2012 (8) TMI 336 - AT - Income Tax

Challenge to revision proceedings initiated by Commissioner u/s. 263 - Income from sale of old rubber trees - CIT(A) took the view that on said income Rule 7A will apply - Held that - On a careful perusal of Rule 7A the said rule talks about computation of income derived from sale of centrifuged latex or cenex or latex based crepes (such as pale latex crepe) or brown crepes etc & said rule does not talk about the taxability of income from sale of old rubber trees - CIT has placed incorrect interpretation on Rule 7A and it cannot be said that there is incorrect application of law on the part of the AO, thus the CIT was not correct in assuming jurisdiction over this issue by making incorrect interpretation of law. Indexation benefit allowed in the case of the sale proceeds of Grevillea trees - Held that - CIT(A) took the view that the AO had converted the capital loss claimed in respect of Grevillea trees into long term capital gain of equivalent amount and was not justified in treating the above said amount as capital gain. The Revenue challenged the said decision of the CIT(A) before the ITAT who dismissed the ground raised by the Revenue. All these discussions show that the issue of the taxability of income on sale of Grevillea trees has been considered and decided by the CIT(A) as well as the Tribunal. Hence as per specific provisions in Clause (c) of Explanation to sec. 263(1), the said issue falls outside the scope of revisionary proceedings u/s. 263. Disallowance of proportionate interest relatable to investments made in subsidiary companies - Held that - It is not a case that the AO has completely failed to examine the issue of applicability of provisions of sec. 14A to the case of the assessee as he had considered the application of Sec. 14A in respect of re-plantation expenses, which means that the AO has examined the applicability of sec. 14A to the case of the assessee - It is a well settled proposition of law that if the AO has taken one plausible view, with which the CIT does not agree revisionary proceedings u/s. 263 shall not lie in respect of the same. Disallowance of share transfer expenses - Held that - As the said expenses have been incurred in connection with the maintenance of share holders register, considering the CBDT Instruction No. F. No. 10/25/63-IT(A.a) dated 18-06-1964 that the remuneration paid by the Company to its Registrar for performing duties in connection with the company s legal obligations to be discharged under the Company Law, should be regarded as revenue expenditure. Hence the CIT has entertained the view in respect of share transfer expenses without properly appreciating the facts relating to the same - no ground to initiate revision proceedings - decided in favour of assessee.

Summary

Issues Involved:
1. Income from sale of old rubber trees
2. Indexation allowed in the case of sale proceeds of Grevillea trees
3. Proportionate interest relatable to the investment made in subsidiary companies to be disallowed under section 14A of the Act
4. Disallowance of expenses claimed under the head "Share transfer expenses"

Issue-wise Detailed Analysis:

1. Income from Sale of Old Rubber Trees:
The assessee received Rs. 5.42 crores from the sale of old rubber trees and did not offer this amount as income, citing the Supreme Court decision in Kalpetta Estates Ltd. v. CIT, which held that no capital gain arises from the transfer/sale of old and unyielding rubber trees. The Assessing Officer (AO) accepted this claim. However, the Commissioner of Income Tax (CIT) argued that after the introduction of Rule 7A to the Income Tax Rules, the income from the sale of old rubber trees should be considered as income from the disposal of exhausted stock and subjected to tax. The Tribunal found that Rule 7A pertains to the sale of centrifuged latex and related products, not old rubber trees. Therefore, the CIT's interpretation was incorrect, and the AO's application of law was not erroneous.

2. Indexation Allowed in the Case of Sale Proceeds of Grevillea Trees:
The assessee initially claimed a loss on the sale of Grevillea trees, which the AO did not accept, following the Supreme Court's decision in Kalpetta Estates Ltd. The CIT(A) and the ITAT upheld this decision, converting the claimed loss into long-term capital gain. The Tribunal noted that the issue had been decided by both the CIT(A) and the ITAT, making it outside the scope of revisionary proceedings under section 263, as per Clause (c) of Explanation to section 263(1).

3. Proportionate Interest Relatable to the Investment Made in Subsidiary Companies to be Disallowed under Section 14A of the Act:
The CIT argued that the AO did not properly verify the facts regarding the disallowance of interest expenses under section 14A. The assessee contended that the AO had considered section 14A when examining re-plantation expenses and had sufficient interest-free funds. The Tribunal agreed with the assessee, stating that the AO had considered section 14A and taken a plausible view. Therefore, the CIT's revisionary proceedings under section 263 were not justified.

4. Disallowance of Expenses Claimed under the Head "Share Transfer Expenses":
The CIT contended that the expenses of Rs. 1,24,664 incurred by the assessee were for the transfer of shares, while the assessee argued they were for maintaining the shareholders' register. The Tribunal referred to the CBDT's Instruction No. F. No. 10/25/63-IT(A.a), which clarified that such expenses should be regarded as revenue expenditure. The Tribunal concluded that the CIT's view was incorrect and outside the scope of revision proceedings.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, concluding that the CIT's initiation of revision proceedings under section 263 was not justified for any of the issues raised. The Tribunal emphasized that the AO had either taken a plausible view or that the issues had already been decided by appellate authorities, making them outside the scope of section 263.