Law:

Section:

Section 45 of the Income-tax Act, 1961 - Capital gains - Chargeable as - Whether where land is agricultural land and it is sold along with rubber trees thereon, sale is only in respect of agricultural land on which trees form an integral part and, thus, no capital gain can be said to hare arisen on account of sale of said trees - Held, yes Facts The assessee, during the previous year relevant to the assessment year in question, sold, under sale deeds, certain agricultural land with standing rubber trees. The ITO held that the standing rubber trees in the estate did not form part of the land and, therefore, bifurcated the transaction as sale of land and sale of trees separately. He then artificially apportioned the consideration so received and computed the capital gains on the sale of rubber trees for taxable purpose. On appeal, the AAC, however, held that the sale of standing rubber trees formed part of the agricultural land and did not constitute a capital asset, and, therefore, no capital gain was assessable. On the revenue's appeal, the Tribunal also upheld the AAC's order. On reference: Held It is now well settled that the standing timber is very much immovable property as the land itself. The trees, until they are cut and removed, form an integral part of such land. Trees being things attached to the earth, together with the earth to which they are attached, constitute one asset, viz., land. When the land with the standing trees is transferred, the sale is one in respect of that asset only and it cannot involve a separate sale of the trees as a distinct asset. A bifurcation of the asset can happen, if at all, only when the trees are sold separately for being cut and removed while the right over the soil is retained by the owner. Where the land is agricultural land and it is sold along with the trees thereon, the sale is only in respect of agricultural land of which the trees form an integral part. In the instant case, it was not disputed that the standing trees had not been sold separately apart from the land on which they were standing. Therefore, the assumption that the standing trees were separate and distinct from the land on which they stand was…

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