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PETITIONER: THE COMMISSIONER OF INCOME-TAX,BIHAR AND ORISSA

       Vs.

RESPONDENT: SRI RAMAKRISHNA DEO

DATE OF JUDGMENT: 14/10/1958

BENCH: AIYYAR, T.L. VENKATARAMA BENCH: AIYYAR, T.L. VENKATARAMA GAJENDRAGADKAR, P.B. SARKAR, A.K.

CITATION:  1959 AIR  239            1959 SCR  Supl. (1) 176  CITATOR INFO :  R          1965 SC 568  (12)

ACT:        Income   Tax-Forest   trees-Income  from   sale   of-Whether        agricultural income-Exemption from taxation-Burden of proof-        Findings  of the Tribunal-When binding on High  Court-Indian        Income-tax  Act, 1922 (XI Of 1922), SS. 2(1),  4(3)  (viii),        66(1).

HEADNOTE: The respondent, the proprietor of an estate, derived  income from  the sale of trees growing in his forests  and  claimed that it was agricultural income as defined in s. 2(1) of the Indian  Income-tax  Act, 1922, and that it was  exempt  from payment  of income-tax under s. 4(3)(viii).   The  Appellate Tribunal  found  that the evidence to show  that  there  was plantation   by  the  estate  authorities  was  meagre   and unsubstantial, that the trees in question must have been  of spontaneous  growth  and that the respondent had  failed  to establish  facts  on  which he could  claim  exemption.   On reference, the High Court took the view that though trees in the  forest had not been planted by the estate  authorities, the   latter  had  performed  subsequent  operations  of   a substantial character for the maintenance and improvement of the forest, and that the income was, therefore, agricultural income.   It also held that the onus was on  the  income-tax authorities  to prove that the income derived from the  sale of  trees  was  not agricultural income and  that  they  had failed to show that the income fell outside the scope of the exemption mentioned in s. 4(3)(viii) Of the Act. Held, that the High Court erred in placing the burden on the income-tax authorities to prove that the income sought to be taxed  was not agricultural income.  The principle has  been well  established that where a person claims the benefit  of an  exemption  under the provisions of the Act,  he  has  to establish it. 177 Commissioner  of  Income-tax v. Venkataswamy  Naidu,  [1956] 291.T.R. 529, followed. The question whether the trees were of spontaneous growth or were  products of plantation was essentially a  question  of

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fact  and  the  finding of the Tribunal on  this  point  was binding  on the High Court in a reference under s. 66(1)  of the Act. Held, further, that the income received by the respondent by the sale of trees in his forests was not agricultural income as  the trees had not been planted by him, and that  it  was immaterial that he had maintained a large establishment  for the  purpose of preserving the forests and assisting in  the growth of the trees.  The  Commissioner of Income-tax, West Bengal,  Calcutta  v. Raja Benoy Kumar Sahas Roy, [1958] S.C.R. 101, explained and followed.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No.426 of 1957. Appeal from the judgment and order dated April 21, 1955,  of the  Orissa  High Court at Cuttack in  Special  Jurisdiction Case No. 179 of 1951. A.   N.  Kripal,  R.  H.  Dhebar  and  D.  Gupta,  for   the appellant. A.   V. Viswanatha Sastri, M. S. K. Sastri and R. Jagannatha Rao, for the respondent. 1958.  October 14.  The Judgment of the Court was  delivered by VENKATARAMA AIYAR, J.-This is an appeal against the judgment of  the High Court of Orrissa in a reference under s.  66(1) of the Indian Income-tax Act, 1922, hereinafter referred  to as  the  Act, and the point for decision is  whether  income received  by the respondent by the sale of trees growing  in his  forests  is agricultural  income exempt  from  taxation under s. 4(3)(viii) of the Act. The respondent is the proprietor of the impartable zamin  of Jaipur  in Koraput District.  The estate is of the  area  of 12,000 sq. miles of which 1540 sq. miles are reserve  forest and 100 sq. miles, protected forest.  The respondent derives income from the forests by the sale of timber such as  teak, salwood, lac, myrabolam, tamarind, cashewnuts and  firewood. There is no 23 178 dispute either as to the receipt of such income or as to its quantum.   All  tat  appears in the  account  books  of  the respondent.  The point in controversy is as to whether  this income  is chargeable to tax.  It is the contention  of  the respondent that this is agricultural income as defined  ins. 2(1)  of  the Act, and that it is,  in  consequence,  exempt under s. 4(3)(viii).  By his 31, 1943, the Income-tax  order dated January Officer held that the forests in question  had not been proved to have been planted by the respondent, that the  trees were of spontaneous growth, and that  the  income therefrom was not within the exemption under s.  4(3)(viii); and  this  order was confirmed on appeal  by  the  Appellate Assistant  Commissioner.  The respondent took the matter  in further  appeal  to the Appellate Tribunal,  and  there  put forward the contention that the Incometax Officer had failed to  take  into account a letter of the Dewan dated  June  3, 1942,  which  gave  a detailed  account  of  the  operations carried  on by the estate in the rearing and maintenance  of forests and that on the facts mentioned in that letter,  his finding  that  there  had been no plantation  of  trees  was errolieous.  By its order dated April 9, 1946, the  Tribunal accepted this contention, and directed a fresh enquiry  into the facts mentioned in the said letter.

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Pursuant  to  this  order,  the  Income-tax  Officer   again enquired  into the matter.  He observed that though he  gave ample  opportunities to the respondent to prove  that  there was  plantation  of trees by the estate, no  materials  were placed  in proof of that fact and that  neither  -plantation books  nor any working plans for timber plantation had  been produced.   He accordingly held that the forests  had  grown naturally,  and that the income therefrom was assessable  to tax.   On this report, the appeal again came up for  hearing before  the  Tribunal.   The main contention  urged  by  the respondent at the hearing was that the facts showed that the forests  which  had  yielded income  during  the  year,’  of account  could  not have been the virgin forests  which  had originally  grown spontaneously on the hills,  because  they had  been  periodically denuded by the hill  tribes  in  the process of Podu cultivation carried on by 179 them.   What this Podu cultivation means is thus  stated  in the ]District Gazetteer, Vishakapatnam, 1907: "  This consists in felling a piece of jungle,  burning  the felled trees and undergrowth, sowing dry grain broadcast  in the  ashes  (without any kind of tilling) for two  years  in succession,  and  then  abandoning  the  plot  for   another elsewhere." The  argument of the respondent was that as a result of  the Podu   cultivation,   the  original  forests   should   have disappeared  and that the trees that had subsequently  grown into  forest  and sold as timber must have been  planted  by human  agency  and their sale proceeds must  accordingly  be agricultural  income.   Dealing with  this  contention,  the Tribunal  observed  that  though there  had  been  extensive destruction  of forests in the process of Podu  cultivation, nevertheless,  considerable  areas of virgin  forests  still survived,  that  the  evidence  of  actual  cultivation  and plantation   by  the  zamin  authorities  was   meagre   and unsubstantial,  that  no expenses were shown  to  have  been incurred  on  this account prior to 1904,  that  the  amount shown  as  spent during that year was negligible,  that  the trees  planted  then could not have been the trees  sold  as timber during the assessment years, and that the  respondent bad  failed  to  establish facts on  which  he  could  claim exemption.   It should be mentioned that this order  covered the assessments for five years from 1942-43 to 1946-47,  the facts relating to the character of the income being the same for  all the years.  On the application of  the  respondent, the  Tribunal  referred  the  following  question  for   the decision of the High Court : "  Whether on the facts and in the circumstances the  income derived from forest in this case is taxable under the Indian Income-tax Act." The reference was heard by Panigrahi, C. J., and Misra,  J., who answered it in the negative.  They observed : " It appears to us that the cases as set out by both parties have been put too high.  The department takes the view  that unless there is actual cultivation of the 180 soil the income from the forest trees cannot be regard. ,led as  agricultural  income.  The fact that  the  assessee  has spent some money and planted valuable trees in some areas is not  sufficient  to  free the income out  of  the  extensive forests  which  owe their existence to  spontaneous  growth, from  its liability to taxation.  The assessee on the  other hand  seeks  to  create an impression that there  is  not  a single  tree  of spontaneous growth, in these  forests,  and such  trees as now constitute forests have sprung up out  of

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the stumps left by the hillmen as a result of the system  of I Podu’ cultivation adopted by them.  It appears to us  that neither of these claims can be regarded as precise or correct." The  learned  Judges then observed that the forests  in  the Koraput  area  had been under Podu cultivation  for  a  long period, and that as the result of that cultivation they  had practically  disappeared  even by the year  1870,  that  the trees had subsequently grown into forests and they had  also been  destroyed by about the year 1901, and  that  therefore there could not have been any virgin forest left  surviving. Then they referred to the fact that the respondent had  been maintaining  a large establishment for the  preservation  of the  forests, and that there had been  organised  activities (1)  " in fostering the growth of the trees  and  preserving them from destruction by man and cattle; (2) in  cultivation of the soil by felling and burning trees from time to  time; (3)  in  planned exploitation of trees by  marking  out  the areas  into blocks; (4) in systematic cutting down of  trees of  particular  girth  and at  particular  heights;  (5)  in planting new trees where patches occur; and (6) in watering, pruning,  dibbling  and digging operations carried  on  from time to time ". And they stated their conclusion thus: "   All  these  and  similar  operations  which  have   been undertaken   by  the  assessee  through  his   huge   forest establishment, show that there has been both cultivation  of the  soil as well as application of human skill and  labour, both  upon the land and on the trees themselves.  It  cannot be  assumed therefore that all the trees are of  spontaneous growth.  The indications, on 181 the  other hand, appear to be that most of them are  sprouts springing  from  burnt stumps.  There is no  basis  for  the assumption  made by the Income-tax Department that  all  the trees are forty years old and that they owe their  existence to  spontaneous growth.  Apart from that it will be  noticed that  what  distinguishes  the present  case  from  all  the reported  decisions  is that practically the  whole  of  the forest  area  has  been  subjected  to  process  of   ’Podu’ cultivation  spreading  over several decades so that  it  is impossible to say that there is any virgin forest left. The onus was certainly upon the department to prove that the income  derived from the forest was chargeable, to  tax  and fell outside the scope of the exemption mentioned in Section 4(3)(viii)." In  this view, they held that the Department had failed  -to establish that the income derived from the sale of trees was not  agricultural  income,  and answered  the  reference  in favour  of  the respondent.  The  learned  Judges,  however, granted a certificate to the appellant under s. 66(A)(2)  of the Act, and that is how the appeal comes before us. At  the  very  outset,  we  should  dissent  from  the  view expressed  by the learned Judges that the burden is  on  the Department  to prove that the income sought to be  taxed  is not agricultural income.  The law is well settled that it is for a person who claims exemption to establish it, and there is  no reason why it should be otherwise when the  exemption claimed  is  under the Income-tax Act.  The  learned  Judges were  of the opinion that their conclusion followed  on  the principle of the law of Income-tax that " where an exemption is  conferred by a statute, the State must not get  the  tax either  directly or indirectly ", and support for this  view was sought in the following observations of Lord  Somervell, L. J., in Australian Mutual Provident Society v.   Inland Revenue Commissioners (1):

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"  The  rule must be construed together with  the  exempting provisions  which,  in  our opinion,  must  be  regarded  as paramount.  So far as the rule, if taken (I)  [1946] 1 All E.R. 528. 182 in isolation, would have the effect of indirectly  depriving the company of any part of the benefit of the exemption, its operation  must  be  cut down, so as  to  prevent  any  such result,  and to allow the exemption to operate to  its  full extent." These  observations have, in our opinion, no bearing on  the question of burden of proof.  They merely lay down a rule of construction that in determining the scope of a rule, regard must  be had to the exemptions engrafted thereon,  and  that the  rule  must  be so construed as  not  to  nullify  those exemptions.   No such question arises here.  There is  ample authority for the view that the principle that a person  who claims  the  benefit of an exemption has  to  establish  it, applies  when the exemption claimed is under the  provisions of  the Income-tax Act.  Vide the observations of  the  Lord President  and  of Lord Adam in Maughan v.  Free  Church  of Scotland  (1) and the observations of Lord Hanworth, M.  R., in  Keren Kayemeth Le Jisroel Ltd. v. The  Commissioners  of Inland  Revenue (2) at p. 36 that " the right  to  exemption under  Section 37 must be established by those who seek  it. The  onus therefore lies upon the Appellants ", and of  Lord Macmillian at p. 58 that, "  In  my opinion, the Appellants, have failed to  bring  it within  any  one of these categories and  consequently  have failed  in what was essential for them to make out,  namely, that  this  Company  is a body of  persons  established  for charitable purposes only." The decisions of Indian Courts have likewise ruled and quite rightly  that it is for those who seek exemption under s.  4 of the Act to establish it.  Vide Amritsar Produce  Exchange Ltd.   In re (3) and Sm.  Charusila Dassi and others, In  re (4).  So far as exemption under s. 4(3) (viii) is concerned, the  matter is concluded by a decision of this  Court  given subsequent   to   the  decision  now   under   appeal.    In Commissioner  of Income-tax v. Venkataswamy Naidu (5),  this Court  held,  reversing the judgment of the  High  Court  of Madras, that it (1) (1803) 3 Tax Cas. 207, 21 O.  (2) (1931) 17 Tax CaS. 27. (3)  [1937]  5 I.T.R. 307, 327.  (4) [1946] 14  I.T.R.  362, 370. (5)  [1956] 29 I.T.R. 529, 534. 183 was  for the assessee to prove that the income sought to  be taxed was agricultural income exempt from taxation under  s. 4(3)(viii).  Bhacgwati, J., delivering the’ judgment of  the Court observed: " ... the High Court erroneously framed the question in  the negative  form  and  placed the  burden  on  the  Income-tax Authorities of proving that the income from the sale of milk received by the assessee during the accounting year was  not agricultural  income.  In order to claim an  exemption  from payment  of  incometax  in  respect  of  what  the  assessee considered  agricultural  income, the assessee  had  to  put before  the  Income-tax Authorities proper  materials  which would  enable them to come to a conclusion that  the  income which was sought to be assessed was agricultural income.  It was not for the Income-tax Authorities to prove that it  was not agricultural income.  It was this wrong approach to  the question  which vitiated the judgment of the High Court  and led it to an erroneous

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conclusion." On  the  inerits, the question what is  agricultural  income within  s.  2(1)  of  the Act is the  subject  of  a  recent decision  of this Court in The Commissioner  of  Income-tax, West  Bengal,  Calcutta v. Raja Benoy Kumar Sahas  Roy  (1). There, it was held that before an income could be held to be agricultural  income, it must be shown to have been  derived from  land  by  agriculture or by one or the  other  of  the operations  described in cls. (i) and (ii) of s. 2(1)(b)  of the  Act,  that  the term St agriculture  "  meant,  in  its ordinary sense, cultivation of the field, that in that sense it  would  connote such basic operations as tilling  of  the land,  sowing  of trees, plantation and the like,  and  that though  subsequent  operations  such  as  weeding,  pruning, watering,  digging the soil around the growth  and  removing undergrowths  could be regarded as  agricultural  operations when they are taken in conjunction with and as  continuation of  the basic operations mentioned before, they  could  not, apart  from  those operations, be regarded  as  bearing  the character of agricultural operations. (1)  [1958] S.C.R. 101, 155, 158, 160. 184 It is only " observed Bhagwati, J., delivering the  judgment of the Court, " if the products are raised from the land  by the   performance  of  these  basic  operations   that   the subsequent  operations attach themselves to the products  of the  land  and acquire the  characteristic  of  agricultural operations..." "  But if these basic operations are wanting the  subsequent operations do not acquire the characteristic of agricultural operations." Dealing with trees which grow wild, Bhagwati, J., observed : " It is agreed on all hands that products which grow wild on the  land  or are of spontaneous growth  not  involving  any human  labour  or skill upon the land are  not  products  of agriculture   and  the  income  derived  therefrom  is   not agricultural  income.   There is no process  of  agriculture involved in the raising of these products from the land." The  law being thus settled, in order to decide whether  the income  received by the respondent by the sale of  trees  in his  forests  was agricultural income or  not,  the  crucial question to be answered is, were those trees planted by  the proprietors of the estate, or did they grow spontaneously  ? If it is the latter, it would be wholly immaterial that  the respondent  has  maintained a large  establishment  for  the purpose  of  preserving  the forests and  assisting  in  the growth  of the trees, because ex hypothes, he  performed  no basic operations for bringing the forests into being.   Now, the   Tribunal  has  clearly  found  that  there   were   no plantations  of  trees by the estate authorities  worth  the name,  and  that  the trees, the income from  which  is  the subject matter of the assessments, must have been of sponta- neous growth.  That is a finding of fact which is binding on the  Court  in a reference under s. 66(1) of the  Act.   The learned Judges declined to accept this finding, because they considered  that the Tribunal had not appreciated  the  true significance of Podu cultivation.  That, in our opinion,  is a misdirection.  If the point for decision had been  whether the   forest  was  a  virgin  forest  or  whether   it   had subsequently  sprung  up,  the  evidence  relating  to  Podu cultivation would have 185 been  very  material.   But the point for  decision  is  not whether  the forests were ancient and primeval, but  whether

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they  had  been planted by the estate  authorities,  and  on that,  the  Podu cultivation would have no  bearing.   As  a result  of the Podu cultivation, the original forests  would have  disappeared.   But  the question  would  still  remain whether the forest which again sprang up was of  spontaneous growth,  or was the result of plantation.  Now, there is  no evidence  that as and when the jungle had disappeared  under Podu cultivation, the estate intervened and planted trees on the  areas  thus denuded.  On the other  hand,  the  learned Judges  themselves found that after the destruction  of  the original  forests in the process of Podu cultivation,  there was  a fresh growth of forests from the stumps of the  trees which  had  been burnt.  If that is the fact, then  the  new growth  is  also spontaneous and is not the  result  of  any plantation. In fairness to the learned Judges, it must be observed  that at  the  time  when they heard the  reference  there  was  a conflict  of  judicial  opinion  on  the  question   whether subsequent operations alone directed to the preservation and improvement  of  forests would  be  agricultural  operations within  s. 2(1) of the Act; and the view they took was  that such  operations when conducted on a large scale as  in  the present case would be within s. 2(1) of the Act.  It was  in that  view that they observed that "it is therefore idle  to regard  tilling  as  the  sole  and  indispensable  test  of agriculture ". The decision of the learned Judges was really based  on the view that though trees in the forest  had  not been  planted  by  the estate authorities,  the  latter  had performed  subequent operations of a  substantial  character for the maintenance and improvement of the forest, and that, in  consequence, the income was agricultural  income.   This view  is no longer tenable in view of the decision  of  this Court  in  The  Commissioner  of  Income-tax,  West  Bengal, Calcutta v. Raja Benoy Kumar Sahas Roy (1). It is contended by Mr. Viswanatha Sastri for the (1)  [1958] S.C.R. 101, 155, 158, 160. 24 186 respondent  that on the facts established in  the  evidence, the  proper conclusion to come to is that the trees sold  by the  respondent had been planted by the estate  authorities, and that the decision of the High Court that the income thus realised  is within the exemption under s. 4(3)(viii)  could be  supported  even  on  the  view  of  law  taken  in   The Commissioner  of Income-tax, West Bengal, Calcutta  v.  Raja Benoy Kumar Sahas Roy (1).  The argument was that there  was unimpeachable evidence that the old forests had  disappeared under  Podu cultivation, that the estate had been  regularly engaged in planting trees at least from the year 1904 as  is shown by the accounts of the zamin, that it was a reasonable inference  to make that there had been  similar  plantations even during the years prior to 1904 notwithstanding that  no accounts were produced for those years, because it would not be  reasonable  to expect that such accounts  would  now  be available,  that  though  the  amount  shown  as  spent  for plantation    might   not   be   considerable,   that    was understandable  when  regard  is bad to the  fact  that  the agricultural operations were conducted on the hills and  not on  the plains, that, on these facts, it would be proper  to conclude that the forests were in their entirety the  result of  plantation.  It would be ail erroneous approach, it  was argued, to call upon the assessee to prove tree by tree that it  was planted.  Now, these are matters of appreciation  of evidence  on what is essentially a question of  fact,  viz., whether  the  trees  were  of  spontaneous  growth  or  were

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products  of plantation.  On this, the Tribunal has given  a clear  finding  on  a  consideration  of  all  the  material evidence, and its finding is final and not open to challenge in a reference under s. 66 (1) of the Act.  Even the learned Judges  of the High Court who considered themselves free  to review  that  finding-and, as already pointed  out,  without justification,  could only observe that the trees must  have mostly  grown  from the slumps left when  the  forests  were burnt  for  purposes of Podu cultivations finding  which  is fatal  to the contention now urged for the  respondent  that they (I)  [1958] S.C.R. 101, 155, 158, 160. 187 were the result of plantation.  We are of opinion that there are no grounds on which the finding of the Tribunal could be attacked in these proceedings. It remains to deal with one other contention urged on behalf of  the respondent, and that is based on the fact  that  the amounts  spent in the upkeep of the forrests were  large  in comparison  with the receipts therefrom.  The following  are the figures relating to the forest receipts and expenses for the years with which the present assessments are concerned: Years     Receipts  Expenses 1942-43   Rs. 438,894    Rs. 174,437 1943-44    Rs. 407,447    Rs. 209,895 1944-45   Rs. 552,122    Rs. 228,830 1945-46   Rs. 372,971    Rs. 247,216 1946-47   Rs. 689,366    Rs. 460,369 The  argument  is  that  from the  high  proportion  of  the expenses  in relation to the receipts it could  be  inferred that  the income from trees planted by the estate  formed  a substantial portion of the income derived from the  forests. And  support for this conclusion is sought in the  following observations in The Commissioner of Income-tax, West Bengal, Calcutta v. Raja Benoy Kumar Sahas Roy (1): " The expenditure shown by the assessee for the  maintenance of the forest is about Rs. 17,000 as against a total  income of about Rs. 51,000.  Having regard to the magnitude of this figure,  we think that a substantial portion of  the  income must have been derived from trees planted by the proprietors themselves." To appreciate the true import of these observations, we must have  regard to the context in which they occur.  The  facts found  in that case were that portions of the  forest  which was  originally  of spontaneous growth  had  gradually  been denuded,  that the propritor had planted trees in the  areas so  denuded, that this had gone on for a period of over  150 years, and that therefore " the whole of the income  derived from (1)  [1958] S.C.R. 101, 155, 158, 160. 188 the  forest cannot be treated as non-agricultural income  ". It was then observed that " If the enquiry had been directed on proper lines, it would have been possible for the Income- tax  authorities  to  ascertain how much of  the  income  is attributable to forest of a spontaneous growth and how  much to trees Planted by the proprietors ", but that, in view  of the  long lapse of time, it was not desirable to remand  the case   for  enquiry  into  the  matter.   Then  follow   the observations  on which the respondent relies, and when  read in  the light of the findings that the plantations  made  by the proprietors were not negligible, they mean nothing  more than that out of the total income a substantial portion  was likely to be agricultural income, and that it was  therefore not a fit case for ordering fresh enquiry These observations

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do not lay down that if considerable amounts are expended in the  maintenance of forests, then it must be held  that  the trees were planted by the proprietors.  They only mean  that if  a considerable portion of the forests is found  to  have been planted, a substantial portion of the forest income may be  taken to have been derived therefrom.  And this too,  it must  be  remarked,  is  only a  presumption  of  fact,  the strength  of which must depend on all the facts  found.   In the  face of the clear finding in the present case that  the forests  with which the assessment years are concerned  were of spontaneous growth, the observations quoted above can  be of  no  assistance  to  the  respondent.   It  is   scarcely necessary to add that the observations " If the enquiry  bad been  directed on proper lines, it would have been  possible for the Income-tax authorities to ascertain how much of  the income  is attributable to forest of spontaneous growth  and how much to trees planted by the proprietors " quoted  above cannot be read, as was sought to be done for the respondent, as throwing on the Department the burden of showing that the income  sought  to  be taxed was  not  agricultural  income. That,  in  their  context, is not the true  meaning  of  the observations, and the law is as laid down in Commissioner of Income-tax v. Venkataswamy Naidu (1)  [1956] 29 I.T.R. 529, 534. 189 In  the  result, this appeal is allowed, the  order  of  the Court  below is set aside and the reference is  answered  in the  affirmative.  The respondent will pay the costs of  the appellant here and in the Court below. Appeal allowed.