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

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.

In this case the Supreme Court observed that the matter before it consisted of six consolidated appeals that originated from a single judgment of the Patna High Court and six separate orders of that Court, each of which had been issued with a certificate under section 66A(2) of the Indian Income‑tax Act. All six appeals raised two common questions of law. The first question was whether, in the circumstances of the case, the receipts derived from the lease of the Bankura forest should be characterised as capital receipts or, alternatively, as agricultural income. The second question concerned whether the receipts obtained from the Kharagpur forest should be treated as agricultural income.

During the assessment years 1943‑44 through 1948‑49 the appellant, Maharajadhiraj Sir Kameshwar Singh, owned two forests: the Bankura forest situated in West Bengal and the Kharagpur forest located in the Monghyr district of Bihar. The Bankura forest had been leased out by auction on short‑term leases for lump‑sum payments. Although the lease documents were not produced, the appellant stated that the lease permitted the lessee to cut down and remove all sal trees except those whose girth exceeded three feet or whose height from the ground exceeded three feet, and also allowed removal of all other jungle trees except fruit‑bearing trees and valuable timber trees. The lessee was further authorised to cut stumps that did not rise more than five feet above ground level.

Regarding the Kharagpur forest, the appellant received income from the sale of bamboo, sabai grass and timber during the same assessment years. The income‑tax officers, applying section 23(3) of the Indian Income‑tax Act, issued assessment orders on 15 March 1944, 9 March 1945, 27 March 1946, 12 March 1947, 13 March 1948 and 24 February 1949. In each order the officers rejected the appellant’s contention that the sums received from the two forests were either capital receipts or agricultural income and therefore exempt from tax. The specific amounts identified by the appellant were as follows: for the year of account 1349 Fasli, Rs 7,436 and Rs 11,468; for the year of account 1350 Fasli, Rs 23,581 and Rs 17,027; for the year of account 1351 Fasli, Rs 20,582 and Rs 59,514; for the year of account 1352 Fasli, Rs 14,750 and Rs 98,969; for the year of account 1353 Fasli, Rs 13,836 and Rs 1,17,173; and for the year of account 1354 Fasli, Rs 22,211 and Rs 73,449. The officers held that each of these receipts was taxable income.

The appellant consequently filed 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 appellant’s appeals and confirmed the assessment orders. Unwilling to accept those decisions, the appellant proceeded to file further appeals against the orders of the Appellate Assistant Commissioners, thereby continuing the dispute through the appellate hierarchy.

The appellant brought the matter before the Income‑tax Appellate Tribunal, Calcutta Bench, seeking to overturn the assessment orders. The Tribunal dismissed the appeal and affirmed the assessments. Subsequently, the appellant invoked section 66(1) of the Indian Income‑tax Act and requested that the Tribunal refer the questions raised by the appellant to the High Court. The Tribunal concluded that the orders did not raise any question of law, and therefore it declined to refer any of the appellant’s formulated legal questions, or any other issue, to the High Court. It consequently rejected the appellant’s reference applications. The appellant then turned to the High Court and prayed for a direction under section 66(2) of the Indian Income‑tax Act, 1922, asking the Court to compel the Tribunal to state a case on the legal questions identified by the appellant. The High Court granted the direction and ordered the Tribunal to prepare and submit a statement of case concerning the aforesaid questions of law. In compliance with the High Court’s order, the Tribunal drafted a statement of case and forwarded it to the High Court. Within that statement the Tribunal set out the factual background of the two forest areas that were the source of the appellant’s receipts. Regarding the Bankura Forest in West Bengal, the Tribunal recorded that the forest land was divided into blocks and leased out by auction for short terms on a lump‑sum basis. The lease permitted the lessee to fell and remove all sal trees, except those whose girth exceeded three feet at a height of three feet above ground, and also allowed removal of other jungle trees except fruit‑bearing trees and valuable timber trees. The lease further required the lessee to cut stumps no higher than five inches above ground so that new shoots could grow during the rains, to refrain from entering the forest during the rainy season when new shoots emerged, and to protect the forest against trespass by people and cattle. The lease stipulated that at the end of the agreed period the lessee would lose all rights, including the right to enter the land.

Concerning the Kharagpur Forest in Bihar, the Tribunal noted that the appellant’s income derived from three distinct sources: bamboo, sabai grass, and timber. The Tribunal’s findings, as recorded in its order, stated that all three categories of vegetation grew wild and spontaneously without any plantation undertaken by human agency. In 1944 a working plan had been prepared for the systematic felling of mature bamboo trees on a rotational basis from subdivided coupes, but the Tribunal affirmed that no human activity was responsible for the original planting or growth of the bamboo. The same factual situation applied to the sabai grass. With respect to the timber trees, the Tribunal observed that a scheme existed whereby sal and ebony trees naturally occurring in the forest were conserved by clearing surrounding jungle vegetation within a circular area of fifteen feet radius around each tree, thereby providing sufficient space for the trees to mature. The Tribunal also mentioned that wells had been sunk within the forest, but these wells served solely to supply drinking water for the cartmen and bullocks employed in timber extraction, not for irrigating the trees. The Tribunal further referred to an allegation that coppice work had been carried out around the year 1883; however, the only supporting evidence for this claim was a government annual administration report dated 5 October, indicating that the evidence for any human agency in the production of the forest plants was minimal. The High Court, after hearing the reference, delivered a single judgment answering the common questions in the negative and against the appellant. Following this decision, the appellant obtained the necessary certificates of fitness to proceed with an appeal.

In 1882 a forest administration report from Bihar recommended that private owners should develop coppice forests to be worked in short rotation for the purpose of supplying fuel. A further document, Letter No 170 dated 14 April 1883 from the Commissioner of the Bhagalpur Division addressed to the Manager of the Darbhanga Raj, dealt with the preservation of sal saplings in the forests of the neighbouring zamindaris of Gidhour and Banaily Raj. Apart from this, only a correspondence of 1944 provided evidence that coppice coupes of sal trees situated on the higher elevations of rocky hills were proposed to be worked within a period of seven years. From these records the Court observed that there was no human agency responsible for the production of the plants from the soil, although some human activity existed in assisting the growth of certain trees.

The High Court heard the reference and, because the questions involved were common to several parties, delivered a single judgment answering the referred questions negatively and against the appellant. The appellant subsequently obtained the necessary certificates of fitness to appeal to the Supreme Court, and the present appeals were therefore filed. The High Court had decided the questions against the appellant principally on the ground that no material existed to show any expenditure of human skill or labour upon the land that would render the income derived from it agricultural income within the meaning of section 2(1) of the Income‑Tax Act. The Court noted that the method of conserving the forest—by allowing each sal and ebony tree a circular space of fifteen feet, cutting down trees and jungle falling within that circle, and employing conservancy staff to look after the forest—was not, in itself, sufficient to constitute an expenditure of human skill or labour upon the land. This conclusion was in accordance with the principle laid down by the Privy Council in Raja Mustafa Ali Khan v. Commissioner of Income‑tax.

The Court indicated that it need not repeat the principles governing cases where forestry operations are performed on forest trees of spontaneous growth, as those principles had already been set out in the recent judgment of Commissioner of Income‑tax, West Bengal v. Raja Benoy Kumar Sahas Roy. It was sufficient to state that, with respect to forest trees that grow spontaneously on the soil without any human skill or labour, and where the assessee performs no basic agricultural operations upon the soil itself, there is no cultivation of the soil at all. The only activities carried out by the assessee were subsequent operations, which, although of a forestry character, were primarily intended for the conservation and further growth of trees that had arisen through natural forces rather than through any expenditure of human skill or labour on the land itself. These subsequent operations

Although the assessee’s activities may help nurture and encourage forest‑tree growth, they are not similar to the fundamental operations that actually raise these products from the soil. These nurturing measures include watering, pruning, and protecting the trees, which support health but remain auxiliary to the creation of the product. Such supportive work, while valuable, does not involve soil preparation, seed sowing, or other foundational agricultural practices at all. Because the assessee did not prepare or cultivate the soil, the essential element of agriculture—transforming barren land into a productive field—was absent. Consequently, these activities could not be described as agricultural operations within the meaning set out by the Court in the earlier decision. The specific actions carried out by the assessee in the matters before this Court were unrelated to the basic agricultural operations. Moreover, those actions did not transform the spontaneously growing forest produce into products that were cultivated on the land in the sense of agriculture as defined in the earlier decision. Accordingly, the Court held that the High Court's decision was correct, that the questions had been properly answered against the appellant, and that the appellant's appeals must be dismissed with costs. Nevertheless, the Court ordered that a single set of costs be awarded in respect of all the appeals combined. Accordingly, each of the appeals filed by the appellant was dismissed, and no further relief was granted by the Court.