1996-VIL-02-SC-DT

Equivalent Citation: [1996] 221 ITR 601 (SC)

Supreme Court of India

Date: 16.07.1996

KALPETTA ESTATES LIMITED

Vs

COMMISSIONER OF INCOME-TAX

BENCH

B. P. JEEVAN REDDY. and K. S. PARIPOORNAN.

JUDGMENT

K. S. 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.

This batch contains 32 appeals. They are filed in 20 different sets. The same assessee has filed more than one set of special leave petitions. 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 rubber trees were sold by the assessees ; (ii) whether the rubber replantation subsidy 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 arises for decision.

The appellants are assessees to income-tax. They own rubber estates. During the accounting years relevant to the assessment years in question for 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 the amount between the sale price of the uneconomic rubber trees sold and the price notionally fixed for rubber trees as on January 1, 1954, and January 1, 1964, as the case may be [section 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 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., January 1, 1954, or January 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 was also assailed. The Income-tax Appellate 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 was worked out by the officer was interfered with by the Appellate Tribunal. However, the High Court in the main case dealt with by it, Income-tax References Nos. III and 49 of 1981 CIT v. Kalpetta Estates Ltd. [1987] 167 ITR 666 upheld 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 rubber plantation subsidy from the Rubber Board. The Revenue treated the same as a revenue receipt and taxed the same as income of the assessees. The High Court in this batch of appeals upheld the said view of the Revenue.

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 replantation subsidy is a revenue receipt and so could be taxed as income, the assessees filed the special leave petitions in this court, which have resulted in the appeals.

At this stage, we should make certain aspects clear. (A) Only in a few cases are both the above points involved. They are Special Leave Petitions Nos. 11058 of 1988 and 15594 and 15595 of 1988. (B) Regarding the other cases, in a few of them, the very question of exigibility or assessability to capital gains (tax) when old and, uneconomic rubber trees were sold, is involved. They are---Special Leave Petitions Nos. 11118 and 11119 of 1988, 12603 and 12604 of, 1987, 15685 of, 1988, 13937 and 13938 of 1988 and 11740 to 11742 of 1988. (C) In the 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 principle adopted by the Revenue was alone in issue. The cases in this group are Special Leave Petitions Nos. 2416 to 2418 of 1995, 12599 and 12600 of 1987, 14071 of 1988, 14072 of 1988, 14073 of 1988 and 12300 of 1987. 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 respective assessees can be treated as a revenue receipt and brought to tax. The cases wherein this point is involved are Special Leave Petitions Nos. 11446 and 11447 of 1988, 11068 of 1988, 13321 of 1988, 11042 of 1988, 15742 and 15743 of 1988, 15744 and 15745 of 1988 and 15747 of 1988. (E) In Special Leave Petitions Nos. 15594 and 15595 of 1988, the question of allowances of depreciation and its quantum, oh maintenance of bungalows, motor cars, etc., owned by the assessee were posed. But this court in granting leave by order dated July 31, 1995, has confined the grant of leave only to the two questions---assessability to capital gains tax when old and uneconomic 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. (F) In Special Leave Petitions Nos. 15594 and 15595 of 1988 and so also in Special Leave Petitions Nos. 15742, and 15743 of 1988, in submitting the points involved for consideration the assessees have confined it to assessability of tax on rubber replantation subsidy alone. So, the additional point regarding the allowance under section 40A(5) of the Act need not be considered in the said cases. We do not propose to deal with the said additional point.

In the way events have turned out, it has become unnecessary to consider in detail the merits of the rival pleas in adjudicating the only two issues posed before us at the time of hearing 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 paragraph 5 above (page 604), and (ii) whether the rubber replantation subsidy can be considered to be a revenue receipt and taxed (covered by (A) and (D) groups stated in paragraph 5 above (page 604).

An identical question arose before the High Court of Kerala in Income-tax References Nos. 208 and 209 of 1987 regarding the assessability of capital gains, when a plantation company sold old uneconomic rubber trees. A Division Bench of the Kerala High Court in Income-tax References Nos. 208 and 209, of 1987 by judgment dated September 19, 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 to or higher than the sale price it 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 the Act (1954 or 1964), but which became old and unyielding at the time of sale, there could be no capital gains arising on such sale.

Against the abovesaid decision, the Revenue filed Special Leave Petitions Nos. 12571 and 12572 of 1993 in this court. This court (J. S. Verma and S. P. Bharucha JJ.) on July 23, 1993, dismissed the said special leave petitions on the merits--CIT v. Malankara Rubber and Products. The same view was taken by the High Court vide its judgment dated January 30, 1991, in Income-tax References Nos. 159 and 160 of 1988--CIT v. Malayalam Plantations (India) Ltd. In the said decision, the court referred to a few unreported cases and also the decision in Kanthimathy Plantations Pvt. Ltd. v. CIT [1990] 184 ITR 1 (Ker), wherein the same view was taken. In Income-tax References Nos. 159 and 160 of 1988, 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 a revenue receipt and taxed. In doing so, the High Court followed the earlier decision in CIT v. Ruby Rubber Works Ltd. [1989] 178 ITR 181 (Ker) [FB].

Pointedly referring to the above subsequent events, in the counter-affidavit filed by the Revenue in Special Leave Petitions Nos. 15594 and 15595 of 1988-Harrison Malayalam Ltd. v. CIT available at pages 96 to 104, at pages 101 and 102, it is stated thus :

" .... In this connection, it is submitted that in the assessee's own case for the assessment years 1977-78, 1978-79, the High Court in its order in Income-tax References Nos. 159 and 160 of 1988, dated January 30, 1991, and also in Income-tax Reference No. 2 of 1988, dated January 9, 1991, for the assessment year 1980-81 has held that replantation subsidy received by the planters from Rubber Board cannot be held to be a revenue receipt and taxed as income in view of its decision of the High Court in the case of Ruby Rubber Works Ltd. [1989] 178 ITR 181 (Ker) [FB]. The High Court in the same order has held that in the light of the decision in Kanthimathy Plantations (P.) Ltd.'s case [1990] 184 ITR 1 (Ker) 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.

(viii) It is respectfully submitted that replantation subsidy received from the Rubber Board is exempt under section 10(31) of the Income-tax Act. Regarding the capital gain on the sale of rubber trees, the special leave petition filed by the Department in the case of Malankara Rubber and Produce Co. has been dismissed by this hon'ble court." (emphasis supplied).

It should also be stated that a counter-affidavit substantially on the above lines has also been filed by the Revenue in Special Leave Petitions Nos. 11740 to 11742 of 1988--paragraphs (iv) and (v)--at pages 72 and 73 of the paper book.

The net result of the above discussion is that regarding the exigibility or assessability to capital gains (tax) on the sale of rubber trees, the matter is concluded by the dismissal of the Special Leave Petitions Nos. 12571 and 12572 of 1993 by this court. Moreover, the decision of the High Court vide judgment dated January 30, 1991, in Income-tax References Nos. 159 and 160 of 1988, holding that rubber replantation subsidy received by the planters cannot be held to be a revenue receipt and that when old and unyielding rubber trees were sold no capital gains arose, has been accepted by the Department (Revenue).

In the light of the above, we hold that the judgments of the High Court under appeals, coming within groups Nos. (A), (B) and (D) mentioned in paragraph 5 (see page 604) of this judgment, are unsustainable and the appeals covered by the said special leave petitions are allowed. The judgments of the High Court covered by groups (C), (E) and (F), mentioned in paragraph 5 (pages 604-605) 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 the replantation subsidy received by the planters from the Rubber Board cannot be treated as a revenue receipt and taxed as income.

The appeals are allowed, to the extent indicated hereinabove. There shall be no order as to costs.

 

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