Trees forming part of a purchased coffee estate yielded capital receipt, not revenue, on sale proceeds

Sale proceeds from trees forming part of an acquired coffee estate were treated as capital receipt because the Tribunal had found that the assessee purchased the estate as a capital asset and there was no finding that the trees were separately acquired, spontaneously grown after purchase, or held as trading stock. On those facts, the trees formed part of the capital asset, and realisation from their sale was not income. The court answered the reference in favour of the assessee and held the amount assessable as capital, not revenue.

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Issues: Whether the amount realised on sale of trees forming part of the assessee's coffee estate was a capital receipt or a revenue receipt.

Analysis: The assessee had purchased a coffee estate, and the Tribunal's finding, which was binding, was that he had acquired an estate of which the trees formed part. There was no finding that the trees sold had grown spontaneously after the purchase, or that they were separate trading stock or produce acquired in the course of business. On those facts, the trees sold were part of the capital asset purchased by the assessee, and the consideration received on their sale represented realisation of capital.

Conclusion: The amount was a capital receipt and not a revenue receipt, in favour of the assessee.

Final Conclusion: The reference was answered by holding that the sale proceeds of the trees were assessable as capital and not as income.

Ratio Decidendi: Where trees sold form part of an acquired capital asset and there is no finding of independent or subsequent growth constituting circulating stock, the sale proceeds are capital receipt.

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