If a person sells merely leaves or fruits of the trees or even branches of the trees, it would be difficult (subject to the special exemption under section 4(3) (viii) of the Indian Income-tax Act, 1922) to hold that the realisation is not of the nature of income. Where the trunks are cut so that the stumps remain intact and capable of regeneration, receipts from the sale of the trunks would be in the nature of income. It is true that the tree is a part of the land. But by selling a part of the trunk, the assessee does not necessarily realize a part of his capital. It need not be considered whether in case there is a sale of the trees with the roots so that there is no possibility of regeneration; it may be said that the realization is in the nature of capital. Do you think the above legal conclusion is logical?
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Edited: Jul 07, 2023
Receipts from sale of trunks of trees, without cutting from its roots will be treated as Income
Receipts from sale of trunks of trees, without cutting from its roots will be treated as Income
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The intrinsic value of a trunk of a tree develops gradually over an extended period, often spanning decades. However, once it is cut and sold, its market value typically surpasses its original intrinsic worth. Despite the stump's potential for regeneration, it cannot quickly regain the value it had accumulated over decades of growth within a single financial year. The trunk of a tree exhibits more characteristics of a capital asset. Revenue receipts are generated from the core operational activities of a business, while capital receipts are derived from financial activities and the sale of the business's assets. Here the category of person is not clear. The interpretation of the sale of a tree trunk can vary significantly depending on the context of the sale, the ownership, and the category of the individual or entity (person) involved. The perspective and implications can differ based on these factors. When a tree trunk has the potential for regeneration and produces something (fuelwood, campfire) that can be sold within a financial year, such as a yield or product, the resulting value can be considered as income for that specific year. A family that owns a large tree typically regards it as a capital asset, often selling it to meet significant milestones such as a family wedding or using the proceeds to construct a house. The activities of a company engaged in the cultivation and sale of fast-growing trees, such as She-oak trees (known as "kattadi" in Malayalam), bamboo, eucalyptus, and subabul trees used for paper pulp manufacturing, can be considered as a source of income for the company. Indeed, cash flow from non-core activities of a business can arise from various sources such as interest, dividends, and the sale of capital assets. Whether the sale of a tree trunk is classified as a capital receipt or income depends on the specific circumstances and the aforementioned scenario. The determination would be based on the individual context and considerations involved. Some aspects of forest conservation and the endeavors of charity will also influence how to interrupt the sale of a trunk of a tree. Statutorily available exemptions will come to play in such a situation.