The order of the Bench was delivered by
N. R. S. GANESAN (Judicial Member).-The Revenue filed the appeal against the order of the Commissioner of Income-tax (Appeals), Kozhikode dated August 7, 2013 for the assessment year 2009-10. The assessee filed the cross-objection against the very same order of the Commissioner of Income-tax (Appeals). Therefore, we heard the appeal and the cross-objection together and dispose of the same by this common order.
We heard Shri M. Anil Kumar, the learned Departmental representative, and Shri R. Krishnan, the learned representative for the assessee. Originally the assessment was completed under section 143(3) on December 23, 2011 treating the sale of mahogany trees as agricultural income. However, the Administrative Commissioner in exercise of his powers under section 263 of the Act found that the order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue so far as in treating the sale proceeds of mahogany trees as agricultural income is concerned, therefore, directed the Assessing Sufficer to reconsider the matter. The Assessing Officer on reconsideration found that the sale proceeds of mahogany trees as capital receipts, therefore, they are liable for taxation as capital gain. On appeal by the assessee" the Commissioner of Income-tax (Appeals) found that in respect of five other assessees the Assessing Officer has taken 30 per cent. of the sale proceeds of mahogany trees as income from capital gain. By following the abovesaid precedent the Commissioner of Income- tax (Appeals) found that in this case also the Assessing Officer shall treat 30 per cent. of the sale proceeds of mahogany trees as capital gain.
3 Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue filed the appeal. The only contention of the Revenue is that the Assessing Officer rejected the claim for expenses on the ground that there is no evidence for incurring the expenditure. The learned Departmental representative further submitted that the mahogany trees were cut along with roots, therefore, the entire proceeds should be taken as capital gain. In the cross-objection the assessee claims that the sale proceeds should be taken as agricultural income.
4 We find that the apex court in the case of Kalpetta Estates Ltd. v. CIT [1996] 221 ITR 601 (SC) had an occasion to consider an identical issue and found that when the old and unyielding rubber trees were sold by the assessee no capital gain arose or accrued on such transaction. The Calcutta High Court, in CIT v. Suman Tea and Plywood Industries P. Ltd. [1997] 226 ITR 34 (Cal), has also considered an identical issue elaborately and after referring to the judgment of the Kerala High Court in Travancore Tea Estates Co. Ltd. v. CIT [1974] 93 ITR 314 (Ker) and the judgment of the apex court in the case of CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC) found that when there is no cost of acquisition or cost of improvement on the asset the sale proceeds of such asset will not fetch any gain or profit and therefore not liable for capital gains tax. In this case, the mahogany trees are planted as shadow trees and grew on their own without any human interference or human effort. Therefore, the mahogany trees grew naturally even though they were planted as shadow trees. Hence, this Tribunal is of the considered opinion that there is no cost of acquisition or improvement on such trees. Hence, the computation provision fails. Once the computation provision fails for computing the capital gains under the Income-tax Act, there cannot be any levy of capital gains tax. However, in this case, the assessee is not challenging the estimation of capital gains at 30 per cent. of the sale proceeds. The assessee's claim is that the entire income is agricultural income. This claim of the assessee as agricultural income cannot be correct in view of the judgments of the apex court referred to above. Since the assessee is not challenging the treatment of 30 per cent. of the sale proceeds as capital gain, the Revenue may not have any grievance in the order of the Commissioner of Income-tax (Appeals). Accordingly, the appeal of the Revenue has no merit at all.
5 In the result, the appeal of the Revenue and the cross-objection of the assessee are dismissed.
6 The order pronounced in the open court on this 14th March, 2014.