STATE OF TAMIL NADU versus SHAKTI ESTATES & ANR.

Citation: [1989] 1 S.C.R. 408 · Decided: 01-02-1989 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Appeal(s) allowed

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Judgment (excerpt)

A 
STATE OF TAMIL NADU 
v. 
SHAKTI ESTATES & ANR. 
FEBRUARY 1, 1989 
B 
[SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.) 
c 
Tamil Nadu General Sales Tax Act, 1959: Section 2(d) and (g)-
Assessee-Acquiring reserve forest for coffee and cardamom plantation 
unwanted trees felled-Sold as firewood, timber, sleepers and 
charcoal-Assessee whether liable to sales tax-'Adventure in the 
nature oftrade'-What is. 
The respondent in each of the appeals is the assessee. It wa• a firm 
of 10 individuals. They acquired a reserve forest, by a lease which 
entitled them to enjoy the usufruct of the forest by its exploitation. The 
partnership deed provided that the firm will carry on the development 
D and exploitation of lands. The acquisition was effected with a view to 
raise a coffee and cardamom plantation thereon. For doing this, the 
assessee had to clear a portion of the forest and in the process fell the 
unwanted trees standing thereon as natural growth. The cut trees were 
sold by the assessee in the form of firewood as well as in the form of cut 
sizes of timber as well as sleepers. Some of the growth was also con-
E 
verted into charcoal and the resultant charcoal sold. 
F 
G 
The firm had been functioning for the past 7 years and bad been 
paying sales tax on its sale of firewood, timber and sleepers. But for the 
first time in the assessment year 1%8-69, it put forward a claim that the 
above turnover was not assessable in its hands. 
The assessing officer and the first appellate authorities held that 
the turnover in question to be taxable. But the Tribunal reversed this 
decision, and held that the turnover was not liable for assessment to 
sales tax. 
The High Court dismissed the revision petition filed by the State. 
It held that it was a case of a lease. It did not involve any sale of trees. 
Merely because the trees were sawn to sizes, would not by itself make 
out a sale. The suggestion that the sizing of trees into timber of their 
conversion into sleepers could make a difference was not accepted by 
the High Court, which following the decision of the Kerala High Court 
H in Kuttiravin & Co. v. State of Kera/a, [1976) 38 STC 282 affirmed the 
Tribunal's order. 
408 
1
t 
STATE OF TAMIL NADU v. SHAKTI ESTATES 
409 
The State appealed to this Coon. 
Allowing the appeals and setting aside the order of the High Court 
and Tribunal, the Court, 
HELD: l(a) The fact that the assessees are business entities, the 
size of the tract developed, the extent and value of the trees standing on 
the land, the inevitability of the jungles having to be cleared and the 
standing trees disposed of before commercial crops would be grown, 
the manner in which the forest trees were disposed of, are all insignia 
that mark out the entire set of activities as a concern in the nature of 
trade. [4140-E] 
I (b) In the area of income tax law, it has been held that no 
adventure in the nature of trade can be spelt out where all that a person 
does a mounts to a mere realisation of his capital assets. [414E-F] 
l(c) The assessees in the instant case, did not merely realise the 
value of a capital asset belonging to them. They went in for the acquisi-
tion of an asset fully realising its potentialities for exploitation not 
merely as a plantation but also, incidentally, by disposing of the existing 
growth on the land. [414G-H] 
I ( d) If one purchases an asset with a view to turn it to account in 
such manner, one is certainly carrying out an adventure in the nature of 
trade. [414H; 415A] 
2(a) The definition of 'business' in the T.N. General Sales Tax 
Act, 1959, includes 'any tnµ1saction in connection with or incidental 
to or ancillary' to a trade. The activities carried on by the assessee 
were incidental and ancillary to the business which the assessee was 
carrying on or definitely intended to carry on. It is also immaterial, 
on this definition, that the assessee may not have had a 'motive of 
making a profit or gain' on these sales, though on the facts, it is clear 
that such motive must have existed and, in any event, could not be ruled 
out. [415B-C] 
2(b) Even the sales effected before the plantation started yielding 
results would be covered by the definition, as the venture undertaken 
by the assessee has to be considered as an integral whole and there can 
be no doubt that the sale of the forest produce was part of activities in 
the contemplation of the assessees right from the beginning. I 416B I 
A 
B 
c 
D 
E 
F 
G 
H 
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