R.S. Padvekar, Judicial Member - (1.) THIS appeal by the assesses is directed against the order of the CIT(A)-I, Kochi, dated 28-2-02 for the assessment year 1996-97.
(2.) The assessee has urged as many as five grounds in this appeal but the only issue for our adjudication is whether the sale consideration received by the assessee for the earth removed and sold from the land belonging to the assessee is capital or revenue receipt. The factual matrix leading to the issue before us can be stated in short as under: The assessee is a toddy contractor. His case for assessment year 1996-97 was taken up for scrutiny. The Assessing officer noticed that the assessee had credited a sum of Rs. 3 lakhs as cost of earth and the said amount was not included by the assessee in his taxable income. The assessee explained to the AO that the said amount represented sale proceeds of earth sold to M/s Techni Bharathi Ltd. who were engaged in the work of four laning and strengthening of NH 47. It was the case of the assessee before AO that the said amount was not taxable since it constituted a capital receipt. The contention of the assessee did not find favour with the AO who made addition of Rs. 3,18,266/- on account of the cost of earth by observing that what the assessee had transferred was not any asset of lasting value or any lasting benefit, and a part of the top of the soil from any land could not be considered as a capital asset.
(3.) BEING aggrieved by the order of the AO, the assessee filed appeal to the CIT(A) and assailed the order of the AO. It was the case of the assessee before AO that the earth permitted to be removed by M/s Techni Bharathi Ltd. to be utilized for the road work formed part of land which was capital asset and therefore, the consideration received for its removal retained the same character as that of capital asset. It appears that the assessee further pleaded before the CIT(A) that the land from which the earth was removed was agricultural land planted with rubber and the yield was poor. The top soil was not fertile and it had to be removed to get fertile soil underneath. The development of NH47 came up by that time and M/s Techni Bharathi offered the assessee a good price for the earth. There was no profit making activity in this transaction. The removal of top soil resulted only in the reduction of cost of the land which was still in assessee's custody. The CIT(A) rejected the contention of the assessee, observing as under: "A capital asset is an asset which is a source of income or which can used for generation of income. Land can be exploited in a variety of ways for generation of income. For example, it can be used for agriculture producing agricultural income, can be leased out for storage purposes earning lease income or it can be subjected to mining operations depending upon the availability of various minerals and income can be earned by Sale of the products of mining. Such exploitation could be on a long term basis yielding income in a recurring manner or once for all. Still the character of the resulting receipt remains the same viz. that of income. Here, when the appellant permitted to remove the top soil in lieu of some consideration, no land or any part of it got transferred. What was taken away is the top soil which is a portion of the filling of the land in the sense that the removal of soil is akin to mining operations yielding revenue receipt. It is significant to note that the land remains with the appellant and it is possible for the appellant to utilize this as capital asset for generation of further income. It is possible to mine soil to further depths and thus generate income. Thus, it can be seen that by sale of the right to remove the top soil the land has not ceased to be a capital asset. Since the land has not lost its capital nature, the income generated by exploiting it can be only in the nature of revenue receipt and such receipt not being attributable to any agricultural operations has necessarily to be in the nature of non agricultural revenue receipt liable to income tax". The CIT(A) also discussed the principles laid down by the Apex Court in the following two cases: 1)CIT v. Ambat Echukutty Menon, 120 ITR 70 2)Shri Venugopala Varma Raja v. CIT, 76 ITR 460. The CIT(A) also considered the contention of the assessee in respect of the reasons for allowing M/s Techni Bharati Ltd. to remove top soil from his land. The CIT(A) concluded that there was no merit in the contention of the assessee that the soil was allowed to be removed with the intention of making the land more fit and fertile for cultivation. He further concluded that the intention of the assessee was to use the land for purposes other than agriculture. He was also of the opinion that due to removal of the top soil, land got levelled at the same level as that of the National High way, due to which the value of the land has gone up and the land is capable of easier and utilization for industrial and commercial purposes. Hence, the CIT(A) that the amount of Rs. 3,18,266/- received by the assessee represented the receipt that the assessee could obtain by allowing the exploitation of the land owned by him for non-agricultural purposes without affecting the capital nature of the land which is still owned by him and it is possible for the assessee to further exploit the land in similar manner or otherwise for generating income. The CIT(A), therefore dismissed the assessee's appeal by upholding the action of the assessing officer in bringing to tax the amount of Rs. 3,18,266/- as revenue receipts liable to income-tax. BEING aggrieved by the above order of the CIT(A), the assessee is in further appeal before the Tribunal.;