Judgment

SHAH, J.: (13-2-1969) In computing the income of the appellant s father to tax for the assessment year 1959-60 the Income-tax officer included Rs. 75,000 received under an agreement for cutting and removing trees from 500 acres of Mangayam Katchithode forest. The Appellate Assistant Commissioner after calling for a report on certain facts confirmed the order. But the Tribunal held that the receipt was of a capital nature and deleted it from the taxable income.

2. At the instance of the Commissioner of Income-tax, the Tribunal referred the following question to the High Court of Kerala :

"Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in holding that Rs. 75,000 being income from felling of trees from forests is not subject to income-tax?"

The High Court answered the question in the negative.

3. We are of the view that the facts found by the Tribunal are not sufficient to enable us to record an answer to the question referred. The Income-tax officer held that the income was taxable because 500 acres of forest land was leased for "clear felling" by the father of the appellant and this fetched an income of Rupees 75,000. What the expression "clear felling" meant was not investigated by the Income-tax officer. The Appellate Assistant Commissioner in dealing with the contention raised by the appellant that the receipt was of the nature of a capital, observed:

"The claim is based on the reasoning that the clear felling of forest trees amounts to sterilisation of a capital asset. In other words clear felling is said to involve total destruction of the forest. It is admitted that the trees are of spontaneous growth and it has not been established that removal of trees has in any way affected the value of the property. As a matter of fact, clear felling is resorted to make the land more productive and more valuable. At any rate the claim has not been substantiated beyond doubt and hence there is no scope for any relief."

4. The Tribunal relying upon the observation of the Income-tax officer "that the trees were not cut together with the roots but only 6" above the ground and that they were later on destroyed" held that there was "nothing to show that there was a diminution of capital assets. On the other hand, the Income-tax officer had given a clear finding that this was a case of "clear felling." After making an extensive quotation from the judgment of the High Court of Bombay in Commr. of Income-tax v. N. T. Patwardhan, (1961) 41 ITR 313 (Bom), the Tribunal stated that the observations applied to the facts in the case before them, and on that account they upheld the claim of the appellant.

5. The High Court observed that it was agreed that the Mangayam Katchithode forest was within the ambit of the Madras Preservation of Private Forests Act, 1949, and the statutory rules on the subject and that the expression "clear felling is an expression with a definite and specific meaning as far as such forests are concerned". They then proceeded to quote Rule 7 framed under the Madras Preservation of Private Forests Act, 1949, and after setting out conditions (b) and (c) observed that "the felling of the trees under the "clear felling" method will not permit a removal of the trees along with their roots. On the other hand, the clear indications were that the felling of the trees under the clear felling method should be done in such a way as to permit the regeneration and future growth of the trees concerned. In other words, what is contemplated by the clear felling method is not sterilisation of an asset but the removal of a growth above a particular height leaving intact the roots and the stumps in such a manner as to ensure regeneration, future growth, further felling and subsequent income." On that view the Court held that the receipt of Rs. 75,000 was a revenue receipt and not a capital receipt as held by the Appellate Tribunal.

6. The departmental authorities, the Tribunal and the H