CAPITAL GAIN ON SALE OF SHADE TREES

[Dwarakanath sriknatiah]

we have sold shade trees  on our estates.

we have arrived FMV as on 1.4.1981 and taking 70% of sale consideration as cost and 30% as capital gain

We have indexed our cost FMV as on 1.4.1981 and reduced the amount from sale consideration which

resulted in capital loss.

Pl let me know

whether we are eligible for cost of indexation on FMV as on 1.4.1981 ie 70% of sale consideration?

Dwarakanath

[CAGOPALJI AGRAWAL]

Presuming it is not agricultural income as per the querry, the FMV can not be presumed as percentage of sale consideration but it has to be valued by the competent approved valuers. Of course the indexation would be available such value.

[Dwarakanath sriknatiah]

FMV as on 1.4.1981 @ 70% of sale consideration is taken on the basis of assessment order in our case for  the year 1991/92. is there any supreme court or high court cases in this regard?

[K.S.AIYAR & CO.]

I agree that during 1991-92, assessments were done on that basis since both Kerala & Karnataka ITAT's had given decisions accepting 70% of sale value as cost and taxing 30% of sale value as capital gains.  But in similar decisions for 1994-95,  ITATs have modified the same to 65% & 35% also in view of increased sale value.  As law stands today  indexation benefits has to be allowed. May be you voluntarily consider modifiying the ratio.  Logic being there is no incremental cost of the shade tree while there is increase in it's sale price.  In such case it would be fair to reduce the cost as a %age of sale value in view of lapse of 20 years when 70:30 ratio was acceptable.  The ratio may be decided based on the change in sale price in 1991 to now. 

[Dwarakanath sriknatiah]

Dear Mr Sanjay Dave,

You have referred decisions  during 1994/95. Will u kindly let me know the case details which will

help me a lot?

Dwarakanath

[K.S.AIYAR & CO.]

Mr. Dwarkanath

I do not have the details off hand since I am out of country.  It was a ITAT, Bangalore decision in case of Chembra Peak Estates Ltd v/s ITO, Bangalore.  The basis was that for 1990-91 in case of same assessee the ratio of 70% cost & 30% gains and now sale value had increased so effectively cost will come down in terms of sale value.  Hence decided that 65% cost & 35% gains.  This was accepted by the company. 

 

AI Summary

Capital gain treatment on sale of shade trees: indexation of historical FMV allowed, valuation must be by approved valuers.
Taxpayers claiming historical FMV as a percentage of sale proceeds for shade trees must support that FMV with valuation by an approved valuer; once determined, that FMV is eligible for indexation. Tribunal practice that previously accepted fixed cost-to-gain ratios has been adjusted where market appreciation has altered the sale to historic value relationship, leading tribunals to modify the percentage allocation between cost and capital gain.