Law:

Section:

Section 4 of the Income-tax act, 1961-Capital receipt-Assessee sold trees of spontaneous growth in land interspersed amongst paddy fields-Purchaser, while cutting and removing trunks, prohibited from disturbing stumps and roots embedded in soil-Whether sale proceeds taxable as revenue receipt-Held, on facts, no Facts The assessee-HUF owns large agricultural lands. In 1905 it purchased in court auction some lands covering an area about 200 acres containing two irrigational channels drawing water from a river. Apart from 772 trees of various specified kinds, there were other trees of "spontaneous growth" which were not in any thick or continuous forest and were interspersed among the paddy fields. By an agreement dated 28-11-1960, the assessee sold trees from about 60 acres of land on the condition that the purchaser would cut and remove the trunks without disturbing the stumps and roots embedded in the soil (clauses 12 and 13). Since the purchaser could not adhere to the original terms for payment of purchase price, further agreements were entered into deferring and spreading the payments over some years. The assessee had received Rs. 75,000 for timber cutting during the accounting year ending 31-3-1961 relevant for the assessment year 1961-62. Since he did not file any voluntary return under section 139, the ITO issued a notice under section 148. In compliance therewith, the assessee filed a return on 25-3-1966 showing a total net income of Rs. 626.03. The assessee claimed exemption in respect of the aforementioned receipt by contending that it was of a capital nature or, in any event, it was an agricultural income. He asserted that (i) there was no lease and, in substance and in effect, the sale was of the entire standing timber, i.e., totality of the trees (which formed part and parcel of such agricultural holdings); (ii) the sale was effected with a view to extend wet or dry cultivation to that area as well since the standing trees were a hindrance for such extensions; and (iii) that this was the very first and the last sale to clear the land for cultivation. The ITO overruled the assessee's claim for exemption on the ground that (i ) only four varieties…

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