Satyanarayana Raju, J.— This appeal, by special leave, is against the judgment and order of the High Court of Kerala in Income Tax Reference Case No. 10 of 1962, and raises the question as to whether the amount realised by the sale of Grevelia trees as firewood is a revenue receipt and liable to tax under the Kerala Agricultural Income Tax Act, 1950 (Ker. Act 22 of 1950), hereinafter called “the Act”.
2. The facts leading to the case may be briefly stated. The respondent is a company which carries on the business of manufacturing and selling tea. For the purpose of affording shade to the tea bushes, the respondent grows Grevelia trees in its different tea estates. During the accounting year relevant to Assessment Year 1957-58, the respondent received a sum of Rs 600-12-0 by the sale of Grevelia firewood and this amount was included by the Agricultural Income Tax Officer, Special Circle, Quilon, in computing the agricultural income of the respondent. The respondent appealed to the Deputy Commissioner of Agricultural Income tax and Sales Tax, Quilon, contending that the said sum was a capital receipt, but the Deputy Commissioner rejected the contention. The contention was reiterated by the respondent in second appeal filed by it to the Kerala Agricultural Income Tax Appellate Tribunal.
3. The Appellate Tribunal by its order dated August, 2 1962 held that the said sum could not be considered to be a revenue receipt and was not therefore liable to be included in computing the agricultural income of the respondent. On a reference made to the High Court, the Division Bench agreed with the Tribunal and answered the question in favour of the respondent. The appellant thereupon applied to this Court and obtained special leave.
4. The contention of the appellant is that the sale proceeds of the firewood of the Grevelia trees constituted agricultural income. The contention for the respondent is that the Grevelia trees of the tea estates of the respondent constituted capital assets. Now, Section 2 of the Kerala Agricultural Income Tax Act, 1950 (Act 22 of 1950), hereinafter called the Act, defines “agricultural income” as follows:
“ ‘Agricultural income' means
(1) any rent or revenue derived from land which is used for agricultural purposes;
(2) any income derived from such land in the State by
(i) agriculture, or
(ii) the performance by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market, or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii).”
The question is whether the sale proceeds of Grevelia trees which had become useless, did not fall within the definition of “agricultural income” under the Act.
5. There is no controversy about the fact that the owners of tea estates, plant Grevelia trees not for the purpose of deriving any income therefrom but solely for the purpose of providing shade for the tea plants and that such shade is essential for the proper cultivation of tea. The trees were cut down and sold after they had become useless by efflux of time. The Grevelia trees in the tea estate of the respondent constituted therefore capital assets and the proceeds derived therefrom by sale as firewood would not constitute agricultural income under the Act.
6. The appeal has therefore no merits and is dismissed with costs.
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(1966) 60 ITR 435
Commr. of Agril. Income Tax v. Kailas Rubber & Co. Ltd.
Appeal by Special Leave from the Judgment and Order dated 2nd August, 1963 of the Kerala High Court in Income Tax Referred Case No. 48 of 1962 (Agrl.)
COMMISSIONER OF AGRICULTURAL INCOME TAX, KERALA . . Appellant;
Versus
KAILAS RUBBER AND CO. LTD. . . Respondent.
Civil Appeal No. 978 of 1964, decided on 15th day of December, 1965.
Present:
The Hon'ble The Chief Justice P.B Gajendragadkar
The Hon'ble Justice K.N Wanchoo
The Hon'ble Justice M. Hidayatullah
The Hon'ble Justice v. Ramaswami
The Hon'ble Justice P. Satyanarayana Raju
For the Appellant: P. Govinda Menon, A. Sreedharan Nambiar and M.R.K Pillai, Advocates
For the Respondent: M.C Setalvad, Senior Advocate (O.P Malhotra and V. O. Abraham, Advocates, and J.B Dadachanji, O.C Mathur and Ravinder Narain, Advocates of J.B Dadachanji and Co., with him)
The Judgment of the Court was delivered by
Satyanarayana Raju, J. — This is an appeal, by special leave, against the order of the High Court of Kerala dated August 2, 1963, in Income Tax Reference Case No. 48/62 (Agricultural).
2. The facts leading to this appeal may be briefly stated. The respondent is a company which owned a rubber estate purchased by it along with the plantation thereon. The estate included rubber trees which, at the time of purchase, were in a condition of producing latex. The rubber trees were sold by the Company after they ceased to yield latex any further. In computing its agricultural income for the accounting year ending February 28, 1959, relevant to Assessment Year 1959-60, for the purposes of the Kerala Agricultural Income Tax Act, 1950 (Ker. Act 22 of 1950), the Assistant Commissioner of Agricultural Income Tax, by his order dated February 2, 1962, included the sum of Rs 8532.50 representing the sale proceeds of rubber trees which were cut down and sold after they became useless. The respondent appealed to the Deputy Commissioner of Agricultural Income Tax and Sales Tax, Quilon, objecting, inter alia, to the inclusion of the amount in computing its agricultural income.
3. By order dated November 30, 1960, the Deputy Commissioner rejected the contention of the respondent. The respondent thereupon preferred a second appeal to the Agricultural Income Tax Appellate Tribunal, Trivandrum. By its order dated August 18, 1962, the Tribunal accepted the contention of the respondent and held that the sum of Rs 8532.50 representing the sale proceeds of rubber trees cut down and sold after they had become useless, was not taxable as income, but was merely a capital receipt.
4. On the application of the appellant, the Tribunal stated a case to the Kerala High Court and referred the following two questions of law for its opinion:
“(i) Whether the sale proceeds of old and unyielding rubber trees grown and used for obtaining income as latex therefrom are capital receipts?
(ii) Whether the sale proceeds of unyielding trees purchased many years back as yielding trees are capital receipts?”
The learned Judges of the Division Bench of the High Court, by their judgment dated August 2, 1963, answered the two questions in the affirmative and in favour of the respondent. The appellant thereupon obtained special leave to appeal to this Court.
5. The appellant's contention mainly is that the sum of Rs 8532.50 was in the nature of a revenue receipt and had to be included in computing the agricultural income. The contention of the respondent is that the sale proceeds of the rubber trees which have been planted for the purpose of yielding latex, but were cut down and sold after they had ceased to yield any further, could not be in the nature of revenue receipts.
6. Now, Section 2(a) of the Kerala Agricultural Income Tax Act, 1950 (Act 22 of 1950), hereinafter called “the Act”, defines “agricultural income”. “Agricultural income” means
“(1) any rent or revenue derived from land which is used for agricultural purposes;
any income derived from such land in the State by
(i) agriculture, or
(ii) the performance by a cultivator or receiver of rent in kind to render the produce raised or received by him fit to be taken to market, or
(iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in sub-clause (ii).”
The definition of “agricultural income” in Section 2 does not include proceeds from the sale of rubber trees in an estate which were utilised for the purpose of deriving income in the shape of latex. There was enough evidence in the record justifying the High Court's conclusion that the rubber trees formed part of the capital assets of the respondent. Admittedly, the respondent did not grow the rubber trees for the purpose of selling them. It was getting income from these rubber trees in the shape of latex. In course of time the rubber trees became old and unyielding. When the trees were no longer productive of latex, the respondent felled them and sold them. The Appellate Tribunal and the High Court were, therefore, right in holding that the sale proceeds of these trees should be treated as capital receipt and not taxable as agricultural income.
7. In this view of the matter, the appeal fails and is dismissed with costs.