2011 (4) TMI 146 - AT - Income Tax

Business income vs. Other sources - Exemption u/s 54EC - Addition - the sale proceeds on sale of trees, which were self grown on the land of assessee, is not capital asset - Ld. CIT(A) has rightly held that sale proceeds on sale of trees is to be assessed under the head income from other sources and Assessing Officer was not justified to hold that it is to be held under the head business income because assessee is not in the business of growing trees and selling them Regarding interest on advance - assessee filed copy of revised computation of income and stated that the same was also filed by assessee before the authorities below showing that assessee had received advances from Smt. Bharti Roy and Smt. Sutapa Sharma, daughter of Late S. Roy and assessee paid interest to them - the assessee appeal is allowed for statistical purposes Regarding exemption u/s 54EC - Assessing Officer stated that benefit of section 54EC of the Act is available only in respect of long term capital gain, benefit of section 54EC of the Act is not available with assessee in respect of capital gain on such asset i.e. plant and machinery, building & staff quarters and other plant and machinery - whether assessee is entitled for benefit of section 54EC of the Act or not after giving due opportunity of hearing to assessee and after considering such evidences as may be filed before him - Appeal is allowed for statistical purpose

Summary

Issues Involved:
1. Classification of income from the sale of naturally grown trees.
2. Disallowance of interest paid on advances received from relatives.
3. Applicability of Section 54EC on capital gains from depreciable assets.

Issue-wise Detailed Analysis:

1. Classification of Income from the Sale of Naturally Grown Trees:
The assessee sold naturally grown trees along with land and claimed the proceeds as capital gains, arguing that there was no cost of acquisition. The Assessing Officer (A.O.) classified this income as business income, while the CIT(A) categorized it as "income from other sources." The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee was not in the business of growing and selling trees. The Tribunal referenced cases such as CIT v. Amrik Singh and CIT v. B.C. Srinivasa Setty but found them irrelevant to the present case. The Tribunal concluded that the sale proceeds of the trees should be assessed under "income from other sources," rejecting the assessee's appeal on this ground.

2. Disallowance of Interest Paid on Advances Received from Relatives:
The assessee claimed interest payments to relatives on advances received, which the A.O. disallowed due to lack of confirmation. The CIT(A) upheld this disallowance, stating the confirmations were additional evidence not produced earlier. The Tribunal, however, noted the assessee's submission that the A.O. did not request these confirmations and decided to restore this issue to the A.O. for fresh consideration, allowing the assessee to present the necessary evidence. Thus, the Tribunal allowed this ground for statistical purposes.

3. Applicability of Section 54EC on Capital Gains from Depreciable Assets:
The Department challenged the CIT(A)'s decision to allow the assessee's claim under Section 54EC for capital gains from the sale of depreciable assets. The A.O. had treated the gains as short-term, arguing that Section 54EC applies only to long-term gains. The CIT(A) sided with the assessee, noting no depreciation was claimed on the assets, thus Section 50 did not apply. The Tribunal found that post-2002, due to Explanation 5 to Section 32(1), depreciation is deemed allowed whether claimed or not, making Section 50 applicable. The Tribunal restored this issue to the A.O. to reassess in light of this explanation, allowing the Department's appeal for statistical purposes.

Conclusion:
The Tribunal partially allowed the assessee's appeal and fully allowed the Department's appeal for statistical purposes, directing further examination by the A.O. on specific issues.