TaxTMI 
TaxTMI 
2011 (11) TMI 493
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.... the case, the learned CIT(A) erred in holding that the compensation amount of Rs. 67.46.129/- received by the assessee was for loss of apple trees which formed his only source of livelihood and was hence a capital receipt not chargeable to tax, especially in view of following facts : (a) That as per the agreement dated 27/10/2006 entered into, the compensation was for "changes in the area, its topography, terraces, fields etc. and also cut/remove all the fruit trees" and was therefore a composite transaction that did not specify any amount separately for cutting/removal of apple trees. (b) That the agreement dated 27/10/2006 was for lease of land for a period of several years and hence the compensation was not for destruction of any capital asset, much less for destruction of any income producing asset. (c) That the assessee had declared income from salary/interest/retail trade and the apple trees, if any were not the only source of livelihood of the assessee. (d) That no details could be furnished by the assessee of the number of apple trees standing on the land or the realizable value of the same. (e) That as per revenue records filed, a major portion of the....
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....sessee and his two brothers for a period of seven years commencing from 27.10.2006 to 26.10.2013. The rent for the period relating to financial year 2006-07 amounting to Rs. 120567/- was declared by the assessee in the return of income. Beside the rent for the land, the assessee alongwith his two brothers received sum of Rs. 2,02,38387/- as compensation to carry out changes in the area, its topography, fields, etc. and also cut/remove fruit trees. The said changes were required for setting up Aggregate Processing and Concrete Batching and Mixing plant. The 1/3rd share of the assessee amounting to Rs. 67,46,129/- was offered as agricultural income by the assessee. The assessee was show caused as to why the agricultural income declared in the return of income be assessed as income from other sources as land bearing some khasra numbers were titled as banjar kadam as per copies of Jamabandi. In response, the assessee on 15.12.2008 filed a revised return with a note that the said compensation be treated as capital receipt for loss of capital assets and not as agricultural income and the said amount was not taxable. Vide communication dated 19.12.2008, the assessee stated that "it is set....
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....under : "6. The facts of the case as well as the submissions of the appellant have been considered by the undersigned. The compensation received by the appellant in lieu of standing trees cut by the assessee M/s JP Karchan Hydro Corp. Ltd. has been claimed as exempt on the ground that standing trees are Capital Assets u/s 2(14) and compensation received for the loss of capital asset is Capital Receipt not chargeable to tax. The compensation was received by the appellant for loss of fruit bearing trees. In order to qualify under "Capital Receipt" the definition of "Capital Assets" has to be seen as defined u/s 2(14 of the I.T. Act, 1961 which reads as under :- 2(14) "Capital Asset reads property of any kind held by the appellant whether or not connected with his business or profession. (iii) Agricultural land in India, not being land situated outside municipal limits. 6.1 Standing trees do not fall within the definition of agricultural land. However, the same quality under property of any kind in view of Apex Court decision in Travancore Tea Estate Ltd. v. CIT 93 ITR 314 (Ker.). The same are, therefore, Capital Asset. Compensation received for loss of a capital asset is ....
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....ed written submissions before us and also pointed out that agricultural activities were discontinued and topography was changed and compensation was paid for the same. The learned A.R. further stated that it was a finding of the Assessing Officer that the said trees were not capital asset, whereas the CIT(A) says it is a capital asset. The learned A.R. further stressed that capital gain arises when there is sale of fruit trees. However, the compensation was received for removing the trees, which were grown by the assessee and cultivated by the assessee. Where the source of income is removed and it is permanent loss of income, as per the learned A.R. such receipt is capital receipt and not taxable. As per the learned A.R. the Assessing Officer had not disputed the segregation of compensation and the entire compensation was considered against removal of trees, which were the source of income generating assets. The next plea of the assessee was that the changes on land on which trees were grown were incidental to removing the trees. As per the terms of lease, the assessee has to again change topography of the land for further agricultural operation. The learned A.R. concluded by submi....
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....the income from non-agricultural activities and hence the receipts could not be treated as agricultural income. Rejecting the claim of the assessee that the receipt was a capital receipt on account of loss of capital assets, the entire compensation received by the assessee was assessed as income from other sources. Before the CIT(A) the claim of the assessee was that the compensation received for loss of capital assets i.e. standing fruit bearing trees was capital receipt in the hands of the assessee and outside the definition of income and charge of income tax. Further plea of the assessee was that the standing trees were agricultural assets and the compensation received for loss of such agricultural assets was capital receipt not chargeable to tax. The CIT(A) held that the standing trees though do not fall within the definition of agricultural land but were the 'property of any kind' in view of Hon'ble Kerala High Court decision in Travancore Tea Estates Co. Ltd. v. CIT [1974] 93 ITR 314. It was further held that the compensation received for loss of capital assets was capital receipt. The compensation being received for loss of apple trees which were the only source of livelihoo....
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....ts made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals, whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel; (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; (iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or (b) in any area within such distance, not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, speci....
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....sing from transfer of capital asset effected in the previous year is chargeable to tax under the head "capital gains" and is deemed to be the income of the previous year in which such transfer took place. 15. Section 2(47) of the Act defines transfer as in relation to a 'capital asset'. The definition of transfer is an inclusive definition and what has been defined in this clauses is specifically "in relation to capital asset". 16. In the facts of the present case the assessee entered into an agreement for cutting and removing the standing trees on his land and also consequential changes in the topography/fields pursuant to lease agreement entered in to for leasing out its land to the said lessee, who in turn would establish a unit on the said land. The intention of the assessee in the present case was to cut and remove his standing trees in order to enable the lessee to establish its manufacturing unit, on the land leased to it. As held by the Hon'ble Kerala High Court in Travancore Tea Estates Co. Ltd.'s case (supra) the standing trees are capital assets as it constitute property of any kind as defined under section 2(14) of the Act. The said capital asset has been transfer....