TMI Blog1987 (9) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... offee land and estate 17,00,000 (ii) Value of buildings, structures, etc. therein 1,50,000 (iii) Value of articles of machinery, furniture, stock-in-trade and other movable properties 50,000 (iv) Value of coffee bushes as they are 16,00,000 --------- 35,00,000 --------- 4. The assessee-firm had not admitted any capital gains from this sale. The Income-tax Officer, however, was of opinion that capital gains arose from the transfer. For this purpose, he had to ascertain the cost of the estate when it was purchased in 1970. It may be recalled that rosewood trees standing in the estate were cut and removed and sold for Rs. 13 lakhs. The cost of these rosewood trees will have to be deducted from the original cost of Rs. 25 lakhs paid for the estate inclusive of these trees. The ITO found that the rest of the estate other than the rosewood trees could be valued at Rs. 9,40,540. This is based on a valuation report given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale of the coffee estate by the assessee there cannot be any capital gains in respect of the coffee bushes and standing trees. These have to be treated as an integral part of the estate which cannot be severed or segregated from one another. 6. With regard to the transfer of the buildings and machineries, however, he held that this gives rise to capital gains. So he held that the computation of capital gains made by the assessee in respect of these items is correct. 7. It was also contended before the CIT (A) that the transfer was not effected by the firm but by the partners individually and, therefore, no capital gains would arise in the hands of the firm. This contention was rejected by the CIT (Appeals). 8. The next issue is to be considered was the cost of acquisition of the assets. He found that on re-working the cost would come to Rs. 16,15,730 in respect of the estate as a whole. 9. The final question before the CIT (Appeals) was whether the assessee would be entitled to the exemption u/s 54E. He found that the partners had deposited Rs. 18 lakhs on 21-2-1979 for a period of 63 months. Admittedly the deposits have been made out of the sale proceeds of the estat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese rubber tress represented agricultural income or not. The Tribunal had held that there was no intention that the trees which were to be cut and removed should continue to draw sustenance from the land. At page 499 the High Court observed as follows : "We think that in substance what the Tribunal has held is that under the agreement there has been no intention on the part of the contracting parties that the trees which were permitted to be slaughter-tapped, cut and removed, should derive sustenance from the land and continue to afford income to the transferee, the assessee before us. The provisions in the agreement that we have read would clearly show that the definite intention was to have the trees annihilated. There was an out and out sale of the trees and considering the extent of the land on which the trees stood, 303 acres, it is quite conceivable that the removing of the trees would take considerable time and the provisions in the agreement that the assessee had three years time to remove them does not at all imply any intention that the trees should continue to receive nourishment from the land and afford agricultural income to the assessee. The most apt passage that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other employees. Such a clause is unnecessary if the intention was not for the buyers to continue the coffee estate as a business. 13. The next question is whether the fact that separate consideration is mentioned to the land, buildings and coffee bushes would make any difference. In this connection, we would refer to the Supreme Court decision in the case of Associated Clothiers Ltd. v. CIT [1967] 63 ITR 224. This case is an exception to the Rule that where a going concern is transferred in a slump sale the separate assets should not be considered individually for the purpose of ascertaining whether capital gains arises or not. The case of CIT v. Mugneeram Bangur Co. [1965] 57 ITR 299 (SC), which is the authority for slump sale is distinguished in Associated Clothiers Ltd.'s case. In this Associated Clothiers Ltd.'s case the assessee was carrying on a business of clothiers and tailors. They had transferred the assets and liabilities another company in consideration of allotment of shares and some cash. Under the terms of agreement the assessee purported to transfer 7 items of property described in the Schedules annexed to the deed. In the agreement the properties sold were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake the decision any the different. 14. We have held that there would be no capital gains in respect of the coffee estate, shade trees and coffee bushes. Let us assume that this decision is not final. Then, it would be necessary to find out the cost of acquisition of this estate. The ITO had fixed the cost of acquisition at Rs. 9,40,540 only. Now, it is seen that from the estate purchased in 1970, only rosewood trees have been removed. These rosewood trees were sold for Rs. 13 lakhs and odd. What we have to see is the cost of these trees sold for Rs. 13 lakhs. The issue of the cost for which these trees were acquired had figures in the assessment of the assessee for the year 1971-72. In that assessment the ITO after going into the issue, gave a finding that cost of the rosewood trees would be Rs. 10,09,270. It is this figure which had been accepted by the CIT (A). We are of opinion that this figure is the reasonable figure and is based on the assessment order for the year 1971-72. Therefore, if at all capital gains have to be computed, the figure fixed by the CIT (A) should be taken as the cost of acquisition. 15. The next question is whether the assessee is entitled to deducti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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