TMI Blog2011 (11) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... KERALA HIGH COURT). Moreover, the Assessing Officer has erred in treating the income as income from other sources by merely disbelieving the evidence produced by the assessee, and without bringing on record any clinching evidence to the contrary. Therefore, orders of the CIT(A) are set aside Assessing Officer is directed to compute the income under the head "income from capital gains". - Decided partly in favor of Revenue. - ITA NOS. 1154 TO 1162 AND 1232 (CHD.) OF 2010 - - - Dated:- 24-11-2011 - SHRI D.K. SRIVASTAVA,AND MS. SUSHMA CHOWLA, JJ. Represented by: Shri Binod Kumar and N.K. Saini for the Appellant. Shri Praveen Kapoor for the Respondent. ORDER Ms. Sushma Chowla, Judicial Member - The above said captioned appeals filed by the Revenue against different assessees are against different orders of CIT(A), all dated 20.8.2010 relating to assessment year 2007-08 against separate orders passed under section 143(3) of the Income Tax Act. 2. The appeals relating to different assessees on the same issue were heard together and are being disposed off by this consolidated order for the sake of convenience. 3. Common grounds of appeal have been raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income declared at Rs. 67,46,129/-. The assessee was show caused to explain why the said compensation should not be assessed under the head "income from other sources", in view of the various ratios laid down by the Hon'ble Supreme Court. In response the assessee explained that "as per the agreement between the assessee and M/s J.P. Karcham Hydro Corp. Ltd., the company carried out changes in the fields removed all the fruit trees to set up the plant and machinery in the fields. The removal of fruit trees resulted in loss of agriculture income for so many years, as it will require another 7-8 years after the term of agreement is over to grow the plants to fruit bearing stage of the tree. So definitely it was loss of agriculture income which is compensated in the present form. So keeping in view the nature of income it is shown as agriculture income". The assessee further explained that it was having other orchard income, which was not leased out and the said income was utilized for the maintenance of the orchard during the year. Further plea of the assessee was that the basic component of human skill and basic operation like cutting, pruning, sprays, fertilizers, etc. were carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t carries any weight". The Assessing Officer held as under : "In view of the said facts, compensation received by the assessee neither falls under the definition of agriculture income as provided in section 2(1A) nor falls under the definition of capital assets as provided in section 2(14). As per the explanation 2 provided below section 2(1A) in the Income Tax Act, it has been declared that income derived from any building or land referred to in sub clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub clause (a) or sub clause (b) shall not agriculture income. In the instant case, assessee had derived income from non-agricultural activities, hence, these receipts can not be treated as agriculture income. The land of assessee is situated in the rural area, hence, the agriculture land situated in rural area is not a capital asset as claimed by the assessee as per the provisions of section 2(14). Hence, the claim of the assessee that, it is capital receipts on account of loss of capital asset is being rejected and entire compensati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of revenue receipt and did not comprise any element of income it was held as a Capital Receipt. 6.3 In the instance case, the appellant has received compensation for loss of apple trees from M/s J P Karchan Hydro Corporation Ltd. The compensation is in the nature of capital receipt since no element of income is involved in the same. 6.4 Keeping in view the facts and legal position discussed above, compensation received by the appellant for loss of apple trees is treated as a Capital receipt not chargeable to tax. The appellant succeeds on this ground of appeal." 6. The Revenue is in appeal against the order of the CIT(A). The contention of the learned D.R. was that the CIT(A) has only considered one aspect of the issue. Our attention was drawn to the agreement placed at pages 12 13 of the Paper Book filed by the assessee. It was pointed out that the agreement was a composite agreement where land was given on rent and compensation was paid for cutting of fruit trees. However, in the Jamabandi land was shown banjar kadam and no evidence of fruit growing tree on the said land was furnished. The assessee has not furnished any details of the orchards. The next contention o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies, compensation of Rs. 2,02,38,387/- was paid by the lessee to the assessee and his brothers for carrying out changes in the area, its topographgy, terraces, fields, etc. and also to cut/remove all fruit trees. The aforesaid changes were required for setting up Aggregate Processing and Concrete Batching and Mixing plant. The said receipt was shown as agricultural income by the assessee in the original return of income filed for the year under consideration. However, later on revised return was filed by the assessee claiming the said receipt to be capital receipt not exigible to tax. The issue raised before us is in connection with the assessability of the aforesaid compensation received by the assessee and his brothers. The 1/3rd share of the assessee in the said compensation works out to Rs. 67,46,129/-. 9. The Assessing Officer was of the view that the agricultural land does not fall under the definition of capital assets as provided under section 2(14) of the Income Tax Act, as the land of the assessee was situated neither within the territorial jurisdiction of Municipality or Cantonment Board having population of 10000 or more, or any notified area. The Assessing Officer th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove said proposition was laid down by the Hon'ble Apex Court in CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466. The onus is upon the assessee to prove that the income earned by it is agricultural income, which is exempt from tax. In the facts of the case, the assessee had initially offered the income as agricultural income and later revised its claim to said being receipt on sale of capital asset. Hence the receipts cannot be treated as agricultural income. 11. The issue to be considered by us is the nature of charges/compensation received by the assessee for cutting/removing of fruit trees and for changing topography, fields, etc. Section 2(14) of the Act defines capital assets as under : 2(14) "capital asset" means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ; (ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes (a) jewellery; (b) arch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h receipts are in the nature of transfer of capital asset or not. 13. The Hon'ble Supreme Court in V. Venugopala Varma Rajah v. CIT [1970] 76 ITR 460 and A.K.T.K.M. Vishnudatta Antharjanam v. CAIT [1970] 78 ITR 58 had held that trees, until they are cut and removed, form an integral part of such land. The Hon'ble Kerala High Court in CIT v. Rajagiri Rubber Produce Co. Ltd. (No.1) [1990] 182 ITR 393 and in CIT v Alanickal Co. Ltd. [1986] 158 ITR 630/28 Taxman 504 held that where the land is agricultural land and it is sold alongwith the trees thereon, the sale is only in respect of agricultural land of which the trees form an integral part. The Hon'ble Supreme Court in CAIT v. Kailas Rubber Co. Ltd. [1966] 60 ITR 435 held that a bifurcation of the asset, comprising of land and trees thereon can only happen when the trees are sold separately for being cut and removed while the right over the soil is retained by the owner. It has been held by the Hon'ble Kerala High Court in Travancore Tea Estates Co. Ltd.'s case (supra) that the trees standing on agricultural land constitute "property of any kind" mentioned in section 2(14) of the Act and are "capital asset" and profits arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, which is assessable as income from capital gains. In view of the plea of the assessee that changes on land on which trees were grown were incidental to removing the trees and as the Assessing Officer had not disputed the segregation of the compensation and entire compensation was considered against the removal of trees, the total compensation received by the assessee is to be considered while computing the income under section 45 of the Income Tax Act. We find no merit in the claim of the assessee that the said trees being his only source of livelihood. Moreover, the Assessing Officer has erred in treating the income as income from other sources by merely disbelieving the evidence produced by the assessee, and without bringing on record any clinching evidence to the contrary. We set aside the order of the CIT(A) and direct the Assessing Officer to compute the income in the hands of the assessee under the head "income from capital gains", after allowing reasonable opportunity to the assessee. Thus on this aspect, the Revenue partly succeeds. 18. In the result, the appeal of the Revenue is partly allowed. 19. In so far as the other captioned appeals are concerned, it was a com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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