COMMISSIONER OF INCOME TAX Vs. ANANTHAN PILLAI K

JUDGEMENT

(1.) The assessee's father, Kolappa Pillai, purchased from the Maharaja of Travancore on 18th August 1956 a landed property known as Singarathope having an extent of a little over 9 acres situated within the municipal limits of Trivandrum town for Rs. 34,5i,0/- including registration expenses. The property was a garden land and had two wells and a tank: it had also facilities of electricity and tap water. The property had over 300 coconut trees, a few jack trees and other fruit bearing trees thereon: it had also some sandalwood trees and flowering plants like jasmin. The Maharaja used to drive to the Singarathope during the evenings and spend some time there On 23rd January 1957, Kolappa Pillai made a settlement of the property on the assessee and his younger brother, the former getting 2 out of 3 shares and the latter getting the remaining third share.

(2.) The same year the Government of Kerala initiated proceedings for acquiring the property for providing house sites for Harijans. In the acquisition the assessee and his brother got Rs. 2,90,653/- as compensation, the matter, ultimately, having been disposed of by the High Court in February 1961. The assessee claimed that he expended Rs. 5,000/- on the property subsequent to the settlement. However, the Department allowed the claim only to the extent of Rs. 3,400/- so that the total cost of the asset (the property) came to Rs. 37,900/-. Deducting this amount from the amount received as compensation, the balance came to Rs. 2,52,753/-, out of which the share of the assessee came to Rs. 1,68,500/-. This was sought to be assessed under the head "capital gains"; and the assessee raised objection that the property was agricultural land and as such was not a capital asset. The Income Tax Officer and the Appellate Assistant Commissioner overruled this objection and treated the amount as capital gains. On appeal, the Income Tax Appellate Tribunal held that the property was agricultural land (in other words, the income derived from the property was agricultural income) and therefore, it was not a capital asset. Thereafter, at the instance of the Revenue, the following questions have been referred to this Court:

(3.) The reasoning of the Department for holding that the property was a capital asset was that the property was in an important locality in the town having facilities of electricity and tap water and was capable of being used as house sites. The Department also relied upon the decision of a Division Bench of this Court in Krishna Iyer v. Addl. Income Tax Officer, Ernakulam (59 ITR 145). The reasoning of the Tribunal, on the other hand, was that the fruit bearing trees like coconut trees, jack trees, etc. could not have been of spontaneous growth, nor was there any evidence that they were of spontaneous growth; that the Maharaja must have planted them, nurtured them and tended them; that there was evidence that the Maharaja used to auction the usufructs of the trees annually and collect the income; that the Maharaja also used to pay land revenue for the property; that the property was therefore agricultural land in the hands of the Maharaja; that the purchase by Kolappa Pillai in 1956 paying a low price, which worked out only to less than Rs. 40/- per cent, was also as agricultural land; and that, thereafter, unless there was some act on the part of the assessee to convert the land into non agricultural land, the property should remain agricultural land as it originally was. The Tribunal also pointed out that there was no evidence to show that the assessee, after the purchase from the Maharaja, converted the land into non agricultural land.