M/S WODDAEGOODA ESTATE V. THE INCOME TAX OFFICER

ITA/190/2018

AI Insights

The case involves M/s Woddaegooda Estate, represented by Dr. N Sitram Shetty, appealing against the order of the ITAT which modified the AO's assessment of capital gains tax on the sale of shade trees in a coffee estate. The primary legal questions pertained to the eligibility of the sale of shade trees to capital gains tax and the appropriate cost percentage to be considered for the computation of such gains. The ITAT had directed the AO to consider 15% of the sale value as cost based on indexation from 1.4.1981, which the High Court found to lack rational basis and not supported by scientific material or factual findings regarding the age of the trees.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 760968 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 28-11-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax-III (Central Circle) and Another vs. M/s.Doddanandi Estate
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: A SHANKAR; M LAVA
• Keywords: Capital gains tax; Indexation; Long Term Capital Gains; Shade trees
• Section: 260-A

Judgement Text

" - 1 - ITA No. 190 of 2018 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 28TH DAY OF NOVEMBER, 2022 PRESENT THE HON'BLE MR JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR JUSTICE T G SHIVASHANKARE GOWDA INCOME TAX APPEAL NO. 190 OF 2018 BETWEEN: M/S WODDAEGOODA ESTATE REP. BY ITS CO-OWNER DR.N SITRAM SHETTY, #7, OLD #9, RAJA RAM MOHAN ROY ROAD, RESIDENCY ROAD, BENGALURU – 560 025 PAN:AAAFW4740M …APPELLANT (BY SRI. A.SHANKAR, SENIOR ADVOCATE FOR SRI M LAVA, ADVOCATE) AND: THE INCOME TAX OFFICER WARD-1, NOW WARD 2,CHIKAMAGALUR COURT ROAD, CHIKAMAGALUR – 577 101 …RESPONDENT (BY SRI K.V.ARAVIND, STANDING COUNSEL) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, PRAYING TO (A) TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW AND ANSWER THE SAME IN FAVOUR OF THE APPELLANT. (B) TO ALLOW THE APPEAL AND SET ASIDE THE FINDINGS THEREIN TO THE EXTENT AGAINST THE APPELLANT IN THE ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, \"SMC B\" BENCH, BANGALORE IN ITA NO. 1926/BANG/2017 DATED 24.11.2017 FOR THE ASSESSMENT YEAR 2011-2012 (VIDE ANNEXURE-A). ETC. THIS APPEAL, COMING ON FOR HEARING, THIS DAY P.S.DINESH KUMAR J, DELIVERED THE FOLLOWING: Digitally signed by LAKSHMI T Location: HIGH COURT OF KARNATAKA - 2 - ITA No. 190 of 2018 JUDGMENT This appeal by the assessee directed against the order dated 24.11.2017 passed by the Income Tax Appellate Tribunal, ‘SMC B’ Bench, Bengaluru in I.T.A.No.1926/Bang/2017, has been admitted to consider four questions of law. 2. Shri A Shankar, learned Senior Advocate for the appellant submits that only following two substantial questions arise for consideration : i) Whether the Tribunal was justified in law in holding that the sale of shade trees is eligible to capital gains tax on the facts and circumstances of the case ? ii) Without prejudice whether the extent of 15% of sale price as cost as on 1.4.1981 granted by the tribunal has any basis and consequently requires to be enhanced substantially on the facts and circumstances of the case ? 3. Brief facts of the case are, assessee is a Coffee Estate. During the A.Y.1 2011-12, assessee cut and sold the shade trees in 1Assessment Year - 3 - ITA No. 190 of 2018 the Coffee Estate for Rs.1,46,34,146/-. The AO2 estimated 30% of the total sale value as income for computation of long term capital gains and directed payment of Rs.9,06,537/-. being 20% on the capital gains. The CIT(A)3 confirmed AO’s order. The ITAT4 held that AO’s assessment considering the cost as 70% and demanding tax on 30% of the total sale value is perverse because indexation has to be allowed as on 1.4.1981. Having so held, the ITAT directed the AO to re-compute the capital gains by adopting 15% of the sale value as cost on 1.4.1981 after allowing the benefit of indexation as per law. 4. Sri Shankar placing reliance on the judgment passed by this Court in Commissioner of Income Tax-III (Central Circle) and Another vs. M/s.Doddanandi Estate 5 argued that in that case, the shade trees were removed during 1995 i.e., nearly 14 years after 1.4.1981, the date on which index costs of acquisition has to be computed. He argued that applying the same logic, benefit may be given to the assessee in this case. 2 Assessing Officer 3 Commissioner of Income Tax (Appeals) 4 Income Tax Appellate Tribunal 5 ITA No.249/2010 decided on 21.9.2015 - 4 - ITA No. 190 of 2018 5. Shri K.V.Aravind, learned Standing Counsel for the Revenue, submitted that in Doddanandi Estate’s case, the trees cut may have been minimum 30 years old. Therefore, logically the assessee would have taken care of the trees for so many years. Hence, this Court has considered the cost at 70%. The said logic cannot be applied in the instant case because admittedly the trees are sold in 2010 i.e. nearly about 29 to 30 years after 1981. 6. We have carefully considered the rival contentions and perused the records. 7. Undisputed facts of the case are, assessee has cut and sold the trees in 2010-11. Reckoned from 1.4.1981, the trees may be about 30 years old but there is no finding of fact with regard to the age of the trees. They could be either 30 years old or even more. The only logic that is put forth before this Court by the Revenue is not to apply the formula in Doddanandi Estate’s case as the trees are cut after 30 years. In the absence of any scientific material that trees after 30 years must be cut in coffee estate or a finding of fact recorded in a particular case that the trees were, in fact, aged 30 years, such a logic in our view, cannot be applied. - 5 - ITA No. 190 of 2018 8. In the case of Doddanandi Estate, the cost was considered as 70% and 30% was considered as surplus subject to indexation and that was for 14 years. If the said logic is applied, the estimated index per year is 2.15%. In the instant case, reckoned from 1.4.1981, cutting and sale has taken place after 29 years. If the same logic is applied, the income after applying indexation would work out to 2.15% x 29 years = 62%. Thus, the cost of trees would be 38% (100–62= 38%). The Tribunal has directed the AO to consider the cost at 15%. This has no rational logic. On the other hand, the calculation that we have considered is based on figures as accepted by this Court in Doddanandi Estate’s case. We may record that in Doddanandi Estate’s case, cost was considered at 70% and in the instant case, it would work out to 40% which also should satisfy the stand taken by the Revenue that the trees were admittedly 29 years old. Therefore, the assessee may not have spent much in growing the trees. 9. Shri Aravind raised another contention that after applying indexation, the assessee would be entitled to claim the losses. - 6 - ITA No. 190 of 2018 10. Shri Shankar replied that the period of limitation of eight years has lapsed and the assessee has not claimed losses as on date. 11. In view of the above, the reasoning of the ITAT, in our view, is perverse and therefore, not sustainable. 12. Hence, the following : ORDER i) Appeal is allowed. ii) The second question is answered in favour of the assessee and against the revenue. iii) AO is directed to compute tax by taking cost at 40% as on 1.4.1981 and grant indexation. iv) In view of the above, the first question does not require any answer and the same is not answered. No costs. Sd/- JUDGE Sd/- JUDGE RS List No.: 1 Sl No.: 64 "