KIL KOTAGIRI AND THIRUMBADI PLANTATIONS LTD,MUKKOM vs. ACIT, CIRCLE 2(1), KOZHIKODE

The issue in the present appeal relates to the taxability of the proceeds received on sale of rubber trees of Rs. 11,09,810/-. The claim of the assessee that it is capital receipt was rejected by the AO following the Hon'ble Kerala High Court decision in assessee’s own case. We find that this issue is no longer res-integra in view of the decision of the CIT v. Harrisons Malayalam Ltd. 108 Taxman 525 wherein it was held that sale of old and unyielding rubber trees cannot give rise to agricultural income and the income should not be computed applying the provisions of rule 7A of the I.T. Rules, 1962. The relevant portion of the judgement is extracted as under: - “In so far as sale of old and unyielding rubber trees are concerned, rubber trees are grown by carrying out agricultural operations on land. As held by the Supreme Court, rubber trees Kil Kotagiri and Thirumbadi Plantations Ltd. are not grown for the purpose of selling the trees but for generating income from the trees in the shape of latex. The rubber trees constitute capital asset of rubber estate and dominant purpose of growing rubber trees is to create source for supply of liquid latex. The rubber trees therefore constitute capital asset of agricultural operations. There is no manufacturing activity involved either at the stage of cultivation and growing of rubber tree or at the time of its felling on trees becoming old and unyielding. Income derived from sale of old and unyielding trees do not include any element of income derived from sale of centrifuged latex or senex or latex based crepes. In the circumstances, condition precedent for applying Rule 7A is absent when old and unyielding rubber trees are sold as no manufacturing or processing element is involved in the activity. In my opinion therefore Rule 7A of Income tax Rules has no application to the income derived on sale of old rubber trees. No material change has been brought about by introduction of Rule 7A because Rule 7A is applicable only when the grower of rubber trees himself carries on manufacturing activity on latex or coagulum sourced from rubber trees grown by him. The judicial principles laid down by the Supreme Court in the earlier decisions continue to hold good even after introduction of Rule 7A. In tune with the Supreme Court decisions in the case of Kalpetta Estates Ltd Vs. CIT reported in 221 ITR 601 and in the case of Kailas Rubber & Co. Ltd reported in 60 ITR 435, I hold that no income chargeable to tax accrued on sale of old and unyielding rubber trees.”

We notice that the Ld CIT(A) has taken the view with regard to the application of Rule 7A, which is identical with the view expressed by us in the earlier paragraph, i.e., it applies only to a person who carries on the combined activity of growing rubber trees and also manufacturing or processing of field latex or coagulum obtained from rubber plants. The dominant purpose of growing rubber trees is to obtain liquid latex from them. The rubber trees are not used as it is for the Kil Kotagiri and Thirumbadi Plantations Ltd. purpose of manufacturing or processing, but only the latex obtained from them. Hence, the sale value of old rubber trees cannot be considered as salvage value obtained from the exhausted stock. Since the rubber trees continue to the Capital asset. Accordingly, the examples of sale of old gunny bags or old bottles quoted by the AO are not applicable to the case of Rubber trees. Hence, the decision of Supreme Court in holding that the Rubber trees constitute Capital assets shall hold good even after the introduction of Rule 7A in the Income tax Rules. In view of the above, we agree with the views expressed by Ld CIT(A) on this issue.” 7.2 We noticed that the ld CIT(A) followed the decision rendered by the Tribunal in AY 2006-07. Before us, the Ld D.R could not furnish any material/order to show that the order passed by the Tribunal on the above said issue in the earlier years has been reversed by Hon’ble High Court. Hence, we do not find any reason to interfere with the order of Ld CIT(A) on this issue.”

Respectfully following the above decision of the Hon'ble High Court, we hold that the sale proceeds received on sale of old rubber trees is exigible to tax. We do not find any merit in the appeal filed by the assessee.

In the result, the appeal filed by the assessee stands dismissed.