TMI Blog1997 (3) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee anything is based on any relevant material or perverse ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the profit on the sale of the timber is neither assessable as capital gains nor assessable as a taxable income ? 4. Whether, on the facts and in the circumstances of the case and on a correct interpretation of section 43(6) of the Income-tax Act, 1961, read with rule 8(1) of the Income-tax Rules, 1962, the Tribunal was correct in law in holding that for the purpose of computing written down value of depreciable assets used in tea business only 40 per cent. instead of 100 per cent. depreciation at the prescribed rate should have to be deducted in the assessee's case ? 5. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the provision of section 40A(8) of the Income-tax Act, 1961, would not be applicable on current account balance of the directors, shareholders and others of the assessee-company ?" And in R. A. No. 575/(Cal) of 1990, the following question has been referred to us : " Whether, on the facts and in the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Rs. 50,000 was shown as the consideration for the plot of land together with plantation thereon, Rs. 50,000 for building and structure and Rs. 12,00,000 for plant, machinery and other movable properties ; the value of the land and plantation was shown in the books of account of the assessee at Rs. 2,49,005, the same having been sold at Rs. 50,000, the assessee claimed loss of Rs. 1,99,005 on the sale of land and plantation ; this loss was disallowed by the Assessing Officer, as according to him, such loss arose out of transfer of an agricultural land ; during the assessment year in question the assessee sold timber relating the said tea estate at Rs. 8,90,000 and after deducting sawing charges therefrom claimed the net sum of Rs. 7,40,106 as non-taxable capital gain, which too was rejected by the Assessing Officer ; the Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer ; but the Income-tax Appellate Tribunal reversed the said adjudications. In this connection it is pertinent to note, as appears from the assessment order, that in the original return filed by the assessee, income from sale of timber was claimed as " agricultural income " but subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax (Appeals), it was urged by the assessee that the Income-tax Officer erred in treating income of Rs. 7,40,106, i.e., the sale price of timber less timber sawing charges, as income by way of long-term capital gains, but since there was no cost of acquisition incurred for acquiring the timber, which was of spontaneous growth, it, therefore, represented sale of an asset and that the timber sawing charges was incurred in relation to transfer and sale of timber, which did not constitute stock-in-trade or work-in-progress. It was contended that since there was no cost of acquisition for the timber, sale of such an asset cannot be treated to be a capital gain. It was urged that the asset sold was self-generated. The Commissioner of Income-tax (Appeals) distinguished the decisions of various courts cited before him on facts by stating, " there is absolutely no indication to show that the appellant had not spent even a pie on the growth of trees, which appeared to be quite large in number and which could be sold for such a substantial amount of Rs. 8,90,000. Even assuming that the trees were of spontaneous growth, as held in the High Court decisions, reported in Province of Bihar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l representative in proceedings before us could not place any material to say that the trees were acquired by the assessee for a cost or the cost of acquisition of trees sold could be determined. " Therefore, on the facts, the Commissioner of Income-tax (Appeals) was concerned with : (1) expenditure incurred on the growth of trees ; (2) such trees were forest trees ; and (3) after cutting the trees, the trunks were allowed to remain on the land. There was no contention in regard to the cost of acquisition. Before the Income-tax Appellate Tribunal similar questions of facts were raised which were answered by saying " there was no material on record to show that the assessee spent anything on plantation growth or development of trees. There was also no material on record to show that the assessee while removing trees, left roots in the soil for generation. The record clearly shows that the trees were for making the land fit for cultivation of tea." Thus, at no stage there was any controversy regarding cost of acquisition of the trees of spontaneous growth, (respite the assessee claiming there was no cost of acquisition. If there be any, the Assessing Officer or the Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee by selling trees realised capital and, therefore, the receipt was of capital nature and could not be charged to tax as capital gain. It then observed that the foundation of the order of the Tribunal was the order of the Assessing Officer and that of the Commissioner of Income-tax (Appeals) and in the absence of any material in those orders to show that the trees were acquired for a cost, there was no error in the order of the Tribunal apparent on the record, nor it could be said that without taking into account the relevant records, the order of the Tribunal was passed. It was then pointed out that it was not claimed that the Assessing Officer or the Commissioner of Income-tax (Appeals) passed their orders without taking into account the purchase deed dated March 15, 1978 ; despite that the cost of acquisition was taken at nil. It then observed that the timber sold was different from the alleged trees acquired on March 15, 1978 ; the timber sold was grown between 1978 and 1984 and at any rate, the timber sold in 1984 was very different in quality from the timber acquired in the year 1978 and that aspect of the matter was properly taken into account by the lower auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... forementioned miscellaneous application. The word " spontaneous " means unaided ; voluntary growing naturally without cultivation ; occurring without external cause which presupposes, that there was neither any cost of acquisition nor any cost of growing. This aspect of the matter was accepted by the Assessing Officer despite the deed of purchase of the year, 1978 being in the record before him, as claimed. The Assessing Officer, therefore, despite the deed of purchase of 1978 being before him, took the cost of acquisition of the subject trees at nil, which show that he accepted that the subject trees were of spontaneous growth. The Commissioner of Income-tax (Appeals) was not at all concerned with cost of acquisition, he was concerned with expenditure on the growth of the subject trees. Admittedly, when the matter was being heard before the Tribunal, no plea was raised on behalf of the Revenue in regard to the cost of acquisition of the subject trees, nor it was contended that the subject trees were not of spontaneous growth, for the reason that on that day the Departmental representative did not have in his possession the deed of purchase of 1978. Thus, admittedly, at no stage be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed of purchase dated March 15, 1978, formed part of the records for the assessment year 1984-85. What was alleged in this regard, was that the records of the case for the assessment years 1984-85 and 1978-79, show that the assessee purchased the subject tea estate on March 15, 1978, at a consideration of Rs. 4,43,552.60 and that the purchase deed showed that the assets purchased included trees without showing any particular value therefor. It was not contended that the subject purchase deed formed part of the records for the assessment year 1984-85. If the subject purchase deed did not form part of the records for the assessment year 1984-85, then the question of the Tribunal looking into the purchase deed to find fault in its order did not, nor could not at all arise and similarly, the question of the Departmental representative disputing that the subject trees were not of spontaneous growth and had been acquired at cost also did not, nor could at all arise. We, therefore, answer question No. 1 in Income-tax Reference No. 103 of 1993 in the negative and in favour of the assessee and question No. 2 in Income-tax Reference No. 103 of 1993 in the affirmative and in favour of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essable under section 45 of the Income-tax Act as capital gains. The Kerala High Court further observed that agricultural income as defined in the Income-tax Act, does not include gains arising from the sale of trees standing on agricultural land and thus gains arising from the sale of trees are assessable under section 45 of the Act. The same view was expressed in Beverley Estates Ltd. v. CIT [1979] 117 ITR 302 (Mad) and in CIT v. M. Ramaiah Reddy [1986] 158 ITR 611 (Kar). If what is attached to the land belongs to the land is not applicable in India and trees which stand on agricultural land are not agricultural land in India then the tea bushes cannot also be taken to be agricultural land in India, but we think the matter should be approached in a different way. According to the section, agricultural income means any rent or revenue derived from the land used for agricultural purposes ; any income derived from such land by agriculture or by cultivation or by any process employed by a cultivator to render the produce raised or received by him fit to be taken to market or by sale of the produce raised or received or any income derived from any building owned or occupied by the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmative and in favour of the assessee. Question No. 2 in Income-tax Reference No. 201 of 1991 raised in R. A. No. 574/(Cal) of 1990 is as follows, which we propose to deal with now : " 2. Whether, on the facts and in the circumstances of the case and in view of the finding of the Commissioner of Income-tax (Appeals) that there is absolutely no indication to show that the appellant had not spent even a pie on the growth of the trees and in view of the fact that the assessee itself purchased the Oakes Tea Estate with standing trees on March 15, 1978, the finding of the Tribunal that the trees did not cost the assessee anything is based on any relevant material or perverse? " From the records of the case it does not appear that question No. 2 raised in Income-tax Reference No. 201 of 1991 in connection with R. A. No. 574/(Cal) of 1990 could at all be raised. As discussed above, the lower authorities did not consider the purchase of the standing trees either on March 15, 1978, or at all. The matter was admittedly not raised before the Tribunal. The trees were taken to be of spontaneous growth by the lower authorities as well as by the Tribunal. As far back as in the year 1959 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee or the fair market value of the asset as on January 1, 1964, at the option of the assessee and where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner meant the fair market value on the date on which the capital asset became the property of the previous owner. On the facts, as discussed above, section 55 of the Act, as was then prevalent, has no application. The subject trees were claimed to be and accepted as " of spontaneous growth ". The lower authorities proceeded on the basis that the cost of acquisition is nil. Before the Tribunal no contrary stand was taken. Although the Commissioner of Income-tax (Appeals) observed that there is no indication to show that the appellant had not spent a pie on the growth of the trees, i.e., on the improvement of the capital asset, he did not make any endeavour to find out as to what was spent on the improvement. The records of the case do not contain any evidence in regard to the cost of improvement. Therefore, the trees of spontaneous growth as claimed by the assessee and as accepted by the Revenue had no element of cost of acquisition or cost of improv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal was not thereafter raised or argued before the High Court, but in doing so observed that the contention raised on behalf of the assessee to the effect that even assuming that the assessee had a capital asset and consideration had been received for relinquishment of some part of his rights in respect thereof, the entire consideration could not have been brought to tax since capital gains have to be computed under section 48 of the Income-tax Act, which presupposes a reduction, among others, of the actual cost of the asset to the assessee and that the monthly lease of the premises, which the assessee was enjoying, was not acquired by him at any ascertainable cost ; and that even assuming that it was a capital asset, it was a capital asset of such a nature that its actual cost of acquisition cannot be ascertained, have great force and if they were open to be raised before the Supreme Court, the Supreme Court may have to decide the same in favour of the assessee. In that case, the Supreme Court was concerned about relinquishment of a part of a leasehold right in an immovable property. In CIT (Addl.) v. Ganapathi Raju Jogi [1993] 200 ITR 612 (SC), route permits for buses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Agricultural Farm v. CIT [1988] 169 ITR 291, the Andhra Pradesh High Court was concerned with a case where the assessee doing dairy farm business had sold cubs which were not acquired at any cost. The Andhra Pradesh High Court held that the birth of cubs was incidental to the business activity of the assessee and though it is difficult to visualise them as assets, there was no cost of acquisition of the cubs and, therefore, the gains which arise on such sale were not liable to tax as capital gains. Trees of spontaneous growth are such trees which are not sown. They grow naturally. Its growth also depends on the nature. Since it grows on the land belonging to an individual he claims to be the owner of such natural wealth. At the time when the sprouts come out from the seeds which have blossomed naturally, they have no value at all. As the nature nurtures and cares such sprouts they grow and ultimately become giant trees. The human needs the trunk and branches of those trees for various purposes. As the tree grows naturally, its value appreciates having regard to the nature of the human demand for its trunk and branches. In respect of such a tree neither any cost of acquisition n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by the assessee being receipt of capital nature, cannot be assessable as taxable income. In that view of the matter, we answer question No. 3 in Income-tax Reference No. 201 of 1991 raised in connection with R. A. No. 574/(Cal) of 1990, in the affirmative and in favour of the assessee. Question No. 1 in the Income-tax Reference No. 103 of 1993 is as follows : " 1. Whether, on the facts and in the circumstances of the case, when the Commissioner of Income-tax (Appeals) gave a finding that there is absolutely no indication that the assessee had not spent even a pie on the growth of the trees sold but confirmed the Assessing Officer's assessment taking the cost of acquisition at nil as the assessee did not claim any ; the finding of the Tribunal that its finding that no cost is involved in the acquisition of the said trees is on the basis of the order of the Commissioner of Income-tax (Appeals), is based on a relevant material or perverse ?" From the facts discussed above, it is crystal clear that the Assessing Officer as well as the Commissioner of Income-tax (Appeals) proceeded on the basis that there was no cost of acquisition of the subject trees. They also did not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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