RUBBER TREES BEING DURABLE PLANT BEING BASIC APPARATUS, HAVING FUNCTIONAL ROLE, LIMITED USEFUL LIFE ARE DEPRECIABLE ASSETS BEING ‘PLANT’ for the purpose of S.32 read with S.43(3) of the Income-tax Act,1961

[CA DEV KUMAR KOTHARI]

Links and references:

Section 32 and 43(3) of Income-tax Act, 1961.

Rule 7A of Income-tax Rules, 1962

Assistant Commissioner Of Income Tax Versus General Fibre Dealers Pvt. Ltd. 1993 (1) TMI 254 - ITAT KOLKATA and various definitions and judgments referred to therein and many more judgments in which durability and functionality in business are considered as core tests to consider any durable article or thing, live or dead, fixed or movable as eligible to be considered as plant for example:

Commissioner of Income-Tax, Gujarat Versus Elecon Engineering Co. Limited (and Other Appeals) 1986 (8) TMI 1 - SUPREME COURT  Other Citation: [1987] 166 ITR 66 (SC).

Commissioner of Income-Tax, Gujarat II Versus Elecon Engineering Co. Limited. 1974 (2) TMI 7 - GUJARAT HIGH COURT  Other Citation: [1974] 96 ITR 672  

Scientific Engineering House Pvt. Limited Versus Commissioner of Income-Tax, AP Other Citation: 1985 (11) TMI 1 - SUPREME Court

CIT v.Taj Mahal Hotel 1971 (8) TMI 2 - SUPREME Court, sanitary and pipeline fittings were held plant.

Poles, cables conductors and switch boards for distribution of electricity, Commissioner of Income-tax v. Indian Turpentine and Rosin Co. Ltd.  1969 (10) TMI 4 - ALLAHABAD High Court

light-fittings, ceiling and pedestal fans and water-pipe fittings in hotel, Commissioner of Income-tax v. Jagadees chandran & Co. ;

Hinton v. Maden & Ireland Ltd. 1959 (6) TMI 16 - HOUSE OF LORDS - knives and lasts having an average life of three years used in manufacturing shoes were held to be plant.

In Yarmouth v. France [1887] 19 QBD 647,  horse was held plant

Jarrold v. John Good and Sons Ltd. [1962] 40 TC 681 (CA),

IRC v. Barclay, Curle & Co. Ltd. 1969 (1) TMI 69 - HOUSE OF LORDS, the House of Lords held that a dry dock, since it fulfilled the function of a plant, must be held to be a plant.

Aircraft engine which was being dismantled, Watts v. Enfield Rolling Mills (Aluminium) Ltd

Movable office partitions, Jarrold v. John Good & Sons Ltd. ;

Concrete dry dock, Inland Revenue Commissioners v. Barclay, Curle & Co. Ltd.

Electrical fans and other office appliances, Sundaram Motors Pvt. v. Commissioner of Income-tax 1968 (1) TMI 17 - MADRAS High Court

Summary:

Rubber Trees are most important apparatus and tool in the business of natural rubber cultivation and manufacturing. Rubber trees are durable assets, are planted to produce latex which is used as raw material for making natural rubber. Just like any durable apparatus, tools , plant and equipage, rubber trees also require up-keep, repair and maintenance and also replacement after its economic life is exhausted. Therefore, rubber trees are depreciable ‘plant’ in context of the  Income –tax Act, 1961 vide  section 32 and 43(3). There is no other method of amortization of capital cost of rubber trees provided in the Act or Rules. Therefore deprecation is necessarily to be allowed to arrive at real income. The judgment of Tribunal in case of the General Fibre Dealers P.Ltd  1993 (1) TMI 254 - ITAT KOLKATA  is fully applicable. In that case ‘tea bushes’ were held to be ‘plant’. However, subsequently S.43(3) was amended to exclude tea bushes from meaning of ‘plant’. Rubber Tree is within inclusive and wider meaning of ‘plant’ and is not an excluded item. Therefore, depreciation of rubber trees is allowable to compute real income from year to year when income is earned from rubber trees.

Rubber Trees – meaning and general understanding:

rubber tree

noun

any tree that yields latex from which rubber is produced, especially Hevea brasiliensis, of the spurge family, native to South America, the chief commercial source of rubber.

• Three years' growth is required before the rubber tree is tapped.

British Dictionary definitions for rubber tree

rubber tree

noun    a tropical American euphorbiaceous tree, Hevea brasiliensis, cultivated throughout the tropics, esp in Malaya, for the latex of its stem, which is the major source of commercial rubber

http://rubberboard.org.in/ManageCultivation.asp?Id=3

Many plant species produce natural rubber. Considerations of quality and economics, however, limit the source of natural rubber to one species, namely Hevea brasiliensis.
It is a native of the Amazon basin and introduced from there to countries in the tropical belts of Asia and Africa during late 19th century. It can be termed as the most far reaching and successful of introductions in plant history resulting in plantations over 9.3 million hectares, 95 per cent of it across the globe in Asia.

Hevea brasiliensis, also known as the Para rubber tree after the Brazilian port of Para, is a quick growing, fairly sturdy, perennial tree of a height of 25 to 30 metres. It has a straight trunk and thick, somewhat soft, light brownish gray bark. The young plant shows characteristic growth pattern of alternating period of rapid elongation and consolidated development. The leaves are trifoliate with long stalks. The tree is deciduous in habit and winters from December to February in India. Refoliation is quick and copious flowering follows. Flowers are small but appearing in large clusters. Fruits are three lobed, each holding three seeds, quite like castor seeds in appearance but much larger in size. The seeds are oil bearing.

The rubber tree may live for a hundred years or even more. But its economic life period in plantations, on general considerations is, only around 32 years – 7 years of immature phase and 25 years of productive phase.

Commercial cultivation of rubber in India was started in 1902.

On the website of The Rubber Board http://rubberboard.org.in  under heading ‘Rubber Cultivation’ , we find following sub topics:

• The Rubber Tree
• Propagation of Rubber
• Clones
• Rubber Growing Regions
• Agro-climatic Requirements
• Rubber Growing Soils
• Nursery Establishment
• Land Preparation
• Field Planting
• Intercropping
• Cover Crops
• Mulching, Shading and Whitewashing
• Induction of Branches
• Weed Management
• Manuring / Fertiliser Application
• Tapping and Stimulation
• Diseases and Pests
• Processing
• Effluent Treatment
• Rubber Seed Processing Industry
• Beekeeping in Rubber Plantations
•  Ecofriendly NR

Some other websites at which important information and pictures of rubber tree are found are:

http://www.britannica.com/plant/rubber-tree

http://www.rainforest-alliance.org/kids/species-profiles/rubber-tree

https://en.wikipedia.org/wiki/Hevea_brasiliensis

On reading of meaning and other aspects we can say that:

• Rubber plant is a special category of plant from which rubber is produced and production of rubber is main purpose for planting rubber plant.
• Specific category of rubber plants are planted to suit specific requirement of region -soil, rain fall, weather conditions, environmental considerations.
  • From rubber tree produces obtained are:
  • Latex from which rubber is made- this is basic output of rubber tree for which rubber tree is planted.
  • Rubber seeds- these are mainly used for plantation of rubber trees by way of replantation, infilling, and extension plantation. A plantation which has surplus seeds can sell to others. Likewise, for better clones orseeds one plantation though having own seeds can purchase high yielding. Quickly maturing rubber seeds for plantation. 

When rubber seeds are in plenty and damaged rubber seeds are also used as cattle feed nutrient.

• Rubber seed oil- this is exceptionally obtained in small quantities and is not main purpose of planting rubber trees. When Rubber seeds are available in plenty and price is not reasonable seeds are crushed to obtain rubber oil.
• Leaves of rubber trees which fall on land are used for mulching material in plantation or can be used for making fertilizer and cattle feed.
• Rubber wood is used for furniture making or as fire wood depending on size of rubber wood- trunk , branches etc. 

Life of Rubber Tree:

Life of rubber tree can span even 100 years or more, but when used as a productive apparatus to produces and collect rubber its useful life is about 30-35 years. This can be increased if the price of rubber is high, because if price is high, even low yielding old trees can be economically useful to earn income. However, when price is low, even early re-plantation can be adopted as a good commercial practice.

With better technology, better quality of seeds, up-keep of trees a young rubber tree of  3-4 years can produce sufficient quantity of rubber. However, generally six years are considered for fully matured rubber tree.

After full maturity rubber tree can have economically viable  life of 30-35 years depending on productivity and price of rubber.

Input and output:

Input of a rubber tree are seed at the time of planting,  soil, ingredients of soil, water, fertilizers and some minerals for its growth and maintenance. Other inputs are for maintenance and to avoid dieses of trees.

Outputs have been discussed earlier. Though latex collected from rubber tree is part of rubber tree, but once it is collected it becomes stock-in-trade being raw material for manufacture of rubber.

Therefore, input and output are different. It is output, to obtain the same specific tree is planted.

Repair and maintenance of Rubber Trees:

Rubber trees also require regular up-keep, repairs and maintenance of its leaves, branches trunks and roots to keep tree healthy and to avoid early death or obsolescence.

The judgment of Tribunal in case of the General Fibre Dealers P. Ltd:

The judgment of Tribunal in case of the General Fibre Dealers P. Ltd and various judgments and definitions  of ‘plant’ and similar items referred to therein are  fully applicable to rubber trees also. In that case ‘tea bushes’ were held to be ‘plant’. However, subsequently S.43 (3) was amended to exclude tea bushes  and live stocks, from meaning of ‘plant’. Though this amendment may not be valid because by excluding tea bushes from meaning of ‘plant’ real income cannot be computed because, as rightly held by the Tribunal, that there is no other method of amortization or allowing original cost of tea plants and if depreciation is not allowed, there will be no computation of real income as per method of accounting and for purpose of taxation. Deduction of replantation cost is subject to many conditions and is allowed as an incentive and not in lieu of depreciation which is allowed on original cost of any asset and is allowed while income is earned. Whereas obsolescence allowance ( in case of animals) and replacement or cost is allowed when earning has come to an end. That distort computation of income.

Rubber Tree is within inclusive and wider meaning of ‘plant’ and is not an excluded item. Therefore, depreciation of rubber trees is allowable.