Madras H.C : income from sale of shade trees not agriculture income , therefore not exempt

High Court Of Madras

C. Hanumantha Rao (Deceased) vs. CIT

Assessment Year 1991-92

Section : 2(14)

K. Raviraja Pandian And M.M. Sundresh, JJ.

Tax Case (Appeal) No. 44 Of 2004

April  30, 2009

JUDGMENT
 
K. Raviraja Pandian, J. – The appellant has preferred this appeal against the order of the Income-tax Appellate Tribunal dated July 8, 2008 made in I.T.A. No. 2626/Mad./96.

2. The facts of the case are : The assessee is an individual and owner of a coffee estate and filed his return of income for the assessment year 1991-92 declaring loss. The said return of income had been processed under section 143(1)(a) of the Income-tax Act accepting the loss returned. Subsequently, the case of the assessee was taken up for scrutiny and notice under section 143(2) of the Act has been issued. After rejecting the stand of the assessee that the sale proceeds of the silver oak trees (shade trees) standing in the coffee estate would not attract the capital gains and following the decision of the Supreme Court in the case of CIT v. Jyotikana Chowdhurani [1957] 32 ITR 705, the Assessing Officer concluded that the sale of shade trees would attract capital gains and accordingly computed the capital gains at 40 per cent. of the sale price. On appeal, the Commissioner of Income-tax (Appeals) while upholding the assessment on capital gains on the sale of shade trees, directed the Assessing Officer to adopt the gross capital gain at 30 per cent. of the sale price. The Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) on appeal being taken by the assessee. The present appeal is filed against that order of the Tribunal.

3. The appeal was admitted on the following substantial questions of law :

“1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sale of shade trees should be taxed under the head capital gains tax and is not exempt as agricultural income ?

2. Whether the Tribunal was right in not considering the decision in the case of Smt. Subbadra H. Rao in I.T.A. No. 2625/96 dated July 23, 2002 ?”

4. Learned counsel for the assessee submitted that he is not pressing the second question of law and the same need not be traversed. The same is recorded.

5. In respect of the first question of law, it is contended that a Division Bench of this court in the case of Kil Kotagiri Tea and Coffee Estates Co. Ltd. v. State of Tamil Nadu  [1998] 234 ITR 252, arising out of the Tamil Nadu Agricultural Income-tax Act, has held that the Supreme Court in the case of CIT v. Raja Benoy Kumar Sahas Roy [1957] 32 ITR 466 has observed that any income to be regarded as agricultural income, it should be derived by the assessee by tilling of the land, sowing of the seeds, planting and similar operations on the land. The other operations like weeding, digging the soil around the growth, removal of undesirable undergrowth, etc., would not per se be regarded as agricultural operations and in order to invest them with the character of agricultural operations, the subsequent operations of weeding, digging etc. must necessarily be in conjunction with and in continuation of the basic operations, which are the effective cause of the products being raised on the land.

6. The Commissioner of Income-tax (Appeals), in his order, has traversed the procedures contained in the publication titled Coffee in India : Planters’ Guide published by the Coffee Research Station functioning under the Coffee Board, wherein it was stated that the silver oak trees are commonly used as permanent shade trees. These trees are planted at spacings of about 35′ to 40′ between the trees. Such trees are not of spontaneous origin, but are established through the agricultural procedures, such as sowing of seeds, etc. Identical is the nature of operation in the present case also. If this aspect of the matter was taken into consideration, then the income derived from the sale of shade trees would definitely be agricultural income and outside the purview of the Income-tax Act, 1961.

7. Learned counsel for the assessee, after referring to the judgment of this court in W.A. No. 372 of 2001 in respect of the same assessee relating to the assessment year 1991-92, contended that the said judgment is distinguishable by reason of res integra. The aspect of the exploiting physical labour for the basic operation of tilling and sowing and the subsequent operation of rearing the same has not at all been considered by the Tribunal.

8. However, Mr. T. Ravikumar, learned standing counsel for the Revenue submitted that all the issues have been covered by the judgment of the Division Bench of this court in W.A. No. 372 of 2002 decided on April 5, 2007 (assessee’s own case). The appellant cannot have a say or to argue differently in this case. The issue whether the income derived from the sale of shade trees would partake of the character of capital gains has already been concluded by judgments of various High Courts and even in the assessee’s own case. He also highlighted that the appeal against the said judgment was dismissed by the Supreme Court and the order impugned requires no interference in this appeal.

9. We heard the learned counsel on either side and perused the materials available on record.

10. In the assessee’s own case in respect of the assessment year 1990-91 the assessee himself offered a sum of Rs. 56,000 as income arising out of the sale of shade trees in his coffee estate for capital gains, but later, filed a revised return seeking exclusion of the said sum on the premise that the trees which were cut and sold by the assessee had been planted by the previous owner of the estate and removal of the said old trees were sought for better yield from the coffee plants and therefore the income derived from the sale of such trees in the coffee estate was agricultural in nature and consequently the same falls outside the purview of the Income-tax Act. The Commissioner of Income-tax rejected the plea of the assessee by relying on the apex court judgment in State of Kerala v. Karimtharuvi Tea Estate Ltd.  [1966] 60 ITR 275. As against that order of the appellate authority, the assessee filed Writ Petition No. 6433 of 1993. The writ petition was dismissed by following the same decision in the case of Karimtharuvi, as against which the writ appeal in W.A. No. 372 of 2002 was filed. In that writ appeal, the Division Bench has surveyed almost all the earlier judgments on this issue and after noting the facts, in para. 6.1.4 that there was no controversy about the fact that the shade trees were planted by the previous owner and they had become old and useless due to efflux of time and therefore, they were cut and sold for planting shade trees newly for better yield from the coffee plants, held that the income so earned was liable to tax under section 45 of the Act.

11. The Division Bench also has taken note of the decision in the case of Beverley Estates Ltd. v. CIT [1979] 117 ITR 302 (Mad.), wherein also the income derived out of sale of trees were treated as capital gains following Karimtharuvi’s case cited supra. The Division Bench has held that the gain arising to the assessee therein by the sale of standing shade trees grown by him are assessable under section 45 of the Income-tax Act, 1961. For reaching such a conclusion, the Division Bench has also relied on the decisions in the cases of Travancore Tea Estates Co. Ltd. v. CIT [1974] 93 ITR 314 (Ker.), CIT v. Silver Cloud Forest and Plantations [1998] 231 ITR 671 (Mad.) and State of Tamil Nadu v. Tmt. Soundara Rajas  [2000] 241 ITR 428 (Mad) and has ultimately held that the income derived from the sale of shade trees cut from the estate cannot be regarded as agricultural income and can only be regarded as income of capital nature and exigible to capital gains tax.

12. It is admitted on either side that the appeal filed against that order made in the writ appeal has been dismissed by the Supreme Court. Hence, the contention that the shade trees have been planted, cultivated and reared by the assessee would not make any difference in this case. This issue has been considered by the Division Bench in respect of the assessment year 1990-91 in the assessee’s own case, as stated supra.

13. Further the contention that the shade trees have been planted, reared by the assessee has been taken note of by the Commissioner of Income-tax (Appeals) who ultimately held that in either case (whether they were grown spontaneously or cultivated by the assessee to give shade to the crops) the income derived on the sale of the shade trees could not be regarded as agricultural income under the Agricultural Income-tax Act. For coming to the conclusion the Commissioner has relied on the decision in the case of Younus Sait Sons v. State of Tamil Nadu [1995] 215 ITR 132 (Mad.). Presumably that might be the reason for the assessee, who through the voice of the same counsel, surrendered before the Tribunal without any uncertain terms that the appeal was covered against the assessee and in favour of the Revenue by the decision of the Income-tax Appellate Tribunal in the case of ITO v. Late C. Seshagiri Rao in I.T.A. No. 2320/Mds/1996 decided on May 23, 2002. As rightly contended by the learned counsel for the Revenue, the assessee cannot approbate and reprobate the issue in different forums in respect of the same issue. In order to make it clear, we are of the view that it is better to extract that portion of the order of the Tribunal, where the assessee conceded that the issue has been covered by an earlier judgment against the assessee. The extract is under :

“The only issue involved in this appeal by the assessee is against the consideration of profit on sale of silver oak trees which were shade trees standing in the coffee estate as capital gains and not as agricultural income.

2. At the time of hearing, the counsel for the appellant was fair enough to consider (sic : concede) that the issue involved in this appeal is covered against the assessee and in favour of the Revenue by the decision of the Income-tax Appellate Tribunal, Chennai Bench D in the case of ITO v. Late C. Seshagiri Rao, by l/r Sri S. Sridhar, Mettur Sandalwood Oil Co., Mettur Dam for the assessment year 1974-75 in I.T.A. No. 2320/Mds/1996 decided on May 23, 2002. The learned Departmental representative did not raise any objection.”

14. In view of the decision in the case of Younus Sait Sons [1995] 215 ITR 132 (Mad.) and also the decision of the Division Bench in the assessee’s own case, wherein almost all the decisions on the issue have been taken into consideration, and decided against the assessee, the observations made in Kil Kotagiri’s case [1998] 234 ITR 252 (Mad), would not any way advance the case of the assessee, rather we are of the view that the assessee is not entitled to put forth any other contrary contention, in view of his conceding argument before the Tribunal. Before us, the correctness of the order of the Tribunal is only put in issue and we do not find any ground for interference in that order.

15. The contention that the Division Bench judgment in the writ appeal in the assessee’s own case referred to supra is res integra is raised for the sake of rejection, because of the reason that the said judgment very well considered the fact that the trees were planted and reared by the erstwhile owner and the growth of the trees was not of spontaneous nature in para. 6.1.4 of its order.

16. For the foregoing reasons, the first question of law has to be decided in favour of the Revenue and against the assessee and the first question of law is accordingly answered in favour of the revenue and against the assessee.

[Citation : 335 ITR 17]

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