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Petitioner: COMMISSIONER OF INCOME-TAX VS Respondent: SUMAN TEA AND PLYWOOD INDUSTRIES JUDGMENT
Court Name: Calcutta High Court Judge(s): Barin Ghosh, Visheshwar Nath Khare Title:COMMISSIONER OF INCOME-TAX vs SUMAN TEA AND PLYWOOD INDUSTRIES
JUDGMENT
Reported As: 1999 PTD 1282 Result: Order accordingly Judgment JUDGMENT BARIN GHOSH, J.---In Income-tax Reference No,201 of 1991, the following questions have been referred to us in R.A. No,574/(Cal.) of 1990: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that "tea bushes" should not be taken as a part of 'agricultural land' but as a part of capital assets of the assessee's tea business? (2) Whether, on the facts and in the circumstances of the case and in view of the finding of the Commissioner of Income-tax (Appeals) that there is absolutely no indication to show that the appellant had not spent even a pie on the growth of the trees and in view of the fact that the assessee itself purchased the Oakes Tea Estate with standing trees on March 15, 1978, the finding of the Tribunal that the trees did not cost the assessee anything is based on any relevant material or perverse? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the profit on the sale of the timber is neither assessable as capital gains nor assessable as a taxable income? (4) Whether, on the facts and in the circumstances of the case and on a correct interpretation of section 43(6) of the Income Tax Act, 1961, read with rule 8(1) of the Income Tax Rules, 1962, the Tribunal was correct in law in holding that for the purpose of computing written down value of depreciable assets used in tea business only 40 per cent. instead of 100 per cent. depreciation at the prescribed rate should have to be deducted in the assessee's case? (5) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in
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holding that the provision of section 40-A(8) of the Income Tax Act, 1961, would not be applicable on current account balance of the directors, shareholders and others of the assessee-company?" And in R.A. No,575/(Cal.) of 1990, the following question has been referred to us: "Whether, on the facts and in the circumstances of the case, that the assessee did not carry on its business of tea producing and manufacturing of tea during the year and also that the tea estate was sold away, the Tribunal was correct in law in upholding the order of the Commissioner of Income-tax (Appeals) directing the Assessing Officer to apply the provision of rule 8(1) of the Income Tax Rules, 1962, with regard to the sale of tea and waste and for computation of profit under section 41(2) of the Income Tax Act, 1961, in respect of the income of Oak Tea Estate?" In Income-tax Reference No,103 of 1993, the following questions have been referred to us: "(1) Whether, on the facts and in the circumstances of the case, when the Commissioner of Income-tax (Appeals) gave a finding that there is absolutely no indication that the assessee had not spent even a pie on the growth of the trees sold but confirmed the Assessing Officer's assessm ent taking the cost of acquisition at nil as the assessee did not claim any; the finding of the Tribunal that its finding that no cost is involved in the acquisition of the said trees is on the basis of the order of the Commissioner of Income-tax (Appeals), is based on irrelevant material or perverse? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Tribunal did not commit any mistake rectifiable under section 254(2) of the Income Tax Act, 1961?" Questions Nos.4 and 5 in R. A. No,574/(Cal.) of 1990, being the subject-matter of Income-tax Reference No,201 of 1991 have been answered by this Court, which decision of this Court is reported in C.I.T. v. Suman Tea and Plywood Industries (P.) Ltd. (1993) 204 ITR 719, and therefore, answered accordingly. Similarly, the only question in R.A. No,575/(Cal.) of 1990, being the subject-matter of Income-tax Reference No,201 of 1991 has been answered by this Court, which decision of this Court is reported C.I.T. v. Kothari Plantations and Industries Ltd. (1993) 203 ITR 547 and, therefore, answered accordingly. In short, the facts of the case, germane for answering the aforesaid questions are that, the assessm ent year involved is 1984-85; for which the accounting period ended on December 31, 1984; by a deed of conveyance, dated March 1, 1984, the assessee transferred the tea estate belonging to it for a total consideration of Rs,13,00,000; in the deed of conveyance Rs,50,000 was shown as the consideration for the plot of land together with plantation thereon, Rs,50,000 for building and structure and Rs,12,00,000 for plant, machinery and other movable properties; the value of the land and plantation was shown in the books of account of the assessee at Rs,2,49,005, the same having been sold at Rs,50,000, the assessee claimed loss of Rs,1,99,005 on the sale of land and plantation; this loss was disallowed by the Assessing Officer, as according to him, such loss arose out of transfer of an agricultural land; during the assessment year in question the assessee sold timber relating the said tea estate at Rs,8,90,000 and after deducting sawing charges therefrom claimed the net sum of Rs,7,40,106 as non-taxable capital gain, which too as rejected by the Assessing Officer; the Commissioner of Income-tax (Appeals) upheld the order of the Assessing Officer; but the Income-tax Appellate Tribunal reversed the said adjudications. In this connection it is pertinent to note, as appears from the assessment order, that in the original return filed by the assessee, income from sale of timber was claimed as "agricultural income" but subsequently by a letter, dated July 31, 1986, the assessee claimed such income to be "capital gain". It appears from paragraph 3 of the miscellaneous application, filed by the Department before the Income-tax Appellate Tribunal, which is at pages 70 to 78 of the paper book filed in Income-tax Reference No,103 of 1993 that by the said letter, dated July 31, 1986, the assessee informed the
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Assessing Officer that the agricultural income shown in the return was a mistake and that the timber was a spontaneous growth of the tea estate and it was not an agricultural product. However, the letter dated July 31, 1986, does not find place in any of the paper books filed in connection with the subject income-tax references. The Commissioner of Income-tax engaged two sets of counsel to argue the subject references. After we heard submissions of the parties in regard to Income-tax Reference No,201 of 1991 for some time and appraised ourselves of the facts of the case, we thought, we should hear Income- tax Reference No,103 of 1993 first and thereafter Income-tax Reference No,201 of 1991 and the parties accordingly made submissions. While hearing Income-tax Reference No,103 of 1993, we found that Question No,1 in the said reference is interconnected with facts and evidence on record pertaining to question No,3 in Income-tax Reference No,201 of 1991 referred to in R.A. No,574/(Cal.) of 1990. Therefore, that question will he answered accordingly last. We, thus, decided to first consider question No, 2 in Income-tax Reference No, 103 of 1993 which is as follows: "(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Tribunal did not commit any mistake rectifiable under section 254(2) of the Income Tax Act, 1961?" In the assessm ent order, the Assessing Officer treated the income amounting of Rs,7,40,106 arising out of sale of timber as capital gain as will appear from page 35 of the paper book filed in Income- tax Reference No:201 of 1991. While arriving at the said figure, as will appear from page 33 of the same paper book, the Assessing Officer took into account the income from sale of timber at Rs,8,90,000 and deducted therefrom a sum of Rs,1,49,894 on the account of timber sawing charges and nothing else. He did not discuss at all the effect of spontaneous growth. Before the Commissioner of Income-tax (Appeals), it was urged by the assessee that the Income- tax Officer erred in treating income of Rs,7,40,106, i,e,, the sale price of timber less timber sawing charges, as income by way of long term capital gains, but since there was no cost of acquisition incurred for acquiring the timber, which was of spontaneous growth, it, therefore, represented sale of an asset and that the timber sawing charges was incurred in relation to transfer and sale of timber, which did not constitute stock-in-trade or work-in-progress. It was contended that since there was no cost of acquisition for the timber, sale of such an asset cannot he treated to be a capital gain. It was urged that the asset sold was self-generated. The Commissioner of Income-tax (Appeals) distinguished the decisions of various Courts cited before him on facts by stating, "there is absolutely no indication to show that the appellant had not spent even a pie on the growth of trees, which appeared to be quite large in number and which could he sold for such a substantial amount of Rs,8,90,000. Even assuming that the trees were of spontaneous growth, as held in the High Court decisions, reported in Province of Bihar v. Maharaja Pratap Udai Nath Sahi Deo of Ratugarh (1941) 9 ITR 313 (Pat.); Raja Bahadur Kamakshya Narain Singh v. C.I.T. (1946) 14 ITR 673 (Pat.); Digverendrasinjhi of Bansda (H. H.) v. C.I.T. (1965) 55 ITR 580 (Guj.) and C.I.T. v. Rajkumar Ashok Pal Singh J1 (1977) 109 ITR 581 (Born.), the income derived from the sale of forest trees even if of spontaneous growth is not capital receipt and is liable to tax even though there is exhaustion of capital assets in the shape of valuable and longstanding trees. As held in a Supreme Court decision in Venugopala Varma Rajah v. C.I.T. (1970) 76 ITR 460, whereby the trunk of trees of spontaneous growth are cut so that the stumps are allowed to remain in the land with the bark adhering to the stumps to permit regeneration of the trees, the receipt from the sale of the trunks would be in the nature of income. In view of the above, I hold that the Income-tax Officer was justified in treating the receipt arising on the sale of timber, as a taxable income". Before the Income-tax Appellate Tribunal, it was pointed out that the trees of spontaneous growth were removed with roots and trunks to make the land fit for cultivation of tea and there was no
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question of regeneration of trees. It was also pointed out that the assessment record of the assessee clearly showed that the assessee did not append anything on trees which were of spontaneous growth. The Income-tax Appellate Tribunal there upon observed "at the outset, we may observe that there was no material on record to show that the assessee spent anything on plantation growth or development of trees. There was also no material on record to show that the assessee while removing trees left roots in the soil for generation. The record clearly shows that the trees were removed for making the land fit for cultivation of tea." The Tribunal thereupon relied upon a large number of decisions and concluded the assessee by selling the trees realised capital and, therefore, the receipt was of capital nature, it could not be charged to tax as capital gain as no cost was involved in the acquisition of the trees which grew and developed spontaneously." Before arriving at the said conclusion, on the facts, the Tribunal observed: "The assessee throughout claimed that no cost of acquisition was involved as the trees were of spontaneous growth. The authorities below and the learned Departmental representative in proceedings before us could not place any material to say that the trees were acquired by the assessee for a cost or the cost of acquisition of trees sold could be determined". Therefore, on the facts, the Commissioner of Income-tax (Appeals) was concerned with: (1) expenditure incurred on the growth of trees; (2) such trees were forest trees and (3) after cutting the trees, the trunks were allowed to remain on the land. There was no contention in regard to the cost of acquisition. Before the Income-tax Appellate Tribunal similar questions of facts were raised which were answered by saying "there was no material on record to show that the assessee spent anything on plantation growth or development of trees. There was also no material on record to show that the assessee while removing trees, left roots in the soil for generation. The record clearly shows that the trees were for making the land fit for cultivation of tea." Thus, at no stage there was any controversy regarding cost of acquisition of the trees of spontaneous growth, despite. the assessee claiming there was no cost of acquisition. If there he any, the Assessing Officer or the Commissioner of Income-tax (Appeals) would have given appropriate credit therefor while arriving at the figure chargeable capital gain, and would not have treated such cost at nil. Subsequent to the decision of the Income-tax Appellate Tribunal, the Commissioner of Income-tax, West Bengal, filed a miscellaneous application before the Income-tax Appellate Tribunal, wherein it was contended that the finding of the Income-tax Appellate Tribunal as mentioned above, is factually not correct since the records of the case for the assessment years 1984-85 and 1978-79 show that the assessee purchased the subject tea estate on March 15, 1978, at a consideration of Rs,4,43,552.60 and in the deed of purchase, dated March 15, 1978, it has been shown that the assets purchased included the articles described in Part II of the Schedule to the said deed, where trees have been mentioned and, therefore, the facts as found by the Income-tax Appellate Tribunal in regard to the cost of acquisition of the subject trees is a mistake apparent on record and should be rectified. In paragraph 7 of the said application it was contended that when the matter was raised before the Tribunal by the assessee, the Revenue could not dispute the claim made by the assessee in the absence of the relevant records which were not with the Departmental representative. When the aforesaid miscellaneous application was being heard, the Departmental representative produced a copy of the purchase deed, dated March 15, 1978, before the Income-tax Appellate Tribunal. It was contended by the said representative that the said document can be produced before the Tribunal under section 254(2) of the Income-tax Act as the document was a part of the assessm ent record. The record, according to the said representative, meant assessment record and not record produced before the Tribunal at the time of hearing. The Tribunal then observed that the question whether record for the purpose of section 254(2) would mean record considered by the Tribunal at the time of hearing of the appeal or all documents available with the records of
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the Assessing Officer is a debatable issue. It then added that the Tribunal was influenced by the fact that the Assessing Officer while taxing the receipt as capital gain, did not attribute anything towards the cost of acquisition and, therefore, on the basis of material on record, the Tribunal held that the assessee by selling trees realized capital and, therefore, the receipt was of capital nature and could not be charged to tax as capital gain. It then observed that the foundation of the order of the Tribunal was the order of the Assessing Officer and that of the Commissioner of Income-tax (Appeals) and in the absence of any material in those orders to show that the trees were acquired for a cost, there was no error in the order of the Tribunal apparent on the record, nor it could be said that without taking into account the relevant records, the order of the Tribunal was passed. It was then pointed out that it was not claimed that the Assessing Officer or the Commissioner of Income-tax (Appeals) passed their orders without taking into account the purchase deed, dated March 15, 1978; despite that the cost of acquisition was taken at nil. It then observed that the timber sold was different from the alleged trees acquired on March 15, 1978; the timber sold was grown between 1978 and 1984 and at any rate, the timber sold in 1984 was very different in quality from the timber acquired in the year 1978 and that aspect of the matter was properly taken into account by the lower authorities, and therefore, the cost of acquisition was taken at nil. The Tribunal thereafter observed that in those circumstances the mistake, if any, was committed by the Assessing Officer and the Commissioner of Income-tax (Appeals) in taking the cost of acquisition at nil and, therefore, the case does not fall under section 254(2) of the Income-tax Act, and thus, the Tribunal did not common any mistake which could be rectified under the said provision. The jurisdiction or the authority of the Tribunal is circumscribed by the Income-tax Act. The said Act has not authorised the Tribunal to review its orders. It does not have any inherent or otherwise jurisdiction, it is well-settled, to review its orders. Therefore, it cannot review its orders. An order, which has been passed by the Tribunal reaches finality, the moment the same is passed; it cannot be touched thereafter. By section 254(2) of the Income-tax Act, the Tribunal, however, has been authorised to rectify mistakes in its orders, which are apparent on the face of the records. The expression "mistake apparent on the record", it is well-settled, means a mistake either clerical or grammatical or arithmetical or of like nature which can be detected without there being any necessity to re-argue the matter or to reappraise the facts as appearing from the records. If a document was not taken into consideration by the lower authorities and was not produced before the Tribunal, when it considered the matter and passed the order, it cannot he said that the order of the Tribunal contains a mistake since it does not discuss such document. No one can discuss a document or can make an endeavor to find out the effect of a document, which was never placed before him. Similarly, if a plea founded on a document is not at all raised before the Tribunal, it cannot be said that the order of the Tribunal contains an error apparent on the record. The Tribunal could not discuss a plea which was not raised before it or before the lower authorities. It was urged before us that the Tribunal being the last fact-finding authority, it was its obligation to find out whether, in fact, there was any cost of acquisition of the subject trees and for that matter to make a thorough investigation of all the records. The subject trees were claimed to be of spontaneous growth. This claim was not disputed at any stage before making of the aforementioned miscellaneous application. The word "spontaneous" means unaided; voluntary; growing naturally without cultivation; occurring without external cause; which presupposes, that there was neither any cost of acquisition nor any cost of growing. This aspect of the matter was accepted by the Assessing Officer despite the deed of purchase of the year, 1978 being in the record before him, as claimed. The Assessing Officer, therefore, despite the deed of purchase of 1978 being before him, took the cost of acquisition of the subject trees at nil, which show that he accepted that the subject trees were of spontaneous growth. The Commissioner of Income-tax (Appeals) was not at all concerned with cost of acquisition, he was concerned with expenditure on the growth of the
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subject trees. Admittedly, when the matter was being heard before the Tribunal, no plea was raised on behalf of the Revenue in regard to the cost of acquisition of the subject trees, nor it was contended that the subject trees were not of spontaneous growth for the reason that on that day the Department representative did not have in his possession the deed of purchase of 1978. Thus, admittedly, at no stage before the filing of the aforementioned miscellaneous application any contention was raised to the effect that the subject trees were not of spontaneous growth, but had been acquired at a cost. The Tribunal, we are of the view, could not permit this plea to be raised for the first time on an application made under section 254(2) of the Income-tax Act, since the same would have involved rearguing the whole case on a new plea based on a document, not originally considered by the Tribunal and not even considered by the lower authorities. On the other hand, if such a plea was permitted to be raised and decided that would have tantamount to permitting the Revenue to alter its stand taken before the Tribunal and the lower authorities, that is not permissible. The Assessing Officer considered the cost of acquisition of the subject trees at nil, that was not disputed before the Commissioner of Income-tax (Appeals) and was not controverted before the Tribunal when the matter was decided by it. Furthermore, in paragraph 3 of the said miscellaneous application, it was contended that before the Commissioner of Income-tax (Appeals), the assessee had contended that since the trees did not cost anything, the capital gain arising out of the sale of the timber would not be liable to be taxed in view of the ratio of the Supreme Court decision in C.I.T. v. B.C. Srinivasa Setty (B.C.) (1981) 128 ITR 294. Therefore, before the Commissioner of Income-tax (Appeals) a definite issue was raised by the assessee to the effect that the trees did not cost the assessee anything. This cost has two elements, i,e,, cost of acquisition and cost of growth. In regard to the cost of acquisition, the Commissioner of Income-tax (Appeals) held there was none by accepting the trees to be of spontaneous growth and comparing them with forest trees. The Commissioner of Income-tax (Appeals), however, observed, that there is no indication to show that the assessee had not spent even a pie on the growth of the trees. Despite that, when the matter went up before the Tribunal, no plea was taken that there was some cost of acquisition of the subject trees. This lacuna was sought to be overcome by contending that the relevant records were not with the Departmental representative when the matter was being heard by the Tribunal. However, nowhere in the said miscellaneous application, it has been contended that the deed of purchase, dated March 15, 1978, formed part of the records for the assessment year 1984-85. What was alleged in this regard, was that the records of the case for the assessment years 1984-85 and 1978-79, show that the assessee purchased the subject tea estate on March 15, 1978, at a consideration of Rs,4,43,552.60 and that the purchase deed showed that the assets purchased included trees without showing any particular value therefor. It was not contended that the subject purchase deed formed part of the records for the assessm ent year 1984-85. If the subject purchase deed did not form part of the records for the assessm ent year 1984-85, then the question of the Tribunal looking into the purchase deed to find fault in its order did not, nor could not at all arise and similarly, the question of the Departmental representative disputing that the subject trees were not of spontaneous growth and had been acquired at cost also did not, nor could at all arise. We, therefore, answer question No,1 in Income-tax Reference No,103 of 1993 in the negative and in favour of the assessee and question No,2 in Income-tax Reference No,103 of 1993 in the affirmative and in favour of the assessee. The next question that we propose to decide is question No,1 in Income-tax Reference No,201 of 1991 raised in R.A. NO.574/(Cal.) of 1990 which is as follows: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that 'tea bushes' should not be taken as a part of 'agriculture land' but as a part of capital assets of the assessee's tea business?"
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Section 2(14) of the Income-tax Act defines capital assets. It says capital assets means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include, inter alia, agricultural land in India. The word "agricultural land" has not been defined in the Income-tax Act. However, agricultural income has been defined in section 2(1-A) of the Income-tax Act. In State of Kerala v. Karimtharuvi Tea Estate Ltd. (1966) 60 ITR 275, the Supreme Court held that the grevelia trees were capital assets and the proceeds derived by sale as firewood of those trees did not constitute income under the Kerala Agricultural Income Tax Act, 1950, but while doing so observed that there is no controversy…
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