Commissioner Of Income-Tax vs Jyotikana Chowdhurani And Ors.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 23 May 1957

Coram: Bhagwati, J.

The case is titled Commissioner of Income‑Tax versus Jyotikana Chowdhurani and others, decided on 23 May 1957 by the Supreme Court of India. The judgment was authored by Justice Bhagwati, while the bench was headed by Justice J. L. Kapur.

The matter concerns six separate appeals, each filed under the provisions of section 66A(2) of the Indian Income‑Tax Act of 1922. All six appeals challenge a single judgment and order issued by the Full Bench of the High Court of Judicature at Assam. That High Court judgment arose from a consolidated reference made by the Income‑Tax Appellate Tribunal under section 66(1) of the Act. In the reference, the Chief Justice Sarjoo Prasad and Justice Ram Labhaya responded affirmatively to the question referred, whereas Justice Deka gave a negative answer.

The precise question that was referred to the High Court read as follows: “Whether, on the facts and in the circumstances of this case, the receipts from the sale of sal trees can be said to constitute agricultural income within the meaning of section 2(1) and therefore be exempt from tax under section 4(3)(viii) of the Income‑Tax Act?”

The Supreme Court noted that the six appeals were consolidated before the High Court. The High Court directed that the appellant, the Commissioner of Income‑Tax for Assam, deposit a consolidated security of rupees 4,000 together with a single set of printing costs. Regarding pleadings, the appellant submitted a single statement of case, while each of the six respondents filed separate statements of case.

One of the respondents, Smt. Jyotikana Chowdhurani, who appears in Civil Appeal No. 51 of 1956, is the widow and legal representative of the late Jyotsna Nath Choudhury. The deceased had been a co‑sharer and proprietor of the Mechpara Estate located in the Goalpara district of Assam. The estate is subject to land‑revenue assessment payable to the State of Assam and also to local rates levied and collected by Assam Government officials. The estate contains extensive forest tracts, a substantial portion of which is covered by sal trees. The trees are described as having grown spontaneously; there was no planting, sowing, or any human intervention undertaken to till the soil or cultivate the forest.

The judgment also referred to an earlier assessment involving the late Rai Sourindra Narayan Sinha Chowdhury, father of Shri Jyotirindra Narayan Sinha Chowdhury. He had been a co‑sharer of the “Parbat Joar Estate” and, in the year 1923, the Income‑Tax Officer had assessed him on receipts derived from the sale of sal trees from his forest lands as taxable income under the Indian Income‑Tax Act. On appeal, the Assistant Commissioner of Income‑Tax, by order dated 28 April 1923, held that such receipts were to be classified as agricultural income. The tax authorities accepted this determination and subsequently ceased to assess such receipts for a considerable period.

Finally, the Court recorded that on 17 December 1946, Jyotsna Nath Chowdhury was again assessed for the fiscal year 1946‑47 on income arising from the sale of sal trees from his forests by the Income‑Tax Officer at Gauhati. An appeal filed by him against that assessment was dismissed, and a further appeal that he pursued was likewise unsuccessful.

The appellant, after his assessment for the fiscal year 1946‑47, filed an application before the Income‑tax Appellate Tribunal in Calcutta seeking a reference of certain legal questions that arose from the Tribunal’s order made under section 66(1) of the Indian Income‑tax Act. The Tribunal subsequently prepared a common statement of case that concerned the assessments of the appellant as well as the other respondents whose appeals were pending before this Court, and it forwarded the identified question to the High Court for a judicial opinion. The reference was then heard by a Special Bench of the Assam High Court, which delivered the outcome that has been described earlier in this judgment.

In a similar manner, the respondent in Civil Appeal No 58 of 1956, identified as Birendra Narayana Chowdhury, was also a co‑sharer proprietor of the same estate and had been assessed on 17 December 1946 by the Income‑tax Officer, Gauhati, on his receipts from the sale of sal trees for the year 1946‑47. His appeals before the Appellate Assistant Commissioner of Income‑tax, Calcutta “B” Range, and thereafter before the Income‑tax Appellate Tribunal were dismissed. Nevertheless, at his request the Tribunal referred the identical question to the High Court under section 66(1) of the Indian Income‑tax Act. Likewise, Shrimati Sulochana Chowdhury, representing the estate of the late Jagadindra Narayan Chowdhury, who was a co‑sharer proprietor of the Parbat‑Joar and Mechpara Estates in Goalpara, Assam, had been assessed on 24 March 1947 on his receipts from the sale of sal trees for the year 1946‑47. An appeal filed before the Appellate Assistant Commissioner of Income‑tax, Calcutta “B” Range, remained pending when the appellant died; his mother, the respondent, succeeded him. The Appellate Income‑tax Commissioner reduced the assessment by order dated 15 March 1948, but the respondent’s subsequent appeal to the Appellate Tribunal was dismissed, leading the Tribunal to refer the same question to the High Court on his behalf under section 66(1). In the same vein, Kamal Krishna Chowdhury, a co‑sharer proprietor of the Mechpara Estate, had been assessed on 17 December 1946 on his receipts from the sale of sal trees for the year 1946‑47. After unsuccessful appeals before both the Appellate Assistant Commissioner, Calcutta “B” Range, and the Income‑tax Appellate Tribunal, the Tribunal, at his instance, also referred the identical question to the High Court for opinion under section 66(1) of the Indian Income‑tax Act. The next respondent, Sourindra Narayan Chowdhury, a co‑sharer proprietor of the Parbat‑Joar and Mechpara Estates, was similarly assessed for the same period, as will be noted in the following portion of the judgment.

The second respondent, a co‑sharer proprietor of the Parbatjoar and Mechpara Estates in the Goalpara district of Assam, was assessed to income tax for the receipts arising from the sale of sal trees from his forests for the financial year 1946‑47 by the Income‑Tax Officer of Gauhati on 29th July 1947. The same officer later issued a further assessment for the same year, 1946‑47, by an order dated 17th December 1947. In addition, the officer assessed him to income tax on comparable receipts for the year 1948‑49 by an order dated 30th November 1948. The respondent contested each of these assessments by filing appeals with the Appellate Assistant Commissioner of Income‑Tax, Calcutta “B” Range, and subsequently before the Income‑Tax Appellate Tribunal, Calcutta. Both appellate authorities dismissed the appeals. At the respondent’s request, the Income‑Tax Appellate Tribunal, Calcutta, referred the identical question to the High Court for its opinion under section 66(1) of the Indian Income‑Tax Act.

The respondents in Civil Appeal No. 62 of 1956, namely Smt. Sindhurani Chaudhurani, Soumaya Narayan Sinha Choudhury and Anal Narayan Chowdhury, were the widow, minor sons and legal representatives of the late Jyotirindra Narayan Sinha Choudhury, who also was a co‑sharer proprietor of the Parbatjoar and Mechpara Estates in Goalpara, Assam. The Income‑Tax Officer, Gauhati, assessed the late proprietor to income tax on his receipts from the sale of sal trees for the years 1946‑47, 1947‑48 and 1948‑49 by orders dated respectively 17th December 1946, 17th December 1947 and 22nd November 1948. The widow and heirs filed appeals against these assessments with the Appellate Assistant Commissioner of Income‑Tax, Calcutta “B” Range, and thereafter before the Income‑Tax Appellate Tribunal, Calcutta. Both appeals were dismissed, and the Tribunal again referred the same matter to the High Court for opinion under section 66(1) of the Indian Income‑Tax Act at the petitioners’ instance.

All the references involving the various respondents were heard together by a Special Bench of the High Court. The Bench delivered three separate judgments: two judges, Chief Justice Sarjoo Prasad and Justice Ram Labhaya, agreed on the same opinion, while Justice Deka delivered a dissenting view.

The consolidated statement of case submitted by the Income‑Tax Appellate Tribunal, Calcutta, to the High Court set out the following facts. It was admitted that the trees in the forest were of spontaneous growth—later clarified by the assessee’s representatives to mean spontaneous germination—and that there was no planting, sowing, or any human agency employed for tilling the soil. The trees sold had been standing for many years while the soil remained untouched. In the production of the income, the applicants made no contribution by way of cultivation. Nevertheless, the applicants claimed that human skill and labour were employed in the maintenance, preservation, nursing, improvement and rearing of the forests, thereby asserting that such activities constituted a form of productive effort.

The applicants asserted that they performed a series of activities for the maintenance, preservation, nursing, improvement and rearing of the forests so that the overall quality and condition of the forest would be enhanced. In the petition filed before the Tribunal on 22 June 1951, and in response to the draft statement of case, the applicants listed the specific forest‑related operations they claimed to have undertaken. These operations included, first, the reservation of forest blocks commonly called Jhars and the rotation of work within those blocks; second, the identification and marking of trees suitable for felling; third, the cutting of creepers and climbers; fourth, the thinning out and removal of trees that were diseased or otherwise unsound; fifth, the clearing of jungles and undergrowth; sixth, the permission for grazing during the months from Kartik to Chaitra; seventh, the burning of undergrowth in March and April, a practice that they said cleared the jungle and fertilised the soil; eighth, the protection of the forest from fire by maintaining fire lines; ninth, the closure of all forest areas to men and cattle during the rainy season from Baisakh to Aswin; and tenth, the preservation of mother trees. To substantiate these claims, an affidavit was filed before the Tribunal at the time of hearing. However, the Tribunal could not locate specific cost figures for each of these activities in the books of the assessee, and the record noted that it was not contested that no amount had been contributed towards cultivation. Although Chief Justice Sarjoo Prasad and Justice Ram Labhaya accepted these facts as proved, Justice Deka dissented, observing that the respondents had produced no evidence to support their claims and that the affidavit statements could not be accepted because there was no way to verify them. The Court proceeded on the basis that the facts were established by the assessee and examined whether the operations claimed to have been performed on the forests qualified as agricultural operations, thereby bringing the income from the forests within the definition of agricultural income.

The discussion then turned to the question of whether human skill and labour were employed in the forest activities. The appellant’s representative told the Tribunal that for the Mechpara Estate, the cost of establishing and maintaining the forest, including temporary workers, was estimated at Rs 15,000 per year, while the gross receipts from that estate were about Rs 1,70,000. For the Parbatjoar Estate, which generated gross receipts of Rs 3,32,414, the representative stated that a total of Rs 14,057 had been expended on forest personnel, broken down as follows: salaries for eight forest officers and eighteen barkandajas amounting to Rs 5,219; remuneration for thirty‑two forest guards totaling Rs 4,838; and a proportional salary for the head officers of Rs 4,000, making the overall expenditure Rs 14,057. On the basis of these facts, the majority of the Judges concluded that, even though the land was not tilled and there was no planting of seeds or saplings because the trees arose by spontaneous germination, the activities carried out by the assessee were conducive to the growth and development of the trees. Consequently, these activities involved the expenditure of human skill and labour on the land itself. In their view, such operations should be regarded as agricultural operations, implying that the income derived from the sale of the forest trees fell within the definition of agricultural income.

The Court determined that the activities carried out on the estates qualified as “agricultural operations” and that the land on which the trees stood was being utilised for “agricultural purposes.” Consequently, the revenue obtained from the sale of those trees was characterized as “agricultural income” and, under section 4(3)(viii) of the Income‑Tax Act, was exempt from tax. By reason of this conclusion, the Court answered the question referred to it in the affirmative. The appellant subsequently applied for and was issued certificates of fitness in accordance with section 66A(2) of the Act; that procedural step gave rise to the present appeals, which were therefore placed before the Court for final consideration and disposal.

The Court then examined the meaning of the expressions “agriculture” and “agricultural purpose” and the circumstances in which forestry activities performed on forests of spontaneous growth could be equated with agricultural operations so that the income derived from the sale of forest trees would fall within the definition of agricultural income contained in section 2(1) of the Indian Income‑Tax Act. The Court referred to the principles articulated in the earlier judgment of Commissioner of Income‑Tax, West Bengal v. Raja Benoy Kumar Sahas Roy and applied those principles to the facts before it. It observed that there was no planting, sowing, or tillage of soil; the soil remained untouched, and the assessees made no contribution to cultivation. No “basic operations” as understood in agriculture were performed on the forest lands. The work undertaken by the assessees consisted of subsequent operations carried out after the trees had already sprouted from the soil. The forests therefore continued to be forests of spontaneous growth, and the only effect of the assessees’ actions was to maintain, preserve, nurse, improve and rear the existing growth. Although these subsequent operations increased the yield, the character of the forests as spontaneously grown remained unchanged. No human skill or labour was applied to the cultivation of the land itself; the operations described in the statements of case were aimed at fostering growth and extracting maximum benefit, yet they did not constitute basic agricultural operations. Obstacles that could have impeded the natural growth of the trees were removed, but such measures did not transform the subsequent operations into basic operations, which are a prerequisite for classifying land use as agricultural. Accordingly, none of the categories (a) to (g) listed in the statement of facts qualified as basic operations, and the Court concluded that the majority opinion of the High Court was erroneous and that the referred question should have been answered in the negative.

The statement of facts demonstrated that none of the operations could be treated as basic agricultural operations. Moreover, without at least one basic operation performed on the land, the remaining operations could not be combined to convert the entire set into agricultural operations. The Court held that the ratio applied by the majority of the High Court judges was mistaken and that the question referred to should have been answered in the negative. The Court's conclusion was reinforced by observing that the forestry operations carried out by the assessees were of negligible value compared with the gross receipts obtained from the sale of forest trees. In the Mechpara Estate, the costs of those operations amounted to less than eight percent of the gross income, while in the Parbatjoar Estate they amounted to only four percent of the gross income. All of those activities were primarily undertaken to facilitate the natural, spontaneous growth of trees on the forest land and could not, under any interpretation, be equated with agricultural operations. Consequently, the Court was of the view that the decision rendered by the majority of the High Court judges was erroneous and should be set aside. Accordingly, the appeals were allowed and the question referred to was answered in the negative. The appellant was awarded a single set of costs against the respondents for all the appeals in this Court, together with a payment of two hundred fifty rupees representing the consolidated hearing fee of the Income Tax References in the High Court. The appeals were allowed.