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Beverley Estates Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberT.C. Nos. 326 & 328 of 1974 (Reference Nos. 139 & 141 of 1974)
Judge
Reported in[1979]117ITR302(Mad)
ActsIncome Tax Act, 1961 - Sections 45 and 147
AppellantBeverley Estates Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateT. Srinivasamoorthy, Adv.
Respondent AdvocateNalini Chidambaram, Adv.
Cases ReferredVallabhdas Narainji v. Development Officer
Excerpt:
.....capital gains - held, gains arising to assessee by sale during relevant previous years of standing shade trees grown by him assessable under section 45 in relevant assessment years. - - --if- (a) the income-tax officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the income-tax officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the income-tax officerhas, in consequence of information in his possession, reason to believe that income chargeable..........officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the income-tax officerhas, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).' 9. it was not disputed before us that in the profit and.....
Judgment:

Varadarajan, J.

1. The questions referred by the Income-tax Appellate Tribunal, Madras 'B' Bench, for the opinion of this court in these two tax cases relating to the same assessee, are the following : T.C. No. 326 of 1974:

'1. Whether the reopening of the assessment under Section 147(b) of the Income-tax Act of 1961 for the assessment year 1967-68 is valid ?

2. Whether the gains arising to the assessee by the sale during the relevant previous years of the standing shade trees grown by it are assessable under Section 45 of the Income-tax Act of 1961 for the assessment years 1967-68 and 1969-70 ?'

2. T.C. No. 328 of 1974 :

'Whether, on the facts and in the circumstances of the case, it has been rightly held that the gains arising to the assessee by the sale of the standing shade trees grown by it are assessable under Section 45 of the Income-tax Act of 1961 for the assessment years 1970-71 and 1971-72?'

3. The assessee in both the cases is a public limited company owning three coffee estates known as Inglewood Estate, Puthur Estate and Beverley Estate in Yercaud. During the accounting year ending with June 30, 1966, the assessee sold to some parties for a total sum of Rs. 28,425 certain trees which had been planted and nurtured for providing shade to the coffee plants, as standing trees though they had fallen down due to natural causes. During the accounting year ending with June 30, 1968, the assessee sold certain silver oak trees for Rs. 48,500. The assessee had returned a chargeable income of Rs. 8 for the assessment year 1967-68 treating the said sum of Rs. 28,425 as not taxable. The ITO completed the assessment for that year on October 16, 1967, determining the income as Rs. 8. For the assessment year 1969-70, the assessee returned chargeable income of Rs. 757 and Rs. 6,520 derived as interest on securities and gains by the sale of. bamboos, respectively, and treating the sum of Rs. 48,500 realised by the sale of the dead silver oak trees as not taxable. But the ITO determined the total income for the assessment year 1969-70 as Rs. 55,830 treating the sale proceeds of Rs. 48,500 as capital gains for the reasons stated in the previous assessment year 1968-69 for treating such receipt as capital gains.

4. In respect of the assessment year 1967-68 the ITO issued a notice dated February 26, 1969, under Section 148 of the I.T. Act, 1961, proposing to recom-pute the income on the ground that the income chargeable had escaped assessment and later informed the assessee by letter dated April 8, 1969, that the amount realised by the sale of shade trees was assessable to capital gains tax in view of the decision of the Supreme Court in State of Kerala v. Karimtharuvi Tea Estate Ltd. : [1966]60ITR275(SC) and that the amount realised by the sale of the car was also assessable to capital gains tax. After a discussion with the assessee's representative, the ITO found that a loss of Rs. 50 had been incurred by the sale of the car for Rs. 7,900, the purchase price of the car being Rs. 7,950, and that the entire sum of Rs. 28,425 realised by the sale of the trees was liable for capital gains tax in view of the above decision of the Supreme Court in State of Kerala v. Karimtharuvi Tea Estate Ltd. : [1966]60ITR275(SC) and that no amount could be taken as the cost of the trees to the assessee in arriving at the capital gains on the ground that the expenses for growing the trees and periodical maintenance expenses had already been claimed by the assessee and allowed by the department. The ITO accordingly recomputed the income, treating the difference of Rs. 28,375 between the sale proceeds of the trees and the loss of Rs. 50 suffered by the assessee in the sale of the car, as capital gains. In respect of the assessment year 1969-70, the assessee raised a similar contention before the ITO that the sum of Rs. 48,500 realised by the sale of shade trees was an agricultural capital receipt and was not liable to capital gains tax under the I.T. Act, 1961. But the ITO rejected the contention and treated the entire sum of Rs. 48,500 as capital gains liable to assessment as such, relying upon the above decision of the Supreme Court in State of Kerala v. Karimtharuvi Tea Estate Ltd. : [1966]60ITR275(SC) and holding that no amount can be considered as the cost of the trees to the assessee in view of the fact that the expenses of growing the trees and periodical maintenance thereof had already been claimed by the assessee and allowed by the department.

5. In the assessee's single appeal to the AAC in respect of both the assessment years 1967-68 and 1969-70, it was contended that since the sum of Rs. 28,425 had been admitted in the profit and loss account submitted to the ITO, it was not open to the ITO to reopen the assessment for the assessment year 1967-68 under Section 147(b) of the Act. The AAC rejected this contention relying on the decision of this court in Salem provident Fund Society Ltd. v. CIT : [1961]42ITR547(Mad) and a decision of the Gujarat High Court, on the ground that the amount was shown in the profit and loss statement under the head 'Miscellaneous sales and receipts 'without any details to show that the sale proceeds of silver oak trees are included in the amount shown under that head. The AAC confirmed the order of the taxing officer that the sale proceeds of the shade trees constituted capital gains relying upon the Supreme Court's decision in State of Kerala v.Karimtharuvi Tea Estate Ltd. : [1966]60ITR275(SC) . But regarding the cost of the trees to the assessee, the AAC accepted the assessee's contention that the company's income from the coffee estates is not taxed and that, therefore, there is no question of expenses for growing the trees, maintenance expenses having been already allowed, and he fixed the capital gains at 60 per cent, of the sale proceeds in each of the two assessment years 1967-68 and 1969-70.

6. In the assessee's further appeal, the Tribunal agreed with the AAC that the ITO had jurisdiction to reopen the assessment for the assessment year 1967-68. The Tribunal did so relying upon the decision of the Kerala High Court in Muthukrishna Reddiar v. CIT : [1973]90ITR503(Ker) . The Tribunal confirmed the order of the AAC that the amount realised by the sale of shade trees was capital gains, but, however, fixed it at 50 per cent. of the sale proceeds in each of the assessment years 1967-68 and 1969-70.

7. For the assessment years 1970-71 and 1972-73, the assessee filed returns admitting receipt of Rs. 40,480 by sale of shade trees and a sum of Rs. 1,320 by sale of bamboos, respectively, and contended that they were agricultural capital receipts and not assessable to capital gains tax. But in view of the AAC's order relating to the assessment years 1967-68 and 1969-70, the ITO rejected the assessee's contention and treated 60 per cent. of the sale proceeds in each of the two assessment years as capital gains liable for assessment to capital gains tax. On appeal, the AAC rejected the assessee's contention in view of the Tribunal's orders relating to the earlier assessment years 1967-68 and 1969-70 but, however, fixed the capital gains at 55 per cent, of the sale proceeds in each of the assessment years 1970-71 and 1971-72 on the ground that the average girth of the trees sold in these years was more than that of the trees sold in the two earlier years. In the assessee's further appeal, the Tribunal followed its own earlier view in the appeal relating to the assessment years 1967-68 and 1969-70 and confirmed the order of the AAC but reduced the capital gains to 50 per cent. of the sale proceeds in each of the assessment years 1970-71 and 1971-72.

8. We extracts. 147 of the I.T. Act, 1961, omitting the Explanations, which are not relevant for our present purpose :

'Income escaping assessment.--If-

(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or

(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officerhas, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment for any assessment year,

he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year).'

9. It was not disputed before us that in the profit and loss statement relating to the assessment year 1967-68, the sale proceeds of shade trees were not specifically shown as such, but had been included in the amount shown under the head 'Miscellaneous sales and receipts' without any details to show that the sale proceeds of the trees are also included in that amount. In United Mercantile Co. Ltd. v. CIT : [1967]64ITR218(Ker) , the assessee-company had issued bonus shares during the accounting year not out of premiums received in cash to the extent of Rs. 42,500. Though the papers produced before the ITO contained that fact, the fact that the bonus shares were not issued out of the premiums received in cash and the consequent result, in the light of the Finance Act No. 2 of 1957, were, however, not realised by the ITO at the time the assessment was made on the 19th November, 1957. The assessing officer came to know of that fact subsequently and issued a notice under Section 34(1)(b) of the Indian I.T. Act, 1922, and made a fresh assessment on 26th May, 1962. The assessee's contention was that the ITO had not received any information and the reassessment under Section 34 was illegal. The learned judges held that 'to inform' means 'to impart knowledge' and a detail available to the ITO in the papers filed before him does not become an item of information and that it is transmuted into an item of information in his possession only if, and only when, its existence is realised and its implications are recognised, and also that awareness of the ITO for the first time after the assessment order dated November 19, 1957, that the bonus shares were issued not out of premiums received in cash and the consequent result, in the light of the Finance Act No. 2 of 1957, was 'information' within the meaning of that expression as used in Section 34(1)(b) of the Act of 1922 and the reopening of the assessment was valid.

10. Another Division Bench of the Kerala High Court has observed in Muthu-krishna Reddiar v. CIT : [1973]90ITR503(Ker) , where reference has been made to the decision of a Division Bench of this court in Salem Provident Fund Society Ltd. v. CIT : [1961]42ITR547(Mad) and to the aforesaid decision of that High Court in United Mercantile Co. Ltd. v. CIT : [1967]64ITR218(Ker) , that 'information whether factual or as regards the state of the law, should be extraneous, extraneous in the sense that it should suggest itself to the Income-tax Officer otherwise than by his own subsequent rethinking. A change of opinion on his own reappraisal of the facts alreadybefore him cannot constitute 'information' for the purpose of the section. But a mistake apparent on the face of the order of assessment would constitute 'information' whether someone else supplied that information to the Income-tax Officer or whether he informed himself. An item of information available in the papers filed before the Income-tax Officer will become 'information' only when its existence is realised and its implications are understood.'

11. Following these decisions, we hold that the ITO had 'information' only when he came to know that the sum of Rs. 28,425 included in the amount shown in the profit and loss statement under the head 'Miscellaneous sales and receipts' represented the sale proceeds of the shade trees, which was after the date on which he completed the assessment for the assessment year 1967-68 in the first instance, that Section 147(b) of the I.T. Act, 1961, is attracted and that the reopening of the assessment under that section is valid.

12. The Tribunal has relied upon the decision of the Supreme Court in State of Kerala v. Karimtharuvi Tea Estate Ltd. : [1966]60ITR275(SC) and Santhabai v. State of Bombay : [1959]1SCR265 and also on the decision in Travancore Tea Estates Co. Ltd. v. CIT : [1974]93ITR314(Ker) for holding that the sale proceeds of shade trees were capital gains liable for capital gains tax. The Bench of the Kerala High Court in Travancore Tea Estate Co. Ltd. v. CIT : [1974]93ITR314(Ker) , following the decision of the Judicial Committee of the Privy Council in Vallabhdas Narainji v. Development Officer, Bandra, AIR 1929 PC 163, and of the Supreme Court in v, declined to postulate that the trees attached to the land belong to the land and that trees are agricultural lands in India and observed that (p. 316) 'the trees that stood on 'agricultural land in India' mentioned in Section 2(14)(iii) is not 'agricultural land in India' and, therefore, property of any kind which will be 'capital asset'.' If this be so, the profits and gains arising from the transfer of such a capital asset are taxable under Section 45 of the Act, as capital gains. We follow this decision and hold that the gains arising to the assessee by the sale during the relevant previous years of the standing shade trees grown by him are assessable under Section 45 of the I.T. Act, in the assessment years with which we are concerned in this case.

13. We, accordingly, answer all the questions in the affirmative and in favour of the revenue and against the assessee. The assessee will pay the revenue's costs in these tax cases. Advocate's fee Rs. 250, one set. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the I.T.A. Tribunal, Madras.


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