1987 (9) TMI 79 - AT - Income Tax

Summary

Issues Involved:
1. Whether the Commissioner of Income-tax (Appeals) was justified in holding that no capital gains would be leviable in respect of the transfer of a coffee estate.
2. Whether the transfer of buildings and machinery gives rise to capital gains.
3. Whether the transfer was effected by the firm or by the partners individually.
4. Determination of the cost of acquisition of the assets.
5. Entitlement to exemption under section 54E.

Detailed Analysis:

1. Capital Gains on Transfer of Coffee Estate:
The primary issue was whether the transfer of the coffee estate, including its accessories, buildings, and other assets, should be subject to capital gains tax. The assessee argued that the entire estate was sold as a running business, which is an agricultural property, and thus should not attract capital gains tax. The Commissioner of Income-tax (Appeals) accepted this contention, ruling that the coffee bushes and standing trees are integral parts of the estate and cannot be severed for capital gains purposes. The Appellate Tribunal upheld this view, referencing the Kerala High Court's decision in CIT v. Alanickal Co. Ltd., which distinguished between the sale of an estate as a whole and the sale of individual items within the estate.

2. Capital Gains on Transfer of Buildings and Machinery:
The Commissioner of Income-tax (Appeals) held that the transfer of buildings and machinery does give rise to capital gains. The computation of capital gains for these items was deemed correct by the Commissioner and upheld by the Tribunal. The Tribunal noted that the buildings and machinery were separately valued and thus subject to capital gains tax.

3. Transfer by Firm or Partners Individually:
The assessee contended that the transfer was made by the partners individually and not by the firm, suggesting that no capital gains should arise in the hands of the firm. This contention was rejected by the Commissioner of Income-tax (Appeals) and upheld by the Tribunal, which found that the transfer was indeed effected by the firm.

4. Cost of Acquisition of Assets:
The determination of the cost of acquisition of the estate was another issue. The Income-tax Officer had initially valued the estate at Rs. 9,40,540 after deducting the value of rosewood trees sold separately. The Commissioner of Income-tax (Appeals) reworked this cost to Rs. 16,15,730. The Tribunal agreed with this revaluation, referencing the original assessment where the cost of rosewood trees was fixed at Rs. 10,09,270.

5. Entitlement to Exemption Under Section 54E:
The final issue was whether the assessee was entitled to exemption under section 54E. The Commissioner of Income-tax (Appeals) found that the partners had deposited Rs. 18 lakhs from the sale proceeds of the estate, satisfying the requirements of section 54E. The department argued that the deposits should be in the name of the firm, not the partners. The Tribunal dismissed this contention, ruling that the assets of the firm could stand in the names of the partners, provided they held the assets on behalf of the firm.

Conclusion:
The departmental appeal was dismissed. The Tribunal upheld the Commissioner of Income-tax (Appeals)'s decision that no capital gains would arise from the transfer of the coffee estate as a whole, including the coffee bushes and shade trees. However, capital gains on the transfer of buildings and machinery were upheld. The Tribunal also confirmed the revaluation of the cost of acquisition and the entitlement to exemption under section 54E.