of the agreement, the assessee was to cut down grown up trees and replant the saplings of trees of various species at vacant places. However, the fruit of replantation would not be enjoyed by the assessee. As such, expenditure incurred for replantation pursuant to the terms of the agreement cannot be treated as capital expenditure so far the assessee in the present case is concerned. In our considered opinion, so far the assessee is concerned, it is revenue expenditure. Accordingly, we answer the question in the negative; in favour of the assessee and against the Revenue. A copy of this judgment under the signature of the Registrar and seal of the High Court shall be transmitted to the Income Tax Appellate Tribunal, Guwahati.;