Karnataka High Court
H.L. Siddappa vs Commissioner Of Income-Tax, Karnataka on 21 March, 1980
Equivalent citations: (1980)18CTR(KAR)373, [1980]126ITR641(KAR), [1980]126ITR641(KARN), [1980]4TAXMAN510(KAR)
JUDGMENT Srinivasa Iyengar, J.
1. The Income-tax Appellate Tribunal, Banglore Bench, has referred the following question for the opinion of this court :
"Whether, on the facts and in the circumstances of the case, the sum of Rs. 17,482 received by the assesseefrom the forest department is income-taxable under the provisions of the Income-tax Act, 1961 ?"
2. The assessment year is 1972-73 and the relevant previous year was the one that ended on March 31, 1972. The assessee is an owner of a coffee estate and it transpires that there were some sandalwood trees in that estate. By virtue of the provisions of the Karnataka Forest Act,1963, and the earlier enactments repealed by it, sandalwood trees, whereever grown in the State, belonged to the State Government and the owner of any private land on which any sandalwood trees stood, would not be entitled to them. In the relevant previous year six sandalwood trees were cut and extracted from the assessee's land by the forest department and a sum of Rs. 17,482 was paid to the assessee by way of bonus as provided in r. 114 of the Karnataka Forest Rules, 1969. The said rules reads as follows :
"114. Bonus. - (1) The owner of private land from which the sandal trees have been extracted by the department shall be entitled to get a bonus equivalent to 50 per cent. of the net value (gross value of wood, less cost of extraction, transport, cleaning, supervision and other incidental charges) of the wood evaluate at the rate sanctioned by the government from time to time for this purpose, but he shall not be entitled to get any bonus for trees which have been destroyed by fire or other causes or for trees which have been killed or have died through culpable neglect on his part."
3. Before the ITO, the assessee claimed that this receipt was not liable to tax as it was a casual and non-recurring receipt and was also in the nature of a capital receipt. The ITO, though he held that the receipt may be a casual, one and not periodical, it could not be treated as a capital receipt as in his opinion it was remuneration for services rendered and accordingly he brought the receipt to tax. On appeal, the AAC agreed with the contention of the assessee that it was a capital receipt and also casual in nature, Accordingly,he directed modification of the assessment. However, on a further appeal by the department, the Tribunal reversed the decision of the AAC.
4. The reasoning of the Tribunal was that the assessee had a right to receive bonus under r. 114 and it cannot be said that the receipt was of a non-recurring nature because the assessee could expect some payments in regard to the sandal trees that might be existing in his land and as and when they were cut and removed. It also made an observation that the receipt could not be discovered from the assessee's occupation as a planter or as the owner of the coffee estate from which the trees were cut and removed and there was an obligation on his part to look after sandalwood trees, and therefore, could not come under the exemption provision in s. 10(3) of the I.T. Act, 1961. But, while making suc an observation, the Tribunal pointed out that the assessee had not claimed that the income was an agricultural income.
5. Section 84 of the Forest Act provides that notwithstanding anything contained in any law, contract, grant or other instrument or judicial decision-(1) all sandal trees whichmay grow in any land after the date of the commencement of the Act, and (ii) all sandal trees existing on any land prior to the commencement of the act, the ownership in which vested in the State Government, shall be the exclusive property of the State Government. Section 85 of the said Act provides that every occupant or holder of land shall be responsible for the due preservation of all sandal trees growing thereon, which are the exclusive property of the State Government, and shall in the event of any injury to any such trees from whatevercause or its theft at once report such fact to the nearest officer or police officer. Sub-section (2) of s. 85 provides that the occupant or holder shall be liable for penalty ifhe is unable to prove that the injury to or theft of the sandal trees was not due to his own act or neglect and he shall also be liable to pay the State such compensation on account of such injury or theft as the forest officer deems reasonable. Section 87 makes provision regulating the sale of sandal trees, etc.
6. There is no specific provision in the forest Act fixing responsibility on the holder or occupant to nurse and to take part in the cultivation of the sandal trees as such. There is no remuneration as such fixed either. Nor is any provision made for regulation in that behalf. Section 102(2)(c) of the forest Act provides for making rules for the preservation, reproduction and disposal of trees, timber and other forest produce belonging to Government, but grown on lands belonging to or in the occupation of private persons. Rule 114 above referred to can be brought within this provision only under the term "disposal of trees" belonging to Government, but grown on lands belonging to or in the occupation of private persons. It appears to us that the view of the Tribunal that the payment was a sort of remuneration for any service is not warranted by the provisions of the Forest Act and the Rules. If its observation that the receipt could not be divorced from the assessee's occupation as a planter or as the owner of the coffee estate is of any significance, then the receipt should be attributed to the character of the assessee as a owner or occupier of the land. In that case, it would be difficult to dissociate the receipt from it being a realisation by the owner of the land as part of his agricultural estate.
7. The payment to the assessee is at the stage where the sandal trees had been cut and removed root, and branch. Apart from the fact that the assessee himself was not the owner of this capital asset at any time it is clear that even considering that the asset was existing on his hand till it was completely removed, it would never more be a source of income to him. The Supreme Court had occasion to consider the nature of a receipt where teakwood trees had been cut and removed with the roots and sold with a view to making the land fit for rubber plantation in A. K. T. K. M. V. Vishnudatta Antharajanam v. Commr. of Agrl. I.T. . In that case it transpired that the teakwood trees had been planted by the assessee some years earlier and the High Court in treating the sale realisation from the trees as income had been impressed with the profit motive of the assessee in planting teak trees although that had been done several years earlier. In this behalf, the Supreme Court observed as follows (p. 61) :
"But it was overlooked that 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. It must also be remembered that trees so long as they are uncut from 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."
8. It appears to us that the ratio of this decision is applicable to the facts in the instant case. The payment by the Government is at the stage where the sandal trees have been removed, root and branch and the payment is on the basis of the net value of the sandalwood asmay be fixed by the Government. The provision in this behalf appears to be forcompensating the assessee in respect of an interesthe might have had in trees as an asset as it had grown on his land and with a view to compensate him in that behalf. It hasno reference to any service or as recompense to any acton his part in generating any capital asset. It is in the nature of a distribution of the proceeds of a capital asset and accordingly cannot be treated as a revenue receipt liable to tax under the I.T. Act, 1961.
9. Accordingly, the question is answered in the negative, i.e., that the sum of Rs. 17,482 received by the assessee from the forest department was not an income-taxable under the provisions of the I.T. Act,1961.
10. Parties will bear their own costs.