2016 (3) TMI 269 - AT - Income Tax

Capital gains - calculation of number of trees - Held that - On going through copies of jamabandi the Assessing Officer has noticed that khasra No.494 & khasra No.573/1 measuring 0-10-98 & 0- 53-00 are reflected as bagicha i.e. apple orchard and remaining khasra Nos.496, 499 & 500 are either banjar kadim or under agriculture crops. We are in agreement with this finding of the Assessing Officer, which he has arrived after a totally scientific method applied on the basis of revenue records. As regards number of apple trees to be grown per bighas, the Assessing Officer has applied 25 number of apple trees per bigha on the basis of consultation from revenue/horticultural authority, which even the assessee has not objected to. On this basis, the Assessing Officer has arrived at 99 number of trees. We do not find any fault in this. The evidence filed by the assessee in terms of certificate of Tehsildar or that of a retired IAS officer is of no evidentiary value, specially in the presence of Jamabandi, which is an actual proof of land holding and cultivation thereon. In this view, we confirm the order of the learned CIT (Appeals) to the extent of number of trees to be 99 as against 142 claimed by the assessee. - Decided against assessee Computation of cost of acquisition and improvement to be taken for computing capital gain - Held that - The cost of improvement, in case of a tree can only be those expenses which are incurred either to enhance the life span of the trees or to enhance the fruit bearing capacity of such trees. These further expenses are not of such nature and are incurred only for the upkeep of the orchard or for the maintenance of the trees only. Therefore, we uphold the action of the Assessing Officer in not treating these expenses as part of cost of acquisition or cost of improvement. We further uphold the action of the Assessing Officer in not allowing the Net Present Value as computed by the assessee for the loss of likely earning. As we have earlier mentioned that this approach may be appropriate for estimating the amount of compensation, but for the purpose of computing the capital gains, this is not the right approach. In view of the above, we uphold the order of the Assessing Officer. - Decided against assessee

Summary

Issues Involved:
1. Classification of compensation received as 'agricultural income' or 'capital gains'.
2. Determination of the number of fruit-bearing trees on the land.
3. Calculation of the cost of acquisition and cost of improvement of the trees.

Detailed Analysis:

1. Classification of Compensation Received:
The primary issue was whether the compensation received by the assessee for the destruction of fruit-bearing trees should be classified as 'agricultural income' or 'capital gains'. Initially, the Assessing Officer (AO) treated the entire compensation as income from 'other sources'. However, the learned Commissioner of Income Tax (Appeals) [CIT(A)] decided in favor of the assessee, classifying it as 'agricultural income'. On appeal, the ITAT directed the AO to compute the income under the head 'capital gains'.

2. Determination of the Number of Fruit-Bearing Trees:
The second issue was the number of fruit-bearing trees on the land. The assessee claimed there were 142 trees, while the AO determined there were only 99 trees based on the Jamabandi records. The CIT(A) upheld the AO's decision. The ITAT confirmed the AO's method, stating that the Jamabandi, a revenue record with a presumption of truth, showed the land as either orchards or barren. The Tehsildar's certificate did not specify the number of trees, and no other documentary evidence was provided by the assessee. The ITAT concluded that the AO's scientific method, which included consultation with revenue/horticultural authorities, was correct in determining the number of trees as 99.

3. Calculation of the Cost of Acquisition and Cost of Improvement:
The third issue was the cost of acquisition and cost of improvement per tree for computing capital gains. The assessee claimed Rs. 85,600 per tree, while the AO allowed Rs. 2,500 per tree. The ITAT noted that the computation of capital gains is governed by Section 48 of the Income Tax Act, which involves deducting the cost of acquisition and improvement from the full value of consideration. The assessee's method of calculating the cost of acquisition and improvement, which included the Net Present Value of likely earnings, was rejected. The ITAT agreed with the AO's method, which considered the initial cost of planting and maintenance until the trees became fruit-bearing. The ITAT upheld the AO's decision, stating that further maintenance costs are recurring expenses and not part of the cost of acquisition or improvement.

Conclusion:
The ITAT dismissed the appeals, confirming the AO's classification of compensation as 'capital gains', the determination of 99 fruit-bearing trees, and the calculation of the cost of acquisition and improvement as Rs. 2,500 per tree. The ITAT emphasized that the correct approach for computing capital gains must adhere strictly to the provisions of the Income Tax Act.