Commissioner of Income Tax vs Arunachal Pradesh Forest Corporation Ltd.

U.L. Bhat, C.J.—The following question has been referred u/s 256(1) of the Income Tax Act, 1961, by the Commissioner of Income Tax, North Eastern Region, Shillong, at the instance of the Revenue :

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the kist money of Rs. 24,02,920 received by the assessee is not to be assessed in the hands of the assessee with the finding that the assessee had simply collected the money and paid the same back to the State Government, although the assessee did not itself leave the coupe to others, as the lease was given by the State Government prior to 15-12-1977?"

We have heard Shri D.K. Talukdar for the Revenue and Shri A. K. Saraf, for the respondent, M/s. Arunachal Pradesh Forest Corporation Ltd.

The respondent-Corporation came into existence on March 31, 1977, having been created by the Arunachal Pradesh Government. There was an understanding between the State Government and the Corporation on December 15, 1977, whereby the operation, management, maintenance and collection of revenue of the forest was transferred to the Corporation and vested in the Corporation. The written agreements were actually entered into on March 9, 1979. The agreements state that they have effect from December 15, 1977.

The following facts are admitted and can be found in the Income Tax Officer''s order. Some forest area had been settled on lease by the State Government to various parties even before December 15, 1977. Under the terms of the agreements, the Corporation would be bound by these settlements. After December 15, 1977, the Corporation entered into certain transactions regarding other forest areas. Out of the kist money due before December 15, 1977, to the State Government under the old settlements, the Corporation received Rs. 24,02,920.43. Out of the total kist money due for the period from December 15, 1977, to March 31, 1978, the Corporation received Rs. 6,15,630.24. Thus, the total receipts during the assessment year were Rs. 30,18,550.67. The agreements between the State Government and the Corporation were for a period of 10 years. Under the agreements, the State Government transferred the land to the Corporation which was to pay rental value for the forest area at 85 per cent of the sale value of all its products after deducting all operational costs and retain 15 per cent for itself.

According to the Income Tax Officer, the Corporation had transferred the entire amount of Rs. 30,18,550.67 to the Government. The Corporation took the stand that this was done by mistake. The Income Tax Officer held that the Corporation would be entitled to 15 per cent of the gross receipts of Rs. 30,18,550.67 minus operational cost incurred during the assessment year. However, the Appellate Assistant Commissioner and the Income Tax Tribunal took the view that the kist money due till December 15, 1977, under the old transactions entered into by the State Government belonged to the State Government and that the Corporation had no right over it and that the Corporation''s right is restricted to a percentage of the receipt of the kist money falling due only after December 15, 1977. Therefore, these authorities held that no percentage of Rs. 24,02,920.43 can be regarded as income of the Corporation for the assessment year 1978-79.

Under the two agreements filed along with the order of reference, the forest area specified therein was transferred to the Corporation on lease with liability on the part of the Corporation to pay rent to the State Government. The rental value fixed was 85 per cent of the sale value of all its products after deducting operating cost, i.e., 85 per cent of the net income. The balance 15 per cent would be the income of the. Corporation. The fact that the quantification of the rental value for a particular year or period depended on the operational cost incurred during the year is significant. During the period prior to December 15, 1977, the question of the Corporation incurring operational cost did not arise as it had to be incurred by the Forest Department of the State Government. The Corporation would have incurred operational cost only during the period after December 15, 1977. The agreements show that, in regard to the old leases or settlements, the Corporation stepped into the shoes of the State Government subject of course to its liability to pay rent to the State Government at 85 per cent of the net rental value. The terms of the agreements do not indicate that the State Government had given up or that the Corporation acquired any right over the kist money due for the period prior to December 15, 1977. In these circumstances, if the Corporation received the kist money due for the period prior to December 15, 1977, from the contracting parties, it could only have been for and on behalf of the State Government and as agent of the State Government. The order of the Income Tax Officer itself would indicate that going by the accounts of the Corporation, this amount had been handed over to the Slate Government. In these circumstances, there is no illegality in the finding of the Tribunal that the receipt of Rs. 24,02,920.43 by the Corporation was as agent of the State Government and that this amount or any fraction thereof could not be treated as income of the Corporation for the relevant assessment year and is not to be assessed in the hands of the assessee.

In the result, we answer the question in the affirmative, that is, in favour of the assessee and against the Revenue. A copy of this judgment and order under the seal of this High Court and the signature of the Registrar will be forwarded to the Income Tax Appellate Tribunal, Gauhati Bench, Gauhati.