1994 (12) TMI 54 - HC - Income Tax

High Court rules in favor of assessee's land conversion to stock-in-trade, deems Tribunal decision valid.

Commissioner Of Income-Tax Versus Swastick Textile Mills Limited

Commissioner Of Income-Tax Versus Swastick Textile Mills Limited - [1995] 214 ITR 740, 124 CTR 133, 79 TAXMANN 272 Issues:1. Whether the assessee converted the land into their stock-in-tradeRs.2. Whether the market value of the asset at the date of conversion should be considered for determining the costRs.Analysis:The case involved a reference under section 256(1) of the Income-tax Act, 1961, where the Income tax Appellate Tribunal referred questions of law to the High Court for opinion. The assessee, a public limited company, had acquired land for industrial and residential purposes but later sought permission to sell the land. The Tribunal held that the assessee had converted the land into stock-in-trade, contrary to the Income-tax Officer's and Commissioner of Income-tax (Appeals) findings. The Tribunal based its decision on the events following the land purchase, including permissions obtained and resolutions passed by the company, leading to the land being shown as a current asset in the balance-sheet. The High Court noted that while the land was initially a capital asset, the subsequent actions of the company indicated a conversion into a trading asset, justifying the Tribunal's decision.The High Court emphasized that the conversion of a capital asset into a trading asset is recognized under the law. The court found that the actions of the assessee, seeking permission to sell the land, obtaining the necessary approvals, passing resolutions, and making corresponding book entries, all supported the conversion of the land into stock-in-trade. The court concluded that the Tribunal was justified in holding that the assessee had indeed converted the land into its stock-in-trade. Therefore, the first question was answered in favor of the assessee-company and against the Revenue.As a result of the affirmative answer to the first question, the High Court deemed the second question as academic and declined to provide an opinion on it. The court also decided that there would be no order as to costs in this matter.