2012 (11) TMI 512 - HC - Income Tax

Capital gain for sale of rosewood and silver oak trees - computation of cost of acquisition and indexation - Held that - It is not in dispute that the trees are held to be the capital asset and part of the fixed structure of a coffee or tea plantation. When the trees have been cut and removed, the capital gain has to be assessed on the basis of Section 48 but in the instant case, the cost of acquisition of the assets has not been properly examined by the authorities below. Solely on the basis of some letter written by the Officer of the Government Department, the cost of acquisition of the assets cannot be assessed. Accordingly, the CIT (Appeals) while setting aside the order passed by the Assessing Authority directed the Assessing Authority to work out the market value of the assets as on 01-04-1981 after obtaining the specific notification from the office of the Conservator of Forests with regard to market value in respect of rosewood and silver oak trees as on 01-04-1981 and to work out the capital gain by working out the indexed market value. Except the letter dated 31-3-1981, no other materials has been produced before the authorities. Thus the order passed by the ITAT in setting aside the order passed by the CIT (Appeals) wherein the Commissioner has directed the Assessing Authority to reconsider the matter is contrary to law. The Appellate Tribunal has also not examined the market value of the assets as on 01-04-1981 the order passed by the Appellate Tribunal cannot be sustained. The matter has to be re-examined by the Assessing Authority by working out the indexed market value in respect of rosewood and silver oak trees - in favour of revenue by way of remand.

Summary

Issues Involved:
1. Whether the shade trees were mere saplings as on 01-04-1981.
2. Applicability of the Kerala High Court judgment in 189 ITR 580.
3. Determination of capital gains on the sale of shade trees.
4. Allowance of indexation under Section 48 of the Income-tax Act, 1961.
5. Legality of the Tribunal setting aside the order of CIT(A) and restoring the order of the Assessing Officer.

Issue-wise Detailed Analysis:

1. Whether the shade trees were mere saplings as on 01-04-1981:
The Tribunal's order that the shade trees were mere saplings as of 01-04-1981 was challenged as being perverse and contrary to facts and expert opinion. The appellant argued that the trees, including rosewood and silver oak, were already mature and some were over 100 years old at the time of the estate's purchase in 1943. The Tribunal's finding was deemed erroneous because it overlooked the historical maturity of the trees.

2. Applicability of the Kerala High Court judgment in 189 ITR 580:
The Tribunal applied the judgment of the Kerala High Court in CIT v. Pullengode Rubber & Produce Co. Ltd., 189 ITR 580, which was contested by the appellant. The appellant argued that the Kerala High Court's judgment was not relevant as it did not deal with eucalyptus, silver oak, and rosewood trees. The Tribunal's reliance on this judgment was considered inappropriate because the fair market value of the trees was ascertainable based on government notifications.

3. Determination of capital gains on the sale of shade trees:
The appellant computed the capital gains by valuing the assets as of 01-04-1981, using the fair market value as the cost of acquisition and applying indexation. The Assessing Officer rejected this method, instead estimating the capital gain at 30% of the sale proceeds without allowing for indexation. The CIT (Appeals) supported the appellant's method, directing the Assessing Officer to obtain specific notifications from the Conservator of Forests regarding the market value of the trees as of 01-04-1981. The Tribunal, however, set aside the CIT (Appeals) order, which was contested by the appellant.

4. Allowance of indexation under Section 48 of the Income-tax Act, 1961:
The appellant argued that under Section 48 and Section 55(2)(b) of the Income-tax Act, they were entitled to indexation of the cost of acquisition. The Tribunal's decision to deny indexation was challenged as contrary to the provisions of the Act. The CIT (Appeals) had allowed indexation based on the fair market value determined by the government, which the Tribunal overturned.

5. Legality of the Tribunal setting aside the order of CIT(A) and restoring the order of the Assessing Officer:
The Tribunal's decision to set aside the CIT (Appeals) order and restore the Assessing Officer's order was challenged. The appellant contended that the CIT (Appeals) had correctly applied the law and facts, and the Tribunal's interference was unwarranted. The High Court found that the Tribunal did not properly examine the market value of the assets as of 01-04-1981 and that the matter required re-examination by the Assessing Authority.

Conclusion:
The High Court allowed the appeals, setting aside the Tribunal's order and remanding the case back to the Assessing Authority. The Assessing Authority was directed to reconsider the matter and pass appropriate orders in accordance with the directions issued by the CIT (Appeals), specifically obtaining the market value of rosewood and silver oak trees as of 01-04-1981 from the Conservator of Forests and working out the indexed market value.