1991 (9) TMI 62 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sale consideration of rubber trees constitutes agricultural income or capital receipt.
2. Validity of bifurcation of sale consideration into value of trees and latex by the assessing authority.
3. Legality of the assessment order and the revisional authority's order.

Detailed Analysis:

1. Whether the sale consideration of rubber trees constitutes agricultural income or capital receipt:
The petitioner argued that the sale consideration for the rubber trees should be treated as a capital receipt and not agricultural income. The petitioner relied on several Supreme Court decisions, including *Commr. of Agrl. I.T. v. Kailas Rubber and Co. Ltd.* and *A.K.T.K.M. Vishnudatta Antharjanam v. Commr. of Agrl. I.T.*, which held that proceeds from the sale of rubber trees that have ceased to yield latex are capital receipts. The court noted that the definition of 'agricultural income' does not include proceeds from the sale of rubber trees used for deriving latex. The court concluded that the sale of the trees should be treated as a capital receipt based on these precedents.

2. Validity of bifurcation of sale consideration into value of trees and latex by the assessing authority:
The assessing authority had bifurcated the sale consideration into the value of the trees and the value of the latex, treating the latter as agricultural income. The petitioner contended that this bifurcation was contrary to the terms of the agreement, which did not include any permission for slaughter tapping. The court examined the agreement and found no indication that the consideration included the value of latex. The agreement was solely for the sale of trees, and the purchaser was to cut and remove the trees in proportion to the amounts paid. The court determined that the assessing authority's bifurcation was not supported by the agreement and was incorrect.

3. Legality of the assessment order and the revisional authority's order:
The court reviewed the assessment order and the revisional authority's order, which upheld the assessment. The court found that the orders were based on the incorrect assumption that the sale consideration included the value of latex. Since the agreement did not provide for slaughter tapping and the sale consideration was solely for the trees, the court concluded that the orders were unsustainable. The court quashed the impugned orders, stating that the consideration received under the agreement should be treated as a capital receipt and not as agricultural income.

Conclusion:
The court allowed the writ petition, quashing the assessment order and the revisional authority's order. It held that the sale consideration for the rubber trees constituted a capital receipt and not agricultural income. The court also awarded costs of Rs. 2,000 to the petitioner.