TMI Blog1986 (1) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Income-tax Officer, drawing support from the decision in Travancore Tea Estates Co. Ltd. v. CIT [1974] 93 ITR 314 (Ker), held the view that the standing rubber trees in the estate do not form part of the land and being capital asset, the gains arising from the sale thereof had to be brought to tax. Accordingly, the Income-tax Officer bifurcated the transaction as sale of land and sale of trees separately and artificially apportioned the consideration received and computed the capital gains on the sale of rubber trees at Rs. 6,568. The assessee challenged the assessment in appeal. The Appellate Assistant Commissioner allowed the appeal accepting the contention of the assessee that the standing rubber trees in the estate form part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Department to consider transactions evidenced by the three sale deeds executed by the assessee on January 16, 1974, by which 15 1/2 acres of rubber estate together with trees standing thereon were sold, as consisting of two sales, namely, sale of land and sale of trees), and then proceed to bring to tax the capital gains arising from the sale of the trees ? " In order to sustain the claim that capital gain is exigible on the trees comprised in the rubber estate sold by the assessee, it has to be shown that such trees constitute a capital asset within the meaning of the term in section 2(14) of the Income-tax Act. Agricultural land in rural areas continues to be excluded from the definition of " capital asset ". The estate sold by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were standing. The assumption that the standing trees are separate and distinct from the land on which they stand is clearly wrong. Standing timber is very much immovable property as the land itself. The trees, until they are cut and removed form an integral part of such land. Trees being things attached to the earth: together with the earth to which they are attached, constitute one asset, viz., the land. When the land with the standing trees is transferred, the sale is an integral one in respect of that asset only and it cannot involve separate sale of the trees as a distinct asset. A bifurcation of the asset can happen if at all only when the trees are sold separately for being cut and removed while the right over the soil is retai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicable to India. This view was reaffirmed in Travancore Tea Estates Co. Ltd. v. CIT [1974] 93 ITR 314 (Ker). In the case of Clen Leven Estates Ltd. v. CIT [1973] 91 ITR 391 (Ker), the question considered was whether " cooly lines " situated in agricultural land sold separately would fall within sub-clauses (iii) of section 2(14) of the Income-tax Act and the court said that " cooly lines " attached to agricultural land cannot be held to be agricultural land and will not be excluded from the definition of capital asset. The question whether there was a transfer of capital asset when standing trees in an agricultural land are sold along with land was not considered or decided in that case. That question was specifically left open stating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Agrl. I.T. v. Kailas Rubber Co. Ltd. [1966] 60 ITR 435, was followed in holding that the receipt by the transfer of trees such as mentioned is not a revenue receipt but capital receipt arising from the transfer of a capital asset. In the case of Kailas Rubber Co. Ltd. [1966] 60 ITR 435, the Supreme Court held that the sale proceeds of old and unyielding rubber trees felled and sold is a capital asset. The Supreme Court noticed in that case that there was enough evidence in the record justifying the conclusion that the rubber trees form part of the capital asset of the assessee. The above decisions which have been relied on for the Revenue were decided in the context of there being separate sale of trees apart from the land. The question ..... X X X X Extracts X X X X X X X X Extracts X X X X
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