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Determining Agricultural Income from Forestry Operations, Lecture notes of Law

Sharda UniversityLaw

A case involving the taxation of income from the sale of trees in a forest owned by the assessee. The key issue is whether the income should be considered 'agricultural income' and thus exempt from taxation. The court examines the definition of 'agricultural income' and the distinction between fundamental agricultural activities and subsequent operations that may or may not qualify as agricultural activities. The court concludes that revenue from planted trees maintained through forestry operations could be considered agricultural income, but the tax authorities did not properly investigate the proportion of income related to spontaneous growth versus planted trees.

Typology: Lecture notes

2022/2023

Uploaded on 11/26/2022

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Raja Benoy Kumar Sahas Roy vs. The Commissioner of Income Tax, 1957
1957 AIR 768, 1958 SCR 101
Facts of the Case
1. The assessee is the owner of 6,000 acres of forestland covered with Sal and Piyasal trees
and subject to a land revenue assessment.
2. The forest has been there for roughly 150 years and was first formed via natural
development, "not produced with the assistance of human skill and work."\
3. The forest is occasionally divided up for sales purposes, and the area where the trees are
sold is fenced off and watched over by forest rangers to prevent offshoots.
4. Year after year, a sizable quantity of human effort and attention is put into maintaining
the forest's health as well as recovering the areas that become depleted due to devastation
by livestock and other factors.
5. The assessee receives a sizeable profit from the selling of trees from this forest.
6. Up until 1944–1945, the assessment year in question, this forest revenue was never
considered, even though it was last taxed under the Income Tax Act in the assessment
year 1923–1924.
7. The assessment for 1944–1945 was likewise first completed without taking any forest
revenue into account, but it was later reopened under Section 34.
8. In response to a notice issued under Sections 22(2) and 34 of the Act, the assessee
provided a return that showed a gross revenue from the forest of Rs. 51,978.
9. It was asserted, however, that because the income was agricultural income and exempt
under Section 4(3)(viii) of the Act, it was not subject to assessment under the Act.
10. The income tax officer denied this claim and, after deducting a sum of Rs. 17,548 as
expenses, added Rs. 34,430 to the assessable income as income from the forest.
11. The Income Tax Appellate Tribunal agreed that the income in question was not
agricultural income but rather was obtained from the sale of jungle product that had
grown on its own and, as such, was not covered by Section 2(1) of the Act. The Appellate
Assistant Commissioner approved the assessment.
12. The staff is employed by the assessee to perform the following specific operations:
(a) Pruning,
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Raja Benoy Kumar Sahas Roy vs. The Commissioner of Income Tax, 1957 1957 AIR 768, 1958 SCR 101 Facts of the Case

  1. The assessee is the owner of 6,000 acres of forestland covered with Sal and Piyasal trees and subject to a land revenue assessment.
  2. The forest has been there for roughly 150 years and was first formed via natural development, "not produced with the assistance of human skill and work."\
  3. The forest is occasionally divided up for sales purposes, and the area where the trees are sold is fenced off and watched over by forest rangers to prevent offshoots.
  4. Year after year, a sizable quantity of human effort and attention is put into maintaining the forest's health as well as recovering the areas that become depleted due to devastation by livestock and other factors.
  5. The assessee receives a sizeable profit from the selling of trees from this forest.
  6. Up until 1944–1945, the assessment year in question, this forest revenue was never considered, even though it was last taxed under the Income Tax Act in the assessment year 1923–1924.
  7. The assessment for 1944–1945 was likewise first completed without taking any forest revenue into account, but it was later reopened under Section 34.
  8. In response to a notice issued under Sections 22(2) and 34 of the Act, the assessee provided a return that showed a gross revenue from the forest of Rs. 51,978.
  9. It was asserted, however, that because the income was agricultural income and exempt under Section 4(3)(viii) of the Act, it was not subject to assessment under the Act.
  10. The income tax officer denied this claim and, after deducting a sum of Rs. 17,548 as expenses, added Rs. 34,430 to the assessable income as income from the forest.
  11. The Income Tax Appellate Tribunal agreed that the income in question was not agricultural income but rather was obtained from the sale of jungle product that had grown on its own and, as such, was not covered by Section 2(1) of the Act. The Appellate Assistant Commissioner approved the assessment.
  12. The staff is employed by the assessee to perform the following specific operations: (a) Pruning,

(b) Weeding, (c) Felling, (d) Clearing, (e) Cutting of channels to help the flow of rainwater, (f) Guarding the trees against pests and other destructive elements, (g) Sowing of seeds after digging of the soil in denuded areas. Issues

  1. Whether on the facts and in the circumstances of this case, the sum of Rs. 34,430 is "agricultural income" and as such is exempt from payment of tax under section 4(3)(viii) of the Income Tax Act.
  2. Whether income derived from the sale of Sal and Piyasal trees in the forest owned by the assessee which was originally a forest of spontaneous growth "not grown by the aid of human skill and labor" but on which forestry operations described in the statement of case had been carried on by the assessee involving considerable amount of expenditure of human skill and labor is agricultural income within the meaning of Section 2(1) and as such exempt from payment of tax under Section 4(3)(viii) of the Income Tax Act. Judgement
  3. The court pointed out that because the terms "agriculture" and "agricultural purpose" are not specified in the Income Tax Act, the court must rely on the common understanding of these terms.
  4. The Court also referred to the definition of the term in dictionaries and numerous other pieces of law. It should be noted that the definition of "agricultural income" included in section 2(1) of the Income Tax Act is like that found in the different Agricultural Income Tax Acts approved by the several States.
  5. The primary meaning of the term "agriculture" is "agar—field" and "cultra," which together translate to "cultivation," or "cultivation of the field." If the term is only understood in that sense, agriculture would be limited to "cultivation of the land in the strict sense of the term," which entails tilling the ground, sowing seeds, planting, and other similar activities on the ground.
  6. These would be the fundamental activities that required human ability and work on the actual land. To properly raise the produce from the soil, an agriculturalist must, however, turn to additional processes.

there is absolutely no justification for doing so. The term "agriculture" cannot be dissociated from its primary significance, which is that of cultivating the land. Such actions would undoubtedly be considered agriculture, which would be a misuse of the term.

  1. It will be clear that the term "agriculture" receives a wider interpretation in terms of both its operations and the results of the same if it is understood to encompass within its scope the basic as well as subsequent operations in the process of agriculture and the raising on the lands of products which have some utility either for consumption for trade or commerce.
  2. The fundamental principle, however, that must be at the core of its land cultivation in the sense of tilling the soil, sowing the seeds, planting, and similar activities done on the land itself, is present throughout.
  3. This fundamental idea is a precondition for all activities carried out on land that qualify as agricultural activities. The remainder of the operations found themselves upon the same if the fundamental activities are in place. However, if these fundamental activities are lacking, the succeeding operations do not start to resemble agricultural operations.
  4. All these procedures undoubtedly need the use of human labor and talent, but only that which is used to carry out the most fundamental tasks can be considered to have been spent on the land. Although it may have the impact of maintaining, nurturing, or improving the land, the human work and expertise needed to carry out following activities cannot be claimed to have been spent on the land itself.
  5. When an agriculturist performs these procedures as a part of his integrated activity in land cultivation, this differentiation is less significant. The question of whether the subsequent operations carried out by the agriculturist are agricultural operations and possess the characteristics of agricultural operations must be taken into consideration, however, when the products of the land are of spontaneous growth, unaided by human skill and labor, and human skill and labor are spent solely in fostering the growth, preservation, and regeneration of such products of land.
  6. It is widely acknowledged that items that naturally grow on the soil or that develop via spontaneous development without the assistance of human work or skill are not products of agriculture, and the revenue gained from them is not agricultural income. The growing of these goods from the soil does not entail any agricultural processes. The assessee does not engage in any agricultural activities with respect to the same, and the sole activity carried out here is the collection, consumption, and selling of the output.
  7. There is no doubt whatsoever that the revenue received from such activities qualifies as agricultural income under the criteria established in section 2(1) of the 1922 Act because

no agricultural operations have been carried out. However, in cases where the assessee conducts later operations on these land products that have grown in a natural or spontaneous manner, the character of those activities must be judged considering the principles. Conclusion

  1. Based on the circumstances of the case, it was determined that the in-issue forest was the result of spontaneous development. If no other information were discovered, it would be assumed that the revenue was not from agriculture.
  2. However, the Tribunal also determined that the forest was older than 150 years old, even though the proprietors had planted new trees in sections of the forest that had occasionally been entirely denuded of trees and carried out activities to care for the trees they had placed there.
  3. The revenue generated by such trees would undoubtedly constitute agricultural income, which could not be disputed. The sections that had been denuded and replanted couldn't be regarded as insignificant because the forest was more than 150 years old.
  4. As a result, it was believed that only a portion of the revenue from the forest could be classified as non-agricultural income. The Income-tax authorities would have been able to determine how much of the income was related to forest of spontaneous growth and how much to trees planted by the proprietors if the investigation had been oriented on the correct lines.
  5. However, no such inquiry had been requested, and the Court noted that it was not advisable to request one at this time given the significant amount of time that had passed. Against a total income of roughly Rs. 51,000, the assessee reported spending about Rs. 17,000 on maintaining the forest.
  6. Given the size of this sum, it may be assumed that the owners' own tree planting activities must have contributed significantly to their revenue. There were no documents on which it could be argued that the finding of the Court below was incorrect since the Department had made no attempt to determine what percentage of the income was related to forest of spontaneous growth. The revenue appeal was thus denied.