1980 (7) TMI 17 - HC - Income Tax

Summary

Issues Involved:
1. Whether the Tribunal was right in holding that there was a sale of the trees for a sum of Rs. 7,25,000 which was liable to be treated as the full value of consideration received for computing the capital gains under section 45 of the Income-tax Act.
2. Whether the Tribunal was right in its interpretation of the agreement dated July 15, 1970, entered into by the company for the sale of the trees.

Issue-wise Detailed Analysis:

1. Sale of Trees and Full Value of Consideration:
The primary issue was whether the sale of trees for Rs. 7,25,000 should be treated as the full value of consideration for computing capital gains under section 45 of the Income-tax Act. The assessee argued that only Rs. 6,25,000, which was received during the year, should be considered. However, the Income Tax Officer (ITO) held that the entire sale consideration of Rs. 7,25,000 must be taxed in the year of sale, as per the terms of the agreement dated July 15, 1970. The Tribunal supported the ITO's view, stating that the sale was specific and ascertained goods, and the payment schedule did not alter the fact that the sale took place in its entirety during the year in question. The High Court agreed with the Tribunal, emphasizing that the sale was an integrated transaction for a total consideration of Rs. 7,25,000, and the entire amount should be considered for tax purposes in the relevant assessment year.

2. Interpretation of the Agreement:
The second issue revolved around the interpretation of the agreement dated July 15, 1970. The assessee contended that the agreement constituted multiple distinct sales, each relating to 50 trees, and thus only the consideration for the trees felled and paid for during the year should be taxed. The Tribunal, however, interpreted the agreement as a single, indivisible contract for the sale of 200 standing rose-wood trees for a total consideration of Rs. 7,25,000. The High Court upheld this interpretation, noting that the agreement specified the sale of 200 trees with a clear payment schedule, and the property in the trees passed to the buyer at the time of the agreement. The Court also highlighted that the agreement did not indicate any intention to postpone the transfer of property or make the sale conditional on future events. Therefore, the entire sale consideration was deemed to have accrued during the year of the agreement.

Conclusion:
The High Court concluded that the sale of the trees took place in the year ended March 31, 1971, corresponding to the assessment year 1971-72, and the full value of the consideration, Rs. 7,25,000, must be considered for capital gains tax purposes. The Court answered both questions in the affirmative, ruling against the assessee and ordering them to pay the costs to the Revenue.