# SENTED BY. D v. NAMBUDIRIPAD, DESAMENGALAM

- **Citation:** [1971] 1 S.C.R. 535
- **Court:** Supreme Court of India
- **Decided:** 1968-08-21
- **Case number:** Civil Appeals Nos. 2327 and 2328 of 1968
- **Bench:** J. C. Shah, K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sented-by-d-v-nambudiripad-desamengalam-5094
- **Pages:** 4

## Headnote

Jnco1ne or capital-Teak trees removed by their roots _and solc..1.-Sale
receipts whether income or capital.
In the course of the appellant"s assessment under the Kerala Agri,,uJ.
tural Income-tax Act, 1950, for the years
1963·64 and 1964-65, the
Agricultural Income-tax Officer included in the appellant's
income
a.11
amount realised from the sale of teak trees which had been planted in the
year 1946-47 and were removed from the appellant's land and sold durmg the assessment years. The Appellate Assistant Commissioner as well
as the Tribunal confirmed the assessment.
On a reference under s. 60(1)
of the question whether the receipt from the sale df teak trees was capital
in nature and exempted from agricultural
income-tax,
the High Court
found against the appellant.
On appeal to this Court :
HELD : Allowing the appeal,
The form of the question referred to the High Court itself showed that
the trees were cut and completely removed from the land together with
thc.r roots 'for the purpose of planting rubber. There was no question of
any further regeneration or growth of the trees which had been cut and
·removed.
In other \\'Ords there was no possibility
of recurring income
from these trees.
The sale of such trees thus
affects capital structure and cannot give
rise to a revF:nue receipt.
V. Venugopala Verma Rajah v. Commissioner of Income-tax, Kera/a
C.A. 1810 of 1967 decided on 24-9-69; The Commissioner of Income-tax,
Ben1<al v. Messrs Shah Wallace and Company, 6 I.T.C. 178; Commissioner
of Income-tax, Bombay South v. N. T. Patwardhan 41 I.T.R. 313; re'ferred
to.
The _profit. motive. is not decisive of .the question whether a particular
receipt ts 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 [538 B-E]

## Text

535
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A. K. T. K. M. VISHNUDATTA ANDHARJANAM REPRE·
SENTED BY. D. V. NAMBUDIRIPAD, DESAMENGALAM.
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COMMISSIONER OF AGRICULTURAL INCO'ME TAX,
TRIVANDRUM
Ma.v 5, 1970
[J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ.J
Jnco1ne or capital-Teak trees removed by their roots _and solc..1.-Sale
receipts whether income or capital.
In the course of the appellant"s assessment under the Kerala Agri,,uJ.
tural Income-tax Act, 1950, for the years
1963·64 and 1964-65, the
Agricultural Income-tax Officer included in the appellant's
income
a.11
amount realised from the sale of teak trees which had been planted in the
year 1946-47 and were removed from the appellant's land and sold durmg the assessment years. The Appellate Assistant Commissioner as well
as the Tribunal confirmed the assessment.
On a reference under s. 60(1)
of the question whether the receipt from the sale df teak trees was capital
in nature and exempted from agricultural
income-tax,
the High Court
found against the appellant.
On appeal to this Court :
HELD : Allowing the appeal,
The form of the question referred to the High Court itself showed that
the trees were cut and completely removed from the land together with
thc.r roots 'for the purpose of planting rubber. There was no question of
any further regeneration or growth of the trees which had been cut and
·removed.
In other \\'Ords there was no possibility
of recurring income
from these trees.
The sale of such trees thus
affects capital structure and cannot give
rise to a revF:nue receipt.
V. Venugopala Verma Rajah v. Commissioner of Income-tax, Kera/a
C.A. 1810 of 1967 decided on 24-9-69; The Commissioner of Income-tax,
Ben1<al v. Messrs Shah Wallace and Company, 6 I.T.C. 178; Commissioner
of Income-tax, Bombay South v. N. T. Patwardhan 41 I.T.R. 313; re'ferred
to.
The _profit. motive. is not decisive of .the question whether a particular
receipt ts 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 [538 B-E]
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2327
and 2328 of 1968.
Appeals by special leave from the judgment and order dated
August 21, 1968 of the Kerala High Court in Income-tax Referred
Cases Nos. 28 and 29 of 1967.
536
SUPREME COURT REPORTS
[1971] l S.C.R.
K. P. Radhakrishna Menon,
for the appellant (in both the
appeals).
M. C. Chag/a and M. R. K. Pillai, for the respondent (in both
the appeals).
The Judgment of the Court was delivered by
Grover, .1.
These appeals by special leave from a judgment
of the Kerala High Court arise out of the assessment of agricultural income of the assessee made under the Kerala Agricultural
Income tax Act, 1950, hereinafter called the "Act", in respect of
the assessment years 1963-64 and 1964-65.
For the asse_ssment year 1963-64 the assessee filed a return
showing a net agricultural income of Rs. 12,558-76.
When the
matter came up for hearing before the Agricultural Income tax
Officer another statement showing an amount of Rs. 43,2'50-00
as income from teak trees was filed.
The Agricultural Income
tax Officer disallowed certain expenses and assessed the income
for the year 1963-64 at Rs. 62,021-00. For the assessment year
I 964-65 a return was filed declaring a net agricultural income
of Rs. 25,733-63.
No income was shown from the sale of teak
trees.
The Agriculturnl Income tax Officer found that teak trees
had bee,h sold for a lump sum of Rs. 76,500-00 out of which
Rs. 43,250-00 had been received in the previous year 1963-64
and he included the said amount in that year's income.
The
balance amount of Rs. 33,250-00 was received in the previous
year corresponding to the assessment year 1964-65.
In determining the assessable income for that year this amount was added
to the income which had been returned and after
disallowing
certain amount which had been claimed by way of expenses the
net income was determined at Rs. 61,041-00.
The assessee filed
appeals before the Additional Appellate Assistant Commissioner
who confirmed the assessment and dismissed the appeals. Further
appeals were taken to the Agricultural Income tax Tribunal. The
Tribunal held that the amount in dispute was agricultural income
and not capital.
The expenses which were cliamed were also
disallowed.
On an appiication made under s. 60 ( l) of the Act
the following two questions were reforred to the High Court :
"!. Whether on the facts and in the circumstances
of the case, the receipt from the sale of teak trees for
the purpose of planting the area with rubber is capital
in nature and exempt from Agrl. Income-tax Act.
2. If the answer to the above question is in the
negative, whether the expenses incurred
in the prior
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VISHNUDATTA v. COMMR. AGRL. INCOME TAX (Grover, J.) 53T
years for the purpose c.f obtaining the said agrl. income
is allowable as a deduction from the sale proceeds of
the trees."
The High Court did not agree with the contention of the assessee
tha I the amounts received by sale of the teak trees
constituted
c~pital and were not agricultural income.
Certain amounts were,
h0we1·er, allowed as
deductions by way of expenses
for
the·
asse,,ment year 1963-64.
The principal point that has to be determined is whether the
sale proceeds of the teak trees constituted capital or revenue. It
appears to have been common ground before the High Court that
the as1essee planted the teak trees sometime in the year 1946-47 ..
The form o.f the question itself showed that the trees were cut and
completely removed from the land together with their roots for
the purpose of plantin.2 rubber.
There was no question of any
further regeneration or growth of the trees which had been cut
and removed.
In other words there was no possibility of recurring income from these trees.
In V. Venugopala Verma Rajah
v. Commissioner of Income tax Kera/a(') the question before this
Court was" whether trees which had not been removed with the·
roots and the stumps of which had been allowed to remain in the·
land was in the nature of income.
This is what was observed
in that case :
"Where the trunks are cut so that the stumps
remain intact and capable of regeneration, receipts
from sale of the trunks would be in the nature c.f income.
lt is true that the tree is a part of the land.
But by
selling a part of the trunk, the assessee does not neces-
>tirily real:se a part of his capital.
We need not consider whether in case there is a sale of the trees with the
roots so that there is no possibility of regeneration, it
may be said that the realisation is in the nature of
capital.
That question does not arise in the present
c::ise.''
The present question was apparently left open and was not decid-·
ed a< the point which arose there did not relate to sale of trees
c." 11 hich the roots had also been taken out for the purpose of
plaming some other kind d trees e.g., rubber 2.s in the prese,nt.
case.
It seems to us that the well known test laid down by the
Privy Council in The Commissioner of Income tax, Bengal v.
Messrs. Show. Wallace and Company(') to find out whether a.
ill C.A. 810 of 1967 decided on 24-9-69
(2) 6 l.T.C. 178.
538
SUPREME COURT REPORTS
[1971] 1 S.C.R.
particular receipt is income is not satisfied in the facts 'and circumstances of the present case.
According to that test income connotes a periodical monetary return coming in with some sort of
.regularity or expected regularity from definite sources.
The source
is not necessarily one which is expected to be continuously productive but it must be one whose object is the production of a definite
return excluding anything in the nature of a mere windfall.
Once
the teak trees were removed together with their roots and there
was no prospect of regeneration or of any production of a return
therefrom it could well be said that the source ceased to be one
which could produce any income.
The Bom!Jay High Court in
Commissioner of Income-tax, Bombay South v. N. T. Patwardhan (1) said that from the point of view of a person engaging
himself in the business of sale of trees the capital structure would
be not only the land on which the trees stood but also the roots
of the trees from which the wood yielded income.
If the trees
were sold off with the roots the capital structure would be affected.
The High Court in the judgment under appeal was particularly
impressed with the profit motive of the assessee in planting teak
trees although that was done several years ago.
But it was overlooked that profit motive is not decisive of the question whether
a particular receipt is capital or incomec 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 form 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 can111ot 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.
For the reasons given above the answer to the first question
will be in the affirmative and in favour of the assessee.
It is unnecessary to return any answer to the second question.
The
appeals are accordingly allowed and the judgment oi the High
Court is set aside with costs.
One hearing fee.
R.K.P.S.
Appeals a/lowed.
(!) 41 I.T.R. 313.
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