The main legal point established in the judgment is that the receipt from the sale of timber was a capital receipt and not chargeable to Income Tax under the Act.

Puttaswamy, J.—Among others, the petitioner a public limited company incorporated under the Companies Act, owing several coffee estates in the District of Coorg - is an assessee under the I.T. Act, 1961 (hereinafter referred to as "the Act") on the file of the ITO, Company Circle-IV, Bangalore (hereinafter referred to as "the ITO"). For the assessment year 1963-64 relevant to the accounting year ending on June 30, 1962, the petitioner filed its return disclosing a total world income of Rs. 5,13,375, inter alia, disclosing that it had received certain amounts by sale of timber extracted in its coffee estates and claimed that as an agricultural income not chargeable to tax under the Act. But, the ITO by his order dated February 3, 1964, (exhibit "A"), rejecting the claim of the petitioner on timber sales, held that a sum of Rs. 11,91,508 representing the sale of timber was a "revenue receipt" and was chargeable to Income Tax under the Act. On that basis, he completed the assessment for the year 1963-64.

2. Against that part of the order of the ITO that represented the sale of timber, the petitioner filed an appeal before the AAC, Mysore Range, Mysore (hereinafter referred to as "the AAC"), who by his order dated March 11, 1966, (exhibit "B"), dismissed the same and affirmed the order of the ITO.

3. Against the said orders of the AAC and the ITO, the petitioner filed a second appeal before the ITAT, Bangalore Bench (hereinafter referred to as "the Tribunal"), inter alia, contending that the aforesaid sum of Rs. 11,91,508 was a capital receipt and was, therefore, not chargeable to Income Tax under the Act. In the said appeal before the Tribunal, the Revenue alternatively urged that the said amount was a capital gain and should be so assessed under the Act. On an examination of these and other contentions urged before it, the Tribunal by its order dated March 20, 1971, (exhibit "C"), allowed the appeal filed by the petitioner, inter alia, holding that the receipt was a capital receipt and was not chargeable to Income Tax under the Act. But on the alternative plea urged for the Revenue, the Tribunal held that in the assessee's appeal, it was not open to it to examine the same and grant any relief.

4. On an application made by the Revenue, the Tribunal made a reference to this court in I.T.R. C. No. 64 of 1972 seeking its opinion on the following two questions, viz. :

"1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the net sale proceeds of timber amounting to Rs. 11,91,508 constituted capital receipts and not revenue receipts ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in refusing to entertain the alternative plea of the Department that the sum of Rs. 11,91,508 or any part thereof represents capital gains on the ground that its appellate powers were restricted only to matters or issues arising out of the order of the AAC ?"

5. But, this court on reframing those questions as hereunder :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in refusing to entertain the alternative plea of the Department that capital gains were attracted to the transactions of sale of timber on the ground that it is beyond the subject-matter of the appeal before ?"

6. answered the said reference on June 25, 1974, (exhibit "E"), expressing its concurrence with the order made by the Tribunal. The opinion expressed by this court on the reframed question reads thus :

"The appeal to the Tribunal, as stated earlier, was by the assessee and the contest was in regard to the question whether the receipts were capital in nature or revenue and thus taxable. The transactions resulting in capital gains was not before the ITO or the AAC. In the appeal, obviously the question whether any capital gains resulted would not arise for consideration before the Tribunal. The view the Tribunal has taken that its powers are c