Kerala High Court
Commissioner Of Income-Tax vs Rajagiri Rubber And Produce Co. Ltd. on 31 May, 1990
Equivalent citations: [1991]189ITR182(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripooknan, J.
1. The Income tax Appellate Tribunal has referred the following three questions of law for the decision of this court :
"(1) Whether, on the facts and in the circumstances of the case, the rubber replanting subsidy is assessable as the assessee's income ?
(2) Whether, on the facts and in the circumstances of the case, the assessee is liable to capital gains on the sale of 3,386 trees ?
(3) If the assessee is liable to capital gains on the sale of the trees, whether the fair market value as on January 1, 1964, would not be less than the sale proceeds it fetched on the sale of the trees ?"
2. The respondent-company is an assessee engaged in the rubber plantation industry. We are concerned with the assessment year 1979-80. During the relevant year, the assessee received an amount of Rs. 1,04,106 as rubber replanting subsidy from the Rubber Board. It was claimed as non-taxable. The Income-tax Officer rejected this plea and held that the rubber replanting subsidy is a revenue receipt assessable to Central income-tax. In appeal, the Commissioner of Income-tax (Appeals) accepted the assessee's plea and held that rubber replanting subsidy did not constitute taxable income. He directed the deletion of the addition. The order of the Commissioner of Income-tax (Appeals) was confirmed by the Income-tax Appellate Tribunal. During the same period, the assessee sold 3,386 old unyielding rubber trees for Rs. 65,820. It was pleaded that no capital gains arose out of the sale of the old unyielding trees. It was stated that the fair market value of the said tree's as on January 1, 1964, was more than the sale price. The Income-tax Officer declined to accept the said plea. He estimated the fair market value of a rubber tree as on January 1, 1964, at Rs. 20 and computed the capital gains on that basis. In appeal, the Commissioner of Income-tax (Appeals) fixed the fair market value as on January 1, 1964, at Rs. 31 per tree. The assessee as well as the Revenue filed appeals before the Appellate Tribunal. Appeals were disposed of by a common order dated July 12, 1985. The Appellate Tribunal referred to its earlier order in the case of the same assessee for the assessment year 1976-77 dated July 11, 1980, wherein it was held that the fair market value of yielding trees in 1954, sold later, cannot be lower than the sale proceeds fetched at the time of the sale and that there will be no gain or no loss in such transaction. In brief, it was held that the market value of the old unyielding rubber trees sold during the relevant assessment year 1979-80 would be more and so no question of capital gains arose in the transaction. The additions were directed to be deleted. It, is thereafter at the instance of the Revenue that the three questions of law on the above two different aspects have been referred for the decision of this court.
3. We have heard counsel for the Revenue as also counsel for the respondent assessee. The first question referred by the Income-tax Appellate Tribunal as to whether the rubber replanting subsidy is assessable as the assessee's income is covered by a Full Bench decision of this court reported in CIT v. Ruby Rubber Works Ltd. [1989] 178 ITR 181 [FB], The Full Bench has held that the rubber replantation subsidy received by a plantation company is not revenue or income. In the light of the Full Bench decision of this court, we answer question No. 1 in the negative, in favour of the assessee and against the Revenue.
4. Questions Nos. 2 and 3 go together. The point that arises for consideration is whether, on the sale of 3,386 old unyielding rubber trees, any capital gains arose to the assessee. The Appellate Tribunal has held that no capital gains arose by the sale of old unyielding rubber trees which is largely a question of fact. It is also seen that the Appellate Tribunal referred to its earlier order dated July 11, 1980, for the assessment year 1976-77 in relation to the same assessee. Then the Tribunal held that the fair market value as on 1-1-1954, of the old unyielding rubber trees sold in 1976 or 1977, would be far higher than the price fetched at the time of sale. In such circumstances, no capital gains could arise in the transaction. It is true that the Revenue took up the matter for the year 1976-77 to this court by way of reference in I. T. R. Nos. 289 and 240 of 1981--CIT v. Rajagiri Rubber and Produce Co. Ltd. [1991] 189 ITR 185 (Ker). But no question was formulated or raised in that reference as to whether the Tribunal was right in holding that no capital gains arose in such circumstances. In I. T. R. Nos. 239 and 240 of 1981--see [1991] 189 ITR 185 the method and manner of valuation of rubber trees adopted by the Tribunal for the purpose of computation of capital gains alone was considered. So, the decision of this court in I. T. R. Nos. 239 and 240 of 1981 dated February 12, 1987 (CIT v. Rajagiri Rubber and Produce Co. Ltd. [1991] 189 ITR 185) is inapplicable in this case. The question whether any capital gains arose when old unyielding rubber trees were sold came up for consideration in a batch of cases in I. T. R. Nos. 281 to 290 of 1985 (Kanthimathy Plantations P. Ltd. v. CIT [1990] 184 ITR 1 (Ker)) and I. T. R. Nos. 315 and 316 of 1985--CIT v. Midland Rubber and Produce Co. Ltd. [1991] 188 ITR 333 (Ker). In the first batch of cases, the old unyielding trees were sold during the relevant accounting periods relating to the assessment years 1975-76 to 1978-79. The plea of the assessee in those cases was that the value of the said assets (rubber trees) as on January 1, 1954, or January 1, 1964, would have been much more than the timber value obtained by the sale of the trees during the relevant accounting period relating to the assessment years 1975-76 and 1978-79. The plea was accepted by the Income-tax Appellate Tribunal. This court concurred in the said finding. It was held that the value of the yielding rubber trees as on January 1, 1964, should have been much more than the value obtained by the sale of the trees at its timber value during the accounting periods relevant to the assessment years (1975-76 to 1978-79) which were under consideration. The judgment in I. T. R. Nos. 281 to 290 of 1985 is dated August 22, 1989 (Kanthimathy Plantations Pvt. Ltd. v. CIT [1990] 184 ITR 1. Similarly, in I. T. R. Nos. 315 and 316 of 1985, by judgment dated October 16, 1989 (CIT v. Midland Rubber and Produce Co. Ltd. [1991] 188 ITR 333, a Bench of this court held that judicial notice can be taken of the fact that a yielding rubber tree as on January 1, 1954, or as on January 1, 1964, when sold later, as unyielding and worn out tree, will be far lesser in value and no capital gains can arise in the said transaction.
The reasoning contained in the aforesaid Bench decisions dated August 22, 1989, and October 16, 1989, apply with equal force herein also. We answer question No. 2 referred to us in the negative, against the Revenue and in favour of the assessee.
5. We answer question No. 3 by holding that no capital gains arose on the sale of the trees and the fail market value of the trees sold during the relevant accounting period relating to the assessment year 1979-80, as on January 1, 1964, would be far higher than the sale proceeds fetched on the sale of the trees. Question No. 3 is answered against the Revenue and in favour of the assessee.
6. The two references are disposed of as above.
7. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.