(Appeals from the judgment and order, dated January 4, 1984 of the Madras High Court in T.C. Nos. 1602 of 1981 and 392 and 393 of 1982).

Agricultural Income‑tax‑‑‑‑

‑‑‑‑Income or capital‑‑‑Sales of unyielding rubber trees‑‑‑Agreement specifying part of consideration towards value of latex‑‑‑Part of consideration for latex is income and part for fuel value is capital‑‑ Agreement not bifurcating consideration‑‑‑No recital or factor indicating that latex was present‑‑‑No presumption for similar bifurcation permissible‑‑‑Enter consideration capital in. nature‑‑‑Tamil Nadu Agricultural Income‑tax Act, 1955.

The appellant sold unyielding rubber trees under two agreements. One agreement expressly split the consideration thereunder between that for latex and that for fuel value of the trees. The High Court held that, view of the specific recital, only that part of the consideration relatable to the fuel value of the rubber trees was a capital receipt and that relatable to latex was agricultural income. In the second agreement the consideration was not split up; but the High, Court held that it could be presumed that consideration was to be similarly split up. On appeal to the Supreme Court:

Held, (i) affirming the decision of the High Court, that in regard to the first agreement where the consideration was split up between that for latex and that for fuel value, the consideration for latex was income and that for fuel value was a capital receipt;

(ii) Reverting the decision of the High Court, that in regard to the second agreement, in the absence of any recital in the agreement or any other factor which indicated that latex was present and recoverable from the unyielding tree, no presumption could be raised that part of the consideration was for latex and taxed as a revenue receipt.

The judgment dated January, 4, 1984, of the High Court (Ramanjam and Rantam, JJ.), delivered by Ramanujam, J., to the extent relevant, was as follows:

Learned counsel for the assessee does not dispute the position that, if any portion of the receipts related to the sale value of latex, then it could be assessed at the hand of the assessee as agricultural income. Thus, the substantial question for consideration in this case is whether any portion of the amount paid under the two agreements relates to the sale value of the latex. As already observed, the realization of the amounts by the assessee for the assessment years in question was on the basis of the two agreements referred to above.

The first agreement, dated March 30, 1974, is between the assessee and one father Antony Puthur. Under that agreement, the sum of Rs.5,56,900 had to be paid by the contracting party to the assessee. Though the said sum has been taken to be the value of 6150 old rubber trees in an area of 77.50 acres, on the agreement the said amount has been shown as consisting of Rs.3,07,500 on representing the fuel value of the rubber trees and Rs.2,49,400 as representing the value of rubber latex and scrap that may be collected from the rubber trees during the years 1974‑75 and 1976. The agreement further provided that the operation of the cutting and removal of the trees could be extended up to March 31, 1977, which means that the contracting party would be in a position to collect whatever rubber latex and scrap that would be yielded during the years. Having regard to the fact that the parties themselves had agreed the out of the amount of Rs.5,56,900 which was the amount bargained for between the parties, as payable under the agreement, a sum of Rs,.2,49,400 was treated as the value of the rubber latex and scrap that could be collected from the trees by the contracting party during the years in questions. In the face of the said specific recital in the agreement, it is not open to the assessee to contend that the entire amount of Rs.5,56,900 payable under the agreement related only to the fuel value of the rubber trees and not to the value of rubber latex or scrap that could be realized from the trees before they were actually cut and removed.

The second agreement, dated February 17, 1975, is between the assessee and one Union Traders. Under that agreement, a total amount of Rs. 18,25,000 was payable in respect of 13,640 old rubber trees. This agreement, however, does not give the breakup figures for the amount of 18,25,000, as has been done in the earlier agreement; but the other features present in the earlier agreement are also present in the instant case. The time for the cutting and removing of the trees is more than three years from the date of the agreement. Thus, the contracting party is in a position to realize whatever latex or scrap may be available from the standing rubber trees till they were cut and removed. The agreement does not proceed on the basis that the fuel value alone of the trees which were to be cut and removed was taken. Though the preamble of the agreement also proceeds on the basis that the trees have become old and uneconomical on account of intensive tapping, there is no reference to trees having become incapable of yielding any latex at all.

Thus, having regard to the terms of the agreement, it can be presumed that the contracting parties were expected to realize rubber latex and scrap from the standing rubber trees before they were actually cut and removed. Though the second agreement does not specifically refer to any yield by way of latex and scrap from the standing rubber trees, from the fact that the earlier agreement has treated practically 2/5th of the amount payable under the agreement as representing the value of latex yielded from the trees, it can be easily presumed that at least a part of the sum of Rs.18,25,000 payable under the second agreement should relate to the value of the latex and scrap that could be realised from the standing rubber trees before they could be actually cut and removed, for which more than three years time had been provided from the date of the agreement. In this light, the view taken by the Commissioner of Agricultural Income‑tax, that a portion of the amounts realized under the two agreements by the assessee should relate, in some measure, to the value of latex and scrap realized from the standing rubber trees, appears to be tenable. In this case the Commissioner has remitted the matter to the assessing authority for the purpose of determining the value of the latex and scrap and for assessing such value as agricultural income, Since the quantum has not been determined by the Commissioner, the assessee as got an opportunity to put forward his case as regards the quantum before the Agricultural Income‑tax Officer. The Agricultural Income‑tax Officer will naturally give sufficient opportunity to the assessee to put forward the necessary materials, which may be in his possession for the determination of the actual value of he latex and scrap from the standing rubber trees. In this view of the matter, we see no justification for interfering with the order of the Commissioner. The tax cases are accordingly dismissed. There will be no order as to costs.

The assessee preferred appeals to the Supreme Court.

D.A Dave, Senior, Advocate K.J. John for Appellant.

R. Mohan, Senior Advocate Mariarputham for Respondent.

ORDER

The appeals are directed against the judgment and order of a Divisions Bench of the High Court of Madras. The issue relates to the sale of unyielding rubber trees by the appellant plantation during the assessment years 1975‑76, 1976‑77 and 1977‑78.

There were two agreements by which the appellant sold the unyielding rubber trees. One agreement, dated March 30, 1974, expressly split the consideration thereunder between that for latex and that for fuel. The High Court held that in the face of the specific recital in this behalf in that agreement, the appellant was not justified in contending that the entire amount payable thereunder related only to the fuel value of the rubber trees and not to the value of the latex and was, thus, a capital. This, in our view, is an unassailable conclusion.

In regard to the second agreement, dated February 17, 1975, however, the High Court noted that the consideration thereunder had not been so split and there was no recital in this behalf. Even so, the High Court said that the fact that the earlier agreement had treated practically 2/5ths of the consideration as payable for the latex, that portion of the consideration payable under the second agreement should be presumed to relate to the latex and should be taxed as a revenue receipt. In this regard, we cannot agree with the High Court. We do not think that such a presumption was justified in the absence of a recital in the agreement or any other factor which indicated that latex was present and recoverable from the unyielding trees covered by the second agreement.

In the circumstances, the appeals are allowed only to the extent hereinbefore stated. There shall be no order as to costs.

M.B.A./1100/FCAppeals allowed.