H H MAHARAJASAHEB DIGVERENDRASINGHJI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) Two questions arise in this reference (1) whether the two-thirds of the sale proceeds of the forest trees and forest produce sold by the assesses during the accounting year Samvat Year 2006 constitute capital receipts and (2) whether on the facts and in the circumstances of the case certain operations carried out by the assesses with reference to the lands in question constitute agricultural operations making the sale proceeds agricultural income as defined by section 2(1) and being exempt from income-tax under section 4(3)(viii) of the Income Tax Act of 1922.

(2.) The assesses is the present Ruler of the former State of Bansda which merged in the dominion of India in 1948 and which was attached to the former State of Bombay. The assessee is the owner of certain forest lands situate in villages Sadad Devi Ranifalia and Vaghai which were gifted to him by his father in Samvat Year 2006 that being the relevant previous year. He sold the trees and other forest produce existing on these lands for a sum of Rs. 72 611 The assessee claimed that he had spent during that year in the aggregate the sum of Rs. 22 950 for clearing the said forests which amount was allowed as expenses. The dispute therefore centered round the balance of Rs. 49 661

(3.) Before the Income Tax Officer the assessee contended that the amount of Rs. 49 661 constituted capital receipt and in the alternative contended that the sum of Rs. 49 661 was agricultural income. The Income Tax Officer rejected both these contentions and added this amount to the total income of the assessee. While negativing these two contentions the Income Tax Officer remarked as follows:-- Besides the income from sale of forest and forest produce of spontaneous growth worked out above is clearly not agricultural income within the meaning of sec. 2(1) of the Income Tax Act as the lands from which the said income is derived were not only not assessed to the land revenue in the taxable territories and not subjected to a local rate assessed and collected by the officer of the Government but they were also not used for agricultural purposes. It is contended by Shri Jokhakar that the assessee received the lands as gifts from time to time during the Bansda State regime and since the forests were already existing on some of the lands the realisation on sale of forests and forest produce are capital receipts and not income. It is the land which is the capital asset and not the forest and by the sale of forest and forest produce there was no reduction or loss to any capital asset and hence the sales in question were not capital receipts. The assessee filed an appeal against the order of the Income Tax Officer before the Appellate Assistant Commissioner and while the appeal was pending he filed an affidavit of one Bhalchandra Hariprasad Upadhyay who was in the service of the Bansda State until about the year T942. The affidavit was filed in support of the assessee's contention that the operations which he had carried out in the said forest lands constituted agricultural operations and that therefore the income derived by him from the said forest lands was agricultural income. In his affidavit the said Upadhyay stated that he was in the service of the Bansda State as a forest officer until about 1942 that thereafter he joined the service of the Baroda State and at the date of the affidavit was serving as a range forest officer at Songadh. According to the statements in that affidavit the lands which were gifted by the assessees father were forest lands and these forests were developed to his definite knowledge employing therein human labour and skill that the Bansda State like other State Governments had a forest department consisting of guards and other staff not only to protect the forest from human beings and animals but also for carrying out Sylvicultural operations including marking of coupe dibbling planting weeding thinning and doing all types of cultural operations pruning digging etc. and for these operations special skilled staff was kept and maintained by the then Bansda State for all the forests including those that stood on lands in the villages of Ranifalia Sadad-devi and Vaghai gifted by the then Bansda State to the H. H. Digverendrasinhji He also stated in that affidavit that the main source of revenue of the then Bansda State was from forests and therefore those forests were very systematically and scientifically developed and maintained.