Tuesday, March 25, 2014

Income arising from sale of trees that were cut legally to get hindrance free cultivation was capital receipt

Where trees were not of spontaneous growth and same could not be regenerated and gave benefit to assessee in near future, income earned out of sale of such trees could not be chargeable to tax in hands of assessee and was to be treated as capital receipts
a)  The assessee had purchased a agricultural land on which teak trees were creating hindrance in undertaking cultivation on such land. He took permission of collector to cut those trees;
b)  The Assessing Officer treated income earned out of sale of those trees as of revenue receipt, considering that it was sale of forest produce of wild spontaneous grown trees;
c)  The CIT (A) held the income earned by assessee was capital receipt. The Tribunal upheld the view of the CIT (A). The aggrieved-revenue filed the instant appeal.
The High Court held in favour of assessee as under:
1)  The assessee was an agriculturist and not found to be engaged in any business activity. The cutting and selling of the trees were made after obtaining prior permission from the competent authority;
2)  The sale of the trees was made to the State and both cutting and selling were governed by the provisions of the Code and Rules framed thereunder which inter alia provided that no one could either cut or/ and sell any tree without obtaining prior permission of the competent authority;
3)  Further, the price of the trees was determined by the State authorities in which the assessee had no role to play. Hence, there was no scope for any price negotiations;
4)  The Rules provided that the trees had to be cut in a particular manner and the same was also done by the assesee. The certificate given by the Tahsildar stipulated that so far as the trees were concerned, they would not regenerate in near future because they do not belong to the categories of a species which have a spontaneous growth;
5)  The land was put to use for cultivation by the assessee after cutting the trees. After looking to the nature of trees which were cut above the root, it did not result in its spontaneous growth and lastly, there was no evidence to show that any profit element in the transaction was noticed or that assessee earned any profit;

6)  Thus, it was proved that the assessee did not intend to earn any profit out of the sale of such trees and nor his intention was to indulge in any profit making activity by sale of such trees. Therefore, impugned receipts were essentially in the nature of capital receipt.- CIT v. Mahendra Karma Pooranchand Soni [2014] 42 taxmann.com 380 (Chhattisgarh)