Facts

The assessee owned an area of 6,000 acres of forest land assessed to land revenue and grown with sal and piyasal trees. The forest was originally of spontaneous growth. For the assessment year in question, the assessee filed its return. The assessment was made without including therein any forest income. Subsequently, the assessment was reopened u/s. 34 of 1922 Act. In response to a notice, the assessee submitted a  return showing the gross receipt from the said forest.     A claim was, however, made that the said income was not assessable under the   Act as it was agricultural income and was exempt under section 4(3)(viii) of  1922 Act. The ITO rejected this claim and added a sum to the assessable income   as income derived from the forest after allowing certain sum as expenditure.  The AAC confirmed the assessment and the ITAT  also was of opinion that the  said income was not agricultural income but was income derived from the  sale of jungle produce of spontaneous growth and as such was not covered by section 2(1)of the 1922 Act.

On reference, the Tribunal submitted a statement of case from which the following facts appeared to be admitted or established:

“(i)           The area covered by the forest is about 6,000 acres, trees growing being sal and piyasal;

• It is of spontaneous growth being about 150 years old. It is not a forest grown by the aid of human skill and labour;
• The forest is occasionally parcelled out for the purposes of sale and the space from which trees sold are cut away is guarded by forest guards to protect offshoots;
• It has been satisfactorily proved that considerable amount of human labour and care is being applied year after year for keepingthe forest alive  as also for reviving the portions that get denuded as a result of destruction by cattle and other causes;

 

 

• The staff is employed by the assessee to perform the following specific operations:
  • Pruning,
  • Weeding,
  • Felling,
  • Clearing,
  • Cutting of channels to help the flow of rain water,
  • Guarding the trees against pests and other destructive elements,
  • Sowing of seeds after digging of the soil in denuded areas”.

The High Court held that actual cultivation of the land was not required and as human labour and skill were spent for the growth of the forest the income from   the forest was agricultural income.

The Revenue preferred appeal to the Supreme Court.

 

Issue

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 labour” 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 labour 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 Indian Income-taxAct.

 

View

The Court observed that the terms “agriculture” and “agricultural purpose” not having been defined in the Indian Income-tax Act, therefore the Court has to fall back upon the general sense in which they have been understood in common parlance. The Court also referred to dictionary meaning and various other legislation where the term has been defined or interpreted. It may be noted that   the definition of “agricultural income” given in section 2(1) of the Indian Income- tax Act is in identical terms with the definitions of that term as given in the various Agricultural Income-tax Acts passed by the several States. The primary sense in which the term agriculture is understood is agar—field and cultra— cultivation, i.e., the cultivation of the field, and if the term is understood only in that sense, agriculture would be restricted only to cultivation of the land in the strict sense of the term meaning thereby, tilling of the land, sowing of the seeds, planting and similar operations on the land. These would be the basic operations and would require theexpenditure of human skill and labour upon the land

 

 

itself. There are however other operations which have got to be  resorted to  by the agriculturist and which are absolutely necessary for the purpose of effectively raising the produce from the land. They are operations to be performed after the produce sprouts from the land, i.e., weeding, digging the soil around the growth, removal of undesirable under growths and all operations which foster the growth and preserve the same not only from insects and pests but also from depredation from outside, tending, pruning, cutting, harvesting, and rendering the produce  fit for the market. The latter would all be agricultural operations when taken in conjunction with the basic operations above described, and it would be futile to urge that they are not agricultural operations at all.

However, the mere performance of these subsequent operations on the products    of the land, where such products have not been raised on the land by the performance of the basic operations which have been described above would not  be enough to characterize them as agricultural operations. In order to invest them with the character of agricultural operations, these subsequent operations must necessarily be in conjunction with and a continuation of the basic operations which are the effective cause of the products being raised from the land. It is    only 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. The cultivation   of the land does not comprise merely of raising the products of the land in the narrower sense of the term like tilling of the land, sowing of the seeds, planting, and similar work done on the land but also includes the subsequent operations    set out above all of which operations, basic as well as subsequent, form one integrated activity of the agriculturist and the term ‘agriculture’ has got to be understood as connoting this integrated activity of the agriculturist. One cannot dissociate the basic operations from the subsequent operations and say that the subsequent operations, even though they are divorced from the basic operations can constitute agricultural operations by themselves. If this integrated activity which constitutes agriculture is undertaken and performed in regard to any land that land can be said to have been used for ‘agricultural purposes’ and the income derived therefrom can be said to be ‘agricultural income’ derived from the land     by agriculture.

The mere fact that an activity has some connection with or is in some way dependent on land is not sufficient to bring it within the scope of the term and such extension of the term ‘agriculture’ is unwarranted. The term ‘agriculture’ cannot be dissociated from the primary significance thereof which is that of cultivation of the land and even though it can be extended in the manner stated before both in regard to the process of agriculture and the products which are raised upon the land, there is no warrant at all for extending it to all activities which have relation to the land or are in any way connected with the land. The   use of the word agriculture in regard to such activities would certainly be a distortion of the term.

 

 

It the term ‘agriculture’ is understood as comprising 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 and commerce, it will be seen that the term ‘agriculture’ receives a wider interpretation both in regard to its operations as well as the results of the same. Nevertheless  there is present all throughout the basic idea that there must be at the bottom        of its cultivation of land in the sense of tilling of the land, sowing of the seeds, planting, and similar work done on the land itself.

This basic conception is the essential sine qua non  of  any  operation  performed on the land constituting agricultural operation. If the basic operations are there,   the rest of the operations found themselves upon the same. But if these basic operations are wanting the subsequent operations  do not acquire the characteristic of agricultural operations.

All these operations no doubt require the expenditure of human labour and skill but the human labour and skill spent in the performance of the basic operations only can be said to have been spent upon the land. The human labour and skill spent in the performance of subsequent operations cannot be said to have been spent on the land itself, though it may have the effect of preserving, fostering and regenerating the products of the land.

This distinction is not so important in cases where the agriculturist performs these operations as a part of his integrated activity incultivation of the land. Where, however, the products of the land are of spontaneous growth, unassisted   by human skill and labour, and human skill and labour are spent merely in fostering the growth, preservation and regeneration of such products of land, the question falls to be considered whether these subsequent operations performed    by the agriculturist are agricultural operations and enjoy the characteristic of agricultural operations.

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. There are no agricultural operations performed by the assessee in respect of the same, and the only work which the assessee performs here is that of collecting the produce and consuming and marketing the same. No agricultural operations have been performed and there is no question at all of the income derived therefrom being agricultural income within the definition given    in section 2(1) of 1922 Act. Where, however, the assessee performs subsequent operations on these products of land which are of wild or spontaneous growth,    the nature of those operations would have to be determined in the light of the principles enunciated above.

 

 

Held

Applying the above principles to the facts of the instant case, it was held that the forest in question was of spontaneous growth. If there were no other facts found, that would entail the conclusion that the income was not agricultural income. But then, it had also been found by the Tribunal that the forest was more than 150  years old, though portions of the forest had from time to time been denuded, trees had completely fallen and the proprietors had planted fresh trees in those areas, and they had performed operations for the purpose of nursing the trees planted by them. It could not be denied that so far as those trees were concerned, the income derived therefrom would be agricultural income. In view of the fact that the forest was more than 150 years old, the areas which had thus become denuded and replanted could not be considered to be negligible. The position therefore was  that the whole of the income derived from the forest could not be treated as non- agricultural income. 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 was attributable to forest of spontaneous growth and how much to trees planted by the proprietors. But no such enquiry had been directed and in view      of the long lapse of time, the Court observed that it was not desirable to direct     any such enquiry at this stage. The expenditure shown by the assessee for the maintenance of the forest was about Rs. 17,000 as against a total income of about Rs. 51,000. Having regard to the magnitude of this figure, it could be held that a substantial portion of the income must have been derived from trees planted by   the proprietors themselves. As no attempt had been made by the Department to establish which portion of the income was attributable to forest of spontaneous growth, there were no  materials on  which it  could be  said that the  judgment  of the Court below was wrong. Accordingly the revenue appeal was dismissed.   (AY. 1944-45) (CA No. 165 of 1954 dt. 23-5-1957)

Editorial : Subsequent decisions of various High Courts/Tribunal on the on the issue may be referred:

Jugal Kishore Arora v. Dy. CIT (2004)  269  ITR  133  (All.)(HC) CIT v. Namdhari Seeds (P) Ltd. (2011) 341 ITR 342 (Karn.)(HC) Puransingh M. Verma v. CIT (2015) 230 Taxman 470 (Guj.)(HC)

DCIT v.  Inventaa Industries Private Limited (2018) 168 DTR 81/172 ITD 1/65  ITR 625 (Hyd)(Trib.)(SB).

“Our greatest ability as humans is not to change the world; but to change ourselves.”

– Mahatma Gandhi