Case: M/s. Kalpetta Ess Ltd. etc.  Vs. Commissioner of Income Tax, Cochin

2. This batch contains 32 appeals. They are filed in 20 different sets. The same assessee has filed more than one set of SLPs. 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 decision3. 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 (1968-69, 1969-70, 1971-72, 1972-73, 1973-74, 197475, 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 fixed for rubber trees as on 1-1-1954 and 1-1- 1964, as the case may be [Section 55(2) 1. 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 1-1-1964, 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 Nos. 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 Revenue4. 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

Reasoning:
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, the matter is concluded by the dismissal of SLPs Nos. 12571-12572 of Statutes p. 2) by this Court. Moreover, the decision of the High Court vide judgment dated 30-1-1991 in ITR Nos. 159-160 of 1988, 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, 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 groups (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