1989 (10) TMI 10 - HC - Income Tax

Summary

Issues:
1. Capital gains on the sale of old rubber trees
2. Tax on capital gains from the sale of rubber estate
3. Taxability of rubber replantation subsidy
4. Deduction of surtax in computing business profits

Analysis:

The judgment involved two connected references, one at the instance of the Revenue and the other at the instance of the assessee, arising from a common order by the Appellate Tribunal for the assessment year 1977-78. The issues raised pertained to the capital gains on the sale of old rubber trees, tax on capital gains from the sale of rubber estate, taxability of rubber replantation subsidy, and deduction of surtax in computing business profits. The Tribunal held that no capital gains arose from the sale of old rubber trees as their fair market value when sold was lower than their value on January 1, 1954. Additionally, it was held that no tax on capital gains could be levied on the trees standing on a rubber estate sold by the assessee. The rubber replantation subsidy was deemed not liable to be included in the taxable income based on a Full Bench decision. However, the deduction of surtax under the Companies (Profits) Surtax Act, 1964, in computing business profits was disallowed by another Full Bench decision.

Regarding the first issue of capital gains on the sale of old rubber trees, the court relied on previous judgments and held that no capital gains could be assessed as the fair market value of the trees when sold was lower than their value on specified dates in the past when they were yielding trees. This decision was made against the Revenue and in favor of the assessee. On the second issue of tax on capital gains from the sale of rubber estate, the court followed a precedent and ruled that no tax on capital gains could be imposed on the trees standing on a rubber estate sold by the assessee, again favoring the assessee and going against the Revenue.

Moving on to the third issue of the taxability of rubber replantation subsidy, the court referred to a Full Bench decision and concluded that the subsidy received by the planter was not a revenue receipt and hence not taxable. This decision was made against the Revenue and in favor of the assessee. Finally, on the fourth issue of the deduction of surtax in computing business profits, the court upheld the decision of a Full Bench that the assessee was not entitled to claim such deduction. This decision was against the assessee and in favor of the Revenue.

In conclusion, the court answered all the questions raised in the references, deciding in favor of the assessee on the issues of capital gains on the sale of old rubber trees, tax on capital gains from the sale of rubber estate, and taxability of rubber replantation subsidy. However, the court ruled in favor of the Revenue on the matter of the deduction of surtax in computing business profits.