2014 (3) TMI 951 - AT - Income Tax

Classification of income - Agricultural income or capital gain - Sale of mahogany trees - Held that - mahogany trees are planted as shadow trees and grew on their own without any human interference or human effort. Therefore the mahogany trees grew naturally even though they were planted as shadow trees. Hence this Tribunal is of the considered opinion that there is no cost of acquisition or improvement on such trees. Hence the computation provision fails. Once the computation provision fails for computing the capital gains under the Income-tax Act there cannot be any levy of capital gains tax. However in this case the assessee is not challenging the estimation of capital gains at 30 per cent. of the sale proceeds. The assessee s claim is that the entire income is agricultural income. This claim of the assessee as agricultural income cannot be correct in view of the judgments of the apex court referred in 1981 (2) TMI 1 - SUPREME Court . Since the assessee is not challenging the treatment of 30 per cent. of the sale proceeds as capital gain the Revenue may not have any grievance in the order of the Commissioner of Income-tax (Appeals). - Appeal of Revenue has no merit - Decided against Revenue.

Summary

Issues:
- Appeal against the order of the Commissioner of Income-tax (Appeals) regarding the treatment of sale proceeds of mahogany trees as agricultural income.
- Contention over the rejection of expenses claim by the Revenue.
- Dispute on whether the entire sale proceeds of mahogany trees should be treated as capital gain or agricultural income.

Analysis:
1. The appeal was filed by the Revenue against the Commissioner of Income-tax (Appeals) order for the assessment year 2009-10 regarding the treatment of sale proceeds of mahogany trees. The Assessing Officer initially treated the sale of mahogany trees as agricultural income under section 143(3) but later, upon reconsideration, classified them as capital receipts liable for taxation as capital gain. The Commissioner of Income-tax (Appeals) directed the Assessing Officer to treat 30 percent of the sale proceeds as capital gain based on precedents. The Revenue contended that the entire proceeds should be considered as capital gain due to the nature of tree cutting, while the assessee claimed the sale proceeds as agricultural income.

2. The Tribunal referred to legal precedents to analyze the issue. Citing the case of Kalpetta Estates Ltd. v. CIT, it was established that no capital gain arises when old and unyielding trees are sold. Additionally, the Tribunal referenced the judgment in CIT v. Suman Tea and Plywood Industries P. Ltd., emphasizing that if there is no cost of acquisition or improvement on the asset, the sale proceeds will not attract capital gains tax. In this case, as the mahogany trees grew naturally without human intervention, the Tribunal concluded that there was no cost of acquisition or improvement, leading to the failure of the computation provision for capital gains under the Income-tax Act.

3. The Tribunal noted that the assessee did not challenge the estimation of 30 percent of the sale proceeds as capital gain but claimed the entire income as agricultural income. However, based on the legal precedents discussed, the claim of the assessee for agricultural income was deemed incorrect. As the Revenue did not contest the treatment of 30 percent of the sale proceeds as capital gain, the Tribunal found no merit in the appeal of the Revenue. Consequently, both the appeal of the Revenue and the cross-objection of the assessee were dismissed, affirming the order of the Commissioner of Income-tax (Appeals).

In conclusion, the Tribunal upheld the classification of 30 percent of the sale proceeds of mahogany trees as capital gain, rejecting the claim of the assessee for agricultural income based on legal precedents and the absence of cost of acquisition or improvement on the asset.