Maharajadhiraj Sir Kameshwar Singh vs Commissioner Of Income-Tax, Bihar

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

Court: supreme-court

Case Number: Not extracted

Decision Date: 23 May, 1957

Coram: Bhagwati, J.L. Kapur

The matter involved Maharajadhiraj Sir Kameshwar Singh as the appellant and the Commissioner of Income‑Tax, Bihar as the respondent. The case was recorded on 23 May 1957 before the Supreme Court of India. The judgment was authored by Justice J. L. Kapur, and the bench comprised Justice J. L. Kapur together with Justice Bhagwati. The appellant had filed six consolidated appeals that arose from a single judgment and from six separate orders issued by the Patna High Court. Each of those orders bore a certificate under section 66A(2) of the Indian Income‑Tax Act. All the appeals presented identical legal questions, namely: first, whether, given the specific facts and circumstances, the receipts derived from the lease of the Bankura forest should be regarded as capital receipts or, alternatively, as agricultural income; and second, whether, under the same factual matrix, the receipts obtained from the Kharagpur forest constituted agricultural income.

During the assessment years 1943‑44 through 1948‑49 the appellant held ownership of two forest tracts: the Bankura forest located in the state of West Bengal and the Kharagpur forest situated in the Monghyr District of Bihar. The Bankura forest had been leased out by auction on short‑term arrangements for lump‑sum payments. Although the exact lease documents were not produced in the proceedings, it was explained that the lease granted the lessee the right to cut down and remove all sal trees except those whose girth exceeded three feet or that stood within three feet of the ground, and also allowed removal of all other jungle trees apart from fruit‑bearing and valuable timber trees. The lessee could also cut stumps that did not rise higher than five feet above ground level. In respect of the Kharagpur forest, the appellant derived income from the harvest of bamboo, sabai grass and timber during the same assessment years.

The income‑tax officers, acting under section 23(3) of the Indian Income‑Tax Act, issued assessment orders on the following dates: 15 March 1944, 9 March 1945, 27 March 1946, 12 March 1947, 13 March 1948 and 24 February 1949. In each of those orders the officers rejected the appellant’s contention that the sums he received from his forests were not taxable. The appellant had identified specific amounts for each Fasli year: for the year 1349 Fasli, receipts of Rs 7,436 and Rs 11,468; for 1350 Fasli, Rs 23,581 and Rs 17,027; for 1351 Fasli, Rs 20,582 and Rs 59,514; for 1352 Fasli, Rs 14,750 and Rs 98,969; for 1353 Fasli, Rs 13,836 and Rs 1,17,173; and for 1354 Fasli, Rs 22,211 and Rs 73,449. The appellant argued that these amounts, which arose from the Bankura forest in West Bengal and the Kharagpur forest in Bihar, should either be treated as capital receipts or classified as agricultural income, and therefore should not be subject to tax. The assessment orders, however, held that the receipts were taxable.

Following the assessment orders, the appellant lodged appeals before the Appellate Assistant Commissioner of Income‑Tax, Patna, and where appropriate before the Additional Appellate Assistant Commissioner of Income‑Tax, Patna Range. Both the Appellate Assistant Commissioner and the Additional Appellate Assistant Commissioner dismissed the appeals and affirmed the original assessment orders. Consequently, the appellant proceeded to file further appeals against those dismissals.

The appellant challenged the assessment orders of the Appellate Assistant Commissioners before the Income‑tax Appellate Tribunal, Calcutta Bench, but the Tribunal also dismissed those appeals and upheld the assessments. Consequently, the appellant invoked section 66(1) of the Indian Income‑tax Act and requested that the Tribunal refer, inter alia, the questions raised by the appellant to the High Court. The Tribunal ruled that no question of law arose from the assessment orders, declined to refer the appellant’s formulated questions—or any other question—to the High Court, and rejected the reference applications. Undeterred, the appellant then petitioned the High Court for a direction under section 66(2) of the Indian Income‑tax Act, 1922, seeking an order that the Tribunal state a case on the matters in dispute. The High Court acceded to this request and directed the Tribunal to state a case on the specific questions of law previously set out by the appellant. In compliance, the Tribunal prepared a statement of case and submitted it to the High Court. The statement included factual material concerning the two forests from which the appellant claimed income. Regarding the Bankura Forest in West Bengal, the statement explained that the forest area was divided into blocks and leased by auction on short‑term leases for lump‑sum payments. The lessee was permitted to fell and remove all sal trees exceeding three feet in girth above three feet from the ground, as well as other jungle trees except fruit‑bearing and valuable timber species, while being required to cut stumps no higher than five inches so that new shoots could grow during the rains and eventually mature. The lessee also had to refrain from entering the forest during the rainy season when new shoots emerged and to guard the forest against trespass by people and cattle; upon expiry of the lease term, all rights, including the right to enter the land, terminated. Concerning the Kharagpur Forest in Bihar, the statement identified three sources of income: bamboos, sabai grass, and timber. The Tribunal further observed that all these plants grew wild and spontaneously. A 1944 working plan stipulated a rotational felling of mature bamboo in subdivided coupes, indicating that no human agency was responsible for planting or fostering the bamboo’s growth. The situation with sabai grass was described as essentially the same. For timber, a scheme existed whereby sal and ebony trees were conserved by preserving a fifteen‑foot circular area around each tree while clearing surrounding jungle, thereby allowing sufficient space for growth. Although wells had been sunk in the forest, they were intended to supply drinking water for cartmen and bullocks transporting timber, not for irrigating the trees. The Tribunal also noted allegations of coppice work in the vicinity, linking it to historical references but emphasizing that there was no human agency in the initial production of the plants from the soil, despite some ancillary human activity that assisted their growth.

In the material considered by the Court, the only documentary evidence dating back to 1883 consisted of a government annual administration report dated 5 October 1882, which dealt with forest administration in Bihar and suggested that private owners should cultivate coppice forests to be harvested on a short‑rotation basis for fuel supply. In addition, a letter numbered 170, dated 14 April 1883 and issued by the Commissioner of the Bhagalpur Division, was addressed to the Manager of Darbhanga Raj and concerned the preservation of sal saplings in the forests belonging to adjacent zamindars, namely Gidhour and Banaily Raj. The only later reference, found in correspondence of 1944, indicated that “coppice coupes” of sal trees situated on the higher elevations of rocky hills were proposed to be worked out over a period of seven years. From these documents the Court inferred that there was no direct human agency involved in the emergence of the plants from the soil, although a limited degree of human activity could be identified in the assistance given to the growth of certain trees.

The High Court had examined the reference and rendered a single common judgment because the questions presented were identical. It answered the referred questions in the negative and against the appellant. After that decision the appellant obtained the necessary certificates of fitness to appeal to this Court, and consequently the present appeals were filed.

The High Court dismissed the questions raised by the appellant primarily on the ground that no material existed to show that any expenditure of human skill or labour had been applied to the land in a manner that would render the income derived from it agricultural under the definition contained in section 2(1) of the Act. The Court observed that measures such as preserving each sal and ebony tree within a fifteen‑foot circle, removing surrounding vegetation that fell within that circle to provide adequate space for growth, and employing conservancy staff to look after the forest did not, in themselves, amount to an expenditure of human skill or labour upon the land that would satisfy the precedent set by the Privy Council in Raja Mustafa Ali Khan v. Commissioner of Income‑tax.

The Court noted that it need not restate the principles governing cases where the assessee carries out forestry operations on trees that grow spontaneously. Those principles had been articulated in a recent judgment of this Court in Commissioner of Income‑tax, West Bengal v. Raja Benoy Kumar Sahas Roy. It sufficed to say that, with respect to forest trees of spontaneous growth—trees that arise on the soil without any human skill or labour and where the assessee performs no basic agricultural operations on the soil—there is no cultivation of the soil at all. The only activities undertaken by the assessee are subsequent actions, which, although falling under the heading of forestry operations, are principally aimed at conserving and nurturing the forest trees that have arisen by natural forces rather than by any expenditure of skill or labour on the land itself.

In this portion of its reasoning, the Court explained that the later activities carried out on the forest land, even when they resulted in the nurturing and further development of the spontaneously growing trees, could not be described as agricultural operations. The Court emphasized that agricultural operations are those basic activities that directly cause the production of a crop by acting upon the soil itself. Unless the later activities become an integral part of, and are combined with, those fundamental soil‑working actions, they cannot be treated as agriculture. The Court then observed that the measures undertaken by the assessee in the matters presently under consideration were not of the kind that could be classified as basic agricultural work. Consequently, those measures did not transform the naturally occurring forest produce into produce that was generated by agricultural cultivation as defined in the Court’s earlier decision. On the basis of this analysis, the Court expressed the view that the High Court had correctly decided the issues and had properly answered the questions posed against the appellant. Accordingly, the Court ordered that the appellant’s appeals be dismissed, directing that costs be awarded, but that a single set of costs would be applicable to all of the appeals before it. The Court therefore dismissed the appeals.