Kerala High Court
Commissioner Of Income-Tax vs Trophical Plantations Ltd. on 31 October, 1990
Equivalent citations: [1992]196ITR755(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. At the instance of the Revenue, certain questions of law are referred for the decision of this court by the Income-tax Appellate Tribunal.
2. The respondent-assessee is common in all the cases. The matter relates to the assessment years 1979-80 and 1980-81. The assessee is a company owning tea, rubber and coffee estates. During the relevant accounting period relating to the assessment year 1979-80, the assessee sold 6,514 rubber trees for a consideration of Rs. 4,99,500. The Income-tax Officer estimated the cost of rubber trees as on January 1, 1964, at Rs. 20 per tree and computed the capital gains that accrued on the sale of the above rubber trees. In appeal, the Commissioner of Income-tax (Appeals) enhanced the cost of a rubber tree as on January 1, 1964 to Rs. 50 and computed the capital gains at Rs. 1,95,420 as against Rs. 3,69,220 arrived at by the assessing authority. In the accounting year relevant to the assessment year 1980-81, the assessee sold 5,250 rubber trees for a consideration of Rs. 3,76,900. Estimating the cost of a rubber tree as on January 1, 1964 at Rs. 20, the Income-tax Officer computed capital gains at Rs. 2,71,905. In appeal, the Commissioner of Income-tax (Appeals) enhanced the cost of a rubber tree to Rs. 50 and reduced the capital gains to Rs. 1,14,400. From the said orders, the assessee filed appeals before the Income-tax Appellate Tribunal. The Appellate Tribunal negatived the plea of the assessee that the income arising from the sale of trees is agricultural income. It further held that capital gains is exigible on the sale of rubber trees--capital asset in the instant case. The Tribunal concluded that the value of a yielding rubber tree as on January 1, 1964, would be much more than the value obtained by the sale of trees during the relevant accounting periods when the said rubber trees had become old and unyielding and, in this view, no capital gains assessable to tax accrued to the assessee. In this connection, the Appellate Tribunal followed its earlier decision in I. T. A. No. 344/(Coch) of 1982 dated May 10, 1984 and also in I. T. A. No. 278/(Coch) of 1982, dated June 21, 1984. The Tribunal was of the view that the fair market value of a rubber tree as on January 1, 1964, could not have been less than the timber value of the said tree when it was old and unyielding and sold during the relevant accounting periods in question.
3. For the assessment year 1979-80, the assessee received a sum of Rs. 35,899 by way of rubber replanting subsidy. The assessing authority brought this amount to tax. The Income-tax Appellate Tribunal, following its earlier decision in I. T. A. Nos. 593 and 594/(Coch) of 1977-78, dated August 27, 1979, in the case of Ruby Rubber Works, Changanacherry, held that rubber replantation subsidy received by the assessee is not income assessable to tax.
4. For the assessment year 1980-91, the Commissioner of Income-tax (Appeals) disallowed the claim of bonus amounting to Rs. 55,071. A sum of Rs. 55,071 was bonus for the calendar year 1975 but the matter was settled only during the year under consideration and the Income-tax Officer disallowed the claim. He took the view that the liability did not arise during the relevant accounting period. In appeal, the Appellate Tribunal held that the bonus paid is contractual bonus and that the assessee's claim for deduction of amounts "on payment basis" should prevail, in the light of the facts and circumstances discernible from the files. It is thereafter at the instance of the Revenue that the following four questions of law have been referred by the Income-tax Appellate Tribunal for the decision of this court :
" 1, Whether, on the facts and in the circumstances of the case, the manner and method of valuation adopted by the learned Tribunal for valuing rubber trees sold for the purpose of capital gains is right in law and fact ?
2. Whether, on the facts and in the circumstances of the case, the learned Tribunal is right in holding that the fair market value of a rubber tree as on January 1, 1964, would not have been less than Rs. 80 obtained as timber value in the assessment years 1979-80 and 1980-81 ?
3. Whether, on the facts and in the circumstances of the case, rubber replantation subsidy received by the assessee is a revenue receipt under the Income-tax Act, 1961, for the assessment year 1979-80 ?
4. Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim" deduction of the bonus for the assessment year 1980-81?"
5. On motion by the assessee, the following three questions of law have also been referred by the Income-tax Appellate Tribunal for the decision of this court :
" 1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the amount obtained by the assessee by way of selling rubber trees from the estate, sold for the purpose of replanting, did not constitute agricultural income within the meaning of Section 2(1) of the Income-tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that cost of acquisition can be envisaged with regard to the rubber trees sold by the assessee from its rubber estate ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in respect of sale of rubber trees from the estate, it is capable for computing capital gain and the computation provisions for computing capital gain are applicable ?"
6. It is agreed that, in the light of our answer to the questions referred at the instance of the Revenue, it is not necessary to separately record-answers for the questions referred at the instance of the assessee. Practically, the answers given by us for the questions referred at the instance of the Revenue will cover the questions referred at the instance of the assessee as well.
7. We heard counsel for the Revenue, Mr. P. K. R. Menon, as also counsel for the assessee, Mr. P. G. K. Wariyar. The matter as to whether any capital gains accrued to the assessee by the sale of old and unyielding rubber trees came up in innumerable eases before this court. This court held that the capital asset sold--old and unyielding rubber trees--during the relevant accounting periods, post 1970--would have been yielding trees as on January 1, 1964, or 1954, and the value obtained by the sale of the trees for its timber value during the relevant accounting periods, relevant to the assessment years under consideration, would be far lesser than the value of such trees when they were young and yielding as on January 1, 1954, or January 1, 1964, and so no capital gains arose or accrued by the sale of old and unyielding rubber trees. (See Kanthimathy Plantations Pvt. Ltd. v. CIT[1990] 184 ITR 1 (Ker); CIT v. Cochin Malabar Estates and Industries Ltd. (I. T. R. Nos. 12 and 13 of 1985), etc.). The finding of the Appellate Tribunal that the fair market value of a rubber tree as on January 1, 1954, would have been much more than the value obtained by the sale of unyielding rubber trees for their timber value during the relevant accounting period is a pure finding of fact. Based on the said finding, the conclusion of the Appellate Tribunal that no capital gains arose is valid and justified in law. No question regarding the manner and method of valuation for valuing the rubber trees sold for the purpose of capital gains arose for consideration before the Appellate Tribunal. The fundamental question was whether any capital gains arose at all. The answer was obvious. The old and unyielding rubber trees when sold would procure only a far lesser price than when it was young and yielding as on January 1, 1954, or January 1, 1964. Judicial notice can be taken of the said notorious facts.
8. Therefore, we hold that the manner and method of valuation as such did not arise for consideration before the Income-tax Appellate Tribunal for the conclusion reached by it, holding that no capital gains arose in the instant case. We decline to answer question No. 1, referred at the instance of the Revenue. We hold that the finding of the Appellate Tribunal that the fair market value of a rubber tree as on January 1, 1964, could not have been less than Rs. 80 as against the far lesser amount obtained as timber value during the accounting periods relevant for the assessment years 1979-80 and 1980-81 is a pure finding of fact. Moreover, it is a matter of common knowledge that trees, when young and yielding, would be more valuable than when they become old and unyielding. It is the old and unyielding rubber trees that were sold. We answer question No. 2 in this way. The finding that the fair market value of a rubber tree as on January 1, 1964, would not have been less than Rs. 80, is a finding of fact. We further hold that the value as on January 1, 1964, would not have been less than the timber value of the said tree obtained when sold. We answer question No. 2 in the affirmative, against the Revenue and in favour of the assessee.
9. A Full Bench of this court in CIT v. Ruby Rubber Works Ltd. [1989] 178 ITR 181 has held that rubber replantation subsidy received by an assessee is not a revenue receipt and so is not assessable to income-tax. In the light of the Full Bench decision of this court, we hold that the rubber replantation subsidy received by the assessee is not a revenue receipt under the Income-tax Act, 1961, for the assessment year 1979-80. We answer question No. 3 in the affirmative, against the Revenue and in favour of the assessee.
10. Admittedly, the assessee is maintaining accounts on mercantile basis. A sum of Rs. 55,071 was claimed as deduction on account of payment of bonus. The claim in this behalf has been dealt with by the Appellate Tribunal in paragraphs 9 and 10 of its order dated October 27, 1984. The claim was made during the assessment year 1980-81 for which the accounting period ended on December 31, 1979, and the bonus amount related to the calendar year 1975. The plea of the assessee was that, with regard to plantations, the Association of Planters of Kerala determined the amount of bonus to be paid each year on an ad hoc basis, that the amount so determined would be paid during the year, that the actual bonus for the year will be determined only much later after the completion of negotiations between the association and the representatives of the labour unions, that the bonus payable for the year 1975 was finally settled by negotiations only on December 22, 1978, and the payment was actually made only in January, 1979. On behalf of the assessee, it was further stated that, for the convenience of everybody, the Revenue had all along accepted the claim for deduction of the amount "on payment basis". The Appellate Tribunal has held that it is clear that the assessee's claim for deduction of the amount on payment basis has to succeed. We are afraid that the Appellate Tribunal has not properly and effectively considered the matter. Admittedly, the assessee is keeping its accounts on mercantile basis. The claim for deduction of bonus paid in the sum of Rs. 55,071 related to the calendar year 1975. The matter was settled by negotiations on December 22, 1978, and the payment was actually made in January, 1979. The question is whether the said sum can be claimed as deduction for the assessment year 1980-81 for which the accounting period ended on December 31, 1979. If it is established that the assessee is entitled to the deduction on payment basis, since the payment was made in January, 1979, it is a permissible deduction for the assessment year 1980-81 for which the accounting period ended on December 31, 1979. Since the accounts are kept on mercantile basis, normally, the assessee is entitled to deduction for payment on accrual basis only. Relief can be granted only on that basis. (See CIT v. K. A. Karim and Sons [1982] 133 ITR 515 (Ker) [FB] and Malayalam Plantations (India) Ltd, v. CIT[1990] 184 ITR 505, 514 (Ker)). Even though the assessee maintains accounts on mercantile basis, it is entitled to adopt a different method for one portion of its business or one class of accountable item. But, it should be established that this deviation for the particular class or portion of accountable item is regularly or consistently employed and it results in the proper determination of the true income or profits. The substance of the matter should be looked into. As the final fact-finding authority, the Appellate Tribunal should find specifically that, so far as the claim for payment of bonus is concerned, the assessee was regularly claiming on payment basis and, to this extent, there is a deviation from the normal method of accounting (mercantile method). This has not been found by the Appellate Tribunal specifically or precisely. It is true that, in paragraph 10 of the order, the Appellate Tribunal states that the Income-tax Officer has allowed in the assessment year under appeal the bonus for 1978 on payment basis. We are of the view that the Appellate Tribunal should find specifically the practice followed generally in plantations regarding the payment of bonus and whether the assessee in the instant case was claiming deduction of amounts paid as bonus, "on payment basis" regularly. In so far as there is no specific finding on this score, we decline to answer question No. 4 referred to this court at the instance of the Revenue ; but, at the same time, direct the Tribunal to restore the appeal, on this aspect alone, and decide the matter afresh in accordance with law.
11. In the result, we decline to answer questions Nos. 1 and 4, referred at the instance of the Revenue, and questions Nos. 2 and 3 are answered in favour of the assessee and against the Revenue. We decline to answer the three questions referred at the instance of the assessee.
12. The references are disposed of as above.
13. A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.