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PETITIONER: C.I.T. BOMBAY CITY

       Vs.

RESPONDENT: BOMBAY BURMAH TRADING CORPORATION, BOMBAY

DATE OF JUDGMENT16/07/1986

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) SINGH, K.N. (J)

CITATION:  1987 AIR  500            1986 SCR  (3) 269  1986 SCC  (3) 709        1986 SCALE  (2)277

ACT:      Income-tax Act,  1922, s.  10(2)(vii)  Income-tax  Act, 1961: 8. 41(2)      Assessee-Nationalisation    of    business-Compensation received from Government-Whether capital or revenue receipt- Compensation in  kind in  respect  of  deprecialble  assets- Whether liable to tax-Fixed capital and circulating capital- distinction between.

HEADNOTE:      The assessee-Company,  carrying on  business of selling timber in  India and  abroad, entered  into contracts in the nature of  forest leases with the Government of Burma, under which it  was authorised  to fell  teak trees,  convert them into logs,  and remove  them after payment of royalty. These leases, which  were made  first in  the year  1862, had been continuously renewed  from time  to time.  Clause 27  of the agreement authorised  the assessee-company  even  after  the expiry of the lease period of 15 years to remove the logs in respect whereof  extraction had been completed, upon payment of royalty during the next three years. At the relevant time the assessee-company  was the  owner of  fifteen such forest leases. The  last of  these leases  commenced on Ist January 1926 and  31st December,  1940 was  the due  date of expiry. However, before  the expiry  of the period, the Second World War started  and the Government of Burma extended them until such time as it became possible to resume forest operations. After formation  of the Union of Burma, the ownership of the forest leases  of the assessee-company was taken over by the Government of  Burma in  1948-49; a  third of the total teak area on June 1, 1948 and the rest on or about June 10, 1949. In terms  of an  agreement dated 10th June, 1949 between the parties the assessee made over to the Burmese Government its residuary rights  under the  forest leases together with the non-duty paid  logs, wherever found, and also all the assets viz. buildings,  dwelling houses,  etc.  pertaining  to  the forest leases  and received  28,847 tons  of  teak  logs  in substitution of  non-duty  paid  logs,  2,946  tons  against depreciable  assets  and  stores  and  12,067  tons  against livestock. The logs so received by the assessee com- 270 pany were sold off by it from time to time in the accounting

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years 1949, 1950, 1951 and 1952.      The Income-tax  Officer  sought  to  bring  these  sale proceeds to  tax by  allocating  them  amongst  the  various assessment years. The questions that arose were: (i) whether the realisation  in respect  of substituted  logs was exempt from tax  as being  a receipt  of capital  nature, and  (ii) whether the  sale proceeds  in respect  of logs  received in lieu of depreciable assets, stores and livestock were liable to tax under the Act or were altogether free from liability. The Income-tax Officer, the Appellate Assistant Commissioner and the  Tribunal held against the assessee. The High Court, however, answered the questions in favour of the assessee.      In these  appeals by certificate under s. 66A(2) of the Income-tax Act,  1922 it  was contended for the Revenue that the contracts  entered into  by  the  assessee  company  for obtaining  its   stock-in-trade  in   timber  were   trading contracts, that  under cl. 27 of the agreements the assessee had no  interest in  land as  such, it  had only  a right to collect and take away logs, its stock-in-trade, and it could not fell  any fresh trees, that 28,847 tons of logs received by the  assessee under the agreement were in substitution of the logs  that it  had already  cut and had not been able to remove from  the forests,  merely as  a recompense  for  its rights  in   the  stock-in-trade,   and  that   the   excess realisation in  respect of logs received against depreciable assets, stores  and livestock were profits and liable to tax under s. 10(2)(vii) of the Income-tax Act, 1922.      For the  assessee-respondent it  was contended that the forest  leases  constituted  the  income  producing  capital assets of  the company  in which it had invested large funds in building  dams, canals,  roads, railways, buildings etc., that  the   forest  leases   were  not  ordinary  commercial contracts made  in the  course of carrying on their trade or for the  disposal of  their products,  these related  to the whole structure  of the  assessee’s profit making apparatus, that  the  consideration  for  the  logs  received  was  the surrender of  the residuary  rights under  the forest leases and acquisition  of assets  of the  business under the take- over  agreement,   that  the  assessee  was  prevented  from carrying on  business upon  the  nationalisation  of  forest resources and  acquisition of  residuary rights  and  assets pertaining to  the forest  leases. It  was further submitted that  the   compensation  paid   to  the  assessee  was  the sterilisation of  the company’s  business and thus a capital receipt, not subject to tax.      Dismissing the appeals, the Court, 271 ^      HELD: 1.1. The forest leases constituted capital assets of the  assessee. The  payments  made  for  cancellation  or sterilization  of   the  rights  under  these  leases  were, therefore, capital receipts and not liable to tax. [290E]      1.2. Whether in a particular case payments were capital receipts or  not depends upon the facts and circumstances of the case. The basic principles are: if there was any capital asset and  if there  was any  payment made for acuisition of that capital  asset, such  payment would amount to a capital payment in  the hands of the payee. Secondly, if any payment was made  for sterilization  of the  very source  of  profit making apparatus  of the  assessee, or a capital asset, then that would  also amount to a capital receipt in the hands of the recipient.  If on the other hand, the leases were merely stock-in-trade and  payments were  made for  taking over the stock-in-trade then  no question  of capital  receipt comes. The sum  would  represent  payments  of  revenue  nature  or

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trading receipts.  Compensation received for immobilisation, sterilization, destruction  or loss,  total or partial, of a capital asset would, therefore, be capital receipt. If a sum represented profit  in a  new form then that would be income but  where   the  agreement  related  to  the  structure  of assessee’s profit-making  apparatus and affected the conduct of business, the sums received for cancellation or variation of such agreement would be capital receipt. [286H; 287A-D]      In the  instant case,  the forest  leases affected  the very  structure  of  the  operation  of  the  assessee.  The compensation received  for  the  cancellation  of  assessee- Company’s activities  could not  be regarded  as  an  income receipt, nor the legal character of the payment misjudged by the magnitude of the payment. [289A; 290C-D]      Glenboig Union Fireclay Co. Ltd. v. The Commissioner of Inland Revenue,  12 Tax  Cases 427;  Senairam Doongarmall v. Commissioner of  Income-tax, Assam,  42 I.T.R.  392 at  406; Commissioner of  Income-tax, U.P.  v. Gangadhar Baijnath, 86 I.T.R. 19;  Commissioner of Income-tax, Poona v. Manna Ramji and Co.,  86 I.T.R.  29; Van  Den Berghs Ltd. v. Clark (H.M. Inspector of  Taxes), 3  I.T.R. 17  (English case):  British Insulated & Helsby Cables Ltd. v. Atherton, [1926] A.C. 205; Hood Barrs v. Commissioners of Inland Revenue (No.2), 37 Tax Cases 188;  Commissioner of  Income-tax, Hyderabad-Deccan v. Vazir Sultan & Sons, 36 I.T.R 175, referred to.      2. For  levy of  a balancing charge under s. 10(2)(vii) of the Income-tax Act, 1922 it was absolutely necessary that the depreciable 272 assets should  have been  sold at  a price agreed to between the parties.  The agreement under which the assessee-company received logs  by way of compensation in lieu of depreciable assets did  not involve  any transaction  of sale between it and the  Union of Burma. The assessee company never paid any money by way of a price in respect of assets delivered to it by the  Government. Therefore,  the sale  proceeds of  these logs could  not be  brought  to  tax  against  the  assessee company under  the second  proviso to  s. 10(2)(vii)  of the Income-tax Act, 1922. [29 ID-F]      Commissioner of  Income-tax v.  Motors & General Stores (P) Ltd., 66 I.T.R. 692, referred to.      3. The  logs  delivered  to  the  assessee  company  in respect of the depreciable assets, stores and livestock came into possession  of  the  assessee  in  consequence  of  the agreement against  surrender of all outstanding or residuary rights of  the assessee  to the  Government. The arrangement was in  consequence of nationalisation of forest operations. The fact  is that  the assessee company did not mix up these logs with  any of  the stock-in-trade  held  by  it  in  its ordinary course of business. The sale proceeds of these logs could not,  therefore, be  held to have been received by the assessee  company  on  revenue  account.  Consequently,  the excess  realisation  received  over  the  cost  incurred  in getting delivery  of these  logs was not liable to tax under the Act. [29 IG-H; 292A-C]      4. Nothing  was paid  by the Government to the assessee company in  connection with  1/3rd area of the forest leases taken over  from the  assessee company. The assessee company had filed  a suit  in connection  with the  timber logs  and stores  taken  over  by  the  Government  and  succeeded  in obtaining a decree. The sum awarded in the decree in lieu of the rights  which the  assessee company  had under cl. 27 of the agreement could not, therefore, be taxed. [292F-G]      5. Normally  in trade,  there are two types of capital, one circulating  and the  other fixed. Fixed capital is what

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the  owner  turns  to  profit  by  keeping  it  in  his  own possession, circulating  capital is  what he makes profit of by parting  with it  and letting  it change  hands. What  is capital assets  in the  hands of  one person  may be trading assets in  the hands of the other. The determining factor is the nature  of the  trade in  which the  asset was employed. [287A-C]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil  Appeal Nos.  1 of 1974 and 1355-1356 of 1973. 273      From the  Judgment and  Order dated 22/24.4.1970 of the Bombay High Court in I.T.R. No 111 of 1963      B.B. Ahuja and Miss A.Subhashni for the Appellant.      F N  Kaka, S.N.  Talwar, Y.  Chaudhary and H.S. Parihar for the Respondent.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI,  J. These  appeals  are  from  the judgment and  order  of  the  High  Court  of  Bombay  dated 22nd/24th April,  1970. These  are by certificate granted by the High  Court under  section 66A(ii) of the Indian Income- tax Act,  1922. The  judgment under appeal is reported in 81 I.T.R. at page 777.      The familiar  yet not  always easy  to answer  question whether a  particular receipt  is capital  or revenue  looms large in  these appeals  arising out  of the  assessment  to income-tax for  the assessment  years 1950-51,  1951-52  and 1953-54, the  accounting years  respectively ending  on 31st May, 1950,31st May, 1951 and 31st May, 1953.      The assessee  is a  public limited  company limited  by shares. It  derived income  from several  sources  including certain business  operations. These  operations were carried out in  India and  abroad and  used to be carried out, inter alia, in  Burma and  Siam. The  assessee company  carried on business in  Burma from 1862 onwards. In connection with its business of  selling timber,  the  assessee-company  had  to enter into  contracts which are mentioned as ’forest leases’ with the  Government of Burma. In the year of account ending on 31st May, 1950 the assesseecompany was the owner of about 15 forest  leases. The  agreed position  between the parties was that  all the  forest leases  contained  provisions  and clauses exactly  similar to  the speciman  copy  dated  28th October, 1925,  which was  taken into  consideration by  the High Court.  It may  be mentioned,  however, that the forest leases were  for the  duration of 15 years and in respect of large areas.  Under these  leases, the  assesseecompany  was authorised to  fell the teak trees and convert them into the logs and,  upon completion  of the  extraction  thereof,  to remove the  logs after  payment of royalty to the Government of Burma  for its  own purposes.  Clause 27  in these leases authorised the assessee-company even after the expiry of the period of  15 years  of the  lease to  remove  the  logs  in respect whereof extraction had been completed upon pay- 274 ment of royalty. The period for such removal under clause 27 was fixed  at three  years after  the expiry  of  the  lease period mentioned in clause 4. These leases contained renewal clauses. The  forest leases  of the assessee-company did not commence on  the same date and related to different parts of the forests  in Burma.  These leases  were made as mentioned hereinbefore,  in  1862  first  and  had  been  continuously renewed from time to time.

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    It was  stated that five similar business organisations obtained forest  leases from  the Government  of  Burma  for their business  in timber.  Before the  period of  15  years mentioned in  these leases  expired, the  Second  World  War started and  the  Japanese  army  overran  Burma.  The  then Government of  Burma then  extended the  periods of  current leases until  such time  as it  became  possible  to  resume forest operations  and for  such further periods as might be required for  settlement of  the new  forest  leases  to  be executed  between   these  business  organisations  and  the Government.  Upon   termination  of   the  hostilities,   in connection with the resumption of the forest operations, the Government made provisional arrangements in terms of what is referred to  in paragraph  7 of the statement of the case as "weight agreement".  The Union  of Burma came into existence from  4th   January,  1948.   Under  section  44(2)  of  the Constitution  of   Burma,  there   was   a   directive   for nationalisation, inter  alia, of  the forest  exploitations. Thereafter correspondence  took place,  inter alia,  between five European companies who were exploiting forests in Burma under the  various leases  and the  Government in connection with the  taking over  of the exploitation by the Government of Burma.  The High  Court noted the relevant correspondence dealing with such arguments.      On 1st  June, 1948,  a third  of the  total  teak  area mentioned in  the 15  forest leases  of the ownership of the assessee-company was  taken over by the Government of Burma. Forest exploitation  in respect  of the  rest of  the 2/3rds area was  also taken over by the Government on or about 10th June, 1949.  In that  connection, certain correspondence had been addressed  by the  assessee-company to  the Government. The Union  of Burma on the one hand and the assessee-company and Steel  Brothers &  Company Ltd. on the other executed an agreement dated  10th June,  1949 on  the footing  that  the forest leases  had already  been terminated.  The  agreement provided for  making over  by  the  assesseecompany  to  the President of  the  Government  of  Burma  of  the  assessee- company’s  ’residuary   rights’  under   the  forest  leases together with the non-duty paid logs wherever found and also for making over 275 of all  the assets  pertaining to  the forest  leases, viz., headquarters,     elephants,  cattle,   stores,   buildings, dewelling houses,  motor transport, tractors, launches, etc. and for  certain other  incidental  matters.  The  agreement provided for handing over by the President of the Government of Burma the assessee-company of 50,000 tons of teak logs of the specified  qualities mentioned  in clause  7 of the said agreement. There  was no dispute between the parties that in pursuance of  the agreement  the assessee-company  had  made over to  the Government  of Burma  the assets  mentioned  in clause 1 of the agreement. There was also no dispute that in pursuance of  the agreement  the Government  of Burma handed over in  all 43,860  tons of  logs to  the assessee-company. There was  no dispute  that those  43,860 tons  of logs were delivered against  three kinds  of assets  in the  following quantities:      (1) 28,847  tons against non-duty paid logs handed over by the asseessee-company to the Government.      (2) 2,946 tons against depreciable assets like land and buildings, launches, furniture and stores.      (3) 12,067 tons against livestock like elephants, etc.      The account  of these  43,860 tons of logs delivered by the Government  was maintained  by the  assessee-company  in what is  described in  the Income-tax  Officer’s  report  as

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"Burma forests  assets realisation  reserve account".  These 43,860 tons  of logs  were sold  off by the assessee-company from time  to time  in the accounting years 1949, 1950, 1951 and 1952.  The aggregate sale proceeds during the above four years came  to Rs.1,35,55,611 as appears from the assessment order which  is annexed  to the  statement of  the case.  In connection with  these sale proceeds, the Income-tax Officer stated that,  as the  receipts and  sales of  logs had taken place over  a period  of four years, the amount realised had to be allocated amongst the various years. He further stated that the  basis of  the allocations  was agreed  to  by  the assessee. He proceeded to make the allocation on the footing that the assessee had incurred costs for getting delivery of these logs at the rate of Rs.225 per ton on 10th June, 1949. He then  considered  the  proceeds  realised  and  made  the allocations for  the assessment years 1950-51 and 1951-52 in the manner  appearing in paragraph 9 of the statement of the case submitted  to the  High Court.  Upon allocation made in the above  manner, the Income-tax Officer’s finding was that in the year ending 31st May, 1950, the assessee had received 18,676 tons of logs. The sale 276 proceeds of  Rs.65,52,153 were  received in  respect of non- duty paid  logs delivered  to the assessee-company. The sale proceeds of  Rs.31,980 were  received  in  respect  of  logs received against  depreciable assets,  stores and livestock. For the  accounting year  ending 31st May, 1951, the Income- tax Officer  held that  the assessee  had  received  in  all 16,299 tons  of logs.  The sale  proceeds of those logs were allocated as follows:      "Rs.5,78,896 in  respect of  non-duty paid  logs handed over by  the assessee-company to the Government, Rs.2,69,975 in respect  of the  logs delivered  against handing  over of depreciable assets,  stores and  livestock." (81  I.T.R.  p. 785.)      The question  that arose  upon such  allocations having been made  in the  manner indicated  was as  to whether  the receipt of  Rs.65,52,153 in  the accounting year ending 31st May, 1950,  and Rs.5,78,896  in the  accounting year  ending 31st May,  1951 was  exempt from  tax as  being a receipt of capital  nature   as  contended   by  the  assessee-company. Similarly, the  further  question  which  arose  was  as  to whether  sale   proceeds  amounting   to  Rs.31,980  in  the accounting year  ending 31st  May, 1950,  and Rs.2,69,975 in the accounting  year ending  31st May,  1951, in  respect of depreciable assets  were liable to tax under the Act or were altogether free  from such liability. The Income-tax Officer as  well   as  the  Appellate  Assistant  Commissioner  made findings against  the assessee  companies in connection with these amounts.  On behalf  of the  assessee-company  it  was urged before  the Appellate Tribunal that the entire receipt and delivery  of the  43,860 tons  of logs  were on  capital account. The  submission was that the assessee’s business of dealing in  timber in Burma had got sterilized and the above quantity of  logs was  received only  in respect of the said sterilization or  loss of  the capital  asset. In connection with that  submission, the  Appellate Tribunal  held against the assessee-company  that the  assessee’s business  had not stopped and  there was  no question  of sterilization of its business. The  forest leases  owned by  the assessee-company had expired  and were  not  bound  to  be  renewed  and  the "residuary rights"  available to  the assessee-company under clause 27  of the forest leases were merely rights to remove the extracted  logs within  a period of three years from the forest areas.  The assessee-company  had no interest in land

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of the forest areas.      The  Tribunal,   however,  observed   that  though  the agreement referred  to certain residuary rights under clause 27 of the agreement 277 there was  nothing to show that any compensation was paid in respect of any rights available to the assessee under clause 27 of the lease agreement.      The contention that the realisations were in respect of capital assets  was rejected.  It was  further held that the realisation in  respect of logs received against depreciable assets, stores and livestock were profits and liable to tax. In calculating  the  profits  it  was  held  that  the  logs received by  the assessee-company were received by it at the cost value of Rs.225 per ton.      After having  recorded the  findings in  the  aforesaid manner, the  Tribunal referred  to the High Court concerned, i.e., the High Court of Bombay, certain questions of law for the assessment year 1950-51 and 1951-52. The High Court felt that question  No. 1 in both these assessment years need not be answered  and this position was agreed to by the parties. The following  questions for these two assessment years were really considered by the High Court:           "I. Assessment year 1950-51:           ............           2. Whether,  on the facts and in the circumstances           of the  case, the  amount of  Rs.65,52,153 or  any           part thereof  was  exempt  from  tax  as  being  a           receipt of a capital nature?           3. Whether  on the  facts and in the circumstances           of the  case, the amount of Rs.1,41,156 was liable           to  tax   under  the  second  proviso  to  section           10(2)(vii) of  the  Income-tax  Act,  and  whether           there was  any evidence that the conditions of the           application of that proviso were all satisfied?           4. Whether,  on the facts and in the circumstances           of the case, the amounts of Rs.5,250, Rs.1,025 and           Rs.25,705,  being  the  excess  realisations  over           Rs.225 per  ton for  logs received  in respect  of           depreciable   assets,    stores   and   livestock,           respectively, were liable to tax under the Act?"           "II. Assessment year 1951-52:           1..................................... 278           2. Whether,  on the facts and in the circumstances           of the case, the amount of Rs.5,18,896 or any part           thereof was  exempt from tax as being a receipt of           a capital nature?           3. Whether,  on the facts and in the circumstances           of the  case, the  amounts of  Rs.44,407, Rs.8,639           and Rs.2,16,929,  being  the  excess  realisations           over Rs.225  per ton  for logs received in respect           of  depreciable   assets,  stores  and  livestock,           respectively, were liable to tax under the Act?"      Similarly  for   the  assessment   year  1953-54,   the questions referred by the Tribunal to the High Court were as follows:           "1. Whether, on the facts and in the circumstances           of the case, the amount of Rs.5,58,188 or any part           thereof was  exempt from tax as being a receipt of           a capital nature?           2. Whether,  on the facts and in the circumstances           of the  case, the  amount of  Rs.9,493, being  the           amount  of   compensation  received   for   stores           acquired by  the Burmese Government, was liable to

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         tax under the Act?"      The High  Court answered  all these questions in favour of the  assessee. The High Court answered for the assessment year 1950-51  the question  2 in  the  affirmative  for  the entire amount,  questions 3  & 4  in the  negative, for  the assessment  year   1951-52  the   second  question   in  the affirmative and  question no.  3 in  the negative.  For  the assessment year  1953-54 both the questions were answered in the affirmative. The revenue has come up in appeals.      In order  to appreciate the controversy, broad features of the  facts, some of which have been noted before, have to be borne  in mind.  The business in question of the assessee started in  Burma in 1861. There were 15 agreements with the Government of  Burma for  exploitation  of  forests  at  the relevant time. The agreements were entered into at different times and  provided for expiry of leases on different dates. At page  27 of the Paper Book a typical agreement dated 28th October, 1925  is indicated. Similar agreements were entered into for  other leases.  The terms  provided, inter alia, as follows: General rights "1. The Contractor shall within the series of of contractor:  coupes into  which the forest area described                in Schedule I and hereinafter 279                referred to as "the Concession Area" shall be                subdivided as provided in clause 5 and during                the  periods   for  extraction   there   from                prescribed in  clause 6  and subject  to such                further    conditions,     limitations    and                restrictions as  are  hereinafter  prescribed                have the sole right and license to-                     (a)  fell  the  teak  trees  gridled  or                marked in  that behalf by the officers of the                Forest  Department  in  accordance  with  the                directions contained  in  clause  8  and  any                naturally dead standing teak trees;                     (b) convert into logs all such trees all                naturally felled  teak trees  and all  felled                teak  timber   left   unloged   from   former                operations; and                     (c) remove  all such  logs and  all logs                were left unextracted from former operations:                PROVIDED that is any area                to   which    a   scheme   for   concentrated                exploitation accordance  with any  sanctioned                working Plan  has been applied the Contractor                shall have  no rights  in standing teak trees                under five  feet six inches in girth measured                at breast height from the ground. Grant of other 2. The Government acting on behalf of the rights in Con- Secretary of State reserves to itself the cession Area.  right to  enter into  agreements  with  other                parties for  the extraction  of timber  other                than that which the Contractor is entitled to                extract under  this Agreement  from the whole                or from any part of the Concession Area."           The proviso to that clause need not be set out.                Clause 4(1) was as follows: Period during  4. (1) This Agreement shall come into force which Agreementon the 1st day of January, 1926 and shall is in force    unless previously  terminated under clause 26                or clause 29 terminated after the expiry of a                period of fifteen years; viz. on the 31st day                of December, 1940;                PROVIDED  that   in  respect  of  the  rights

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              conferred by 280                clause 27 or by sub-clause (2) of this clause                and in  respect of  very  liability  incurred                under this  Agreement it  shall  continue  in                force for such further period as is necessary                for the  enjoyment of  such  rights  and  the                enforcement of such liabilities."      Clause 15  of the  agreement  authorises  the  assessee company to cut canals, make water courses, build bridges and other railway works etc. on certain conditions.      Clause 16  dealt with control of such private railways. Clause 18 dealt with the inspection etc.                Other relevant clauses were, General respo- 19. Nothing herein contained shall be deemed nsibilities    to relieve the Contractor, his agents and of Contractor. servants of  the duty  of complying  with any                Act of  the  legislature  and  of  the  rules                thereunder at  the time  being in  force  and                applying to the Concession Area.                20.  With   thirty  days   from   the   dates                respectively on  which measurement statements                of  timber   have  been   furnished  to   the                Contractor  by   the  Forest  Department  the                Contractor shall  pay or to be paid into such                Government Treasury  as  the  Government  may                appoint royalty  in respect thereof according                to the following rate namely:                .............................................                ............................................                Clause 21 read as follows: Marking of     21. The Contractor shall be entitled to have timber after   the timber which has been  measured for Measurement     royalty  marked at  the time  of measurement                with a  Government hammer-mark  denoting that                the timber  has been  so measured  and  after                payment  of  such  royalty  the  timber  thus                marked  shall  become  the  property  of  the                Contractor."                Clause 23 was as follows:                "23. Until  teak timber  has been  marked and                royalties have 281 Teak timber    been paid thereon in accordance with the Goverment pro- preceding clause it shall be deemed to be perty up to    property   of the   Government   and  the the payment        Contractor shall have no right to sell of royalty.    mortgage   or   hypothecate it  or create any charge or lien thereon."                Clause  27   of  the  agreement  provides  as                follows:                "27.  On   the  conclusion   of  the   period                specified in  clause 4  or on the termination                of this  agreement under  clause 26 or clause                29, as the case may be,-                     (a) the  contractor shall  be allowed  a                further period  of three years for delivering                at a measuring station and removing therefrom                after payment  of  royalty  on  or  otherwise                dealing as  provided in  clause 20  with  any                timber bearing  his  authorised  hammer-marks                the extraction  of which  has  in  accordance                with  the   terms  of   this  agreement  been                completed before  the date such conclusion or                termination and on the expiry of such further

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              period he  shall cease  to  have  any  rights                whatever in timber not yet so delivered:                     Provided  that   the  rates  of  royalty                payable under  this clause  shall be the same                as the  rates fixed  for the  concession area                under any  new  agreement  whether  with  the                present  contractor  or  with  other  parties                subsequent to  this agreement or in the event                of no new agreement being entered into at the                rates of royalty set out in clause 20 of this                agreement;                (b)  the   contractor  shall  be  given  such                reasonable time  as in  the  opinion  of  the                Government may  be necessary  to allow him to                dispose of  such  of  his  buildings,  mills,                railways or  other structures erected for the                purposes of his business under this agreement                as are  standing on  land at  the disposal of                the Government."      Under clause  29 the Contractor was given the rights to terminate the  agreement at  any time  by giving  two  years notice in writing.      On the 1st January, 1926, there was commencement of the agreement. 31st December, 1940 was the due date of expiry of the agreement.  On 7th  April, 1942,  there was extension by the Government of Burma of the long term agreement till such time as it became possible H 282 to resume  forest operations  and for such further period as might be  required for settlement of new agreements. On 24th January, 1948, there was a letter by the Government of Burma to the  assessee and  others in  connection with  ending  of joint  working   arrangements  between   consortium   of   5 contractors on  the one  hand and Government of Burma on the other hand  for exploitation  of forests.  On 4th  February, 1948, there  was the  assessee’s letter to the Government of Burma indicating  their specific  rights  under  the  Forest Agreement in  respect of logs in the course of extraction on termination of agreements.      on 10th  February, 1948, the Burmese Government replied to the  assessee’s letter dated 4th February, 1948 informing that the  normal period of currency of agreement had already expired, and  the life  of the  agreement had been prolonged under letter dated 7th April, 1942 and also under the Weight Agreement which  expired  on  1st  May,  1947.  Government’s decision to  terminate long  term pending lease negotiations and to  terminate on  31st May, 1948 joint operations in the area intended  to  be  taken  over  by  Government  and  the Government’s intention  to consider  any claims of residuary rights under  the expiring  agreements was also indicated to the assessee.  On 10th  June, 1949,  there was  an agreement between the President of Union of Burma and the assessee and Steel Bros.,  inter alia,  dealing with the residuary rights under clause  27 of the 1925 agreement and the settlement to be made in respect thereof.      The agreement,  inter  alia,  reiterated  that  whereas under lease  under clause  27, there  were certain residuary rights  as  we  have  noted  hereinbefore,  whereas  certain questions had  arisen in  the settlement  being made  by the Government as  regards the said rights as well as the assets of the lessees in the forest areas which the lessees desired to surrender  to the  Government, the  parties had agreed to resolve this  question indicated  under clause 1 therein. It is not  necessary to  set out  the details  here. These have been set out at pages 80-81 of the Paper Book.

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    We have  set out  the relevant portions of the material documents relied  before the High Court. It may be mentioned that the  High  Court  in  its  judgment  has  set  out  the discussion at page 793 of the report (81 I.T.R. 777) between the Government  of Burma  and the assessee company. The said discussion recorded is as follows: 283           "The Government  of Burma  was always the grantor.           Apparently this  was so  because the  forests were           always of  the ownership  of the  Government.  The           Government  was   the  single  owner  of  all  the           forests. These  forests were  never intended to be           transferred to any grantee at any time. The forest           leases were  always of  duration of  15  years  or           more. They always related to extremely large areas           which were  sub-divided into  large coupes.  These           coupes were  also not  to be  worked at  the  same           time, but  according to  schedule fixed in respect           thereof. Each  specified group of coupes was to be           worked within  three years.  The extraction of the           trees was  to be completed within the fixed period           of   three   years.   The   schedule   fixed   was           compulsorily  to   be  adhered  to.  The  work  of           extraction was  to be  done in accordance with the           rules prescribed for felling, logging and removal.           The Government was accordingly not a seller of any           stock  in-trade   and  the   assessee  was  not  a           purchaser of  any  stock  in-trade.  The  assessee           undertook the  obligations of  various kinds so as           to complete the work of extraction as indicated in           the  contract.   The  assessee   had  to  maintain           extremely large establishments and headquarters at           various places  and had  in that connection put up           various permises  including  dwelling  houses  and           buildings. It  had to  maintain diverse  sorts  of           mechanical appliances  and had,  inter alia, owned           motor transport,  tractors,  launches,  elephants,           cattle and  diverse assets  for  the  purposes  of           working these  forest leases.  The Government  was           not concerned  in  any  part  of  the  operations,           relating to  the extractions  done by the assessee           from the  contract area.  It is of importance that           the right  of extraction  and/or to  fell, convert           and remove  that was  given to the assessee was to           be exercised  in respect  of  the  growing  forest           trees and/or  uncut timber.  There was  a  further           right to  log all felled teak timber left unlogged           from former operations. The consideration that was           charged by  the Government  was only  the  royalty           agreed to be paid to the Government. G      The main  question,  is,  whether  the  acquisition  of forest leases by the assessee was capital asset or stock-in- trade. The  next question  which arises  for the  first  two years is  whether there  is  any  scope  of  application  of section 10(2)(vii) of Indian Income-tax Act, 1922 in respect of the  amount of  R.S.. 1,41,156  for the  assessment  year 1950-51 284 and for  1951-52 whether  the amounts of R.S.. 44,407, R.S.. 8,639 and R.S.. 2,16,929. being the excess realisations over R.S..  225   per  ton   for  logs  received  in  respect  of depreciable assets,  stores and livestock were liable to tax under the Act. The two questions relevant for the assessment year 1953-54 will be dealt with separately.      The main submission by Shri B.B. Ahuja on behalf of the

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re venue was that the assessee was operating on a wide field in more than one country for obtaining its stock-in-trade in timber. The  fresh con  tracts entered  into by the assessee (15 at  the material  time which  commenced and  expired  at different times, were contracts entered in the course of its business. It  was,  therefore,  submitted  that  these  were trading contracts.  The assessee’s  right under the contract of 1925,  according to  Shri Ahuja,  was to  (i)  fell  teak trees. The  assessee was  trading in teak; (ii) convert them into logs; and (iii) remove them on payment of royalty.      Under clause  27 of  the Agreement, the assessee had no interest in land as such, it had only a right to collect and take away  logs, its  stock-in-trade, it  could not fell any fresh trees. The agreement dated 10th June, 1949 was entered into by  the assessee,  according to the learned counsel for the revenue,  in the  course of  its  business.  He  further submitted that  28,847 logs  received by  the assessee under the agreement dated 10th June, 1949, were in substitution of the logs  that it  had already  cut and had not been able to remove from  the forests.  It was  urged, it  was  merely  a recompense for its rights in the stock-in-trade.      It has to be borne in mind that though the assessee had several sources  of income  including income  from  business operation, the  assessee’s company’s  main income  was  from felling the  trees and  carried on  the said  business on an extensive scale.      On behalf of the assessee, it was submitted that forest leases  constituted  the  income  producing  assets  of  the company. Mr.  Kaka submitted that these involved the setting up of  the entire  business and investment of large funds in building dams,  canals, roads,  railways, buildings, etc. He drew our attention to clause 15 of the lease agreement which has been  set out  at page 40 of the Paper Book in Statement of case.  Mr. Kaka  further reiterated  that the leases were for a  long duration  with a  first right  to refusal to any subsequent leases.  Reference was made in this connection to clause 4(2)  of the  lease agreement appearing at page 30 of the Paper Book. The Forest leases. it was 285 urged by him, were not ordinary commercial contracts made in the A  course of carrying on their trade or for the disposal of  their  products.  These  leases  related  to  the  whole structure of  the assessee’s profit making apparatus. It was further  submitted   that  these  regulated  the  assessee’s activities, defined  what they  might or  might not  do  and affected the  whole  conduct  of  the  assessee’s  business. According to  him the  forest leases, therefore, constituted the capital  assets of the assessee’s business. He relied on a decision  in Van-Den  Berghs Ltd. v. Clark, 3 I.T.R. 17 at 25 and  also Hood Bars v. Commissioner of Inland Revenue No. 2. 87 Tax Cases, 188.      Shri  Kaka,   therefore,  submitted   that  the  rights acquired under  the contract  were three-folds  viz. (1)  to fell trees (2) to convert the felled trees into logs and (3) to remove  the logs. He referred us to clause 1 of the lease Agreement which  appears at  page  27  of  the  Paper  Book. Detailed provisions  were made  in  clauses  9,  10  and  11 regarding each of these operations.      It was further submitted that during the initial period of 15  years the  assessee had the right to carry on all the three  operations   while  under  the  residual  rights  the assessee could  only carry  on the operations of logging and removal of logs already felled by him.      Under clause  27, the  assessee had  no rights  in  the felled logs  but only  had the  right to log and remove them

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and acquire  the same  after payment  of royalty. It was his submissions that  in the  absence of  clause 27 the assessee would have  no right  to the  felled trees  which would have remained the  property of the Government of Burma. We are of the opinion  that he is right. It was further submitted that the assessee  had not  rights to felled trees which were not logged and  removed within 3 years according to the terms of clause 27 of the lease agreement.      The consideration for the 43,860 tons of logs agreed to be handed  over to  the assessee  was the  surrender to  the residuary rights under the Forest leases and the acquisition of the  assets pertaining  to the Forest Leases. He referred to us  in this  connection to  clause 1  of  the  Take  over Agreement which  has been  set out  at page  80 of the Paper Book.      Mr.  Kaka   further  submitted   that  one   lump   sum consideration  was  paid  for  both  the  surrender  of  the residuary rights  and acquisition  of assets of the business under clause 7 of the Take over Agreement at H 286 p. 82.  The splitting  up of the consideration, according to him, in  clause 10  was merely for the implementation of the agreement as Schedule provided in the manner of handing over the logs  to the  assessee in exchange of certain assets. If the residuary rights and assets had not been acquired by the Government the  assessee would  have carried on his business for another 3 years and logged and removed the felled trees. The assessee  was prevented  from carrying  on this business upon the  nationalisation of  the forest  resources and  the consequential acquisition of the residuary rights and assets pertaining to  the forest  leases belonging to the assessee. Mr.  Kaka   urged  that   compensation  therefore  paid  for acquisition of  the residuary  rights and assets was for the sterilization of  the Company’s  business  and  therefore  a capital receipt.  He relied  on  the  observations  of  Lord Buckmaster at  page 463  and Lord  Wrenbury at  page 465  in Glenburg Union  Fireclay Co.  Ltd. v.  The  Commissioner  of Inland Revenue,  12 Tax Cases 427. It was further urged that once it  was held  that the  forest leases  constituted  the capital assets  of the  assessee, compensation  paid for the sterilization of  even part  of  a  capital  asset  must  be regarded as  a capital  receipt. Furthermore,  according  to him, it  made no  difference whether  there was a sale of an asset out  and out  or it  was a  means  of  preventing  the acquisition of  profits that  would otherwise  be gained. He urged that  in either  case the  asset of  the  company  was sterilized  or   destroyed.  Reliance   was  placed  on  the observations of  this Court in Commissioner of Income Tax v. Vazir Sultan  & Sons,  36 I.T.R. 175 at 191 and Godrej & Co. v. Commissioner of Income-Tax, 37 I.T.R. 381.      It is,  therefore, necessary  as mentioned hereinbefore to examine  whether the  acquisition  of  forest  leases  by assessee were acquisitions of capital assets. Though we will refer to  some of  the decisions  to which our attention was drawn and  which were  referred to  by the High Court, it is well to  bear in  mind the  basic principles.  These are: if there was  any capital  asset, and  if there was any payment made for the acquisition of that capital asset, such payment would amount  to a capital payment in the hand of the payee. Secondly, if  any payment  was made for sterilization of the very source of profit making apparatus of the assessee, or a capital asset,  then that  would also  amount to  a  capital receipt in  the hand  of the recipient. On the other hand if forest leases  were merely  stock-in-trade and payments were made for taking over the stock-in-trade, then no question of

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capital receipt  comes. The  sum would represent payments of revenue nature  or trading receipts. Whether in a particular case, for  the contracts  of the  type  with  which  we  are concerned, payments  were  capital  receipts  or  not  would depend upon the facts and circumstances of the case. In this 287 connection it  is important to bear in mind that normally in trade there  A are  two types  of capital,  one  circulating capital and  the other  fixed capital. Fixed capital is what the  owner  turns  to  profit  by  keeping  it  in  his  own possession; circulating  capital is  what he makes profit of by parting  with it  and letting it change hands. Therefore, circulating capital  is capital  which is turned over and in the process being turned over, yields profits or loss. It is well-settled as  the High  Court observed  in  the  judgment under appeal that what is capital assets in the hands of one person may  be trading assets in the hands of the other. The determining factor  is the  nature of the trade in which the asset    was    employed.    Compensation    received    for immobilisation, sterilization, destruction or loss, total or partial of  a capital  asset would  be capital receipt. If a sum represented  profit in  a new  form then that was income but  where   the  agreement  related  to  the  structure  of assessee’s profit making apparatus and affect the conduct of the  business,   the  sums   received  for  cancellation  or variation of such agreement would be capital receipt.      In Senairam  Doongarmall v. Commissioner of Income-lax, Assam, 42  I.T.R. 392 at 406, this Court observed as follows after discussing several authorities:           "All these  cases  were  decided  again  on  their           special facts. Though they involved examination of           other decisions in search for the true principles,           it cannot  be  said  that  they  resulted  in  the           discovery   of    any   principle   of   universal           application.  To   summarise  them:   South  India           Pictures’ case  (29 I.T.R.  910)  was  so  decided           because the  money received was held to be in lieu           of commission  which would have been earned by the           business which  was still  going, and  the receipt           was treated as the fruit of the business. The same           reason was  given  in  Jairam  Valiji’s  case  (35           I.T.R. 148),  and the Shamsher Printing Press case           (39 I.T.R. 90). In Vazir Sultan’s case (36, I.T.R.           175), the compensation was held to replace loss of           capital, and in Godrej’s case (37 I.T.R. 381), the           compensation was  said not to have any relation to           the likely  income  or  profits  but  to  loss  of           capital. Each case was thus decided on its facts.                We have  so far  shown the true ratio of each           case  cited   before  us,   and  have   tried   to           demonstrate that  these  cases  do  no  more  than           stimulate the mind, but none can serve as a H 288           precedent, without  advertence to  its facts.  The           nature of  the business,  or  the  nature  of  the           outlay or  the nature  of the receipt in each case           was  the   decisive  factor,   or  there   was   a           combination of  these factors.  Each  is  thus  an           authority in the setting of its own facts."      All these  cases have  been discussed  in the  judgment under ap  peal at  page 795 of 81 I.T.R. As Hidayatullah, J. as the  Chief Justice then was observed in 42 I.T.R. at page 392, each case depended upon the facts of each case.      This Court  had occasion  to  consider  some  of  these aspects in  Commissioner of  Income-tax, U.P.  v.  Gangadhar

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Baijnath,  86  I.T.R.  19  whereas  at  page  25  of  report referring to several authorities it noted:           "The question  whether a  receipt  in  capital  or           income has  frequently come  up for  determination           before  the   courts.  Various   rules  have  been           enunciated as  furnishing a key to the solution of           the question, but as often observed by the highest           authorities, it  is not  possible to  lay down any           single test  as infallible or any single criterion           as decisive  in the determination of the question,           which must  ultimately depend  on the facts of the           particular case,  and the  authorities bearing  on           the question  are valuable  only as indicating the           matters that  have to  be taken  into  account  in           reaching a  decision: vide  Van Den Berghs Ltd. v.           Clark (1935  A.C. 431: 19 T.C. 390: 3 I.T.R. (Eng.           Case) 17 (H.L.). That, however, is not to say that           the question  is one  of fact, for, as observed in           Davies (H.M.  Inspector of Taxes) v. Shell Company           of China  Ltd. (32  T.C. 133; 22 I.T.R. (suppl.) 1           (C.A.),  ’these   questions  between  capital  and           income, trading  profit or  no trading profit, are           questions which,  though they  may depend no doubt           to a  very great extent on the particular facts of           each case,  do involve  a conclusion  of law to be           drawn from those facts’."      Similar  observations  were  made  in  Commissioner  of Income-tax, Poona  v. Manna Ramji and Co., 86 I.T.R. 29. The Court reiterated the same principle.      We have  referred to  the discussion  which took  place with the 289 Government of  Burma on 28th October, 1925. Having regard to all A these, the forest leases, in our opinion, affected the very structure  of the  operation of  the assessee.  In this connection we  may remind  ourselves of  the decision of the House of  Lords in  Van  Den  Berghs  Ltd.  v.  Clark  (H.M. Inspector of  Taxes), 3  I.T.R. 17  (English case).  In that case a  Dutch company  and the assessee who were competitors in the manufacture and dealing in margarine, in order to end the competition  entered into an agreement in 1908, by which they bound  themselves to  work in  friendly alliance and to share  their  profits  and  losses  in  accordance  with  an elaborate scheme  therein specified;  further, it was stated that they  would promote  the commercial,  pecuniary, buying and selling  and other  interests of  the two  companies. In 1913  another  agreement  was  entered  into  modifying  the original basis  of ascertaining  and sharing  profits,  and, subject thereto,  continued in  force the  provisions of the agreement of  1908 until  December, 1940. During the war the agreements were  not operated, but in 1920 a third agreement was made  modifying the  two previous  agreements as  to the basis of  profit-sharing,  extending  the  branches  of  the business, and  again continuing  the principal  agreement of 1908 till  December, 1940.  In 1927,  three agreements  were made, under  which the  appellants agreed  to determine  the agreements of  1908, 1913  and 1920  in consideration of the payments to  them of  $ 450,000.  The Special  Commissioners held that  that sum  was paid  in  respect  of  the  pooling agreements, and  must be  brought in  for  the  purposes  of arriving at the balance of the profits of the appellants for the year  ending December,  1927, and  consequently that the sum was  an  income  receipt.  Finlay,  J.,  held  that  the cancelled agreements  were capital  asset of  the appellants and that  the sum  of   450,000 was not an income receipt at

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all. The  Court of  Appeal  restored  the  decision  of  the Commissioners, who had held that the sum was not received by the appellants  in consideration of the surrender of a fixed capital asset,  but arose from a transaction attributable to circulating capital, and therefore an income receipt. By the House of Lords it was held that $ 450,000 was not an item of profit arising  to the  appellants from  the carrying  on of their trade, as the agreements which were cancelled were not ordinary commercial  contracts made in the course of trading nor merely  agreements as  to how  trading profits should be distributed,  but   affected  the  whole  conduct  of  their business.  It   was  held   that  money   laid  out  in  the cancellation of so fundamental an organisation of a trader’s activities could  not be  regarded as  an income  receipt of disbursement. The  agreements  formed  the  fixed  framework within which  their circulating  capital operated,  and were not  incidental   to  the  working  of  their  profit-making machine. The Court reiterated H 290 the observations  and principles  laid down  by Lord Cave in British Insulated  & Helsby  Cables Ltd. v. Atherton, [1926] A.C. 205. The observations of Lord Macmillan at page 25 of 3 I.T.R. (English  case) are  apposite to the facts before us. The three  agreements which  the appellants in that case had consented to  cancel were  not ordinary commercial contracts made in the course of carrying on their trade; they were not contracts for  the disposal  of their  products or  for  the engagement of  agents or  other employees  necessary for the conduct of  their business.  These regulated the appellant’s activities, defined what the appellants might and what might not do  and affected  the whole  conduct of  the appellant’s business. Accordingly, Lord Macmillan found it in that case, difficult in seeing how money laid out to secure, I or money received  for   the  cancellation   of,  so  fundamental  an organisation of  a trader’s  activities could be regarded as an income  disbursement or an income receipt. Lord Macmillan noted that  the legal character of the payment should not be mis-judged by  the magnitude of payment-for the magnitude is a relative  term. But  the magnitude of a transaction is not an entirely irrelevant consideration. With respect we accept this approach  of Lord Macmillan to the facts of the present case before us, which appears to be basically similar.      The forest lease therefore constituted, in our opinion, capital assets  of the  assessee.  The  same  conclusion  is fortified by  the observations of House of Lords in the case of Hood  Barrs v. Commissioner of Inland Revenue (No. 2), 37 Tax Cases l 88.      In  Commissioner  of  Income-tax,  Hyderabad-Deccan  v. Vazir Sultan  & Sons, 36 I.T.R. 175, this Court held that in considering whether  compensation paid  to an  agent on  the cancellation of  his agency  was  a  capital  receipt  or  a revenue receipt,  the first  question considered was whether the agency  agreement in question was a capital asset of the assessee’s  business   and  constituted  its  profit  making apparatus and  was in the nature of its fixed capital, or it was a trading asset or circulating capital or stock-in-trade of its  business. If it was the former compensation received would be  a capital  receipt, if the agency was entered into by the  assessee in  the ordinary course of his business and for the  purpose of  carrying on that business it would fall into the latter category and the compensation received would be a revenue receipt.      Having regard  to the nature of the forest leases which we have  discussed before, in our opinion, the payments made for cancellation

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291 Or sterilisation  of the  rights under these leases would be capital receipts. See in this connection the observations of Lord Buckmaster  in the  decision of  House of  Lords in The Glenboig Union  Fireclay Co.  Ltd. v.  The  Commissioner  of Inland Revenue  (supra). The  observations of  Lord Wrenbury are at page 465.      We have  discussed the facts regarding the cancellation and circumstances  under which  it was  entered, and  we may refer to  the facts stated in the judgment of the High Court at pages 798-799. As a result of the above findings the High Court came  to  the  conclusion  that  sum  of  Rs.65,52,153 mentioned in  question No. 2 for the assessment year 1950-51 and the  sum of  Rs.5,18,896 mentioned in question No. 2 for the assessment  year 1951  -52 were  related to  the 28, 847 tons of logs which are exempt from tax as being receipt of a capital nature  on the  background of the facts found by the High Court. Question No. 3 really does not arise because for levy of  a balancing  charge  under  section  10(2)(vii)  of Income-tax Act,  1922, it  is absolutely  necessary that the depreciable assets  should have  been sold at a price agreed to between  the parties.  See in  this connection  also  the observations of  this Court in Commissioner of Income-tax v. Motors &  General Stores  (P) Ltd.,  66 I.T.R.  692. But  in exchange there  is a  reciprocal  transfer  of  interest  in movable property,  a corresponding  transfer of  interest in another movable property which is often denoted as ’barter’. The agreement  of 10th  June, 1949  had  resulted  from  the enforcement of the Government’s policy of nationalisation of forest operation  and the  agreement does  not  involve  any transaction of  sale between  the assessee  and the Union of Burma. The  assessee company never paid any money by a price in respect  of assets  delivered to  it by  the  Government, therefore, this  amount of  Rs.1,41,156 could not be brought to tax against the assessee company under the second proviso to section  10(2)(vii) of  the Indian  Income-tax Act, 1922. The question  accordingly was  rightly decided  in favour of the assessee.      Regarding question No. 4 in the assessment year 1950-51 and the question No. 3 in the assessment year 195l-52, these related to  the delivery of 2,946 and 12,067 tons of logs to the assessee-company  in respect  of the depreciable assets, stores and livestock mentioned in sub-clause (b) of clause 1 of the  agreement dated  10th June, 1949. The High Court was right in  holding that  logs came  into  possession  of  the assessee company  in consequence  of the  agreement made  on 10th June,  1949 against  delivery  of  all  outstanding  or residuary rights  of  the  assets  to  the  Government.  The arrangement was in consequence of 292 nationalisation of  forest operations in Burma. The whole of the quantity  of  43,860  tons  of  logs  delivered  to  the assessee-company was  in lieu  of the  asset of  the  forest leases and  the other  diverse assets which were handed over by the  assessee-company to  the Government  on  10th  June, 1949. These  logs were  not received by the assessee-company on revenue  account at  all. The  fact  that  the  assessee- company did  not mix up these logs with any of the stock-in- trade held  by it  in its  ordinary course of business is an indication of  the fact  that the assessee did receive these as stock-in-trade. These logs were received by the assessee- company for  four years  and held by it in the account which is described  as ’Burma  forest assets  realisation  reserve account’. The  sale proceeds of these logs could not be held to have  been received  by the  assessee-company on  revenue

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account. The  High Court  was right.  T he question No. 4 in the first  year and  the question  No. 3  in the second year must be answered in the negative and against the revenue.      We have  set out hereinbefore the questions relating to assessment year  1953-54. It  appears from  the  facts  that nothing was  paid by  the Government to the assessee-company in connection  with 1/3  area of  the forest areas which the Government had  taken over  from the assessee-company on 1st June, 1948.  The assessee-company  had filed  a suit against the Government in connection with the timber logs and stores taken over  by the Government on 1st June 1948. The facts in connection with  the delivery of these goods appeared in the letter of  the Government to the assessee-company dated 24th January, 1948.  In the suit filed by it, the asessee-company succeeded in  obtaining  a  decree  for  Rs.5,58,  188.  The Tribunal held  that the  timber taken over by the Government in respect of 1/3rd area was stock-in-trade and the proceeds were taxable.  Mr. Kaka was right in his submission that the timber taken  over  was  towards  the  residuary  rights  in respect of  the assets lying within 1/3rd area taken over on 1st June,  1948. The  price of  the timber as such was never paid by  the Government. In the decree, this sum was awarded in lieu  of the  rights which the assessee-company had under clause 27  in respect  of  1/3rd  area  taken  over  by  the Government. To these facts, the terms of the agreement dated 10th  June,  1949  would  be  applicable.  This  sum  cannot therefore be taxed.      On the  question No.  2 for the assessment year 1953-54 no argument  was advanced before the High Court on behalf of the assessee and the High Court answered the question in the affirmative. 293      In view  of the  principles involved  and the nature of the transactions,  we are of the opinion that the High Court was right in answering the question in the manner it did. In the premises  these appeals  fail  and  are  dismissed  with costs. P.S.S.                                    Appeals dismissed. 294