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PETITIONER: M/S. KALPETTA ESTATES LTD.

       Vs.

RESPONDENT: THE COMMISSIONER OF INCOME-TAX, COCHIN

DATE OF JUDGMENT:       16/07/1996

BENCH: PARIPOORNAN, K.S.(J) BENCH: PARIPOORNAN, K.S.(J) JEEVAN REDDY, B.P. (J)

CITATION:  JT 1996 (6)   587        1996 SCALE  (5)229

ACT:

HEADNOTE:

JUDGMENT:                             WITH        CIVIL APPEAL NOS 9191-9203,9205-9220 OF 1996. (Arising out  of SLP  (C) Nos.11042/88,  11058/88, 11068/88, 11118-19/88,  11446-47/88,   11740-42/88,  12300/87   12599- 600/87,   12603-4/87,   13321/88,   13937-38/88,   14071/88, 14072/88,  14073/88,   15594-95/88,  15685/88,  15742-43/88, 15744-45/88 and 15747/88. )                       J U D G M E N T 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. 2. This  batch contains  32 appeals.  They are  filed in  20 different sets.  The same  assessee has  filed more than 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 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 arise for decision. 3. The  appellants are  assessees to  income tax. They owned rubber estates.  During the accounting years relevant to the assessment years  in question  for which  they were assessed (1958-69, 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  nationally 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

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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.,  1.1,1954 or 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, ITR No. 111 and 49 of 1981 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  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. 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  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. 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 15594-95/88.  (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 -- SLP  Nos. 11118-19/88,  12603-4/87, 15685/88, 13937-38/88 and 11740-42/88.  (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 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  respective assessees  can be  treated as  a  revenue receipt and  brought to tax. The cases wherein this point is involved are  -- SLP  Nos. 11446-47/88,  11068/88, 13321/88, 1142/88, 15742-43/88,  15744-45/88 and  15747/88. (E) In SEP Nos. 15594-95/88,  the question of allowance of depreciation and its  quantum, on  maintenance of  bungalows, motor  cars etc. owned  by the  assessee were  posed. But  this Court in

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granting leave  by order  dated 31.7.1995,  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 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 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 propose to deal with the said additional point. 6. In  the  way  events  have  turned  out,  it  has  become unnecessary to  consider in  detail the  merits of the rival plea 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 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  ITR.Nos.  208  and  208  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  ITR 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 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. 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 ITR  Statutes p.2). The same view was  taken  by  the  High  Court  vide  its  judgment  dated 30.1.1991 in  ITR Nor.159-160/88 Commissioner of Income Tax, Cochin vs.  Malavalam Plantations  (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. C.I.T. (184 ITR 1) wherein the same view was taken. In ITR 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  Works Ltd. [178 ITR 181]  (F.B.). 9. Pointedly  referring to  the above  subsequent events, in the counter affidavit filed by the Revenue in SLP Nos.15594- 95/95 (Harrison  Malayalam Ltd.  vs.  C.I.T.)  available  at pages 96 to 104, at pages 101-102 it is stated thus :-      " ........  In this  connection, it

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    is submitted that in the assessee’s      own case  for the  assessment years      1977-78, 1978-79, the High Court in      its order  in ITR  Nos. 159 and 160      of 1988 dated 30.1.1991 and also in      ITR 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  has      held  that  in  the  light  of  the      decision in Kanthimathy Plantations      (P) Ltd. (184 ITR 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  accented  the      above decision of the High Court.      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  rubber trees,  the Special      Leave   Petition    file   by   the      department in the case of Malankara      Rubber and  Produce  Co  (ITR  203-      Statute) 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  SLP Nos.  11740-42/88 -  paras (iv) and (v) - at pages 72-73 of the paper book 10. The net result af 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 SLP  Nos.12571-12572/93 (ITR  203 Statutes P.2) by  this Court.  Moreover, the   decision  of the  High Court vide  judgment  dated  30.1.1991  in  ITR  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 rubber  trees were sold no capital gains arose, as  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)   mentioned  in   para  5  of  this  judgment,  are unsustainable and  the appeals  covered by the said SLPs are allowed. The  judgments of  the High Court 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 the replantation subsidy  received  by  the  planters  from  the Rubber Board  cannot be treated as revenue receipt and taxed as income.

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