JUDGMENT BHARGAVA, J. - The following questions of law have been referred for the opinion of this Cour :
(1) Whether in the circumstances of the case, the proceedings started for the assessment year 1945-46 under section 34 of the Income-tax Act were valid in la ?
(2) Whether in the circumstances of the case the price of timber trees received by the assessee was exempt from income-tax, either as
(a) agricultural income under section 4(3)(viii) of the Income-tax Act, or as
(b) casual income under section 4(3)(vii) of the Income-tax Ac ?
This reference relates to assessment years 1945-46 and 1946-47. The assessee was assessed for the year 1945-46 on 28th of November, 1945, on a total income of Rs. 12,055 on the basis of the return filed by him. The assessee owned certain books of forest in the district of Gorakhpur situate in village Anantpur alias Bhadauna and Dumri which according to the assessee were fallow land but had been converted into forest by planting trees on them. the trees on these lands were sold under an agreement To Tribeni Nath and Ramanand for a sum of Rs. 2,15,000 and to Mohan Singh Autar Singh for a sum of Rs. 1,95,000. Under this agreement certain sums were released by the corresponding to the two assessment years in question, viz., 1945-46 and 1946-47. After the assessment for the year 1945-46 had been completed on 28th November, 1945, by the Income-tax Officer of Banaras, a letter dated 8th January, 1946, was received by him from the Income-tax Officer, Gorakhpur, informing him that the assessee had sold standing timber in the zamindari at Gorakhpur to Tribeni Nath and Ramanand for Rs. 2,15,000 and to Mohan Singh Ram Autar for Rs. 1,95,000. The Income-tax Officer, Banaras, thereupon, addressed a letter making inquiries from the assessee about the details of the transactions. The information was supplied by the assessee and, thereafter, on 23rd February, 1946, the Income-tax Officer issued a notice under section 34 of the Income-tax Act in respect of the assessment for the year 1945-46 calling upon the assessee to show cause why his income from the sale of these trees, which had escaped assessment, should not be brought into assessment. In the proceedings for the original assessment of 1946-47, a sum for the sale of trees by the assessee had been shown in his return and hence the assessee challenged the liability ton tax of the ground that it was agricultural income and in the alternative that it was casual income. The Income-tax Officer rejected these contentions and the appeal of the assessee to the Appellate Assistant Commissioner as well as to the Tribunal failed. Consequently, at the request of the assessee, the questions mentioned above have been referred to this Court.
So far as the first question referred to us is concerned, the contention on behalf of the assessee was that, at the time when the notice under section 34 of the Income-tax Act was issued to the assessee for the assessment year 1945-46, the Income-tax Officer had not receive any definite information in consequence of which he discovered that a part of the income had escaped assessment. The main contention was that a part of information, which was received by the Income-tax Officer, Banaras, on 8th of January, 1946, had already been present before him at the time of the original assessment which was made on the 28th of November, 1945, and the income from the sale of the forest trees not been assessed by the Income-tax Officer on the view that it was not liable to be charged with income-tax. This contention in effect was that the material, which came before the Income-tax Officer in January, 1946, was not fresh material at all the issue of the notice was a mere change of opinion. Dealing with this contention, the Tribunal mentioned in its judgment that it has been pointed out by the Income-tax Officer who dealt with the proceedings under section 34 that no books of account containing the items in question (i.e., entries relating to income from sales of trees) were produced before him in the revised assessment proceedings containing any signature of his predecessor-in-office in token of their examination by him. It would appear from this that the Income-tax Officer, who had made the original assessment on the 28th November, 1945, was not the same individual who received the letter dated 8th January, 1946, from the Income-tax Officer, Gorakhpur, and who issued the notice under section 34 of the Income-tax Act. The officer being different pointed out in his order that the books of account which were produced before him in proceedings under section 34 did not contain any signature of his predecessor in token of the fact that these account books had been examined by the latter. The Tribunal also added that the Appellate Assistant Commissioner had pointed out that the assessee die not produce the Siahas and Jamabandis before him but only the books relating to Banaras in which the sale of timber was noted in the Gorakhpur Khata, that the assessee had been taxed for Rs. 35,000 as his receipt during the previous year, while the Gorakhpur Khata had a total of Rs. 1,58,625 and that no details of the various items were given in the account expect under the general head Amdani Ilaqa. After mentioning these facts which were pointed out by the Income-tax Officer and the Appellate Assistant Commissioner in their orders, the Tribunal did not proceed to record their concurrence with the views of the officers on these points. What the Tribunal stated was merely that they agreed with the Appellate Assistant commissioners view that, "when the items in questions were mixed up with such a mass of agricultural income as is admitted by the assessees own munim Ramji, no conscious knowledge of the existence and the character of such income could be attributed to the Income-tax Officer seized of the original assessment. Neither the order sheet of the original assessment or the notes about the examination of accounts that were produced, nor even the rough notes on the miscellaneous file contain any iota of proof to show that the items in question were ever the subject of any consideration by the Income-tax Officer."
On these facts found by the Tribunal, the Tribunal proceeded to give the ultimate finding in the following word :
"We therefore hold that there is no reliable material before us to hold that items relating to the forest income were the subject of any conscious decision on the part of the Income-tax Officer that they were not assessable to tax. There is no indication in the original assessment order that the income forest trees had ever attracted the attention of the Income-tax Officer."
This final finding was further reinforced by the Tribunal by making a reference to the statement of Ramji, the minim of the appellate, who had stated that he had shown the income from the sale of the forest trees and the income from the rent under the amalgamated account with the head Amdani Ilaqa and that he had sorted out the forest income from the rent income subsequently at the instance of the two sons of the assessee. On these findings the Tribunal went on to hold that in this case there was no question of any change of opinion by the Income-tax Officer or the re-assessment of the income which had been previously held to be non-assessable by him and that in fact it appeared that the Income-tax Officer had no knowledge of the income from the forest until the Income-tax Officer, Gorakhpur, informed him, vide the latters letter dated 8th January, 1946, that the appellant had sold the trees and earned an income therefrom. The language in which the Tribunal recorded their finding clearly indicates that they did not repel there contention of the assessee that the entries relating to the income from the forest did exist in the account books. They must be held to have accepted this fact and there decision that the discovery that some income had escaped assessment was the result the definite information received through the letter of the Income-tax Officer, Gorakhpur, is based on there finding that there was no material to hold that the items relating to the forest income were ever in the conscious knowledge of the Income-tax Officer. In thus proceeding, the Tribunal clearly committed an error of law as they lost sight of the principle of burden of proof in such a case. Under section 34 of the Income-tax Act, the jurisdiction of the Income-tax Officer to initiate proceedings depended on his receipt of definite information, the consequence of which was that he discovered that some income had escaped assessment. The Income-tax Officer could, therefore, proceed under that provision of a law only on the clear finding that the Income-tax Officer did not have that definite information at the earlier stage of the original assessment. If that information was already available to the Income-tax Officer when he first made the original assessment, it is not possible to say that the subsequent discovery of escape of income from assessment is the result of receipt of the same information at the later stage. A mere possibility that that information had escaped his notice when he was making the original assessment is not sufficient to justify proceedings under section 34 of the Indian Income-tax Act. The principle that an Income-tax Officer cannot proceed under section 34 of the Indian Income-tax Act on the basis of information which was already in his possession was laid down by the Bombay High Court in Haji Ahmad Haji Esak & Co. v. Commissioner of Income-tax, Bombay City, where it was hel :
"The officer cannot act under this section even though assessment has escaped if he is acting on an information which was already in his possession. It must be an information which was not in his possession at the time when the original assessment was made, but an information which has subsequently come into his possession."
In this view, the burden lay upon the Department of proving affirmatively that the information about the income from forests in this case was not in the possession of the Income-tax Officer when he made the original assessment. As we have pointed out earlier, the finding recorded by the Tribunal show that the income received by the assessee from forests was entered in the account books which were before the Income-tax Officer and the presumption is that, at the time of making the assessment, he must have examined the account books, so that this information was available to him at that time and was in his possession. In these circumstances, no burden could have been placed on the assessee to establish that those entries in the account books had come to the conscious knowledge of the Income-tax Officer. The reserve presumption that the Income-tax Officer had no conscious knowledge of those entries cannot follow from the mere failure of the assessee to establish that the Income-tax Officer did have such knowledge. The Department produced no material at all to prove that, in fact, the Income-tax Officer had not fully scrutinised the account books, so that his attention had not been attracted to those entries. There was in this case, therefore, no material at all on the basis of which a finding of act could be recorded that the Income-tax Officer, who made the original assessment on the 28th of November, 1955, had no knowledge at all of the receipt of the income from forests by the assessee at the time of making that assessment. The Department having failed to discharge the burden that lay on it, the Tribunal committed an error in holding that the proceedings were validly taken under section 34 of the Indian Income-tax Act. Those proceedings were not valid and, consequently, the first questions must be answered in favour of the assessee.
The second question had been divided into two part : in the first part of the question, the point raised is whether the income received by the assessee from forests was agricultural income under section 4(3)(viii) of the Income-tax Act. On this point, the finding of fact recorded by the Tribunal on scrutiny of the evidence was that the evidence fell short of proving that the forests were grown by the process of agriculture in the manner stated by the assessees witnesses, The result of their examination of the evidence was that the assessee had failed to prove it as a fact that the forest in questions were planted by him by means of any agricultural operations. The forests consisted of timber trees which were natural products of many parts of this Province and they were, therefore, of spontaneous growth like other natural products. On these finding, it is quite clear that the income of the assessee from forests in this case cannot be held to be agricultural income. Reference may be made to a decision of this court in Pratap Singh Balbeer Singh v. Commissioner of Income-tax, U.P. & C.P., where it was held that the the words "agriculture" and "agricultural purposes" with reference to land clearly imply that some operations must be carried on on the soil of the land itself and human skill and labour should be used for the purpose of ploughing the soil, manuring it, planting the trees which grow spontaneously, were not operations on the soil of the land which are necessary to constitute the process into a process of agriculture. Planned and scientific exploitation of a forest of spontaneous growth, though it might yield regular income, would not be income from "agriculture" as no operations are carried out and no human skill or labour is expended in such a case on the land itself. The assessees evidence that the trees had been grown by operations performed on the land on behalf of the assessee and by actually planting seeds or seedlings was disbelieved by the Tribunal. In such circumstances, the income of the assessee from the forest land cannot be held to be agricultural income. On behalf of the assessee reliance was placed on a decision of the Assam High Court in Jyotikana Chowdhurani and Others v. Commissioner of Income-tax, Assam. In that case, the learned Judges of the Assam high Court considered the decision of this Court in Pratap Singh Balbeer Singh v. Commissioner of Income-tax, U.P. & C.P. cited above and differed from the view taken in that the case. The learned Chief Justice, delivering his judgment, divided the various cases on this point into three groups and was of the view that the case decided by this Court, cited above, fell in the second group in which it had been held that ploughing or tilling were not the only decisive factors in agricultural operations but that human labour and skill must be spent in operations upon the land itself, e.g., in the shape of sowing, planting, hoeing, watering, manuring etc. The third group of cases, the learned Chief Justice held, laid down the correct view that if human skill and labour is employed to aid the growth of the trees, even if the trees are of spontaneous germination, the operations are agricultural operations. In this class the learned Chief Justice included cases where human labour and skill may have been so employed as to exploit the land to its best advantages and make it yield to its products or thing growing on the advantages and make it yield to its products or things growing on the land its maximum nutriment be it crop or fruit or vegetable or trees and the process in each case should and must be regarded as "agricultural process." A similar view was taken by a Bench of the Orissa High Court in Vikram Deo Varma, Maharaja of Jeypore v. Commissioner of Income-tax, Bihar & Orissa. Both these cases also proceed on the interpretation of the decision of their Lordships of the Privy Council in Raja Mustafa Alikhan v. Commissioner of Income-tax, U.P., Ajmer and Ajmer-Merwara, which is the leading case on the point and which was followed by this Court in Pratap Singh Balbeer Singh v. Commissioner of Income-tax, U.P. & C.P. It appears to be unnecessary for us to discuss all the decisions on this point again in detail. It appears to us to be sufficient to refer to a decision of the Supreme Court in Civil Appeals Nos. 107-111 of 1949, Maharaja Sir Pateshwari Prasad Singh v. Commissioner of Income-tax, U.P., C.P. & Berar, which case was decided on the 26th of September, 1951, by a Bench consisting of their Lordships H. J. Kania, C.J., Mehr Chand Mahajan, J., and Chandrasekhara Iyer, J., and which case does not seem to have been reported so far in any of the law reports. In that case, it was noted by the Supreme court that the Income-tax Appellate Tribunal, in dealing with the matter, had stated that counsel appearing on behalf of the assessee had conceded that there was no evidence on record as regards the actual cultivation of the soil and that there was, in fact, nothing to indicate that any human agency was employed in the matter of planting or rearing trees and that the Tribunal had concluded by saying that there being nothing to show that the trees had grown as a result of cultivation, they must hold that they were of spontaneous growth. It was on the basis of this finding of fact recorded by the Tribunal that the Chief court of Oudh had returned the answer that the income from the sale of those forest trees was not agricultural income. After noticing these circumstances, the Supreme Court went on to hold that Mr. Kunzru, who was appearing for the assessee, had quite properly conceded that the answer returned to the question referred could not be challenged.
The Supreme Court thus clearly expressed a view that the concession by Mr. Kunzru was proper, indicating that they approved of the principle that, on the facts found by the Tribunal in that case, that income from the sale of the forest trees did not amount to agricultural income. The Supreme Court went on to add that this concession by Mr. Kunzur appeared to have been made in view of the decision of their Lordships of the Privy council in Raja Mustafa Ali Khan v. Commissioner of Income-tax, U.P. Ajmer and Ajmer-Merwara. Earlier in their judgment, while mentioning the facts, the Supreme Court had also noted that no evidence had been led by the Tribunal to show that the Taungia Scheme adopted by the U.P. Government Forest Department, which had been adopted by the assessee, necessarily entailed plantati on or that the trees and other things were the outcome of human agency. These views Court in Pratap Singh Balbeer Singh v. Commissioner of Income-tax, U.P. & C.P., cited above and show that, in the opinion of the Supreme Court also, it was necessary to constitute income from forests into agricultural; income that the process carried on should entail plantation or that the trees and other things should be the outcome of human agency, or that human labour and skill should be employed in the matter of planting or growing trees. In the case before us, as we have already mentioned, the finding recorded by the Tribunal clearly are that no human skill or labour was employed in any such manner and consequently, the income derived from forests by the assessee cannot be held to be agricultural income.
The other contention raised by the assessee in the second question that it was casual income is based on the ground that the entire timber of the trees in all the areas in the two village Anantpur alias Bhadauna and Dumri was sold at one time so that it was one single transaction which did not result in any such income to the assessee which could be charged with income-tax. The Tribunal rejected this contention holding that the income had accrued from the sale of trees, which became the stock-in-trade of the assessee as soon as they were severed from the forest ground with a view to earn an income from the sale of such trees as had reached their cutting age. On behalf of the assessee, an agreement entered into by him with Tribeni Nath Tewari and Ram Anand Tewari was produced in this Court in connection with this reference. The terms contained in that agreement show that the trees which were sold were to be removed by operation carried out over a number of years and the price of the trees was also to be paid to the assessee in installments spread over a similar period. The period was of several years. While these facts existed, it is not possible for us to hold that there was not material for the finding given by the Tribunal that the income had arisen from sale of trees which had become stock-in-trade of the assessee when they were served from the forest and this severance was with a view to earn an income from the sale of such trees as they reached their cutting age. This finding having been given by the Tribunal, the further view that it was not causal income but income from a business carried on by the assessee cannot be said to be at all unreasonable. That income was, therefore, not exempt even as causal income. The second question must, therefore, be answered against the assessee.
As a result, we answer both the questions in the negative. In the circumstances of the case, we make no orders as to costs.
Questions answered in the negative.