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

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

                                  JULY 16, 1996

B          [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
F 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.

G         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]

H         Commissioner of Income Tax v. Ma/ankara Rubber and Products, 203
                                     620
             KALPETIAESTATES LTD. v. C.l.T. [PARIPOORNAN,J.]                  621

    !TR Statutes p.2, relied on.                                                      A
          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]
                                                                                      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.
                                                                                      c
         From the Judgment and Order dated 12.2.87 of the Kerala High
    Court in I.T.R. Nos. 164 and 165/82.
1        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.
                                                                                      D
          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.                                                                         E
           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
    622                   SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.

A 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         r
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
F
     above two aspects - (1) assessment of capital gains tax when old and
     uneconomic rubber trees were sold, and (2) holding that rubber replanta-
    ·tion 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 appeak
G
        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.
          KALPETIAESTATES LTD. v. C.l.T. [PARIPOORNAN,J.]                    623'

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
                                                                                    B
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                c
"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. 1l5594-95/88, 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
    624                    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
F   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.)
G
           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:

H            ".................... In this connection, it is submitted that in the assessee's
         KALPEITAESTATESLTD. v. C.1.T.[PARIPOORNAN,J.]                      625

        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
                                                                            B
        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         c
        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 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




                                                          (emphasis supplied)
                                                                                   E
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.

      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
    626                  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.