M/S. KALPETTA ESTATES LTD. ETC. ETC. versus THE COMMISSIONER OF INCOME-TAX, COCHIN

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MIS. KALPETTA ESTATES LTD. ETC. ETC. v. THE COMMISSIONER OF INCOME-TAX, COCHIN

JULY 16, 1996

[B.P . .IEEVAN REDDY AND KS. PARIPOORNAN, JJ.]

Income Tax Act, 1961.

Ss.45 and 55(2}-Capital gaini-Sa/e of old and uneconomic mbber C trees-Held, no capital gain arose or accnted on such transactions--Co111- putatio11 of income-Replantation subsid)-Held, cannot be treated as revenue receipt and taxed as incon1e.

The appellants, being owners of rubber estates, sold old and unyield ing rubber trees on various dates during the accounting years relevant to D assessment years 1968-69 to 1978-79. The income tax Officer held that capital gains accrued to the assessee on such transactions and he brought to tax the difference in amount between the sale price of the old rubber trees sold and the price notionally fixed for the said trees as on 1.1.1954 or l.1.1964 as the case may be. The assessees challenged the order on the E ground that when the rubber trees were sold they were uneconomic and unyielding and were useless but they were fully yielding on 1.1.1954 or 1.1:1964, and therefore, no capital gains arose or accrued to the assessees when they sold the old and unyielding trees. The Income Tax Appellate Tribunal accepted the case of the assessees, but the High Court took the view that capital gains accrued when old rubber trees were sold by the assessees. The High Court also upheld the view of the Revenue tliat the rubber plantation subsidy received by the assessees from the Rubber Board was revenue receipt and was subject to tax as income of the assessees. Aggrieved the assessees filed the appeals.

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Disposing of the appeals, this Court

HELD : 1. When old and unyielding rubber trees were sold by the various assessees during the relevant accounting year, no capital gain arose or accrued on such transactions. [626-A]

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Commissioner of Income Tax v. Ma/ankara Rubber and Products, 203

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KALPETIAESTATES LTD. v. C.l.T. [PARIPOORNAN,J.]

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!TR Statutes p.2, relied on.

Kanthimathy Plantations Pvt. Ltd. v. C.l. T, 184 !TR 1, referred to.

2. The Replautation subsidy received by the planters from the Rubber

Board cannot be treated as revenue receipt and taxed as income. [626-B]

Commissioner of Income-tax v.Ruby Rubber Works Ltd., 178 !TR 181,

referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 9188-90

of 1996 Etc. Etc.

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From the Judgment and Order dated 12.2.87 of the Kerala High

Court in I.T.R. Nos. 164 and 165/82.

G.B. Pai, K.N. Shukla, C.N. Sreekumar, Ms. Ritin Rai, Ms. Meera

Mathur, for JBD & Co. and S.N. Terdol for the appearing parties.

The Judgment of the Court was delivered by

PARIPOORNAN, J. Special leave granted in all the cases. In a few cases there is delay in filing the special leave petitions. The said delay is condoned.

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2. This batch contains 32 appeals. They are filed in 20 different sets. The same assessee has filed more tlian one set of S.L.P. Broadly speaking two questions were posed for consideration in this batch of appeals. They are (i) exigibility to capital gains (tax) when old and unyielding nibber trees were sold by the assessees; (ii) whether the rubber replantation subsidy F received by the assessee is a revenue receipt or not. Only in a few cases both the questions arise for consideration. In some other cases, one or the other of the above questions arise for decision.

3. The appellants are assessees to income tax. They owned rubber G

estates. Dnring the accounting years relevant to the assessment years in question fQr which they were assessed (1968-69, 1969-70, 1971-72, 1972-73, 1973-74, 1974-75, 1975-76, 1976-77, 1977-78 and 1978-79, as the case may be), the assessees sold old, unyielding and uneconomic rubber trees. The Income Tax Officer, brought to tax the difference in amount between the sale price of the uneconomic rubber trees sold and the price notionally H

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SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

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fixed for rubber trees as on 1.1.1954 and 1.1.1964, as the case may be . [S.55(2) ]. It was on the basis that capital gains accrued to the assessees when old and uneconomic rubber trees were sold by them. He worked out . "the capital gains' on the basis of a principle stated in his order. The plea put forward by the assessees was that the rubber trees when sold were B uneconomic and unyielding and were useless, but on the other hand, they were fully yielding on the respective valuation date specified in Section 55(2) of the Act, i.e., 1.1.1954 or 1.1.1964, as the case may be, and in this view of the matter, no capital gains arose or accrued to the assessees when the old and unyielding rubber trees were sold. The principle adopted to arrive at the capital gains were also assailed. The Income Tax Appellate C Tribunal in a majority of cases, accepted the plea of the assessees, and directed the Revenue to delete the capital gains on the sale of old and uneconomic rubber trees. The basis or principle on which capital gains were worked out by the officer was interfered with by the Appellate Tribunal. However, the High Court in the main case dealt \vith by it, ITR D No. 111 and 49 of 1981 uphold the principle of valuation adopted by the officer. This was followed in all the later cases including the cases in the present batch of appeals. The High Court also took the view that 'capital gains' arose or accrued when old and uneconomic rubber trees were sold by the various assessees. It was concluded that the levy of capital gains in the circumstances, was sustainable. Similarly, the assessees had received E rubber plantation subsidy from the Rubber Board. The Revenue treated the same as revenue receipt and taxed the same as income of the assessees. The High Court in this batch of appeal upheld the said view of the Revenue ..

4. Aggrieved by the judgments rendered by the High Court on the above two aspects - (1) assessment of capital gains tax when old and uneconomic rubber trees were sold, and (2) holding that rubber replanta income, the ·tion subsidy is a revenue receipt and so could be taxed as assessees filed the special leave petitions in this Court, which have resulted in the appeak

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5. At this stage, we should make certain aspects clear. (A) only in few cases both the above points are involved. They are SLPs. No. 11058/88 and 15594-95/98. (B) Regarding the other cases, in a few of them, the very question of exigibility or assessability to capital gains (tax) when old and H uneconomic rubber trees were sold, is involved. They are - SLP Nos.

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KALPETIAESTATES LTD. v. C.l.T. [PARIPOORNAN,J.]

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11118-19/88, 12603-4/87, 15685/88, 13937-38/88 an<! 11740-42/88. (C) In the A following cases, the only or sole question posed before the High Court was "Whether the method of valuation of rubber trees adopted by the Tribunal for the computation of capital gains is factually and legally correct?" The question as to whether any capital gains arose - (exigibility to capital gains) - was not mooted. It was accepted or assumed but the princir>le adopted by the Revenue was alone in issue. The cases in this group are SLPS No, 2416-18/95, 12599-600/87, 14071/88, 14072/88, 14073/88 and 12300/87. Before us, no argument was addressed attacking "the method of valuation", the only aspect covered by the question decided by the High Court. The larger question - regarding exigibility to 'capital gains' will not arise in this group of cases. We, therefore, need not adjudicate as to whether the "method of valuation" adopted was correct or not, since no argument was addressed on this aspect. (D) In the rest of the cases, the sole question involved is whether the rubber replantation subsidy received by the respec- tive assessees can be treated as a revenue receipt and brought to tax. The cases wherein this point is invo.lved are : SLP Nos. 11446-47/88, 11068/88, D 13321/88, 11042/88, 15742-43/88, 15744-45/88 and 15747/88. (E) In SLP Nos. 1 l5594-95/88, the questlon of allowance of depreciation and its quan tum, on maintenance of bungalows, motor cars etc. owned by the assessee were posed But this Court in granting leave by order dated 31.7.1995, has confmed the grant of leave only to the two questions - assessability to E capital gains tax when old and unec:onomic trees were sold, and whether. rubber replantation subsidy received by the assessees from the Rubber Board can be taxed as revenue receipt. So, the question of the applicability or otherwise of Section 40A(5) need not be considered. (P) In SLP .Nos. 15594-95/88 and so also in SLP Nos. 15742-43/88, in submitting the points involved for consideration the assessees have confined it to assessability of: F tax on rubber replantation subsidy alone. So, the additional point regarding ; the allowance under S.40(A)(5) of the Act need not be considered in the said cases. We do not proposed to deal wi.th the said additional point.

6. ln the way events have turned out, it has become unnecessary to G

consider in detail the merits· of the rival pleas in adjudicating the only two · issues posed before us at the time of hearing in this batch of appeals - (i) regarding the exigibility or assessability to capital gains (tax) when old and uneconomic rubber trees Were sold (covered by (A) and (B) groups stated in para 5 above), and (ii) whether the rubber replantation subsidy can be H

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SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A considered to be revenue receipt and taxed (Covered by (A) and (D)

groups stated in para 5 above).

7. An identical question arose before the High Court of Kerala in !TR Nos. 208 and 209 of 1987 regarding the assessability of capital gains, when a plantation company sold old uneconomic rubber trees. A Division B Bench of the Kerala High Court in !TR Nos. 208 and 209 of 1987 by judgment dated 19th september, 1989, agreed with the finding of the Income-tax Appellate Tribunal to the effect that the fair market value of the old and uneconomic rubber trees, as they were in 1954 or later in 1964, as the. case may be, will be either equal or :1igher than the sale price it C fetched at the time of the relevant sale, which took place later during the relevant accounting year, and that no capital gains arose when such old and unyielding rubber trees were sold. The Court also took the view that it is a matter of common knowledge that in respect of rubber trees which were fully yielding as on the valuation date specified in Section 55(2) of D the Act (1954 or 1964), but which become old and unyielding at the time

of sale, there could be no capital gains arising on such sale.

8. Against the above said decision, the Revenue filed SLPs Nos. 12571 and 12572/93 in this Court. This Court (J.S. Verma and S.P. Bharucha, JJ.) on 23.7.1993 dismissed the said SLPs on merits (203 !TR E Statutes p.2). The same view was taken by the High Court vide its judgment dated 30.1.1991 in ITR Nos. 159-160/88 Commissioner of Income Tax, Cochin v. Malayalam Plrmtations (India) Ltd. Cochin, In the said decision, the Court referred to a few unreported cases and also the reported decision in Kanthimathy Plantations Pvt. Ltd. v. CI. T., 184 !TR 1 wherein the same view was taken. In !TR Nos. 159-160/88, the question whether rubber replantation subsidy received by the assessee from the Rubber Board is income, was also considered and it was held that it cannot be said to be revenue receipt and taxed. In doing so, the High Court followed the earlier decision in Commissioner of Income-tax v. Ruby Rubber Walks Ltd., 178 ITR 181 (F.B.)

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9. Pointedly referring to the above subsequent events, in the counter affidavit filed by the Revenue in SLP Nos. 15594-95/95 (Hanison Malayalam Ltd. v. C.I. T.) available at pages % to 104, at pages 101-102 it is stated thus:

" .................... In this connection, it is submitted that in the assessee's

KALPEITAESTATESLTD. v. C.1.T.[PARIPOORNAN,J.]

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own case for the assessment years 1977-78, 1978-79, the High Court A in its order in !TR Nos. 159 and 160 of 1988 dated 30.1.1991 and also in !TR No.2/1988 dated 9.1.1991 for the assessment Year 1980-81 has held that replantation subsidy received by the Planters from Rubber Board can not be held to be revenue receipt and taxed as income in view of its decision of the High Court in the case of Rubby Rubber Works Limited (178 ITR 181). The High Court in the same order had held that in the light of the decision in Kanthimathy Plantations (P) Ltd. (184 !TR 1) and unreported decisions of the High Court in certain cases, where old and unyielding rubber trees were sold, no capital gains arose on such transaction. It is understood that the Department had accepted the above decision of the High Court.

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(viii) It is respectfully submitted that replantation subsidy received from Rubber Board is exempt under Section 10 (31) of the I.T. Act. Regarding the capital gain on the sale of rnbber trees, the Special D Leave Petition filed by department in the case of Malankara Rubber and Produce Co. (ITR 203-Statute) has been dismissed by this Hon'ble court. 11

It should also be stated that a counter affidavit substantially on the above lines has also been filed by the Revenue in SLP Nos. 11740-42/88 - paras (iv) and (v) - at pages 72-73 of of the paper book.

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(emphasis supplied)

10. The net result of the above discussion is that regarding the exigibility or assessability to capital gains (tax) on the sale of rubber trees, F the matter is concluded by the dismissal of the SLP No. 12571-12572/93 (!TR 203 statutes P.2) by this Court. Moreover, the decision of the High Court vide judgment dated 30.1.1991 in !TR 159-160/88, holding that rubber replantation subsidy received by the planters cannot be held to be revenue receipt and that when old and unyielding rnbber trees were sold G no capital gains arose, has been accepted by the Department (Revenue).

11. In the light of the above, we hold that the judgments of the High Court under appeals, coming within group Nos. (A) ,(B) and (D) men tioned in para 5 of this judgment, are unsustainable and the appeals covered by the said SLPs are allowed. The judgments of the High Court H

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SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A covered by groups ( C), (E) and (F), mentioned in para 5 above, do not require any interference and we, therefore, dismiss the cases falling under these three groups. We hold that when old and unyielding rubber trees were sold by the various assessees during the relevant accounting year, no capital gain arose or accrued on such transactions. We further hold that B the replantation subsidy received by the planters from the Rubber Board

cannot be treated as revenue receipt and taxed as income.

12. The appeals are allowed, to the e~ent indicated hcreinabove.

There shall be no orders as to costs.

R.P.

Appeals allowed.