COMMISSIONER OF INCOME TAX, KERALA versus AMBAT ECHUKUTTY MENON

Citation: [1980] 1 S.C.R. 539 · Decided: 06-09-1979 · Supreme Court of India · Bench: N.L. UNTWALIA · Disposal: Dismissed

Judgment (excerpt)

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539 
COMMISSIONER OF INCOME TAX, KERALA 
v. 
AMBAT ECHUKUTTY MENON 
September 6, 1979 
[N. L. UNTWALIA AND R. S. PATHAK, JJ.] 
Income Tax Act 1961--Capital Receipt & Revenue Receipt-Sale of trees of 
spontaneous growth-Purchaser to cut and remove' trunks of trees only-Stumps 
and roots embedded in soi~ 'not to be disturbed-Proceeds of sale whether liable 
to be taxed as 'income'. 
On a vast area of agricultural land owned by' the assessee there were a.bout 
772 trees some of which were of spontaneous growth. 
Clauses 12 and 13 of the agreement by which the assessee sold some trees 
provided that the trees should be cut without pulling the stumps. 
A 
B 
c 
The Income Tax Officer, held that the trees were of spontaneous growth and 
D 
assessed the whole of the income from the sale of trees to income-tax. 
The Appellate Assistant Commissioner allowed the assessee's appeal in part 
holding that only the amount actually received during the accounting year, was 
assessable to income-tax. 
Appeals preferred by the assessee as well as the department to thei Income Tax 
Appellate Tribunal were dismissed but references were made to the High Court 
on the question whether the receipts from the sale of trees of spontaneous growth 
were assessable to tax and if so, whether assessable under the head 'other sources'. 
The High Court held that the receipts from the sale of the trees were of a 
capital nature, and decided the references in favour of the assessee and against 
the department. 
Dismissing the appeals the Court, 
HEID : (per Untwalia, J.) 
E 
F 
(1) The High Court rightly distinguished the decision in 
V. Venugopala 
Varma Raiah v. Commissioner of Income-tax, Kerala, 76 ITR 460 and applied 
~e rativ of that in A. K. T. K. M. Vishnudatta Antharjanam v. Commissioner 
G 
of Agricultural Income Tax, Trivandrum, 78 ITR 58, 
(549FJ 
(2) In Venugopala Varma Rajah v. Commissioner of Income Tax, Kerala, 16 
lTR 460, this Court held that if a person sells merely leaves or fruit of the trees 
or even branches of the trees it would be difficult to hofd that the realization is 
not of the nature of income. Where the trunks are cut so that the stumps re· 
main intact and capable of regeneration, receipts from sale of the trunks would 
H 
be in the nature on income. By selling a part of the trunk, the assessee does not 
necessarily realise a part of his capital, (546A, D-E] 
A 
B 
c 
D 
E 
F 
G 
H 
540 
SUPREME COURT REPORTS 
[1980] l s.c .. R. 
(3) In A. K. T. K. M. Vishnuda/la Anth'arjanam v. Commissioner of Agri-
cultural Income Ta:t1 Trivandrum, 78 ITR 58, a case of sale of. trees with roots. 
this Court applied the test laid down by the Privy Council in the Cbmmissioner 
of Income Tax, Bengal v. Mjs. Shaw, Wallace and Co., 6 ITC 178 and held tha~ 
"the source is not necessarily one which is expected to be continuously produc. 
tive, but it must be one who'se object is the production of a definite return exclud-
ing anything in the· nature of a mere windfall. Once the teak trees were removed 
together with their roots and there was no prospect of regeneration or of any 
production of a ·return therefrom, it could well be· said that the source ceased to 
be one which could produce any income." 
Although the test laid down by the 
Privy Council has been whittled down by subsequent pronouncements, yet ill the 
matter of sale of trees when this Court appHed the same test in VishnudaJta's 
case it was for the purpose of laying stress on the object of the felling of trees. 
[546G, 547A-Cl 
( 4) If the object of felling the trees leaving the roots and stumps intact is 
for regeneration of income, lhW. whether income is regenerated or not is imma-
terial. But in a case, where the trees are sold by uprooting the roots nobody can 
say that there could be any object of regeneration of income from the trees grow-
ing again as there was no question of a second growth at all. Similarly \Yhen 
the trees are sold and allowed to be felled by leaving the roots and stuml"' intact 
then in case of trees of spontaneous growth there is a likelihood of fresh sprouting 
and further growth of trees on the left out roots and stumps, The presumption 
in such cases would be that the owner did it with the object of regenerating the 
incon:ie. There can be cases· like the instant one, where the roots and stumps 
were not allowed to be uprooted and cut by the licensee or the lessee, yet the 
object was not the regeneration of the trees, but 

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