The judgment established the principles for determining capital gains from the sale of tangible assets, the cost of acquisition, and the eligibility for exemption under s. 54E.

Tirath S. Thakur, J.—These two references have been made by the Tribunal, Bangalore Bench, at the instance of the assessee. In ITRC No. 3/1995 the Tribunal has referred the following three questions relevant to asst. yr. 1982-83 for the opinion of this Court :

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sale of shade trees would give rise to capital gains, liable to tax under s. 45 of the Act ?

(2) Whether, on the facts, the Tribunal was justified in determining the cost of purchase of the shade trees sold at Rs. 1,50,000 ?

(3) Whether, the Tribunal was right in holding that the applicant is not entitled to the benefit of s. 54E of the Act, on investment made in Rural Development Bonds out of the income of the preceding year ?"

In ITRC No. 117/1993 the Tribunal has referred the following two questions relevant to asst. yr. 1984-85 :

"(1) Whether, on the facts and in the circumstances of this case, the Tribunal was right in holding that the sale of shade trees gave rise to capital gains ?

(2) Whether, on the facts and in the circumstances of this case, the Tribunal was correct in holding that the assessee had incurred cost for acquiring the shade trees?"

2. Since common questions of law and fact arise, in both these references, the same are being disposed of by this common judgment.

3. The assesses-company purchased in March, 1970 a coffee estate together with shade trees standing thereon for a total consideration of Rs. 31,51,456. It is common ground that the sale deed in favour of the assessee did not indicate the price paid by it for different assets comprising the estate like, land, shade trees, buildings etc. The assessee has, however, in the books of accounts maintained by it shown a sum of Rs. 29,39,456 as having been paid towards the price of the coffee garden and balance of Rs. 2,12,000 as price for the building. It is also admitted that the coffee estate was a yielding estate with sustenance drawing standing trees on the same, some of which were cut and removed by the assessee resulting in the receipt of a sum of Rs. 8,17,196 during the asst. yr. 1982-83 and a sum of Rs. 58,693 during the year 1984-85.

4. In the assessment proceedings for asst. yr. 1982-83, the IAC (Asst) considered the question of capital gains arising out of the sale of the shade trees and after fixing the cost of acquisition thereof at Rs. 25,000 and allowing the permissible deductions, brought the sale proceeds to tax under the head 'capital gains'. Aggrieved, the assessee went up in appeal before the CIT(A) who, while agreeing with the conclusions drawn by the officer below, directed him to fix the cost of acquisition of the trees in question at Rs. 75,000 instead of Rs. 25,000. The assessee took the matter in a further appeal before the Tribunal and urged that the assessee had not incurred any cost on the acquisition of the shade trees with the result that the principle settled by the Supreme Court in Commissioner of Income Tax, Bangalore Vs. B.C. Srinivasa Setty, AIR 1981 SC 972 was applicable making the receipts wholly immune to the levy under s. 45 of the Act. The Tribunal did not find favour with the submission made on behalf of the assessee but held that the figure empirically taken by the CIT(A) representing the costs of acquisition of the trees in question was not proper. Taking judicial notice of the fact, that the price of coffee land in the year 1980-81, was around Rs. 20,000 to 25,000 per acre, the Tribunal came to the conclusion that the price of the shade trees standing on the coffee estate could be taken to be approximately 1/10th of the total price paid by the assessee. Proceeding on the said basis, the Tribunal worked out a sum of Rs. 3,15,145 as the price paid by the assessee for the shade trees standing on the estate at the time of its purchase, and held that the cost of acquisition of the shade trees sold during the relevant assessment year could not be less than Rs.