KIL KOTAGIRI AND THIRUMBADI PLANTATIONS LTD,MUKKOM vs. ACIT, CIRCLE 2(1), KOZHIKODE
Facts
The appellant, engaged in rubber plantation, declared a total income of Rs. 50,17,678/- for AY 2010-11. The AO brought to tax Rs. 11,09,810/- from the sale of rubber trees, treating it as revenue receipt. The CIT(A) upheld the AO's order.
Held
The Tribunal held that the sale of old and unyielding rubber trees constitutes a capital receipt, not agricultural income. Therefore, it is not exigible to tax under Rule 7A of the I.T. Rules.
Key Issues
Whether the sale proceeds of old and unyielding rubber trees are taxable as revenue or capital receipt.
Sections Cited
143(3), 147, Rule 7A
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI SONJOY SARMA, JM
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI SONJOY SARMA, JM ITA No. 333/Coch/2025 Assessment Year: 2010-11 Kil Kotagiri and Thirumbadi Plantations Ltd. .......... Appellant Thirumbadi Estate, Mukkom, Kozhikode 673602 [PAN: AABCT0021G] vs. ACIT, Circle - 2(1), Kozhikode .......... Respondent Appellant by: Shri Viswanathan R.V., CA Respondent by: Smt. Leena Lal, Sr. D.R. Date of Hearing: 13.06.2025 Date of Pronouncement: 31.07.2025 O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 12.032.2025 for Assessment Year (AY) 2010-11.
Brief facts of the case are that the appellant is a company incorporated under the provisions of Companies Act, 1956. It is engaged in the business of rubber plantation. The return of income for AY 2010-11 was filed on 21.09.2010 declaring total income of Rs. 50,17,678/-. The Against the said return of income, the assessment was completed by the ACIT, Circle-2(1), Kozhikode
2 ITA No. 333/Coch/2025 Kil Kotagiri and Thirumbadi Plantations Ltd. (hereinafter called "the AO") vide order dated 27.02.2013 passed u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (the Act) at a total income of Rs. 61,27,490/-. While doing so, the AO brought to tax a sum of Rs. 11,09,810/- being the proceeds from sale of rubber trees rejecting the claim of the appellant that it is capital receipt.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order dismissed the appeal placing reliance on the decision of the Hon'ble Kerala High Court in assessee’s own case.
Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
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
3 ITA No. 333/Coch/2025 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.” 15. 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
4 ITA No. 333/Coch/2025 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.” 6. 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.
Order pronounced in the open court on 31st July, 2025.
Sd/- Sd/- (SONJOY SARMA) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Cochin, Dated: 31st July, 2025 n.p.
5 ITA No. 333/Coch/2025 Kil Kotagiri and Thirumbadi Plantations Ltd. Copy to:
The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File By Order
Assistant Registrar ITAT, Cochin
