U.L. Bhat, C.J.
1. The Income-tax Appellate Tribunal, Gauhati Bench, Gauhati, has referred the following questions, at the instance of the assessee, under Section 256(1) of the Income-tax Act, 1961 (for short, 'the Act'):
' 1. Whether, under the facts and in the circumstances of the case, the show-cause notice dated June 22, 1981, issued by the Commissioner of Income-tax was valid in law and on facts ?
2. Whether, under the facts and in the circumstances of the case, the order dated March 19, 1979, passed by the Income-tax Officer under the provisions of the Income-tax Act, 1961, was not an order of assessment and the said order was only a draft order of assessment ?
3. Whether, under the facts and in the circumstances of the case, the inclusion of capital gains attributable to the sales of standing trees of spontaneous growth by the Income-tax Officer, in the order dated March 19, 1979, and non-inclusion thereof in the order dated September 11, 1979, passed by the Income-tax Officer while giving effect to the directions issued by the Inspecting Assistant Commissioner under Section 144B of the Act was an order of the Income-tax Officer or of the Inspecting Assistant
Commissioner and whether the provisions of Section 263 of the Income-tax Act are attracted to this non-inclusion of the aforesaid income in the said order dated September 11, 1979 ?
4. Whether, under the facts and in the circumstances of the case, portion of the order dated March 19, 1979, passed by the Income-tax Officer merged in the order of the Inspecting Assistant Commissioner passed under Section 144B of the Act and as such the said merged portion of the order was not open to the provisions of Section 263 of the Income-tax Act?
5. Whether, under the facts and in the circumstances of the case, the order dated September 11, 1979, was :-
(a) an order of the Income-tax Officer to the extent of non-inclusion of income attributable to the sale of trees of spontaneous growth was concerned ?
(b) erroneous in so far as it is prejudicial to the interests of the Revenue within the meaning of Section 263 of the Income-tax Act, 1961. on account of non-inclusion of income attributable to the sale of trees of spontaneous growth
6. Whether, under the facts and in the circumstances of the case, the order under appeal, directing the Income-tax Officer to assess income under Section 45 of the Income-tax Act attributable to the sale of standing trees of spontaneous growth is in accordance with law and the facts and the Tribunal acted judiciously and upon consideration of the facts, law and the submissions urged in sustaining the said order as a whole, although, basic and relevant facts were alleged to be not available and the period for making fresh assessment after the order of assessment was set aside by the order under appeal have already expired ?
7. Whether, under the facts and in the circumstances of the case, sale proceeds of the trees of spontaneous growth gave rise to income assessable under the head 'Capital gains' and the Tribunal acted judicially in not recording findings thereon ?
8. Whether, under the provisions of the Income-tax Act, the direction issued by the Inspecting Assistant Commissioner under Section 144B of the Act could be revised by the Commissioner of Income-tax under the provisions of Section 263 of the said Act ?
9. Whether, under the facts and in the circumstances of the case, the order under appeal passed by the Commissioner of Income-tax under
section 263 and the order of the Tribunal sustaining the same as a whole are not bad in law and in fact ?'
2. The assessee is a company and the assessment year is 1976-77. During the assessment year, the company received consideration of Rs. 3 lakhs as the price of standing trees of spontaneous growth sold by it to third parties. The assessee filed a return showing the sale proceeds in Part III and claiming that it was a revenue receipt and not capital gain under Section 45 of the Act. The Income-tax Officer prepared a draft order proposing to include Rs. 2.98 lakhs (Rs. 3 lakhs less Rs. 2,000 being the cost of acquisition), as capital gain. The matter was referred to the Inspecting Assistant Commissioner ('the I. A. C.'), as required by Section 144B(1) of the Act. The Inspecting Assistant Commissioner, after hearing the assessee, took the view that the sale consideration was not a revenue receipt but a capital receipt, as held in the previous years, and directed the sum of Rs. 2.98 lakhs to be deleted from the total income. The Income-tax Officer thereupon followed the direction as required by Section 144B(5) of the Act and completed the assessment excluding Rs. 2.98 lakhs. The Commissioner of Income-tax, invoking Section 263 of the Act, took up the matter in suo motu revision and issued notice to the assessee who preferred objections. The Commissioner ultimately passed an order holding that the assessment order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue, that the direction given by the Inspecting Assistant Commissioner was wrong, that the Income-tax Officer erred in not making necessary enquiries or scrutiny and in not treating the amount as capital gain under Section 45, set aside the order of the Income-tax Officer and directed him to make fresh assessment after full enquiry. The appeal preferred before the Tribunal by the assessee was dismissed with a direction that the Income-tax Officer should bring facts on record to show what the cost of acquisition was as well as subsequent acquisition of lands before finalising the assessment. This order has given rise to the reference.
3. Question No. 2 :
It is contended for the assessee that the original order dated March 19, 1979, passed by the Income-tax Officer proposing to include Rs. 2.98 lakhs in the total income of the assessee was a final order and not a draft order. It is true that the Income-tax Officer had considered several aspects of the question relating to the sale consideration of the trees and arrived at his own finding. But he has to do that even in preparing a draft of the proposed order of assessment, as required under Sub-section (1) of
Section 144B of the Act. This provision requires that where, in an assessment to be made under Section 143(3) of the Act, the Income-tax Officer proposes to make any variation in the income returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under Sub-section (6), he shall, in the first instance, forward a draft of the proposed order of assessment to the assessee. Sub-section (2) enables the assessee to forward his objections to the variation. According to Sub-section (3), if the assessee accepts the variation, assessment has to be completed on the basis of the draft order. Sub-section (4) provides that, if the assessee objects to the draft order within the time limited, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner, who shall, after considering the draft order and the objections and the records relating to the draft order issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment. The Income-tax Officer in this case proposed variation in the income to the extent of Rs. 2.98 lakhs, which was more than the amount fixed by the Board under Sub-section (6). He was, therefore, bound to prepare a draft of the proposed order of assessment and deal with the same in accordance with the provisions of Section 144B. He forwarded a copy of the draft order to the assessee, the assessee preferred objections within the time limit and thereupon the Income-tax Officer forwarded the draft and the objections to the Inspecting Assistant Commissioner who, after considering the objections, issued a direction to the Income-tax Officer not to add Rs. 2.98 lakhs to the income as proposed in the original order. The Income-tax Officer thereupon completed the assessment obeying the direction and deleting Rs. 2.98 lakhs. There can be no doubt that the order prepared by him originally was only a draft order, as contemplated under Section 144B(1) of the Act. The question has to be answered in the affirmative, that is, in favour of the Revenue and against the assessee.
4. Questions Nos. 3, 4 and 8 :
It is contended for the assessee that the final order of assessment passed by the Income-tax Officer was really not his order but the order of the Inspecting Assistant Commissioner and alternatively the draft order passed by the Income-tax Officer in relation to sale consideration of trees merged in the order of the Inspecting Assistant Commissioner and has to be regarded as an order passed by the Inspecting Assistant Commissioner and, as such, not amenable to the revisional jurisdiction of the
Commissioner under Section 263 of the Act. It is further contended that the direction issued by the Inspecting Assistant Commissioner cannot be revised by the Commissioner under Section 263 of the Act.
5. Section 263, as it stood in the assessment year 1976-77, read as follows :
'263. (1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thoreon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
(2) No order shall be made under Sub-section (1),--
(a) to revise an order of reassessment made under Section 147, or
(b) after the expiry of two years from the date of the order sought to be revised.
(3) Notwithstanding anything contained in Sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.
Explanation.--In computing the period of limitation for the purposes of Sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to Section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.'
6. The above provision invests the Commissioner with revisional jurisdiction over any order passed by the Income-tax Officer subject to three conditions, namely, that he calls for and examines the record of the proceedings, that he finds the order to be erroneous and that the erroneous part of the order is prejudicial to the interests of the Revenue. The Commissioner is bound to give the assessee an opportunity of being heard. He may make or cause to be made such inquiry as he deems necessary. He may thereupon pass an order justified in the circumstances and it is open to him to enhance or modify the assessment or cancel the assessment and direct a fresh assessment. This power does not extend to revising
an order of reassessment made under Section 147. The Commissioner cannot also pass an order in revision after the expiry of two years from the date of the order sought to be revised. However, if the order sought to be revised has been passed in giving effect to any finding or direction of the Appellate Tribunal, the High Court or the Supreme Court, the revisional order may be passed at any time. We may also notice that Section 264 confers on the Commissioner revisional power over any order other than an order attracting Section 263. This power can be exercised suo motu or on application by the assessee within the time limit. The Commissioner, however, cannot make an order prejudicial to the assessee. As the provision stood at the relevant time, the Commissioner could not revise an order in cases failing under Sub-section (4).
7. It has to be borne in mind that the Revenue has no right of appeal against the order of assessment passed by the Income-tax Officer or the Assessing Officer. Section 265 is the only provision by which an erroneous order of the Assessing Officer which is prejudicial to the interests of the Revenue could be corrected. An order of assessment is to be passed under Section 143 where a return has been made under Section 139. Section 144 provides for best judgment assessment; Section 144A confers on the Inspecting Assistant Commissioner power to issue directions for the guidance of the Income-tax Officer in proceedings pending assessment. Section 144B, adverted to earlier, deals with the power of the Inspecting Assistant Commissioner to issue such directions on reference made by the Income-tax Officer in certain cases pending final assessment, It is significant to note that the Inspecting Assistant Commissioner has jurisdiction to issue directions under this provision only in relation to proceedings pending assessment before the Income-tax Officer. Directions are issued or are required to be issued for the guidance of the Income-tax Officer to enable him to complete the assessment. The order containing directions of the Inspecting Assistant Commissioner is not an order of assessment. It is an order containing pre-assessment directions passed for the purpose of enabling the Income-tax Officer to complete the assessment. The order of assessment is the order passed by the Income-tax Officer and not the order containing the directions issued by the Inspecting Assistant Commissioner. In this view of the matter, revisional jurisdiction under Section 263 of the Act must extend to orders passed by the Income-tax Officer on the basis of directions issued by the Inspecting Assistant Commissioner. We are supported in this view by a catena of decisions of the various High Courts. See CITv. Christian Mica Industries Ltd. : [1979]120ITR627(Cal) CIT v. K.L. Rajput : [1987]164ITR197(MP) Torson Products Ltd.
v. CIT : [1988]173ITR611(AP) CIT v. Vithal Textiles : [1989]175ITR629(MP) CIT v. Dulichand Bhatia : [1989]175ITR634(MP) CIT v. East Coast Marine Products (P.) Ltd. : [1990]181ITR314(AP) CIT v. Satishkumar and Co. : [1990]181ITR57(MP) CIT v. Gangaram Mohanlal Mittal and Sons : [1990]181ITR392(MP) Premier Cable Co. Ltd. v. CIT [1992] 193 ITR 719 and CIT v. Vincentian Orissa Society : [1992]194ITR743(Orissa) .
8. We also do not think that the doctrine of merger can be invoked in a case like the present one. There is divergence of opinion on the question whether the order of assessment passed by the Income-tax Officer could be said to have merged in the appellate order passed by the Appellate Assistant Commissioner to any extent. It is unnecessary for us to enter into this controversy since the present case is not a case where the assessee filed an appeal against the order of the Income-tax Officer before the Appellate Assistant Commissioner and the Appellate Assistant Commissioner finally disposed of the appeal. The order completing the assessment in the present case was passed by the Income-tax Officer, no doubt, on the basis of the direction issued by the Inspecting Assistant Commissioner. The direction, as we have pointed out, was one issued pending completion of assessment and the direction was issued and was required to be issued for the guidance of the Income-tax Officer to enable him to complete the assessment. There was no question of an order or direction of an inferior authority merging in the final order of a superior authority or vice versa. There was no appeal before the Appellate Assistant Commissioner against the order of assessment passed by the Income-tax Officer. The direction of the Inspecting Assistant Commissioner was issued not in appeal or revision. It was issued on a reference by the Income-tax Officer pending assessment. It cannot be said that the order of the Income-tax Officer merged in the order of the Inspecting Assistant Commissioner giving directions. The doctrine of merger is not attracted in a case like the present one. It is true that, in exercising revisional power, the Commissioner will have to decide whether the direction issued by the Inspecting Assistant Commissioner was correct or erroneous. But that is no reason to hold that there was merger of the draft assessment order in the order of the Inspecting Assistant Commissioner issuing the direction. The contention that the order of assessment must be treated as an order passed by the Inspecting Assistant Commissioner and not by the Income-tax Officer, that there was merger and, therefore, Section 263 is not attracted, is unsustainable.
9. Our attention has been drawn to certain statutory changes brought about in Section 263. By the Taxation Laws (Amendment) Act, 1984, an Explanation was introduced to Sub-section (1) of Section 263 of the Act with effect from October 1, 1984. Explanation (a), as introduced in 1984, which is relevant for our purpose reads thus :
'Explanation.--For the removal of doubts, it is hereby declared that, for the purposes of this sub-section, an order passed by the Income-tax Officer shall include-
(a) an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under Section 144A or Section 144B ; and ... .'
10. The declaration that an order of assessment made on the basis of directions issued by the Inspecting Assistant Commissioner under Section 144B is an order passed by the Income-tax Officer was introduced for the removal of doubts. It is clarificatory in nature and, therefore, must govern all cases pending on the date of the amendment or arising thereafter. It declares only the pre-existing legal position. We are supported in this conclusion by the decisions in CIT v. Vithal Textiles : [1989]175ITR629(MP) CITv. Dulichand Bhatia : [1989]175ITR634(MP) CIT v. Satishkumar and Co. : [1990]181ITR57(MP) CIT v. Gangaram Mohanlal Mittal and Sons : [1990]181ITR392(MP) and CIT v. East Coast Marine Products (P.) Ltd. : [1990]181ITR314(AP) .
11. Section 263 underwent further changes by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1988. The expression 'Income-tax Officer' in Sub-section (1) was substituted by the words 'Assessing Officer' and Explanation (a)(i) was suitably altered to refer to the directions issued by the Deputy Commissioner under Section 144A and deleting reference to Section 144B because the latter provision was also removed from the statute book. By an amendment introduced in 1989, Explanation (c) was added extending the revisional power of the Commissioner in respect of orders passed by the Assessing Officer subject to any appeal filed on or before or after June 1, 1988. We do not think these changes have any relevance in considering the matter in dispute in this case.
12. We, therefore, hold that the order sought to be revised by the Commissioner was the order of the Income-tax Officer completing the assessment and not an order of the Inspecting Assistant Commissioner, that the order of the Income-tax Officer did not merge in the order of
the Inspecting Assistant Commissioner and the order of the Income-tax Officer passed following the directions issued by the Inspecting Assistant Commissioner is amenable to the revisional jurisdiction of the Commissioner under Section 263 of the Act.
13. Questions Nos. 3, 4 and 8 have to be answered in favour of the Revenue and against the assessee. Question No. 3 has to be answered in the affirmative, question No. 4 in the negative and question No. 8 in the affirmative.
14. Questions Nos. 1, 5, 6, 7 and 9 :
It is necessary to advert to the facts and circumstances referred to by the various statutory authorities. The company acquired the tea estate and jungle land prior to 1949 for a consolidated price. In 1962 and 1963, the company acquired further lands. In 1959, 1963 and 1964, the assessee received Rs. 9,227, Rs. 10,972.29 and Rs. 500 as consideration for sale of trees and they were shown as revenue receipts in the return and offered for taxation. During each of the years 1972 to 1974, the assessee received Rs. 5 lakhs on account of sale of standing trees. During the previous year relevant to the assessment year 1975-76, the assessee received Rs. 3 lakhs as consideration for standing trees. This amount was not added to the total income while completing the assessment. The Income-tax Officer subsequently sought to reopen the assessment under Section 147(a) of the Act. This court in the decision in CIT v. Tarajan Tea Co. (P.) Ltd. held that the circumstances justifying reassessment under the above provision did not exist and, therefore, the assessment could not be reopened. For the assessment years 1972-73, 1973-74 and 1974-75, reassessments were made which were ultimately set aside by the Appellate Tribunal and the decision of the Appellate Tribunal was affirmed by this court in Tarajan Tea Co. (P.) Ltd. v. CIT . A similar reassessment for the year 1975-76 was quashed by the Tribunal whose decision was affirmed by this court in CIT v. Tarajan Tea Co. (P.) Ltd. . The agreement up to March 30, 1971, between the assessee and the purchaser of standing trees recited that the assessee agreed 'to grant licence over the areas of land earmarked and to be earmarked from time to time out of the gross area of the Tarajan Tea Estate owned by it, to cut, fell and remove all trees of spontaneous growth so that the area of land became suitable for the cultivation of the tea plantation and/ or other cultivation'. In the directors' report for the year ending December 31, 1971, it was stated that the assessee had entered into an agreement with the purchaser for selling standing trees in its grant and clearing such
areas of jungle which will provide adequate funds for new extension. In the directors' report for the year ending December 31, 1972, it was stated that these areas so cleared shall be utilised for new extension. In the directors' report for the year ending December 31, 1973, it was stated that, as soon as replanting of uprooted area is completed, work shall be taken up for further extension of the tea area as, by that time, sufficient plants shall be available for the extension.
15. In the draft order, the Income-tax Officer referred to the acquisition of land prior to 1949 and in 1962 and 1963, acquisition of land with plantation and jungle land, the fact that acquisition was made for a consolidated price including the cost of the jungle in the total consideration treating the sale price of trees in 1959, 1963 and 1964 as revenue receipts and the fact that trees were sold in 1972 to 1975. He drew the inference that the assessee had been obtaining regular receipts in an organised manner from sales of trees of spontaneous growth to its sister concerns. He also stated that it cannot be said that the trees did not cost anything to the assessee though some of the trees might have grown spontaneously on the land subsequent to the acquisition, that the consideration paid for the land would include the price of the trees also and that the cost originally paid w.ould cover the growth of new spontaneous trees. He estimated the cost of acquisition at Rs. 2,000. On these grounds, he was of the opinion that the consideration received for the sale of trees was a revenue receipt and even if it is to be treated as a capital receipt, it is liable to be included in the total income as there was a cost of acquisition.
16. The order of the Inspecting Assistant Commissioner shows that he did not apply his mind to any of the facts and circumstances referred to in the draft order. He took the view that the Income-tax Officer had no evidence in support of his conclusion, that it was based on guesswork, that the sale deed would not show that any consideration was paid for the standing trees also, that, in the earlier assessments, the Income-tax Officer had considered the matter and held that no part of the consideration was to be added to the income and, for the assessment year in question, no new facts had been brought on record to enable the authority to take a different view.
17. The Commissioner, in his order, referred to the agreement dated March 30, 1971, and the three reports of the directors and indicated that though the trees might have been uprooted, in the instant case, the consideration would be liable to be added to the total income under Section 45 of the Act.
18. The principles on the basis of which consideration received for sale of trees of spontaneous growth is to be treated as revenue receipt or capital receipt have been laid down in CIT v. Ambat Echukutty Menon : [1979]120ITR70(SC) . This court also had occasion to consider the matter in CIT v. Tarajan Tea Co. (P.) Ltd. which related to the assessee involved in this case. These principles do not require reiteration. In our view, none of the statutory authorities had considered the matter in its correct perspective after adverting to all the relevant circumstances and applying the correct legal principles. The draft order would suggest the Income-tax Officer's conclusion that it was a capital receipt though he found in the course of discussion that the assessee was obtaining regular receipts in an organised manner from sale of trees of spontaneous growth to its sister concerns. The Inspecting Assistant Commissioner did not advert to any other relevant circumstance except the sale deed and the orders of some of the prior years. It is not contended before us that the prior assessment orders are conclusive or binding on the parties. The Commissioner's order exhibits a degree of confusion of thought. He did not refer to the terms of the sale deed under which land was acquired. He found from the directors' report that the Income-lax Officer (sic) was to clear the land of old trees for the purpose of cultivation and also to raise adequate funds for new plantation. He did not give any reason for his conclusion that Section 45 of the Act was attracted.
19. It is contended by learned counsel for the assessee that, unless the revisional authority is satisfied that the order of the Income-tax Officer is erroneous and on account of such error prejudicial to the interests of the Revenue, revisional power cannot be exercised. The Commissioner did indicate that the order of the Income-tax Officer ignoring the sale consideration was erroneous. If any part of the sale consideration was liable to be included in the total income of the assessee, the exclusion of that income on account of an erroneous view would certainly be prejudicial to the interests of the Revenue. Therefore, we are unable to agree that the Commissioner committed any error of jurisdiction.
20. The Commissioner as well as the Tribunal directed the Income-tax Officer to conduct proper and full enquiry into the question before arriving at his decision. It is argued that this would mean that relevant facts were not available and, therefore, the Commissioner and the Tribunal could not have interfered. We are unable to agree. If assessment was made by the Income-tax Officer or direction was given by the Inspecting Assistant Commissioner without making due and proper enquiry, such order or direction, as the case may be, would be erroneous and the Commissioner
would be justified in directing a further enquiry to be made and assessment to be completed.
21. It is contended that the sale deed of acquisition of the land did not specify that any part of the consideration was paid for trees of spontaneous growth and, therefore, there was no cost of acquisition in regard to those trees and the transfer of capital assets for which there was no cost of acquisition would not attract Section 45 of the Act. Section 45 takes in any profit or gain arising from the transfer of a capital asset effected in the previous year and such profit or gain is chargeable to income-tax under the head 'Capital gains' and shall be deemed to be the income of the previous year in which the transfer took place. Section 48 deals with the mode of computation and deductions. Ordinarily, income chargeable under the head 'Capital gains' is to be computed by reckoning the full value of the consideration received on transfer arid deducting therefrom the expenditure incurred in connection with the transfer and the cost of acquisition of the asset and the cost of any improvement thereto.
22. In CIT v. B. C. Srinivasa Setty : [1981]128ITR294(SC) the Supreme Court, in considering whether goodwill of a new business is a capital asset, observed (at page 299) :
'Section 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. ... All transactions encompassed by Section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by Section 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the Income-tax Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section.'
23. After considering sections 48, 49 and 50, the court observed (at page 300) :
'None of the provisions pertaining to the head 'Capital gains' suggests that they include an asset in the acquisition of which no cost at all can be conceived. Yet there are assets which are acquired by way of
production in which no cost element can be identified or envisaged. From what has gone before, it is apparent that the goodwill generated in a new business has been so regarded.'
24. The Supreme Court held that, in the case of goodwill, there was no identifiable cost element and, in the case of goodwill generated in a new business, it was not possible to determine the date on which it came into existence and, therefore, Section 45 is not attracted. It is true that the effect of this decision regarding 'goodwill' has been overcome by the Finance Act, 1987, amending Section 55 so as to provide that cost of acquisition of goodwill acquired other than by purchase shall be taken to be nil and the cost of improvement of goodwill, whether acquired by purchase or otherwise, shall also be taken to be nil. However, the principles laid down by the Supreme Court continue to have efficacy.
25. Can it be said that no cost element can be identified or envisaged in the case of an asset like trees of spontaneous growth Under Section 3(26) of the General Clauses Act, 1897, 'immovable property' shall include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. The negative definition in Section 3, Transfer of Property Act, 1882, indicates that immovable property does not include standing timber, growing crops or grass. Standing timber is a tree that is in a state fit for the purpose of building houses, bridges, etc., even though it is not cut ; a tree tha.t is meant to be converted into timber so shortly that it can already be looked upon as timber for all practical purposes even though it is still standing. If not, it is still a tree because, unlike timber, it will continue to draw sustenance from the soil. As observed by Vivian Bose J. in Sink Shantabai v. State of Bombay, : [1959]1SCR265 , thus (at page 537) :
'Before a tree can be regarded as 'standing timber' it must be in such a state that, if cut, it could be used as timber ; and when in that state it must be cut reasonably early. The rule is probably grounded on generations of experience in forestry and commerce and this part of the law may have grown out of that .... the legal basis for the rule is that trees that are not cut continue to draw nourishment from the soil and that the benefit of this goes to the grantee.'
26. Therefore, it was held that trees except standing timber are immovable property. According to Section 8, Transfer of Property Act, 1882, unless a different intention is expressed or necessarily implied, a transfer of property passes forthwith to the transferee all the interest which the transferor is then capable of passing in the property and, in the legal
incidents thereof including the easements annexed thereto, the rents and profits thereof accruing after the transfer, and all things attached to the earth. Trees are certainly attached to the earth and title to trees passes along with title to the land.
27. It is not the case of the assessee that he did not obtain title to trees of spontaneous growth under the sale deed relating to the land. Consideration was paid for the sale deed. It must ordinarily follow that the consideration was not only for the land but also for everything which was conveyed in the sale deed including trees and other things attached to the earth. It may perhaps be open in a given case for the parties to the transaction to allege and prove that consideration related only to land and it was not intended that the price should take in the trees also. It is, therefore, erroneous to hold that merely because a sale deed did not specify that a part of the consideration was towards the price of trees of spontaneous growth, there was no cost of acquisition for those trees.
28. It is not quite certain whether the trees sold in the previous year relevant to the assessment year were trees standing at the time of acquisition or trees which grew on roots and trunk existing on the date of acquisition or on roots and trunks of trees existing at the time of acquisition and cut subsequently. This is a matter which should be investigated by the Income-tax Officer after calling upon the assessee to furnish relevant data. The Inspecting Assistant Commissioner had no such data before him in order to enable him to conclude that there was no cost of acquisition. It is also for consideration whether the spontaneous growth required any care or attention by way of protection from animals and the like and, if so, whether the assessee did not incur any cost in that regard. Any decision either way without considering these aspects would certainly be erroneous and any decision in favour of the assessee without considering these aspects would be prejudicial to the interests of the Revenue.
29. Question No, 5 has to be answered in the affirmative, that is, in favour of the Revenue and against the assessee. Question No. 6 has to be answered in the affirmative in the light of the above discussion, that is, in favour of the Revenue and against the assessee. It is not necessary that the Tribunal should record firm findings in all matters of controversy. It is open to the Tribunal to arrive at a conclusion that the matter in controversy was not considered properly or lawfully by the Income-tax Officer or the Inspecting Assistant Commissioner and direct such consideration. Questi.on No. 7 is, therefore, answered in the affirmative, that is, in favour of the Revenue and against the assessee. Questions Nos. 1 and 9 are general
questions which arise on the basis of answers to the other questions and have to be answered in the affirmative, that is, in favour of the Revenue and against the assessee.
30. In the result, Questions Nos. 1, 2, 3, 5, 6, 7, 8 and 9 are answered in the affirmative, that is, in favour of the Revenue and against the assessee. Question No. 4 is answered in the negative, that is, in favour of the Revenue and against the assessee.
31. A copy of this judgment under the signature of the Registrar and seal of the High Court be transmitted to the Appellate Tribunal. There will be no direction as to costs.