JUDGMENT
Govindan Nair, J.
1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following question for our decision :
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law is holding that the profit on the sale of shade trees is assessable as capital gains under Section 45 of the Income-tax Act, 1961?”
2. During the accounting period relating to the year of assessment 1964-65, the assessee sold old shade trees (albizzia) for a sum of Rs. 40,633. The profits and gains arising from such sale were assessed by applying Section 45 of the Income-tax Act, 1961 (hereinafter called “the Act”). by the Income-tax Officer. The assessee’s appeal before the Appellate Assistant Commissioner was accepted by that authority on the ground that the profits, if any, arising from the sale constitute agricultural income and therefore could not have been taxed under the Act. The department appealed to the Tribunal and contended before the Tribunal that the trees in question would be “property of any kind” mentioned in Section 2(14) of the Act defining “capital assets” and that it is not “agricultural land in India” exempted under Clause (iii) of that definition. It was also urged before the Tribunal on behalf of the revenue that the sale proceeds of the trees will not constitute agricultural income. Both these contentions have been accepted by the Tribunal.
3. The first question that falls for our consideration in the light of the arguments that have been advanced before us by counsel who dealt with various aspects elaborately is whether the trees in question can be said to be “capital assets” as defined in Section 2(14) of the Act. The relevant part of that definition is in these terms :
“(14) ‘capital assets’ means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include,–…
(iii) agricultural land in India…”
4. We have omitted Sub-clauses (i) and (ii) as well as a part of Clause (iii) as those have no application whatever for the purpose of this case. The question is whether the trees are “property of any kind” and whether it has to be excluded from the amplitude of the term “property of any kind” because it is agricultural land in India. There can be no doubt that these trees are property and, therefore, will be property of any kind. The only question therefore is whether the trees can be said to be agricultural land. The rule that “what is attached to the land belongs to the land” is a principle not applicable to India. The Judicial Committee of the Privy
Council has said so very early (Vallabdas Narainji v. Development Officer, Bandra, A.I.R. 1929 P.C. 163). This court followed that decision in State v. Mahadeva Iyer Venkitasubramania Iyer, [1953] K.L.T. 599 ; A.I.R. 1953 Trav. Coch. 349. and in Chellappan Nadar v. Krishnan Nair, [l963] K.L.T. 750 ; A I.R. 1963 and the Supreme Court approved the decision of the Privy Council in Dr. K.A. Dhairyavan v. J.R. Thakur, A.I.R. 1958 S.C. 789. We cannot, therefore, postulate that the trees attached to the land belong to the land. It is difficult to say that trees are agricultural land in India. Our attention was drawn to a decision of this court in Sainaba v. Narayanan, [1970] K.L.T. 912 (Ker.) wherein the learned judge for the purpose of Explanation III of Section 2(25) of the Kerala Land Reforms Act of 1964 proceeded on the basis that “land” in that Explanation does not mean the soil alone but the building which was standing on the land as well. The question that arose before the learned judge was somewhat different. If the decision, however, means that what is attached to the land belongs to the land, with great respect, we disagree with the view expressed therein as it is against the pronouncement of the Supreme Court and the decisions of this court, the latest being a decision of this Bench in I.T. Rs. Nos. 94 and 95 of 1970, Clen Leven Estates Ltd. v. Commissioner of Income-tax [1973] 91 I.T.R. 391 (Ker.).
5. We will have, therefore, to take it that the trees that stood on “agricultural land in India” mentioned in Section 2(14)(iii) is not “agricultural land in India”, and, therefore, property of any kind which will be “capital asset”. If this be so, the profits and gains arising from the transfer of such a capital asset are taxable under Section 45 of the Act.
6. Secondly, the question is whether the profits and gains arising from the transfer are agricultural income, and, therefore, outside the scope of any Act imposing tax on income other than agricultural income and so by necessary implication excluded from the definition of “capital asset” in Section 2(14) of the Act. That the receipt by the transfer of trees such as this is not a revenue receipt but a capital receipt arising from the transfer of a capital asset has been held by the Supreme Court in more than one decision. It is sufficient to refer to the decision of the Supreme Court in Commissioner of Agricultural Income-tax v. Kailas Rubber Co. Ltd., [1966] 60 I.T.R. 435 (S.C.) In the face of this decision, it is impossible to contend that the profits and gains arising from the transfer of the trees in question are agricultural income.
7. Confronted with this position, counsel on behalf of the assessee has raised a very much larger contention which was also raised before the Tribunal and it was this. It was contended that just as profits and gains arising from assets that are different from what the assessee’s counsel called “agricultural capital asset” is income and can be treated as income for income-tax purposes and his been included for a long time now under the statutes applicable to incomer-tax, it is possible to include the profits and gains arising from the transfer of “agricultural capital asset” as “agricultural income” for the purposes of the statutes relating to tax on “agricultural income”. What is “agricultural income” has ,to be determined with reference to the definition of agricultural income for the time being in force as contained in the Income-tax Act. This is so in view of Article 366 of the Constitution. The definition in the Act is contained in Section 2(1) and this is the definition that has been copied in the Kerala Agricultural Income-tax Act, 1950. The purport of the decision in Commissioner of Agricultural Income-tax v. Kailas Rubber Co. Ltd. is that the profit and gain arising from the transfer of trees is not agricultural income within the meaning of this definition. If this is so, we have to take it that the decision lays down the ambit of the definition of the term “agricultural income”. We have to understand entry 46 in List II of the Seventh Schedule to the Constitution and entry 82 in List I of the same Schedule in the light of the definition of the term “agricultural income” in the Act as we are enjoined to do by Article 366 of the Constitution. In other words, however wide may be the meaning that has to be attributed to the term “agricultural income” occurring in entry 46 of List II of the Seventh Schedule to the Constitution, once it has been defined under the Act, the wide amplitude and ambit of the expression is of no avail, for the term “agricultural income” in the items in the Lists has necessarily to be understood in the light of the definition of “agricultural income” in the Act. If this is so, the principle well-established that constitutional entries should not be read in a narrow manner but must be given the widest amplitude will have no application, for what we have to understand is the scope and ambit of the definition in the Act. So understood, there is no difficulty in excluding from the ambit of “agricultural income” the profits and gains arising from the transfer of the so-called “agricultural capital assets”. We have assumed for the purpose of this discussion that there can be what is known as “agricultural capital asset” but we should not be taken as having decided any such question though we must say it appears to be a very plausible argument. If an asset is created by operations such as those detailed in the decision of the Supreme Court in Commissioner of Income-tax v. Raja Benoy Kumar Sahas Roy, [1957] 32 I.T.R. 466: [1958] S.C.R. 101 (S.C.), it is conceivable that “agricultural capital assets” can be created and we are inclined, if it is necessary to determine the question, to take the view that trees planted, cultivated and nurtured by agricultural operations, basic and otherwise are “agricultural capital assets”. It is, therefore, equally conceivable that profits and gains arising from transfer of such capital assets
can be defined as agricultural income under the Act. In order to make these profits and gains agricultural income it appears that the definition of the term “agricultural income” in the Act will have to be changed by incorporating in the definition a provision similar to Clause (vi) of the definition of “income” in Section 2(24) of the Act. It may also be necessary to provide for what are called machinery sections similar to Section 45 of the Act. But the real question now is whether the profits and gains arising from the transfer of “agricultural capital asset” as the law stands now is “agricultural income”. We have to hold that it is not agricultural income. This argument also has, therefore, to be negatived.
8. In the light of the above, we answer the question referred to us in the affirmative, that is, in favour of the department and against the assessee. We direct the parties to bear their respective costs.
9. A copy of this judgment under the seal of the High Court and the signature of the Registrar will be forwarded to the Appellate Tribunal, Cochin Bench.
