1991 (3) TMI 189 - AT - Income Tax

Tribunal Rules Sale of Spontaneous Growth Timber Not Taxable as Capital Gains

DEPUTY COMMISSIONER OF INCOME TAX. Versus SUMAN TEA & PLYWOOD INDUSTRIES (P) LTD.

The Tribunal ruled that the profit from the sale of timber, derived from trees of spontaneous growth, was not chargeable to capital gains tax as there was ... - Issues Involved:1. Chargeability of capital gain on the sale of timber.2. Determination of cost of acquisition for trees of spontaneous growth.3. Applicability of Section 254(2) of the Income Tax Act for rectification of the Tribunal's order.Issue-wise Detailed Analysis:1. Chargeability of Capital Gain on the Sale of Timber:The Tribunal examined whether the profit from the sale of timber constituted a capital gain. The Assessing Officer had assessed Rs. 7,40,106 as capital gain from the sale of timber. The assessee argued that the timber sold was from trees of spontaneous growth, which had no cost of acquisition, and thus, the profit should not be taxable under capital gain. The Tribunal accepted the assessee's contention, noting that there was no material evidence showing any expenditure on the growth or development of the trees. The Tribunal concluded that the trees were removed to make the land fit for tea cultivation, and the receipts from such sales were of a capital nature, not taxable as capital gains.2. Determination of Cost of Acquisition for Trees of Spontaneous Growth:The Tribunal noted that the CIT(A) rejected the assessee's contention, citing various case laws that income from the sale of forest trees, even if of spontaneous growth, is taxable. However, the Tribunal found these cases distinguishable as they involved regular revenue-yielding activities. The Tribunal emphasized that the onus was on the Revenue to show that the trees had a cost of acquisition. Since the trees grew spontaneously and there was no evidence of any cost incurred by the assessee, the Tribunal held that the sale proceeds were capital receipts not chargeable to tax as capital gains.3. Applicability of Section 254(2) of the Income Tax Act for Rectification of the Tribunal's Order:The Revenue filed a miscellaneous application under Section 254(2), contending that the Tribunal's finding was factually incorrect. The Revenue argued that the purchase deed of the tea estate included trees and timber, indicating a cost of acquisition. The Tribunal, however, noted that the purchase deed was not part of the record during the original hearing. The Tribunal held that introducing the purchase deed in the rectification proceedings was debatable and not permissible under Section 254(2). The Tribunal concluded that the lower authorities had already considered the purchase deed and determined the cost of acquisition as nil. Therefore, the Tribunal found no mistake apparent from the record that warranted rectification under Section 254(2).Conclusion:The Tribunal rejected the Revenue's miscellaneous application, upholding its original order that the sale proceeds from trees of spontaneous growth were capital receipts not taxable as capital gains. The Tribunal emphasized that the cost of acquisition was taken as nil, and there was no error in the material considered by the lower authorities. Consequently, the Tribunal found no grounds for rectification under Section 254(2) of the Income Tax Act.