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Capital gain on sale of trees

Vinay (CA) (48 Points)

12 January 2012

Client pucrchased a Land with standing Trees and now he has sold only the Trees , what will be the tax treatment for reciept from sale of Trees.

Thanks in advance for the replies

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3 Replies

sameera (student) (50 Points)
Replied 12 January 2012

hi.vinay.this could help u ,i think so.

Trees

Sale proceeds of trees of spontaneous growth will not result in capital gains - Trees of spontaneous growth are such trees which are not sown. They grow naturally. If that be so, then the sale proceeds of such a tree will not bring in any profit or gain and as such will not be taxable as capital gains - CIT v. Suman Tea & Plywood Industries (P.) Ltd. [1997] 226 ITR 34/94 Taxman 305 (Cal.).

Sale of old unyielding rubber trees will not result in capital gains - Capital gains could not be said to accrue when old and unyielding rubber trees were sold - Kalpetta Estate Ltd. v. CIT [1996] 87 Taxman 281 (SC).

Shade trees - Given regard to the wide definition of the expression ‘capital asset’ in section 2(14), there is no reason why shade trees growing in a coffee estate should not be deemed to be covered by the said expression. It was not possible to say that no cost of acquisition could at all be conceived or envisaged in respect of a capital asset like the shade trees purchased as a part and parcel of a yielding Coffee Estate - Emerald Valley Estates Ltd. v. CIT [1996] 88 Taxman 335 (Kar.).

CA Neil Ganatra (Partner - Gautam Joshi & Co.) (871 Points)
Replied 13 January 2012

If at the time of purchase, in deed it is mentioned clearly that price is paid for land only then in that case trees should not be considered as capital asset.In that case sale proceeds of trees will be covered under income from other sources. However, if in deed price paid is bifurcated between price for land and price for trees then it will be covered by capital gain. This is possible only if you are not using the land for agriculture purpose.

If you are using it for agriculture purpose then it will be covered under agriculture income.

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