TMI Blog1980 (7) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7,25,000 standing rose-wood trees numbering 200, to be felled and removed by the purchaser at his cost. During the year of account ended March 31, 1971, the purchaser had felled and removed as many as 150 trees and had paid the assessee-company Rs. 6,25,000. In its income-tax return for the relevant assessment year 1971-72, the assessee-company returned its income from the coffee plantation. In the course of the assessment, the capital gains on the sale of the standing trees effected under the agreement dated July 15, 1970, came up for consideration before the ITO. In the return filed for this year, the assessee showed that only a sum of Rs. 6,25,000 was received by it from the purchaser, Mr. James, and that alone should be taken into account in ascertaining the capital gains under that head, after allowing the value of the trees as on January 1, 1954, as constituting the cost of the trees. The ITO, however, held that under the terms of the agreement dated July 15, 1970, the sale of all the trees must be held to have taken place on that date itself and capital gains must be taxed on the entire sale proceeds of Rs. 7,25,000. He rejected the contention of the assessee that only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200 standing rose-wood trees in the survey numbers scheduled to the agreement for a stated consideration of Rs. 7,25,000. The agreement provided for an initial deposit of Rs. 25,000 to be paid on June 29, 1970 and a further deposit of Rs. 1,25,000 to be paid before the commencement of the felling of the trees or on August 31, 1970, whichever was earlier. Three further equal instalments of Rs. 1,50,000 each were to be paid on September 30, 1970, October 15, 1970 and October 31, 1970, respectively, or before the time of removing the first, second and third lots of trees, whichever happens to be earlier. The balance of consideration amounting to Rs. 1,25,000 had to be paid at the time of removing the last fifty trees or on November 15, 1970, whichever came about earlier. One of the provisions concerning the felling of trees and their removal from the forest was that the purchasers would have to submit their application to the Government for granting them permission to fell the trees and to remove them. It was, however, further provided that in that task, the sellers would render their own assistance by giving the necessary letters of authorization for being filed with the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es had taken place during the year of account with respect to which the assessee had received the consideration set out in the terms of the agreement. We are unable to agree with this contention. In the first place, it is difficult for us to precisely relate the amounts payable in instalments under the agreement to the particular trees cut and removed. There is no correlation under the agreement's time-schedule, between the payments to be made and the trees to be cut. Even before a single tree is cut, the assessee is obliged to pay Rs. 25,000 plus Rs. 1,25,000 Plus Rs. 1,50,000 amounting to Rs. 3,00,000. Besides, in the face of the admitted figure of actual realisation of sale price daring the year of account, which amounted to Rs. 6,25,000, it is hard to reconcile the value of 50 trees, which remained uncut and unremoved, as representing only the balance which remained to be paid out of the overall sale price. Although this point has not been noticed by the Tribunal in the course of its order, this is an additional reason why the transaction of sale cannot be regarded as the sum total of several small agreements, each one relating to the sale, the cutting and the removing of 50 tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contracting parties that the property in goods in the specified trees can pass only at some time after the conclusion of the agreement. In s. 19(1) of the Sale of Goods Act, 1930, it is provided: " Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred." Section 19(2) provides: " For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and circumstances of the case." Under sub-s. (3), it is further provided: " Unless a different intention appears, the rules contained in sections 22 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer." Section 20 deals with a case where specified goods in deliverable state are the subject-matter of a contract for sale. This section provides: " Where there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees standing in the estates, it would be incorrect to regard them as non-specific goods, merely for the reason that the subject-matter of the sale was not the entirety of the standing trees in the estates, but 150 out of 160 trees in one estate and 50 trees out of 66 trees in the other estate. In any case, even if for some reason, the case cannot be regarded as specific goods, we are satisfied that the trees, which are the subject-matter of the sale in the present case can well be regarded as ascertained goods, since they had been identified with respect to their number, location and character. The assessee's learned counsel referred us to a decision of a Bench of the Nagpur High Court, reported in Harnarain Ramchandra Jaiswal v. Firm Radhakisan Narayandas, AIR 1949 Nagpur 178, to illustrate the proposition that in the case of goods referred to by description, it was by an actual act of appropriation of the goods by the seller that the subject-matter of the contract becomes ascertained goods. He particularly relied on the following passage in the judgment of that court at pages 179 and 180. " If the identity of the contract goods is not established by appropriating them towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific or ascertained goods in a deliverable state. The contract in question before the Court of Appeal was dated September 10, 1920, under which the vendors agreed to sell and the purchasers agreed to purchase, " all the merchantable timber " growing on August 20, 1920, in a given forest. The agreement defined the term " merchantable timber " as including " all trunks and branches of trees but not seedlings and young trees of less than six inches in diameter at a height of four feet from the ground ". The agreement further provided that the timber was to be cut not more than 12 inches from the ground. The purchaser was to have 15 years in which to cut all the timber. The payment of price was regulated in instalments subject to a final adjustment, which was to be worked out on the basis of so much per timber cut, that is to say, pound 4 for a standard timber cut and carried away during any particular quarter. On these terms of the sale agreement, the question before the Court of Appeal was whether the contract was a contract for the sale of the specific goods in a deliverable state within the meaning of s. 18, r. (1) of the English Sale of Goods Act, 1893. It may be observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be regarded as cut timber. Indeed the agreement avoids the use of the expression " cut ", even while stipulating for the several acts to be done by the purchaser for taking effective delivery of the subject matter of the contract. One of the important clauses in the agreement in the present case is that the purchaser was under an obligation to fell the trees and to remove them as early as possible, or at the latest, before November 15, 1970. They had also to remove all the branches, firewood, etc. from the spot and " to have the area cleaned at his cost ". These aspects of the transaction show that what was sold was not timber, but the entire trees, root and branches, subject to the obligation that the purchaser should clean up the mess. In this sense, the sale of growing trees or standing timber as a whole, root and branch, should be regarded as Per se a sale of goods in a deliverable state. This is because nothing remained to be done on the part of the seller with reference to the subject-matter of the sale. In the Court of Appeal case, only trees of a particular girth had to be cut and this required verification both by the seller and by the purchaser. The cutting of the trees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not before. The implication we read in the Supreme Court judgment is that where the contract of sale relates to the whole tree and not merely the cut timber, then there is nothing to prevent the property in the goods passing even at the time when the contract of sale is concluded between the parties. We may observe that in the present case nothing remained to be done by the assessee, as the vendor, subsequent to the contract, for the property in the trees to pass. The assessee's learned counsel relied on the clause in the agreement under which the purchaser was to apply for and obtain from the Government, permission to fell the trees. Learned counsel urged that the need to obtain permission of the Government, which under the terms of the agreement was to be the responsibility of the purchaser, indicated that it was the intention of the parties that the property in the goods sold should not pass eo instanti on the execution of the contract, but only subsequently after the Government had granted the permission. Learned counsel tended to read this particular clause in the agreement almost as condition subsequent, on the failure of which the contract would not take effect at all. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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