2000 (3) TMI 5 - SC - Income Tax

Assessee is a plantation company engaged in the business of growing rubber and tea. In 1975, it entered into three agreements with three purchasers for sale of old rubber trees - Held that amounts received by the assessee/appellant in respect of an abortive sale transaction of rubber trees are capital receipts

Issues Involved:
1. Whether the amounts received by the assessee in respect of an abortive sale transaction of rubber trees are capital or revenue receipts.
2. Whether the Tribunal was correct in holding that the sum of Rs. 3,95,229 cannot be considered as a revenue receipt.
3. Whether the Tribunal was justified in finding that the sum of Rs. 3,95,229 is not the income of the assessee for this assessment year.
4. Whether the Tribunal was right in law in holding that the earnest money deposit of Rs. 75,000 is revenue income assessable to income-tax when forfeited.
5. Whether the Tribunal was correct in holding that the receipt by way of forfeiture of advance amount is a benefit arising in the course of plantation business and is not subject to tax.
6. Whether the Tribunal was factually incorrect in holding that the trees had not been cut and removed or at least there is no evidence.
7. Whether the Tribunal was legally and factually right in rejecting the contention of the Revenue after accepting that the receipt would be eligible to income-tax for capital gains.
8. Whether the Tribunal should have given appropriate direction to the assessing authority in view of the provisions contained in section 51 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Capital or Revenue Receipts:
The primary issue was whether the amounts received by the assessee in respect of an abortive sale transaction of rubber trees were capital or revenue receipts. The Supreme Court held that the assessee does not carry on the business of selling trees, and the sale proceeds of old and unyielding rubber trees are capital receipts. The cancellation of the sale does not change the nature of the receipt of the forfeited amounts.

2. Tribunal's Holding on Revenue Receipt:
The Tribunal had held that the sum of Rs. 3,95,229 could not be considered a revenue receipt. The Supreme Court supported this view, stating that the amounts forfeited were directly related to the sale of a capital asset and should be treated as capital receipts.

3. Tribunal's Justification on Income:
The Tribunal found that the sum of Rs. 3,95,229 was not the income of the assessee for the assessment year and directed the Income-tax Officer to modify the assessment. The Supreme Court agreed, emphasizing that the forfeited amounts were capital receipts and not income.

4. Earnest Money Deposit:
The Tribunal had held that the earnest money deposit of Rs. 75,000 was revenue income assessable to income-tax when forfeited. However, the Supreme Court disagreed, stating that the distinction between earnest money and advance loses significance in the context of section 51, which includes "other money" in addition to "advance."

5. Forfeiture of Advance Amount:
The Tribunal held that the receipt by way of forfeiture of advance amount was not subject to tax. The Supreme Court upheld this view, reiterating that the forfeited amounts were related to the capital asset and should be treated as capital receipts.

6. Evidence of Tree Removal:
The Tribunal had held that it was an undisputed fact that the trees had not been cut and removed or at least there was no evidence. The Supreme Court did not find any error in this factual finding.

7. Rejection of Revenue's Contention:
The Tribunal had rejected the contention of the Revenue that the receipt would be eligible to income-tax for capital gains. The Supreme Court agreed, stating that the forfeited amounts were capital receipts and not subject to income-tax as revenue receipts.

8. Direction to Assessing Authority:
The Tribunal did not give any direction to the assessing authority in view of section 51 of the Income-tax Act. The Supreme Court noted that section 51 provides for the computation of the cost of acquisition for determining capital gains and supports the view that the forfeited amounts should be treated as capital receipts.

Conclusion:
The Supreme Court allowed the appeals, set aside the order of the High Court, and answered the question referred to it by the assessee in the negative, concluding that the forfeited amounts were capital receipts and not subject to income-tax as revenue receipts.

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