BARIN GHOSH, J. :
In IT Ref. No. 201 of 1991, the following questions have been referred to us in R.A. No. 574/Cal/1990 :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that 'Tea Bushes' should not be taken as a part of 'agriculture land' but as a part of capital assets of the assessees tea business ?
2. Whether, on the facts and in the circumstances of the case and in view of the finding of the CIT(A) that there is absolutely no indication to show that the appellant had not spent even a pie on the growth of the trees and in view of the fact that the assessee itself purchased the Oaks Tea Estate with standing trees on 15th March, 1978, the finding of the Tribunal that the trees did not cost the assessee anything is based on any relevant material or perverse ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the profit on the sale of the timber is neither assessable as capital gains nor assessable as a taxable income ?
4. Whether, on the facts and in the circumstances of the case and on a correct interpretation of s. 43(6) of the IT Act, 1961 r/w r. 8(1) of the IT Rules, 1962, the Tribunal was correct in law in holding that for the purpose of computing written down value of depreciable assets used in tea business only 40 per cent. instead of 100 per cent. depreciation at the prescribed rate should have to be deducted in assessees case ?
5. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the provision of s. 40A(8) of the IT Act, 1961 would not be applicable on current account balance of the directors, shareholders and others of the assessee-company ?'
And in R.A. 575/Cal/1990, the following question has been referred to us :
'Whether, on the facts and in the circumstances of the case, that the assessee did not carry on its business of tea producing and manufacturing of tea during the year and also that the tea estate was sold away, the Tribunal was correct in law in upholding the order of CIT(A) directing the AO to apply the provision of r. 8(1) of the IT Rules, 1962 with regard to the sale of tea and waste and for computation of profit under s. 41(2) of the IT Act, 1961 in respect of the income of Oak Tea Estate ?'
In IT Ref. No. 103 of 1993, the following questions have been referred to us :
'1. Whether, on the facts and in the circumstances of the case, when the CIT(A) gave a finding that there is absolutely no indication that the assessee had not spent even a pie on the growth of the trees sold but confirmed the AOs assessment taking the cost of acquisition at nil as the assessee did not claim any; the finding of the Tribunal that its finding that no cost is involved in the acquisition of the said trees is on the basis of the order of the CIT(A) is based on an relevant material or perverse
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Tribunal did not commit any mistake rectifiable under s. 254(2), of the IT Act, 1961 ?'
2. Question Nos. 4 and 5 in R.A. No. 574/Cal/1990, being the subject-matter of IT Ref. No. 201 of 1991 have been answered by this Court, which decision of this Court is reported in CIT vs . Suman Tea & Plywood Industries (P) Ltd. : [1993]204ITR719(Cal) and, therefore, answered accordingly. Similarly the only question in R.A. No. 575/Cal/1990, being the subject-matter of IT Ref. No. 201 of 1991 has been answered by this Court, which decision of this Court is reported in CIT vs . Kothari Plantations & Industries : [1993]203ITR547(Cal) and, therefore, answered accordingly.
3. In short, the facts of the case germane for answering the aforesaid questions are that, assessment year involved is 1984-85; for which the accounting period ended on 31st December, 1984; by a deed of conveyance, dt. 1st March, 1984 assessee transferred the Tea Estate belonging to it for a total consideration of Rs. 13,00,000; in the deed of conveyance Rs. 50,000 was shown as the consideration for the plot of land together with plantation thereon, Rs. 50,000 for building and structure and Rs. 12,00,000 for plant, machinery and other movable properties; the value of the land and plantation was shown in the books of account of the assessee at Rs. 2,49,005, the same having been sold at Rs. 50,000, the assessee claimed loss of Rs. 1,99,005 on the sale of land and plantation; this loss was disallowed by the AO, as according to him, such loss arose out of transfer of an agricultural land; during the assessment year in question assessee sold timber relating to the said Tea Estate at Rs. 8,90,000 and after deducting sawing charges therefrom claimed the net sum of Rs. 7,40,106 as non-taxable capital gain, which too was rejected by the AO; the CIT(A) upheld the order of the AO; but the Tribunal reversed the said adjudications.
In this connection it is pertinent to note, as appears from the assessment order, that in the original return filed by the assessee, income from sale of timber was claimed as 'agricultural income' but subsequently by a letter, dt. 31st July, 1986, the assessee claimed such income to be 'capital gain'.
It appears from para 3 of the miscellaneous application, filed by the Department before the Tribunal, which is at pp. 70 to 78 of the paper book filed in IT Ref. No. 103 of 1993 that by the said letter, dt. 31st July, 1986, the assessee informed the AO that the agricultural income shown in the return was a mistake and that the timber was a spontaneous growth of the Tea Estate and it was not an agricultural product. However, the letter, dt. 31st July, 1986, does not find place in any of the paper books filed in connection with the subject income tax references.
The CIT engaged two sets of counsels to argue the subject references. After we heard submissions of the parties in regard to IT Ref. No. 201 of 1991 for sometime and abreast ourselves of the facts of the case, we thought, we should hear IT Ref. No. 103 of 1993 first and thereafter IT Ref. No. 201 of 1991 and the parties accordingly made submissions.
4. While hearing IT Ref. No. 103 of 1993, we found that the question No. 1 in the said reference is interconnected with facts and evidence or record pertains to Question No. 3 in IT Ref. No. 201 of 1991 referred to us in R.A. No. 574/Cal/1990. Therefore, that question will be answered accordingly (sic in) last. We thus decided to first consider question No. 2 in IT Ref. No. 103 of 1993 which is as follows :
'2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Tribunal did not commit any mistake rectifiable under s. 254(2) of the IT Act, 1961 ?'
5. In the assessment order the AO treated the income amounting to Rs. 7,40,106 arising out of sale of timber as capital gain as will appear from p. 35 of the paper book filed in IT Ref. No. 201 of 1991. While arriving at the said figure, as will appear from page 33 of the same paper book, the AO took into account the income from sale of timber at Rs. 8,90,000 and deducted therefrom a sum of Rs. 1,49,894 on account of timber sawing charge and nothing else. He did not discuss at all the effect of spontaneous growth.
Before the CIT(A) it was urged by the assessee that the ITO erred in treating income of Rs. 7,40,106, i.e. the sale price of timber less timber sawing charges, as income by way of long term capital gains, but since there was no cost of acquisition incurred for acquiring the timber, which was of spontaneous growth, it, therefore, represented sale of an asset and that the timber sawing charges was incurred in relation to transfer and sale of timber, which did not constitute stock-in-trade or work-in-process. It was contended that since there was no cost of acquisition for the timber, sale of such an asset cannot be treated to be a capital gain. It was urged that the asset sold was self-generated. The CIT(A) distinguished the decisions of various Courts cited before him on facts by stating, 'there is absolutely no indication to show that the appellant had not spent even a pie on the growth of trees, which appeared to be quite large in number and which could be sold for such a substantial amount of Rs. 8,90,000. Even assuming that the trees were of spontaneous growth, as held in the High Court decision reported in Province of Bihar vs . Maharaja Pratap Udainath Sahideo of Ratugarh & Anr. : [1941]9ITR313(Patna) Raja Bahadur Kamakshya Narain Singh vs . CIT : [1946]14ITR673(Patna) H. H. Digverendra Singhji of Bansda vs . CIT : [1965]55ITR580(Guj) and CIT vs . Rajkumar Ashok Pal Singh : [1977]109ITR581(Bom) , the income derived from the sale of forest trees even if of spontaneous growth is not capital receipt and is liable to tax even though there is a exhaustion of capital assets in the shape of valuable and long standing trees. As held in a Supreme Court decision V. Venu Gopala Varma Rajah vs. CIT : (1974)IILLJ435SC , whereby the trunk of trees of spontaneous growth are cut so that the stumps are allowed to remain in the land with the bark adhering to the stumps to permit regeneration of the trees, the receipt from the sale of the trunks would be in the nature of income. In view of the above, I hold that the ITO was justified in treating the receipt arising on the sale of timber, as a taxable income'.
Before the Tribunal, it was pointed out that the trees of spontaneous growth were removed with roots and trunks to make the land fit for cultivation of tea and there was no question of regeneration of trees. It was also pointed out that the assessment record of the assessee clearly showed that the assessee did not spend anything on trees which were of spontaneous growth. The Tribunal thereupon observed 'at the outset, we may observe that there was no material on record to show that the assessee spent anything on plantation growth or development of trees. There was also no material on record to show that the assessee while removing trees left roots in the soil for regeneration. The record clearly shows that the trees were removed for making the land fit for cultivation of tea'.
The Tribunal thereupon relied upon a large number of decisions and concluded 'assessee by selling trees realised capital and, therefore, receipt was of capital nature, it could not be charged to tax as capital gain as no cost was involved in acquisition of trees which grew and developed spontaneously'. Before arriving at the said conclusion, on facts, the Tribunal observed, 'The assessee throughout claimed that no cost of acquisition was involved as trees were of spontaneous growth. The authorities below and the learned Departmental Representative in proceedings before us could not place any material to say that the trees were acquired by the assessee for a cost or cost of acquisition of trees sold could be determined'.
Therefore, on facts, the CIT(A) was concerned with - (1) expenditure incurred on the growth of trees; (2) such trees were forest trees; and (3) after cutting the trees trunks were allowed to remain in the land. There was no contention in regard to cost of acquisition. Before the Tribunal similar questions of facts were raised which were answered by saying 'there was no material on record to show that the assessee spent anything on plantation growth or development of trees. There was also no material on record to show that the assessee while removing trees, left roots in the soil for generation. The record clearly shows that the trees were for making the land fit for cultivation of tea'. Thus, at no stage there was any controversy regarding cost of acquisition of the trees of spontaneous growth, despite the assessee claiming that there was no cost of acquisition. If there be any, the AO or the CIT(A) would have given appropriate credit therefor while arriving at the figure chargeable as capital gain, and would not have treated such cost at nil.
Subsequent to the decision of the Tribunal, the CIT, West Bengal filed a miscellaneous application before the Tribunal wherein it was contended that the finding of the Tribunal as mentioned above, is factually not correct since the records of the case for the asst. yrs. 1984-85 and 1978-79 show that the assessee purchased the subject Tea Estate on 15th March, 1978 at a consideration of Rs. 4,43,552.60 and in the deed of purchase, dt. 15th March, 1978 it has been shown that the assets purchased included the articles described in part-II of the schedule to the said deed, where trees have been mentioned and therefore, the facts as found by the Tribunal in regard to cost of acquisition of the subject trees is a mistake apparent on record and should be rectified. In paragraph 7 of the said application it was contended that when the matter was raised before the Tribunal by the assessee, the Revenue could not dispute the claim made by the assessee in the absence of the relevant records which were not with the Departmental Representative.
When the aforesaid miscellaneous application was being heard, the Departmental Representative produced a copy of the purchase deed, dt. 15th March, 1978 before the Tribunal. It was contended by the said representative that the said document can be produced before the Tribunal under s. 254(2) of the IT Act as the document was a part of the assessment record. The record, according to the said representative, meant assessment record and not record produced before the Tribunal at the time of hearing. The Tribunal then observed that the question whether record for the purpose of s. 254(2) would mean record considered by the Tribunal at the time of hearing of the appeal of all documents available with the records of the AO is a debatable issue. It then added that the Tribunal was influenced by the fact that AO while taxing the receipt as capital gain, did not attribute anything towards cost of acquisition and, therefore, on the basis of material on record, the Tribunal held that the assessee by selling trees realised capital and, therefore, receipt was of capital nature and could not be charged to tax as capital gain. It then observed that the foundation of the order of the Tribunal was the order of the AO and that of the CIT(A) and in the absence of any material in those orders to show that trees were acquired for a cost, there was no error in the order of the Tribunal apparent on the record, nor it could be said that without taking into account the relevant records, the order of the Tribunal was passed. It was then pointed out that it was not claimed that the AO or the CIT(A) passed their orders without taking into account the purchase deed, dt. 15th March, 1978; despite that the cost of acquisition was taken at nil. It then observed that the timber sold were different than the alleged trees acquired on 15th March, 1978; timber sold was grown between 1978 and 1984 and at any rate, timber sold in 1984 was very different in quality from the timber acquired in the year 1978 and that aspect of the matter was properly taken into account by the lower authorities and therefore cost of acquisition was taken at nil. The Tribunal thereafter observed that in those circumstances the mistake, if any, was committed by the AO and the CIT(A) in taking cost of acquisition at nil and therefore the case does not fall under s. 254(2) of the IT Act and thus the Tribunal did not commit any mistake which could be rectified under the said provision.
6. The jurisdiction or the authority of the Tribunal is circumscribed by the IT Act. The said Act has not authorised the Tribunal to review its orders. It does not have any inherent or otherwise jurisdiction, it is well-settled, to review its orders. Therefore, it cannot review its orders. An order, which has been passed by the Tribunal reaches finality, the moment the same is passed; it cannot be touched thereafter. By s. 254(2) of the IT Act, the Tribunal, however, has been authorised to rectify mistakes in its orders, which are apparent on the face of the records. The expression 'mistake apparent on the record', it is well-settled, means a mistake either clerical or grammatical or arithmetical or of like nature, which can be detected without there being any necessity to reargue the matter or to re-apprise the facts as appearing from the records. If a document was not taken into consideration by the lower authorities and was not produced before the Tribunal, when it considered the matter and passed the order, it cannot be said that the order of the Tribunal contains a mistake since it does not discuss such document. Noone can discuss a document or can make an endeavour to find out the effect of a document, which was never placed before him. Similarly, if a plea founded on a document is not at all raised before the Tribunal, it cannot be said that the order of the Tribunal contains an error apparent on the record. The Tribunal could not discuss a plea which was not raised before the lower authorities. It was urged before us that the Tribunal being the last fact-finding authority, it was its obligation to find out whether, in fact, there was any cost of acquisition of the subject trees and for that matter to make a thorough investigation of all the records. The subject trees were claimed to be of spontaneous growth.
This claim was not disputed at any stage before making of the aforementioned miscellaneous application. The word 'spontaneous' means unaided; voluntary; growing naturally without cultivation; occurring without external cause; which presupposes, there was neither any cost of acquisition nor any cost of growing. This aspect of the matter was accepted by the AO despite the deed of purchase of the year 1978 being in the record before him, as claimed. The AO, therefore, despite the deed of purchase of 1978 being before him, took the cost of acquisition of the subject trees at nil, which show that he accepted that the subject trees were of spontaneous growth. The CIT(A) was not at all concerned with cost of acquisition, he has concerned with expenditure on the growth of the subject trees. Admittedly, when the matter was being heard before the Tribunal, no plea was raised on behalf of the Revenue in regard to cost of acquisition of the subject trees, nor it was contended that the subject trees were not of spontaneous growth, for the reason that on that day the Departmental Representative did not have in his possession the deed of purchase of 1978. Thus, admittedly at no stage before filing of the aforementioned miscellaneous application any contention was raised to the effect that the subject trees were not of spontaneous growth, but had been acquired at a cost. The Tribunal, we are of the view, could not permit this plea to be raised for the first time on an application made under s. 254(2) of the IT Act, since the same would have involved re-arguing the whole case on a new plea based on a document, not originally considered by the Tribunal and not even considered by the lower authorities. On the other hand, if such a plea was permitted to be raised and decided that would have tantamounted to permitting the Revenue to alter its stand taken before the Tribunal and the lower authorities, that is not permissible. The AO considered the cost of acquisition of the subject trees at nil, that was not disputed before the CIT(A) and was not controverted before the Tribunal when the matter was decided by it.
7. Furthermore, in paragraph 3 of the said miscellaneous application, it was contended that before the CIT(A) the assessee had contended that since the trees did not cost anything, the capital gain arising out of the sale of the timber would not be liable to be taxed in view of the ratio of the Supreme Court decision in : [1981]128ITR294(SC) . Therefore, before the CIT(A) a definite issue was raised by the assessee to the effect that the trees did not cost the assessee anything. This cost has two elements, i.e., cost of acquisition and cost of growth. In regard to cost of acquisition, the CIT(A) held there was none by accepting the trees to be of spontaneous growth and comparing them with forest trees. The CIT(A), however, observed, that there is no indication to show that the assessee had not spent even a pie on the growth of the trees. Despite that, when the matter went up before the Tribunal, no plea was taken that there was some cost of acquisition of the subject trees. This lacuna was sought to be overcome by contending that the relevant records were not with the Departmental Representative when the matter was being heard by the Tribunal. However, nowhere in the said miscellaneous application, it has been contended that the deed of purchase, dt. 15th March, 1978 formed part of the records for the asst. yr. 1984-85. What was alleged in this regard, was that the records of the case for the asst. yrs. 1984-85 and 1978-79, show that the assessee purchased the subject Tea Estate on 15th March, 1978 at a consideration of Rs. 4,43,552.60 and that the purchase deed show that the assets purchased included trees without showing any particular value therefor. It was not contended that the subject purchase deed formed part of the records for the asst. yr. 1984-85. If the subject purchase deed did not form part of the records for the asst. yr. 1984-85, then the question of the Tribunal looking into the purchase deed to find fault in its order did not, nor could not at all arise and similarly, the question of the Departmental Representative disputing that the subject trees were not of spontaneous growth and had been acquired at cost also did not, nor could at all arise.
8. We, therefore, answer Question No. 1 in IT Ref. No. 103 of 1993 in negative and in favour of the assessee and Question No. 2 in IT Ref. No. 103 of 1993 in the affirmative and in favour of the assessee.
9. The next question that we propose to decide is Question No. 1 in IT Ref. No. 201 of 1991 raised in R.A. No. 574/Cal/1990 which is as follows :
'1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that 'tea bushes' should not be taken as a part of 'agricultural land' but as a part of capital assets of the assessees tea business ?'
Sec. 2(14) of the IT Act defines capital assets. It says capital assets means property of any kind held by an assessee, whether or not connected with his business or profession but does not include, inter alia, agricultural land in India. The word agricultural land has not been defined in the IT Act. However, agricultural income has been defined in s. 2(1A) of the IT Act.
10. In Karimtharuvi Tea Estate Ltd. vs. State of Kerala : [1966]60ITR262(SC) the Supreme Court held that the Grevelia trees were capital assets and the profits derived by sale as firewood of those trees did not constitute income under the Kerala Agrl. IT Act, 1950, but while doing so observed that there is no controversy about the fact that the owners of Tea Estates plant Grevelia trees not for the purpose of deriving any income therefrom but solely for the purpose of providing shade for the tea plants and that such shade is essential for the proper cultivation of tea. This case was followed by the Kerala High Court in Travancore Tea Estate Co. Ltd. vs. CIT reported in : [1974]93ITR314(Ker) The Kerala High Court also took note of the judgment of the Privy Council in Vallabdas Narainji vs. Development Officer, Pandra AIR 1929 PC 163, where it was observed that the rule that what is attached to the land, belongs to the land is a principle not applicable to India. The Kerala High Court also took note of the decision of the Supreme Court in Dr. K. A. Dhairyavan vs. J. R. Thakur : [1959]1SCR799 , where the Supreme Court approved the aforementioned decision of the Privy Council. The Kerala High Court thereafter concluded that the trees which stand on agricultural land, are not agricultural land in India within the meaning of s. 2(14)(iii) of the IT Act, 1961. The Kerala High Court observed that they constitute property of any kind mentioned in s. 2(14) of the Act and are capital assets and profits arising from their sale would be assessable under s. 45 of the IT Act as capital gains. The Kerala High Court further observed that agricultural income as defined in the IT Act, does not include gains arising from the sale of trees standing on agricultural land and thus gains arising from the sale of trees is assessable under s. 45 of the Act. The same view was expressed in Beverly Estates Ltd. vs. CIT : [1979]117ITR302(Mad) and CIT vs. M. Ramaiah Reddy : [1986]158ITR611(KAR)
11. If what is attached to land belongs to the land is not applicable in India and trees which stand on agricultural land are not agricultural land in India then the tea bushes cannot also be taken to be agricultural land in India, but we think the matter should be approached in a different way. According to the section, agricultural income means any rent or revenue derived from the land used for agricultural purposes; any income derived from such land by agriculture or by cultivation or by any process employed by a cultivator to render the produce raised or received by him fit to be taken to market or by sale of the produce raised or received or any income derived from any building owned or occupied by the receiver of rent or revenue of any such land or occupied by the cultivator or the receiver of rent in kind of any land. It, therefore, shows that agricultural income would mean an income by way of rent or revenue derived from the land or any income derived from such land by agriculture or by cultivation or by sale of the produce raised or received or an income from any building owned or occupied by receiver of rent or revenue. Therefore, if any income is derived by using the land for agricultural purpose or by agriculture or cultivation or by selling the fruits of such agriculture or cultivation or from any building occupied by the cultivator or for the purpose of cultivation such an income shall be an agricultural income. For example, if paddy is grown, the whole income from the grain as well as from the straw shall be agricultural income. This is because, although the principal object is to grow the grain and to derive income from the sale of grain but, in order to obtain the grain either the paddy tree is required to be cut down or if grains can be plucked, the paddy tree becomes useless for the future, and therefore, since the object of growing the paddy tree is to obtain the grains it produces once and to obtain grains in future a new tree is required to be sowed after removing the old tree with its roots, both the grain and the remaining of the paddy tree is the fruit of the endeavour made to obtain the paddy grain and therefore income from sale of grain and of straw are agricultural income. Tea bushes are planted to obtain the tea leaves. The tea bushes continue to remain even after plucking of tea leaves. For the purpose of plucking tea, tea bushes are never cut down. Although agricultural activity is involved in nurturing the tea bushes for the purpose of obtaining tea leaves, but the produce that are available is the tea leaves alone and not the tea bushes as such. Tea bushes as such are not sold to derive any income. Tea bushes, therefore, are agricultural capital assets. The act also contemplates such assets. The income from the building, mentioned in s. 2(1A) of the Act, is one of such assets, although the income derived therefrom is an agricultural income. The explanation to that section makes it amply clear.
We, therefore, answer Question No. 1 in IT Ref. No. 201 of 1991, raised in R.A. No. 574/Cal/1990 in the affirmative and in favour of the assessee.
12. Question No. 2 in IT Ref. No. 201 of 1991 raised in R.A. No. 574/Cal/1990 is as follows, which we propose to deal with now :
'2. Whether, on the facts and in the circumstances of the case and in view of the finding of the CIT(A) that there is absolutely no indication to show that the appellant had not spent even a pie on the growth of the trees and in view of the fact that the assessee itself purchased the Oaks Tea Estate with standing trees on 15th March, 1978, the finding of the Tribunal that the trees did not cost the assessee anything is based on any relevant material or perverse ?'
From the records of the case it does not appear that Question No. 2, raised in IT Ref. No. 201 of 1991 in connection with R.A. No. 574/Cal/1990 could at all be raised. As discussed above, the lower authorities did not consider the purchase of the standing trees either on 15th March, 1978 or at all. The matter was admittedly not raised before the Tribunal. The trees were taken to be of spontaneous growth by the lower authorities as well as by the Tribunal. As far back as in the year 1959, the Supreme Court, in relation to the previous IT Act, held in New Jehangir Vakil Mills Ltd. vs. CIT : [1959]37ITR11(SC) 'it is the facts admitted or found by the Tribunal that would form the basis on which the statement of case could be drawn and reference of the question of law made by the Tribunal to the High Court. Facts, which are not found in the order of the Tribunal or in the record before it cannot be the foundation for the raising of any question of law either in the abstract or otherwise'. The Supreme Court reiterated the same view in relation to the present IT Act in Smt. Kilasho Devi Burman vs. CIT : [1996]219ITR214(SC) In that view of the matter, we refuse to consider that question. This is because that neither before the lower authorities, nor before the Tribunal, it was contended by or on behalf of the Revenue, as pointed out above, that the subject trees were not of spontaneous growth and that the same had been purchased and on the contrary it was never disputed that the subject trees were of spontaneous growth.
13. Question No. 3 in IT Ref. No. 201 of 1991 raised in R.A. No. 574/Cal/1990 is as follows :
'Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the profit on the sale of the timber is neither assessable as capital gains nor assessable as a taxable income ?'
According to s. 45 of the IT Act there has to be some profit or gain from the transfer of a capital asset and only that profit or gain is chargeable to income-tax under the head capital gains. According to s. 48 of the Act, as was then applicable, capital gain shall be computed by deducting from the full value of the consideration received, the cost of acquisition of the asset and the cost of any improvement thereto. This is because, if a property was purchased for Rs. 100 and sold for Rs. 100, there cannot be any gain and similarly if a property was acquired for Rs. 100 and was improved upon by spending a further sum of Rs. 100 and was sold at Rs. 200, the sale realisation will be equal to the cost of the capital and there would be no gain by such sale. Under s. 55 of the Act, as was then applicable, cost of acquisition in relation to a capital asset which became the property of the assessee before 1st January, 1964, meant the cost of the asset to the assessee or the fair market value of the asset as on 1st January, 1964 at the option of the assessee and where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner meant the fair market value on the date on which the capital asset became the property of the previous owner. On facts as discussed above, s. 55 of the Act, as was then prevalent, has no application. The subject trees were claimed to be and accepted as 'of spontaneous growth'. The lower authorities proceeded on the basis that the cost of acquisition is nil. Before the Tribunal no contrary stand was taken. Although the CIT(A) observed that there is no indication to show that the appellant had not spent a pie on the growth of the trees, i.e., on the improve of the capital asset, but he did not make any endeavour to find out as to what was spent on the improvement. The records of the case do not contain any evidence in regard to cost of improvement. Therefore, the trees of spontaneous growth as claimed by the assessee and as accepted by the Revenue had no element of cost of acquisition or cost of improvement.
14. In CIT vs. B. C. Srinivas Setty : [1981]128ITR294(SC) the Supreme Court held that the transfer of goodwill initially generated in a business, does not give rise to a capital gain for the purpose of income-tax. In that judgment, the Supreme Court observed that all transactions encompassed by s. 45 must fall under the governance of its computation provisions. It further observed that a transaction to which those provisions cannot be applied, must be regarded as never intended by s. 45 to be the subject of the charge. It then explained that what is contemplated by s. 48 is an asset in the acquisition of which it is possible to envisage a cost; it must be an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it and none of the provisions pertaining to the 'head capital gains' suggests that they include an asset in the acquisition of which no cost at all can be conceived. It, thereupon, observed, that goodwill generated in a new business if sold and the consideration brought to tax, what is charged is the capital value of the asset and not any profit or gain. It also observed that the date of acquisition of the asset is a material factor in applying the computation provision pertaining to capital gain. The ratio of this judgment was deduced by the Supreme Court in A. R. Krishnamurthy vs. CIT : [1989]176ITR417(SC) to the effect that referring to the charging section and the computation provisions under the Act, the Supreme Court held, that none of those provisions suggest the inclusion of an asset under the head 'capital gain', in the acquisition of which no cost at all can be conceived. In that case the assessee had acquired two pieces of land and thereupon sought to grant a mining lease of the self-same land to a private company at a premium. It was contended that no cost was involved in acquiring the right to grant such lease. The Supreme Court observed that the cost of acquisition of the land would include the cost of acquisition of the leasing right and the amount paid to purchase the land was paid for acquiring a bundle of rights in the land including the right to grant a lease.
15. In A. Gasper vs. CIT : [1991]192ITR382(SC) the Supreme Court dismissed the appeal on the ground that the contention having been raised before the Tribunal and the same having been declined by the Tribunal was not thereafter raised or argued before the High Court, but in doing so observed, that the contention raised on behalf of the assessee to the effect that even assuming that the assessee had a capital asset and consideration had been received for relinquishment of some part of his rights in respect thereof, the entire consideration could not have been brought to tax since capital gains have to be computed under s. 48 of the IT Act, which presupposes a reduction, among others, of the actual cost of the asset to the assessee and that the monthly lease of the premises, which the assessee was enjoying, was not acquired by him at any ascertainable cost; and that even assuming that it was a capital asset, it was a capital asset of such a nature that its actual cost of acquisition cannot be ascertained, have great force and if they were open to be raised before the Supreme Court, the Supreme Court had to decide the same in favour of the assessee. In that case, the Supreme Court was concerned about relinquishment of a part of a leasehold right in an immovable property.
16. In CIT vs. Ganapathi Raju Jogi : [1993]200ITR612(SC) route permits for buses granted by the Road Transport Authority were transferred. No amount was paid for acquiring the subject route permits. It was only after a number of years that the route permits acquired some value because of various factors, namely, development of roads, passenger traffic, frequency of buses, etc. The value of the permit could not be evaluated as on the date of acquisition. In such circumstances, the consideration in terms of money is realised on its transfer could not be brought to tax as capital gains. This is what the Andhra Pradesh High Court held in Addl. CIT vs. Ganapathi Raju Jogi : [1979]119ITR715(AP) the Supreme Court dismissed the appeal preferred against the said judgment of the Andhra Pradesh High Court following its decision in CIT vs. B. C. Srinivas Setty (supra).
17. The logic behind these judgment is basically that if there is no cost of acquiring an asset or improving the same, it cannot be assumed that sale of such an asset will bring in any gain or profit.
18. This High Court in CIT vs. Octavious Steel & Co. Ltd. : [1996]221ITR810(Cal) , held that the cost of acquisition of an asset, be it a capital asset or any other asset must be understood in its commonsense, that is it must represent the expenditure incurred in acquiring the asset. Here, this Court was involved in relation to transfer of a tenancy right. The Court held that there is no means by which the cost of tenancy right itself, which was increasing in value over the time, could be ascertained, nor could the cost of improvement in such asset be determined. This was because, we are of the view, that there was no cost involvement on the part of the assessee either for acquiring the asset or for the improvement, which was by way of a natural process.
19. In CIT vs. H. H. Maharaja Sahib Shri Lokendra Singhji : [1986]162ITR93(MP) , the Madhya Pradesh High Court held that liability to pay tax on capital gains would arise in respect of only those capital assets in the acquisition of which an element of cost is either actually present or is capable of being reckoned and not in respect of those assets in the acquisition of which the element of cost is altogether inconceivable. In that case the assessee had sold some lands which were part of the property inherited by him from his forefather to whom the property had been gifted by a Moghul Emperor.
20. In Sri Krishna Dairy and Agricultural Firm vs. CIT : [1988]169ITR291(AP) , the Andhra Pradesh High Court was concerned with a case where the assessee doing dairy farm business had sold cubs which were not acquired at any cost. The Andhra Pradesh High Court held that the birth of cubs was incidental to the business activity of the assessee and though it is difficult to visualise them as asset, there was no cost of acquisition of the cubs and, therefore, the case which arise on such sale were not liable to tax as capital gains.
21. Trees of spontaneous growth are such trees which are not sowed. They grow naturally. Its growth also depends on the nature. Since it grows on the land belonging to an individual he claims to be the owner of such natural wealth. At the time when the sprouts come out from the seeds which have blossomed naturally, they have no value at all. As the nature nurtures and cares such sprouts they grow and ultimately becomes giant trees. The human needs the trunk and branches of these trees for various purposes. As the tree grows naturally, its value appreciates having regard to the nature of the human demand for its trunk and branches. In respect of such a tree neither any cost of acquisition nor any cost of improvement can be foreseen. If that be so, then the sale proceeds of such a tree will not bring in any profit or gain and as such will not be taxable as capital gains.
22. In CIT vs. E. C. Jacob : [1973]89ITR88(Ker) the Full Bench of the Kerala High Court held that what is charged under s. 45 of the IT Act, 1961 is the profits or gains arising from the transfer of a capital asset and in computing the profit or gain in accordance with the provisions of s. 48 of the Act, the cost of acquisition of the capital asset and the cost of any improvement thereto have to be deducted from the full value of the consideration of the transfer of the capital asset and that in the context of IT Act the expression cost of acquisition signifies some expenditure or outlay in terms of money by the assessee in the creation or acquisition of the concerned capital asset. This view of the Full Bench of the Kerala High Court was approved by the Supreme Court in CIT vs. B. C. Srinivas Setty (supra).
23. Therefore, if there be no cost of acquisition or cost of improvement of the trees which have grown spontaneously with the aid of nature, while the value therefor has been increased by reason of such natural growth coupled with human demand, the sale proceeds of such asset will not fetch any gain or profit and therefore, will not be capital gains.
24. The Supreme Court in A.K.T.K. M. Vishnu Datta Antharjanam vs. Commr. of Agrl. Income-tax : [1970]78ITR58(SC) held that the sale of the trees affected the capital structure, because by removing the roots the source from which fresh growth of trees could take place was removed, and the sale could not, therefore, give rise to a revenue receipt; the receipt from the sale of the trees was therefore capital in nature. In the case at hand, it has not been disputed that the trees were removed with their roots for the purpose of making space for cultivation of tea.
25. In CIT vs. Ambat Echukutty Menon : [1979]120ITR70(SC) , the trees were spontaneously grown on agricultural land, which interspread among paddy fields, and were out and sold but the roots and stumps were left out to extend cultivation and not for development or for regeneration. The Supreme Court held that the receipt from sale of such trees is capital receipt.
In that view of the matter the sale proceeds of the trees of spontaneous growth received by the assessee being receipt of capital nature, cannot be assessable as taxable income.
In that view of the matter, we answer the Question No. 3 in IT Ref. No. 201 of 1991, raised in connection with R.A. No. 574/Cal/1990, in the affirmative and in favour of the assessee.
26. Question No. 1 in IT Ref. No. 103 of 1993 is as follows :
'1. Whether, on the facts and in the circumstances of the case, when the CIT(A) gave a finding that there is absolutely no indication that the assessee had not spent even a pie on the growth of the trees sold but confirmed the AOs assessment taking the cost of acquisition at nil as the assessee did not claim any; the finding of the Tribunal that its finding that no cost is involved in the acquisition of the said trees is on the basis of the order of the CIT(A), is based on an relevant material or perverse ?'
From the fact discussed above, it is crystal clear that the AO as well as the CIT(A) proceeded on the basis that there was no cost of acquisition of the subject trees. They also did not question that the subject trees were of spontaneous growth.
In that view of the matter, it cannot be said that the finding of the Tribunal that no cost is involved in acquisition of the said trees is based on any irrelevant material or that the same is perverse.
Accordingly, we answer Question No. 1 in IT Ref. No. 103 of 1993 in the negative and in favour of the assessee.
VISHESHWAR NATH KHARE, CJ. :
I agree.