TMI Blog2014 (1) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... e shape of latex. The rubber trees constitute capital asset of rubber estate and dominant purpose of growing rubber trees is to create source for supply of liquid latex - The rubber trees therefore constitute capital asset of agricultural operations. There is no manufacturing activity involved either at the stage of cultivation and growing of rubber tree or at the time of its felling on trees becoming old and unyielding - Income derived from sale of old and unyielding trees do not include any element of income derived from sale of centrifuged latex or senex or latex based crepes - The amount received by the assessee on sale of old rubber trees in the three years under consideration constitutes capital receipts - Decided in favour of assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing expenses is allowed as a deduction under Rule 7A(2) of the IT rules, the AO took the view that the sale proceeds of Rubber Trees cannot be considered as capital receipt. According to AO, the sale value of old and unyielding rubber trees is akin to money obtained on sale of empty gunny bags by a cement dealer or empty bottles by a bar hotel. Before the AO, the assessee placed reliance on certain decisions rendered by Hon'ble Supreme Court. However, the AO took the view that those decisions were rendered in a different context and also at a point of time when the income from value added rubber was not considered for income tax purposes. Accordingly, the AO took the view that those decisions will not apply after introduction of Rule 7A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of empty gunny bags by a cement dealer or of empty bottles by a bar hotel and hence the trees cannot be called as a capital asset. The AO further took the view that the capital assets are not allowed as a deduction under the Income tax Act. However, in the instant case, the expenses incurred on estate expenses and replanting expenses have been claimed by the assessee itself, which shows that the rubber trees are not capital assets. Accordingly, the AO brought to tax 35% of the amount realised on sale of old and unyielding trees. The Ld CIT(A) allowed the claim of the assessee by holding that Rule 7A shall not apply to the sale of old and unyielding trees. 14. The main contention of the department is that the Rule 7A shall apply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al income and the business income. On a plain reading of Rule 7A, we are inclined to accept the contentions of Ld A.R. Thus, the said Rule 7A does not take in its ambit the question of sale of old rubber trees. With regard to the position of rubber trees, the Ld CIT(A) has observed as under:- In so far as sale of old and unyielding rubber trees are concerned, rubber trees are grown by carrying out agricultural operations on land. As held by the Supreme Court, rubber trees are not grown for the purpose of selling the trees but for generating income from the trees in the shape of latex. The rubber trees constitute capital asset of rubber estate and dominant purpose of growing rubber trees is to create source for supply of liquid latex. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w expressed by us in the earlier paragraph, i.e., it applies only to a person who carries on the combined activity of growing rubber trees and also manufacturing or processing of field latex or coagulum obtained from rubber plants. The dominant purpose of growing rubber trees is to obtain liquid latex from them. The rubber trees are not used as it is for the purpose of manufacturing or processing, but only the latex obtained from them. Hence, the sale value of old rubber trees cannot be considered as salvage value obtained from the exhausted stock. Since the rubber trees continue to the Capital asset. Accordingly, the examples of sale of old gunny bags or old bottles quoted by the AO are not applicable to the case of Rubber trees. Hence, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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