Estates Ltd. Vs. The Commissioner of Income-Tax, Cochin  INSC 817 (16 July 1996)
K.S.(J) Paripoornan, K.S.(J) Jeevan Reddy, B.P. (J) Paripoornan, J.
JT 1996 (6) 587 1996 SCALE (5)229
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. )
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 S.L.P. Broadly speaking two questions were posed
for consideration in this batch of appeals. They are
to capital gains (tax) when old and unyielding rubber trees were sold by the assessees;
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.
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 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.
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.
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.
concluded that the levy of capital gains in the circumstances, was sustainable.
Similarly, the assessees had received rubber plantation subsidy from the Rubber
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
Aggrieved by the judgments rendered by the High Court on the above two aspects –
of capital gains tax when old and uneconomic rubber trees were sold, and
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.
this stage, we should make certain aspects clear.
Only in few cases both the above points are involved. They are SLPs. No. 11058/88
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.
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?"
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.
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
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 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.
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.
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 –
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),
the rubber replantation subsidy can be considered to be revenue receipt and
taxed (covered by (A) and (D) groups stated in para 5 above).
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.
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
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.
doing so, the High Court followed the earlier decision in Commissioner of
Income-tax v. Ruby Rubber Works Ltd. [178 ITR 181] (F.B.).
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 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.
It is respectfully submitted that replantation subsidy received from Rubber
Board is exempt under Section 10 (31) of the I.T. Act.
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
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
The appeals are allowed, to the extent indicated hereinabove, There shall be no
order as to costs.