1990 (11) TMI 208 - AT - Income Tax

Summary

Issues Involved:
1. Assessment of capital gains on the sale of trees.
2. Inclusion of agricultural income from the coconut garden.
3. Allocation of income between partners.
4. Allowance of investment allowance.
5. Allowance of depreciation and additional depreciation.
6. Allowance of relief under sections 80J and 80HH.
7. Credit for tax deducted at source (TDS).

Detailed Analysis:

1. Assessment of Capital Gains on the Sale of Trees:
The Commissioner of Income-tax (CIT) took action under section 263, deeming the assessment orders erroneous and prejudicial to the revenue's interest because the income from the sale of trees from the estate was not taxed. The assessee contended that the sale proceeds were a capital receipt not subject to capital gains tax, referencing the Supreme Court decision in CIT v. B. C. Srinivasa Setty and other cases. However, the CIT rejected this, arguing that trees are capital assets and their sale attracts capital gains tax. The CIT cited various precedents, including Travancore Tea Estates Co. Ltd. v. CIT and Beverley Estates Ltd. v. CIT, to support this view. The Commissioner also noted that the cost of acquisition for the trees should be considered as part of the estate's purchase price, and the ITO's omission to tax this was erroneous and prejudicial to the revenue.

2. Inclusion of Agricultural Income from the Coconut Garden:
The CIT noted that the agricultural income from the coconut garden was not considered for assessment purposes. The assessee had no objection to this inclusion. The CIT directed the Assessing Officer to verify the certificates produced and allow credit for TDS as per law.

3. Allocation of Income Between Partners:
The CIT found that the allocation of income between partners was not made properly. While the assessee argued there was no error in the allocation, the CIT maintained that the allocation should be consequential to the assessment proceedings. No separate direction was necessary from the CIT on this issue.

4. Allowance of Investment Allowance:
The CIT observed that the investment allowance was allowed on racks and frames, which he deemed not to be plant items used for the purpose of business of manufacture or production. Therefore, he concluded that the investment allowance was not allowable, making the assessment order erroneous.

5. Allowance of Depreciation and Additional Depreciation:
The CIT noted that the ITO did not apply his mind to the issue of depreciation and additional depreciation, particularly regarding the claim of working triple shifts. The CIT deemed this non-application of mind as an error under section 263.

6. Allowance of Relief Under Sections 80J and 80HH:
The CIT pointed out that the ITO allowed deductions under section 80HH without considering the limitations under section 80J. He observed that this issue required further examination and remitted it to the ITO.

7. Credit for Tax Deducted at Source (TDS):
The CIT observed that the credit for TDS was not properly allowed. The assessee had no objection to the credit being given to the partners. The CIT directed the Assessing Officer to allow credit for TDS as per law after verification.

Conclusion:
The appeals by the assessee were dismissed. The Tribunal upheld the CIT's order under section 263, finding it proper and sustainable. The CIT's directions on various issues, including capital gains on the sale of trees, inclusion of agricultural income, allocation of income between partners, investment allowance, depreciation, and relief under sections 80J and 80HH, were deemed reasonable and proper. The Assessing Officer was directed to re-examine these issues and make fresh assessments as per law.