SUPREME COURT OF INDIA

Before:- S.P. Bharucha and S. Rajendra Babu, JJ.

Civil Appeals Nos. 1763-65 of 1987. D/d. 3.12.1998.

Kanthimathy Plantations Ltd. - Appellant

Versus

State of T.N - Respondent

Liability to pay income tax based on presumption made by the Court in similar matter - Portion of consideration in one agreement, presumed on basis of recital in another agreement - AYs 1975-76, 1976-77 and 1977-78 - Unyielding rubber trees sold through two agreements - In absence of any recital in second agreement, considered amount splitted in respect of latex in first agreement, and taxed same portion of consideration in second agreement presuming it to be related to latex - Held, High Court was not right in presuming the same on the basis of first agreement in absence of a recital in the agreement or any other factor indicating recovery of latex from unyielding trees covered by second agreement.

[Para 3]

ORDER

S.P. Bharucha, J. - The appeals are directed against the judgment and order of a Division Bench of the High Court of Madras. The issue relates to the sale of unyielding rubber trees by the appellant plantation during Assessment Years 1975-76, 1976-77, and 1977-78.

2. There were two agreements by which the appellant sold the unyielding rubber trees. One agreement, dated 30-3-1974, expressly split the consideration thereunder between that for latex and that for fuel. The High Court held that in the face of the specific recital in this behalf in that agreement, the appellant was not justified in contending that the entire amount payable thereunder related only to the fuel value of the rubber trees and not to the value of the latex and was, thus, a capital receipt. This, in our view, is an unassailable conclusion.

3. In regard to the second agreement, dated 17-2-1975, however, the High Court noted that the consideration thereunder had not been so split and there was no recital in this behalf. Even so, the High Court said that the fact that the earlier agreement had treated practically 2/₅th of the consideration as payable for the latex, that portion of the consideration payable under the second agreement should be presumed to relate to the latex and should be taxed as a revenue receipt. In this regard, we cannot agree with the High Court. We do not think that such a presumption was justified in the absence of a recital in the agreement or any other factor which indicated that latex was present and recoverable from the unyielding trees covered by the second agreement.

4. In the circumstances, the appeals are allowed only to the extent hereinbefore stated. There shall be no order as to costs.

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