COMMISSIONER OF INCOME TAX, KERALA vs. AMBAT ECHUKUTTY MENON

CIVIL APPEAL No. 2242/1972Supreme Court[1980] 1 S.C.R. 53906 September 1979Bench: 2 JudgesAuthor: N.L. UNTWALIA, R.S. PATHAK12 pages
AI SummaryDismissed

What were the facts?

The assessee, a Hindu Undivided Family, owned agricultural land on which approximately 772 trees, including those of spontaneous growth, were present. The assessee sold some trees under an agreement which stipulated that the purchaser was to cut and remove only the trunks, without disturbing the stumps and roots embedded in the soil. The Income Tax Officer assessed the entire income from the sale of trees as taxable. The Appellate Assistant Commissioner held that only the amount received during the accounting year was assessable. Both the assessee and the department appealed to the Income Tax Appellate Tribunal, which dismissed the appeals. References were made to the High Court, which held the receipts to be of a capital nature, ruling in favour of the assessee. The Commissioner of Income Tax appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court dismissed the appeals, upholding the High Court's decision. The Court held that the receipts from the sale of trees were not taxable as income. The primary reasoning was that the intention of the assessee was not to regenerate income from the trees. The stipulation that stumps and roots were not to be disturbed was to protect the land for future cultivation, as evidenced by the fact that a portion of the land was converted into cultivable land by the time of assessment. The Court distinguished this case from situations where leaving stumps and roots is done with the clear object of regeneration, which would render the receipts as revenue. The Court noted that the burden was on the department to prove the object of regeneration to net the receipt as revenue, which it failed to do. The Court found the case distinguishable from V. Venugopala Varma Rajah v. Commissioner of Income-tax, Kerala, and A. K. T. K. M. Vishnudatta Antharjanam v. Commissioner of Agricultural Income Tax, Trivandrum, applying the ratio that where regeneration is not the object, the receipts are not taxable income.

What were the issues?

1. Whether the receipts from the sale of trees of spontaneous growth are assessable to income-tax, and if so, under which head (mixed law and fact, turning on Section 2(1A) and Section 56 of the Income Tax Act, 1961). Assessee's contention: The receipts were of a capital nature, not income, as the sale was a one-time realization of capital asset. The stipulation to leave stumps and roots was to protect the land for future cultivation, not for regeneration of trees. Revenue's contention: The receipts were revenue in nature. The act of selling trees, even with stumps and roots intact, constituted a profit-making activity. The High Court erred in distinguishing the present case from previous precedents and in holding the receipts as capital in nature.

Which sections of the Income-tax Act were involved?

Section 2(1A),Section 56

AI-generated summary — verify with the full judgment below

• ,_ -, • ~ 14- 539 COMMISSIONER OF INCOME TAX, KERALA v. AMBAT ECHUKUTTY MENON September 6, 1979 [N. L. UNTWALIA AND R. S. PATHAK, JJ.] Income Tax Act 1961--Capital Receipt & Revenue Receipt-Sale of trees of spontaneous growth-Purchaser to cut and remove' trunks of trees only-Stumps and roots embedded in soi~ 'not to be disturbed-Proceeds of sale whether liable to be taxed as 'income'.

On a vast area of agricultural land owned by' the assessee there were a.bout 772 trees some of which were of spontaneous growth.

Clauses 12 and 13 of the agreement by which the assessee sold some trees provided that the trees should be cut without pulling the stumps. A B c The Income Tax Officer, held that the trees were of spontaneous growth and D assessed the whole of the income from the sale of trees to income-tax.

The Appellate Assistant Commissioner allowed the assessee's appeal in part holding that only the amount actually received during the accounting year, was assessable to income-tax.

Appeals preferred by the assessee as well as the department to thei Income Tax Appellate Tribunal were dismissed but references were made to the High Court on the question whether

The order continues below.

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