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Judgment
K. S. PARIPOORANAN J. - At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following two questions of law for the decision of this court :
" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of rubber replanting subsidy ?
(2) Whether, on the facts and in the circumstances of the case, Income Tax for capital gains is exigible on the trees comprised in the rubber estate sold ? "
The respondent is an assessee to Income Tax. It is a public limited company. We are concerned with the assessment year 1975-76. The previous year ended on June 30, 1974. The assessee received a sum of Rs. 74,229 as rubber replantation subsidy from the Rubber Board. The assessee sold 100 acres of a rubber estate for a sum of Rs. 3,62,600. The Income Tax Officer held that the subsidy received by the assessee is income. It was brought to tax. Similarly, the Income Tax Officer held that the capital gains arising on the sale of the trees was liable to tax. In appeal, the Commissioner of Income Tax (Appeals) held that the rubber replantation subsidy did not constitute income in the hands of the assessee. He also held that the sale of the land with rubber trees did not give rise to any capital gains. The Revenue appealed before the Appellate Tribunal. The said appeal was dismissed holding that the rubber replantation subsidy did not constitute income liable to be taxed in the assessees hands and that, in the case of the sale of an estate with trees, no �question of assessment of capital gains on the sale of trees will arise. It is, thereafter, at the instance of the Revenue that the Income Tax Appellate Tribunal has referred the above two questions of law for the decision of this court.
We heard counsel. a Full Bench of this court in Commissioner of Income Tax Vs. Ruby Rubber Works Ltd., Travancore Rubbers Ltd. and Smt. M. Fathima, , has held that the rubber replantation subsidy is not income assessable to tax. It is not a revenue receipt. In the light of the Full Bench decision of this court, we answer question No. 1 in the affirmative, against the Revenue and in favour of the assessee. The Tribunal was justified in deleting the addition of rubber replantation subsidy.
Regarding question No. 2, a Bench of this court in CIT v. Alanickal Co. Ltd. [1986] 158 ITR 631, has held that where the land is agricultural land and it is sold along with the trees thereon the sale is only in respect of the agricultural land of which the trees form an integral part. In such cases, it is not permissible to bifurcate the value of the trees and hold that capital gains arise on the sale of the trees. In the light of the above Bench decision, we hold that the Appellate Tribunal was justified in holding that no capital gains arises on the sale of rubber estate with yielding rubber trees. We answer question No. 2 in the negative, against the Revenue and in favour of the assessee.
The reference is answered as above.
A copy of this judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench.