JUDGMENT
L. Manoharan, J.
1. The revision petitioner is a public limited company carrying on business of growing and selling rubber at its Malankara Rubber Estate at Thodupuzha. The petitioner is an assessee to agricultural income-tax under the Agricultural Income-tax Act, 1950 (for short, “the Agrl. I. T. Act”). For the assessment year 1981-82, the petitioner was assessed under the Agricultural Income-tax Act by order dated December 5, 1983, copy of which is annexure-A. The petitioner states that the said assessment was accepted by the petitioner and that the petitioner had paid the full tax as per the said assessment. During the period 1974-75, corresponding to the assessment year 1975-76 onwards, portions of the petitioner’s estate were being acquired for the Muvattupuzha Valley Irrigation Project as per the provisions of the Kerala Land Acquisition Act and the petitioner was being paid compensation for the same. A total of 361.256 acres were acquired during the period 1974-75 to 1980-81. On April 2. 1991, the respondent issued a notice under Section 34 of the Agricultural Income-tax Act, 1950, copy of which is annexure-B, proposing to cancel the petitioner’s assessment for the year 1981-82 and to remit it back to the Assessing Officer on the ground that the compensation received by the petitioner for the acquisition of the said 361.256 acres has not been included in the assessment. In response to annexure-B notice, the petitioner filed objections, copy of which is annexure-C. But the respondent, by order dated July 12, 1991, a copy of which is annexure-D, remitted the matter to the Assessing Officer for fresh disposal. The said order is challenged in this revision.
2. Annexure-B states that as per the decision in CIT v. All India Tea and Trading Co. Ltd. [1978] 113 ITR 545 (Cal), compensation paid for requisitioned land used for agricultural purpose is agricultural income. In the first paragraph in annexure-B, it is stated : “…. On further verification, it is seen that an extent of 361.256 acres of agricultural land (rubber estate and coconut plantation) had been acquired by the Government up to March 31, 1981, from the company for Malankara Dam”, and that the amount of compensation received by the company is not seen adjusted in the accounts. Thus, the first paragraph of annexure-D would admit that the receipt of the amount was compensation on account of the acquisition of 361.256 acres of agricultural land. After stating so, the order proceeds to state that the compensation received for the “acquisitioned” lands which were used for agricultural purposes by the assessee is agricultural income as held in the decision in All India Tea and Trading Co. Ltd.’s case [1978] 113 ITR 545 (Cal) and, in the concluding paragraph, after mentioning the objection of the assessee to the effect that the compensation received is capital in nature, it proceeds to state that the sale value of land though can be claimed as capital receipt, the value of crop cannot be so and that, if the land was put to agricultural purpose after the acquisition, the compensation represents use of agricultural land for agricultural purposes and hence agricultural income, and that this requires further probe to ascertain the true nature of the transaction. We cannot but notice the inconsistency and ambiguity in annexure-D.
3. The validity of the order is assailed contending that, as the amount is a capital receipt and not revenue, the same cannot be taxed under the Agricultural Income-tax Act. The petitioner maintained that, when the land is acquired, the trees thereon cannot be separately dealt with or their value treated as agricultural income. Then it was contended that since the purported exercise of jurisdiction under Section 34 of the Agricultural Income-tax Act, 1950, was not within a reasonable time, the order was invalid and that, since the order entrenches upon the power of the assessing authority, it was invalid on that ground also.
4. In the circumstances, we may consider the first point raised to the effect that the amount is a capital receipt. According to the petitioner, the decision in All India Tea and Trading Co. Ltd.’s case [1978] 113 ITR 545 (Cal), referred to in the notice, annexure-B, for reopening the assessment, has no application as the amount received by it was compensation on account of compulsory acquisition of portions of its estate and the same under law could only be a capital receipt in the petitioner’s hands. Consequently, the same is not revenue for the purpose of being assessed to agricultural income-tax. According to the petitioner, since the very basis for the issue of annexure-B is vitiated, annexure-D cannot be sustained. A reading of annexures-B and D would reveal that the amount in question was received by the petitioner towards compensation for the land acquired by the State. Now, annexure-A for the year 1981-82 is sought to be reopened on the ground that the amount which was received as compensation for the acquired land was not adjusted in the accounts. The case is that as per the decision in All India Tea and Trading Co. Ltd.’s case [1978] 113 ITR 545 (Cal), such compensation received by the assessee is agricultural income in his hands. Annexure-D contains a further case that no evidence was tendered to show that no part of the compensation represents cost of agricultural produce or crops. Then it is stated : “So also, if the land is put to agricultural purposes any more after the handing over of the property even though the ultimate intention is for another purpose, any amount which represents the use of land for agricultural purposes represents agricultural income”. It purports to maintain that the land if used for agricultural purpose after it was handed over, has relevance in considering the character and nature of the compensation.
5. The two important aspects which would call for adjudication with due regard to the nature of the contest are, the character of the income received on compulsory acquisition and the other, in the context of this case whether the trees in the acquired property could be treated separately so that the value of the same could be agricultural income. We have already pointed out that in annexures-A and D the character of the property acquired is admitted to be rubber and coconut plantation. The Revenue has no case that any other cultivation was raised in the property.
6. We may first take up the question whether the decision in All India Tea Trading Co. Ltd.’s case [1978] 113 ITR 545 (Cal), supports the stand taken by the respondent. Properties belonging to the respondent therein were requisitioned under Section 3(1) of the Assam Land (Requisition and Acquisition) Act, 1948. The respondent received compensation under Section 7(3) of the said Act which enjoined that, where any land is requisitioned under Section 3, every person interested in such land has to be paid such compensation as might be agreed upon in writing between that person and the Collector and any damage done during the period of requisition. The Income-tax Officer included the said amount under the head “Other sources” rejecting the claim of the assessee that it was exempted from tax as it was agricultural income. A Bench of the Calcutta High Court, on the reasoning that the requisitioned lands were used by the assessee for agricultural purposes in the accounting year and also in the earlier years, held that the compensation paid for the requisitioned land is agricultural income and that the same is not assessable under the Income-tax Act. According to the respondent, as per this decision, once it is shown that the land in question was agricultural land before the acquisition and continued to be used for agricultural purposes, though the ultimate object of acquisition was for constructing a dam, the compensation amount received would be impressed with the character of agricultural income and, therefore, the same is taxable under the Agricultural Income-tax Act. We note that the respondent overlooked a fundamental distinction between the case in All India Tea and Trading Co. Ltd. [1978] 113 ITR 545 (Cal), and the case in hand. Whereas, in All India Tea and Trading Co. Ltd.’s case [1978] 113 ITR 545, the land was only requisitioned, in this case, admittedly, the land in question was acquired. Under the law, requisition and acquisition are different resulting in different consequences.
7. In the decision in Jiwani Kumar Paraki v. First Land Acquisition Collector, AIR 1984 SC 1707, the distinction between requisition and acquisition was considered. The meaning of requisition mentioned in Strand’s Judicial Dictionary at page 2355 is referred to ; the same reads (at page 1712) :
“‘Requisitioning’ is not a term of art and has different meanings, Its usual meaning is nothing more than hiring without taking the property out of the owner although the owner has no alternative whether he will accept the proposition of hiring or not. It may, however, involve the taking over of the actual domination of a chattel (The Steaua Romana (1944) at page 43).”
It is further observed (at page 1712) :
“Thus, normally the expression ‘requisition’ is taking possession of the property for a limited period in contradistinction to ‘acquisition’. This popular meaning has to be kept in mind in judging whether, in a particular case, there has been in fact any abuse of the power.”
Then, adverting to acquisition and requisition, it is observed (at page 1712) :
“The two concepts are different; in one title passes to the acquiring authority, in the other title remains with the owner, the possession
goes to the requisitioning authority. One is the taking over of the title and the other is the taking over of the possession.”
By requisition, the title of the owner is never divested ; whereas, in the case of acquisition, the title of the owner would be divested. During the period of requisition, the owner of the land will not be entitled to exercise the right of ownership. Such exercise of the right of ownership will stand suspended during the period of requisition. Thus, a person who comes into possession on requisition can continue to be in possession only during the period of requisition. In such a situation, except that the possession is with the person who comes into possession on requisition, the proprietor of the land does not lose his proprietary title in the land. In such a circumstance, the compensation received by the proprietor of the land for such possession and enjoyment by the other could, under the law, be damages for use and occupation of the land. That being so, the character of the amount so received would depend upon the character of the land which was so requisitioned. The amount paid to the proprietor of the land for such use, since it has a nexus with the nature of user by the person in possession, would be impressed with the character of the user. The effective source of receipt of the said income being the said user of the land for agricultural purposes that would be decisive as to the character of the said income. But that is not the position when the land is compulsorily acquired and compensation is paid. Since the title of the proprietor of the land vests with the State on acquisition, the subsequent nature of user of the land by the State cannot have relevance in deciding the character of the compensation awarded. The amount received on acquisition is the value of the property–consideration for the transfer of title to the property. The capital asset of the owner, namely, the land, gets substituted by money.
8. Now, we may consider whether the value of the trees in the property acquired can be separately dealt with to ascertain the character of the compensation received on acquisition. Normally, on acquisition, the title of the property inclusive of whatever is attached to it would also pass to the State. In the context, in ascertaining the nature of the compensation, the land and the trees standing thereon should be dealt with as a composite unit. This court, in the decision in CIT v. Alanickal Co. Ltd, [1986] 158 ITR 630, held (headnote) :
“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., the land. When the land with the standing trees is transferred, the sale is an integral 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 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.”
As regards the nature of the amount received on such sale, this court, in CIT v. T.K. Sarala Devi [1987] 167 ITR 136, held (headnote) :
“When a capital asset is sold, what is realised is a capital receipt and not a revenue receipt. If profit or gain results from such a sale, it is chargeable, not because it is revenue, but because the statute specifically charges the resulting capital gain by including it as income.”
We have already pointed out that the land acquired was rubber and coconut plantations. In the light of the said decisions, we have no doubt in our mind that, when land with trees is acquired, the value of the trees cannot be separately dealt with. The whole title of the proprietor vests with the State on acquisition. The compensation received would represent the value of the land so acquired and the same would only be a capital receipt and will not be a revenue receipt. Evidently, therefore, the said amount cannot be subjected to tax under the provisions of the Agricultural Income-tax Act.
9. As has already been noted, the petitioner also assails annexure-D order on the ground that the said order is unreasonable and irrational as the same was rendered nine years from the end of the assessment year in question and over 7 1/2 years after completion of the assessment.
10. In support of the said argument, learned counsel for the petitioner relied on the decisions in Nelliampathy Tea Co. and Produce Co. Ltd. v. Commr. of Agrl I. T. [1991] 190 ITR 227 (Ker) and K. Iswara Bhat v. Commr. of Agrl. I. T. [1993] 200 ITR 238. The former was a case where the order under Section 34 of the Agricultural Income-tax Act passed by the Commissioner of Agricultural Income-tax after a lapse of about ten years was challenged on the ground that the same is irrational and unreasonable. After holding that the reopening of the final assessment in exercise of the powers under Section 34 of the Act would demand cogent and sufficient reasons and that the power can be exercised by the Commissioner of Agricultural Income-tax only bona fide and within a reasonable period, the matter was remitted to the Commissioner of Agricultural Income-tax fur fresh consideration. In the latter case, the question that arose for consideration was whether an order passed by the Commissioner of Agricultural Income-tax after 13 years of the filing of the objection to the notice under Section 34 of the Agricultural Income-tax Act could be sustained. It was held that, in the circumstances, the exercise of the powers by the statutory authority is unreasonable and irrational. The other contention raised by learned counsel for the petitioner is that the revisional authority, by passing the order, annexure-D, has entrenched upon the jurisdiction and power of the assessing authority and, on that account also, the order cannot be supported. We have already found that the compensation being a capital receipt is not amenable for taxation under the Agricultural Income-tax Act. On that point itself, the revision has to be allowed and the impugned order has to be set aside. In that view, it is not necessary to consider the two other points referred to earlier.
11. In the result, the tax revision case is allowed and the order of the respondent dated July 12, 1991 (annexure ‘D’), is set aside. There will be no order as to costs.