COMMISSIONER OF INCOME-TAX VS SUMAN TEA AND PLYWOOD INDUSTRIES (P.) LTD.
1999 P T D 1282
[226 I T R 34]
[Calcutta High Court (India)]
Before Visheshwar Nath Khare, C.J. and Barin Ghosh, J
COMMISSIONER OF INCOME-TAX
Versus
SUMAN TEA AND PLYWOOD INDUSTRIES (P.) LTD.
Income-tax References Nos. 201 of 1991 and 103 of 1993, decided on 04/03/1997.
(a) Income-tax---
Appellate Tribunal- Rectification- Mistake apparent from record- Document not taken into consideration by lower Authorities---Document not produced before Tribunal---Plea founded on document not raised before Tribunal---Rectification on basis of document---Not permissible---No mistake apparent from record---Indian Income Tax Act, 1961, S.254..
(b) Income-tax---
----Capital gains---Trees of spontaneous growth---No cost of acquisition or improvement- --No taxable capital gains arise on sale thereof---Profits not taxable as income---Indian Income Tax Act, 1961, S.45.
(c) Income-tax---
----Capital asset---Tea business---Tea bushes---Not cut or removed for obtaining tea leaves---Tea bushes are not pail of agricultural land---Are capital assets of tea business---Indian Income Tax Act, 1961, S.2(1-A).
By section 254(4) of the Income Tax Act, 1961, 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 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" 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 be said that the order of the Tribunal contains a mistake since it does not discuss such document. No one can discuss a document or make an endeavour 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.
In the assessment of the respondent -assessee for the year 1984-85. the Assessing Officer treated a sum of Rs.7,40,106 arising out of sale of timber relating to a tea estate as capital gains, after deducting a sum of Rs.1,49,894 on account of sawing charges, from the sale proceeds of Rs.8,90,000. On appeal by the assessee, contending that since the timber was of spontaneous growth and there was no cost of acquisition incurred for acquiring it, it represented sale of an asset, not capital gains, the Commissioner of Income-tax (Appeals) found that there was no indication that the assessee had not spent any money on the growth of the trees, and confirmed the levy. On further appeal, the Tribunal found 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 question of re-generation of trees, that there was no material on record to show that the assessee spent anything on plantation growth or development of trees, that there was also no material on record to show that the assessee while removing trees left roots in the soil for generation, that the record clearly showed that the trees were removed for making the land fit for cultivation of tea. The Tribunal, therefore, held that the assessee by selling the trees realised capital and, therefore, the receipt was of capital nature, but 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. Thereafter, the Commissioner filed an application for rectification before the Tribunal, contending that the records of the case for the assessment years 1984-85 and 1978-79 showed 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, the trees in question had been mentioned, and that, therefore, the fact as found by -the Income-tax Appellate Tribunal in regard to the cost of acquisition of the subject trees was a mistake apparent on record and should be rectified. The Tribunal dismissed the application holding that the foundation of its earlier order 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 could it be said that without taking into account the relevant records, the order of the Tribunal was passed. On a reference:
Held, (i) that, admittedly, the claim that the trees in question were of spontaneous growth and had been acquired at no cost had not been disputed at any stage before the filing of the rectification application. The Assessing Officer, despite the deed of purchase of 1978 being before him, took the cost of acquisition of the subject trees at nil, which showed that he accepted that the subject trees were of spontaneous growth. The Commissioner of income-tax (Appeals) was not at all concerned with the cost of acquisition, he was concerned with expenditure on the growth of the 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 was it contended that the subject trees were not of spontaneous growth. The Tribunal could not permit this plea to be raised for the first time in an application made under section 254(2) of the Income-tax Act, since the same would have involved re-arguing 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:
(ii) that, moreover, there was no indication that the purchase deed formed part of the records for the assessment year 1984-85. If the purchase deed did not form part of the records for the assessment year 1984-85, then the question of the Tribunal looking into the purchase deed to find fault in its order could not arise and similarly, the question of the Department disputing that the subject trees were not of spontaneous growth and had been acquired at a cost also could not arise;
(iii) that, therefore, the rejection of the rectification application was justified.
Held also, that the lower authorities did not consider the purchase of the standing trees either on March 15, 1978, or at all. The matter was, admittedly not raised before the Tribunal. The trees were taken to be of spontaneous growth by the lower authorities as well as by the Tribunal. Therefore, the question whether the finding of the Tribunal that the trees did not cost the assessee anything was based on any relevant material or perverse could not be answered.
Kilasho Devi Burman (Smt.) v. C.I.T. (1996) 219 ITR 214 (SC) and New Jehangir Vakil Mills Ltd. v. C. I. T. (1959) 37 ITR 11 (SC) rel.
Agricultural income is income by way of rent or revenue derived from the land or any income derived from such land by agriculture or by cultivation or by sale of the produce raised 'or received or an income from any building owned or occupied by the receiver of rent or revenue. Tea bushes are planted to obtain tea leaves. The tea bushes continue to remain even after plucking of tea leaves. For the purpose of plucking tea, the tea bushes are never cut down. Although agricultural activity is involved in nurturing the tea bushes for the purpose of obtaining tea leaves, the produce that is available is the tea leaves alone and not the tea bushes as such. Tea bushes as such are not sold to derive any income. Tea bushes, therefore, are agricultural capital assets. Therefore, the 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.
If there is no cost of acquiring an asset or improving the same, it cannot be assumed that sale of such an asset will bring in any gain or profit.
C.I.T. v. Srinivasa Setty (B.C.) (1981) 128 ITR 294 (SC) fol.
Trees of spontaneous growth are not sown. They grow naturally. If there is no cost of acquisition or cost of improvement in respect of the trees which have grown spontaneously with the aid of nature, while the value thereof has increased by reason of such natural growth coupled with human demand, the sale proceeds of such asset will not fetch any gain or profit and, therefore, will not be capital gains. The-sale proceeds of trees of spontaneous growth received by the assessee being a receipt of capital nature, cannot be assessable as taxable income.
Beverley Estates Ltd. v. C.I.T. (1979) 117 ITR 302 (Mad.); C.I.T. v. Ambat Echukutty Menon (1979) 120 ITR 70 (SC); C.I.T. (Addl.) v. Ganapathi Raju Jegi, Sanyasi Raju (1979) 119 ITR 715 (AP); C.I.T. (Addl.) v. Ganapathi Raju Jogi (1993) 200 ITR 612 (SC); C.I.T. v. Jacob (E.C.) (1973) 89 ITR 88 (Ker.); C.I.T. v. Kothari Plantations and Industries Ltd. (1993) 203 ITR 547 (Cal.); C.I.T. v. Maharaja Sahib Shri Lokendra Singhji (H.H.) (1986) 162 ITR 93 (MP); C.I.T. v. Octavious Steel & Co. Ltd. (1996) 221 ITR 810 (Cal.); C.I.T. v. Rajkumar Ashok Pal Singh Ji (1977) 109 ITR 581 (Bom.); C.I.T. v. Ramaiah Reddy (M.) (1986) 158 ITR 611 (Kar.); C.I.T. v. Suman Tea and Plywood Industries (P.) Ltd. (1993) 204 ITR 719 (Cal.); Dhairyavan (K.A.) (Dr.) v. Thakur (J.R.) AIR 1958 SC 789; Gasper (A.) v. C.I.T. (1991) 192 ITR 382 (SC); H. H. Digverendrasinjhi of Bansda v. C.I.T. (1965) 55 ITR 580 (Guj.); Krishna murthy (A.R.) v. C.I.T. (1989) 176 ITR 417 (SC); 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.); Sri Krishna Dairy and Agricultural Farm v. C.I.T. (1988) 169 ITR 291 (AP); State of Kerala v. Karimtharuvi Tea Estate Ltd. (1966) 60 ITR 275 (SC); Travancore Tea Estates Co. Ltd. v. C.I.T. (1974) 93 ITR 314 (Ker.); Vallabdas Narainji v. Development Officer AIR 1929 PC .163; Venugopala Varma Rajah v. C.I.T. (1970) 76 ITR 460 (SC) and Vishnudatta Antharjanam v. Commr. of Agri. I.T. (1970) 78 ITR 58 (SC) ref.
Sunil Mitra and R. C. Prosad for the Commissioner (in I.T.R. No.201 of 1991).
Jaydev Saha for the Commissioner (in I. T. R. No. 103 of 1993).
N. K. Poddar and Debasis Mitra for the Assessee (in both Cases).
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 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 assessment 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 assessment 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 there from 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 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 oil record pertaining to question No.3 in Income-tax Reference No.201 of 1991 referred to L n R.A. No.574/(Cal.) of 1990. Therefore, that question will be 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 w 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 assessment 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 there from 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 aid 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 be 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 be 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 Ratugarli 11941) 9 ITR 313 (Pat.); Raja Bahadur Kamakshya Narain Singh v. CA.T. (1946) 14 ITR 673 (Pat.); Digverendrhsinjhi of Bansda (H. H.) v. C.I.T. (1965) 55 ITR 580 (Guj.) and C.I.T. v. Raikumar Ashok Pal Singh JI (1977) 109 ITR 581 (Bom.), 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 Varrna 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 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 or, 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 tit 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 wits 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 n() cost ()f acquisition. If there be any, the Assessing Officer or the Commissioner of Income-tax (Appeals) would have given appropriate credit there for 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 assessment 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 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 realised 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 commit any mistake which could be rectified tinder 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 re appraise 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 be 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 endeavour 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 that 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 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 place 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 re arguing 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 tantamounted 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, .hat 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 there for. It was not contended that the subject purchase deed formed part of the records for the assessment year 1984-85. If the subject purchase deed did not form part of the records for the assessment 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. l 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. I in Income-tax Reference No.201 of 1991 raised in R.A. No.574/(Cal.) of 1990 which is as follows:
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?"
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 about the fact that the owners of tea estates plant grevelia trees not for the purpose of deriving any income there from but solely for the purpose of providing shade for the tea plants and that such shade is essential for the proper cultivation of tea. This case was followed by the Kerala High Court in Travancore Tea Estates Co. Ltd. v. C.I.T. (1974) 93 ITR 314. The Kerala High Court also took note of the judgment of the Privy Council in Vallabdas Narainji v. Development Officer, Pandra AIR 1929 PC 163, where it was observed that the rule that what is attached to the land, belongs to the land is a principle not applicable to India. The Kerala High Court also took note of the decision of the Supreme Court in Dhairyavan (K.A.) Dr.) v. Thakur (J.R.) AIR 1958 SC 789, where the Supreme Court approved the aforementioned decision of the Privy Council. The Kerala High Court thereafter concluded that the trees, which stand on agricultural land, are not agricultural land in India within the meaning of section 2(14)(iii) of the Income Tax Act, 1961. The Kerala High Court observed that they constitute property of any kind mentioned in section 2(14) of the Act and are capital assets and profits arising from their sale would be assessable under section 45 of the Income-tax Act as capital gains. The Kerala High Court further observed that agricultural income as defined in the Income-tax Act, does not include gains arising from the sale of trees standing oft agricultural land and thus gains arising, from the sale of trees are assessable under section 45 of the Act. The same view was expressed in Beverley Estates Ltd. v. C.I.T. (1979) 1 17 ITR 302 (Mad.) and C.I.T. v. Ratnaiah Reddy (M.) 1986) 158 ITR 611 (Kar.).
If what is attached to the land belongs to the land is nut applicable in India and trees which stand on agricultural land are not agricultural land in India then the tea bushes cannot also be taken to be agricultural land in India, but we think the matter should be approached in a different wad'. According to the section, agricultural income means any rent or revenue derived from the land used for agricultural purposes; any income derived from such land by agriculture or by cultivation or by any process employed by a cultivator to render the produce raised or received by him fit to be taken to market or by sale of the produce raised or received or any income derived from any building ~owned or occupied by the receiver of the rent or revenue of any such land or occupied by the cultivator or the receiver of rent-in-kind of an land. It, therefore, shows that agricultural income would mean an income by way of rent or revenue derived from the land or any income derived from such land by agriculture or by cultivation or by sale of the produce raised or receiver or an income from any building owned or occupied by the receiver of rent or revenue. Therefore, if any income is derived by using the land for agricultural purpose or by agriculture or cultivation or by selling' the fruits of such agriculture or cultivation or from any building occupied by the cultivator or for the purpose of cultivation such an income shall be an agricultural income. For example, it' paddy is grown, the whole income from the grain as well as from the straw shall be agricultural income. This is because, although the principal object is to grow the grain and to derive income from the sale of grain but, in order to obtain the grain either the paddy tree is required to he cut down or if grains can be plucked, the paddy tree becomes useless for the future, and, therefore since the object of growing the paddy tree is to obtain the grains it produces once and to obtain grains in future a new three is required to be sowed after removing the old tree with its roots both the grain and the remaining of the paddy tree is the fruit of the endeavour made to obtain the paddy grain and therefore income from sale of grain and of straw are agricultural income. Tea bushes are planted to obtain tea leaves. The tea bushes continue to remain even after plucking of tea leaves. For the purpose of plucking tea, the tea bushes are never cut down. Although agricultural activity is involved in nurturing the tea bushes for the purpose of obtaining tea leaves, the produce that is available is the tea leaves alone and not the tea bushes as such. Tea bushes as such are not sold to, derive any income. Tea bushes, therefore, are agricultural capital assets. The Act also contemplates such assets. The income from the building, mentioned in section 2(1-A) of the Act, is one of such assets, although the income derived there from is an agricultural income. The Explanation to that section makes it amply clear.
We, therefore, answer question No. 1 in Income-tax Reference No.201 of 1991, raised in R.A. No.574/(Cal.) of 1990 in the affirmative and in favour of the assessee.
Question No.2 in Income-tax Reference No.201 of 1991 raised in R. A. No.574/(Cal.) of 1990 is as follows, which we propose to deal with now:
"(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 asscssee 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'"
From the records of the case it does not appear that Question No.2 raised in Income-tax Reference No.201 of 1991 in connection with R.A. No.574/(Cal.) of 1990 could at all be raised. As discussed above, the lower authorities did not consider the purchase of the standing trees either on March 15, 1978, or at all. The matter was admittedly not raised before the Tribunal. The trees were taken to be of spontaneous growth by the lower authorities as well as by the Tribunal. As far back as in the year 1959, the Supreme Court, in relation to the previous Income-tax Act, held in New Jehangir Vakil Mills Ltd. v. C.1.T. (1959) 37 ITR 11 (headnote): "It is the facts admitted or found by the Appellate Tribunal that would form the basis on which the statement of case could be drawn and reference of the question of law made by the Tribunal to the High Court. Facts, which are not found in the order of the Tribunal or in the record before it cannot be the foundation for the raising of any question of law either in the abstract or otherwise". The Supreme Court reiterated the same view in relation to the present Income-tax Act in Smt. Kilasho Devi Burman (Sort.) v. C.I.T. (1996) 219 ITR 214 (SC). In that view the matter, we refuse to consider that question. This is because neither before the lower authorities nor before the Tribunal, it was contended by or on behalf of the Revenue, as pointed out above, that the subject trees were not of spontaneous growth and that the same had been purchased and on the contrary it was never disputed that the subject trees were of spontaneous growth.
Question No.3 in Income-tax Reference No.201 of 1991 raised in R. A. No.574/(Cal.) of 1990 is as follows:
"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?"
According to section 45 of the Income-tax Act, there has to be some profit or gain from the transfer of a capital asset and only that profit or gain is chargeable to income-tax under the head "Capital gains". According to section 48 of the Act, as was then applicable, capital gain shall be computed by deducting from the full value of the consideration received, the cost of acquisition of the asset and the cost of any improvement thereto. This is because, if a property was purchased for Rs.100 and sold for Rs.100, there cannot be any gain and similarly if a property was acquired for Rs.100 and was improved upon by spending a further sum of Rs.100 and was sold at Rs.200, the sale realisation will be equal to the cost of the capital and there would be no gain by such sale. Under section 55 of the Act, as was then applicable, the cost of acquisition in relation to a capital asset which became the property of the assessee before January 1, 1964, meant the cost of the asset to the assessee or the fair market value of the asset as on January 1, 1964, at the option of the assessee and where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner meant the fair market value on the date on which the capital asset became the property of the previous owner. On the facts, as discussed above, section 55 of the Act, as was then prevalent, has no application. The subject trees were claimed to be and accepted as "of spontaneous growth". The lower authorities proceeded on the basis that the cost of acquisition is nil. Before the Tribunal no contrary stand was taken. Although the Commissioner of Income-tax (Appeals) observed that there is no indication to show that the appellant had not spent a pie on the growth oftrees, i.e., on the improvement of the capital asset, he did not make any endeavour to find out as to what was spent on the improvement. The records of the case do not contain any evidence in regard to the cost of improvement. Therefore, the trees of spontaneous growth as claimed by the assessee and as accepted by the Revenue had no element of cost of acquisition or cost of improvement.
In C.I.T. v. Srinivasa Setty (B.C.) (1981) 128 -ITR 294, the Supreme Court held that the transfer of goodwill initially generated in a business does not give rise to a capital gain for the purpose of income-tax. In that judgment, the Supreme Court observed that all transactions encompassed by section 45 must fall under the governance of its computation provisions. It further observed that a transaction to which those provisions cannot be applied, must be regarded as never intended by section 45 to be the subject of the charge. It then explained that what is contemplated by section J8 is an asset in the acquisition of which it is possible to envisage a cost; it must be an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it and none of the provisions pertaining to the head "Capital gains" suggests that they include an asset in the acquisition- of which no cost at all can be conceived. It, thereupon, observed that goodwill generated in a new business if sold and the consideration brought to tax, what is charged is the capital value of the asset and not any profit or gain. It also observed that the date of acquisition of the asset is a material factor in applying the computation provisions pertaining to capital gain. The ratio of this judgment was deduced by the Supreme Court in Krishnamurthy (A.R.) v. C.I.T. (1989) 176 ITR 417 to the effect that referring to the charging section and the computation provisions under the Act, the Supreme Court held, that none of those provisions suggest the inclusion of an asset under the head "Capital gains", in the acquisition of which no cost at all can be conceived. In that case the assessee had acquired two pieces of land and thereupon sought to grant a mining lease of the self same land to a private company at a premium. It was contended that no cost was involved in acquiring the right to grant such lease. The Supreme Court observed that the cost of acquisition of the land would include the cost of acquisition of the leasing right and the amount paid to purchase the land was paid for acquiring a bundle of rights in the land including the right to grant a lease.
In A. Gasper (A.) v. C.I.T. (1991) 192 ITR 382, the Supreme Court dismissed the appeal on the ground that the contention having been raised before the Tribunal and the same having been declined by the Tribunal was not thereafter raised or argued before the High Court, but in doing so observed that the contention raised on behalf of the assessee to the effect that even assuming that the assessee had a capital asset and consideration had been received for relinquishment of some part of his rights in -respect thereof, the entire consideration could not have been brought to tax since capital gains have to be computed under section 48 of the Income-tax Act, which presupposes a reduction, among others, of the actual cost of the asset to the assessee and that the monthly lease of the premises, which the assessee was enjoying, was not acquired by him at any ascertainable cost; and that even assuming that it was a capital asset, it was a capital asset of such a nature that its actual cost of acquisition cannot be ascertained, have great force and if they were open to be raised before the Supreme Court, the Supreme Court may have to decide the same in favour of the assessee. In that case, the Supreme Court was concerned about relinquishment of a part of a leasehold right in an immovable property.
In C. I. T. (Addl.) v. Ganapathi Raju Jogi (1993) 200 ITR 612 (SC), route permits for buses granted by the road transport authority were transferred. No amount was paid for acquiring the subject route permits. It was only after a number of years that the route permits acquired some value because of various factors, namely, development or roads, passenger traffic, frequency of buses, etc. The value of the permit could not be evaluated as on he date of acquisition. In such circumstances, the consideration in terms of money as realised on its transfer could not be brought to tax as capital gains This is what the Andhra Pradesh High Court held in C.I.T. (Addl.) v. Ganapathi Raju Jogi, Sanyasi Raju (1979) 119 ITR 715. The Supreme Court dismissed the appeal referred against the said judgment of the Andhra Pradesh High Court following its decision in C LT v. Srinivasa Setty (B.C.) 11981) 128 ITR 294.
The logic behind these judgments is basically that if there is no cost of acquiring an asset or improving the same, it cannot be assumed that sale of such an asset will bring in any gain or profit.
This High Court to C.I.T. v. Octavious Steel & Co. Ltd. (1996) ?21 ITR 810, held that the cost of acquisition of an asset, be it a capital asset Dr any other asset must be understood in its common sense, that is, it must represent the expenditure incurred in acquiring the asset. Here, this Court was involved in relation to transfer of a tenancy right. The Court held that there is no means by which the cost of the tenancy right itself, which was increasing in value over the time could be ascertained, nor could the cost of improvement in such asset be determined. This was because we are of the view, that there was no cost involvement on the pan of the assessee either for acquiring the asset or for the improvement, which was by way of a nature process.
In C.I.T. v. Maharaja Sahib Shri Lokendra Singhji (H.H.) (1986) 162 ITR 93, the Madhya Pradesh High Court held that liability to pay tax on capital gains would arise in respect of only those capital assets in the acquisition of which an element of cost is either actually present or it capable of being reckoned and not in respect of those assets in the acquisition of which the element of cost is altogether inconceivable. In that case the assessee had sold some lands which were part of the property inherited by him from his forefather to whom the property had been gifted by a Moghul Emperor.
In Sri Krishna Dairy and Agricultural Farm v. C.I.T. (1988) 169
ITR 291, the Andhra Pradesh High Court was concerned with a case where the assessee doing dairy farm business had sold cubs, which were not acquired at any cost. The Andhra Pradesh High Court held that the birth of cubs was incidental to the business activity of the assessee and though it is difficult to visualise them as assets, there was no cost of acquisition of the cubs and, therefore, the gains which arise on such sale were not liable to tax as capital gains.
Trees of spontaneous growth are such trees, which are not sown. They grow naturally. Its growth also depends on the nature. Since it grows on the land belonging to an individual he claims to be the owner of such natural wealth. At the time when the sprouts come out from the seeds, which have blossomed naturally, they have no value at all. As the nature nurtures and cares such sprouts they grow and ultimately become giant trees. The human needs the trunk and branches of those trees for various purposes. As the tree grows naturally, its value appreciates having regard to the nature of the human demand for its trunk and branches. In respect of such a tree neither any cost of acquisition nor any cost of improvement can be foreseen. If that be so, then the sale proceeds of such a tree will not bring in any profit or gain and as such will not be taxable as capital gains.
In C.I.T. v. E.C Jacob (1973) 89 ITR 88, the Full Bench of the Kerala High Court held that what is charged under section 45 of the Income Tax Act, 1961, is the profits or gains arising from the transfer of a capital asset and in computing the profit or gain in accordance with the provisions of section 48 of the Act, the cost of acquisition of the capital asset and the cost of any improvement thereto have to be deducted from the full value of the consideration for the transfer of the capital asset and that in the context of the Income-tax Act the expression "cost of acquisition" signifies some expenditure or outlay in terms of money by the assessee in the creation or acquisition of the concerned capital asset. This view of the Full Bench of the Kerala High Court was approved by the Supreme Court in B.C. Srinivasa Setty (1981) 128 ITR 2914.
Therefore, if there be no cost of acquisition or cost of improvement of the trees which have grown spontaneously with the aid of nature, while the value thereof has been increased by reason of such natural growth coupled with human demand, the sale proceeds of such asset will not fetch any gain or profit, and therefore, will not be capital gains.
The Supreme Court in A.K.T.K.M. Vishnudatta Antharjanam v. Commissioner of Agricultural I.T. (1970) 78 ITR 58 (SC), held that the sale of the trees affected the capital structure, because by removing the roots the source from which fresh growth of trees could take place was removed, and the sale could not, therefore, give rise to a revenue receipt; the receipt from the sale of the trees was, therefore, capital in nature. In the case at hand, it has not been disputed that the trees were removed with their roots for the purpose of making space for cultivation of the tea.
In C.I.T. v. Ambat Echukutty Menon (1979) 120 ITR 70 (SC), the trees were spontaneously grown on agricultural land, which interspread among paddy fields, and were cut and sold but the roots and stumps were left out to extend cultivation and not for development or for regeneration. The Supreme Court held that the receipt from sale of such trees is capital receipt.
In that view of the matter the sale proceeds of the trees of spontaneous growth received by the assessee being receipt of capital nature, cannot be assessable as taxable income.
In that view of the matter, we answer Question No.3 in Income-tax Reference No.201 of 1991 raised in connection with R. A. No.574/(Cal.) of 1990, in the affirmative and in favour of the assessee.
Question No.1 in the Income-tax Reference No.103 of 1993 is as follows:
"(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 assessment 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 a relevant material or perverse?"
From the facts discussed above, it is crystal clear that the Assessing Officer as well as the Commissioner of Income-tax (Appeals) proceeded on the basis that there was no cost of acquisition of the subject trees. They also did not question that the subject trees were of spontaneous growth.
In that view of the matter, it cannot be said that the finding of the Tribunal that no cost is involved in the acquisition of the said trees is based on any irrelevant material or that the same is perverse.
Accordingly, we answer question No. l in Income-tax Reference No. 103 of 1993 in the negative and in favour of the assessee.
Let the views expressed by us hereinbefore be transmitted to the Tribunal for giving effect thereto.
VISHESHWAR NATH KHARE, C.J.---I agree.
M.B.A./1886/FCOrder accordingly.