2015 (1) TMI 429

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....essee is a partnership firm engaged in the business of real estate and also running a theatre. In the year 1971, the assessee acquired a piece of land through lease deed. The assessee constructed two threatres on the said land and started earning income by exhibiting films as well as rental income from some of the shops in the theatre building. The assessee had shown capital gain in its return of income for the assessment year 1993-94. However, the Assessing Officer rejected the assessee's claim. Against the said order, the assessee filed an appeal before the Commissioner of Income Tax. 2.1. The CIT(A) allowed the appeal of the assessee. Being aggrieved and dissatisfied with the order of the CIT(A), the revenue filed an appeal, before th....

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....n record. While deciding this appeal, the Tribunal in paragraph No.5 has observed as under:-            "5. We have heard the ld. representatives of the parties and perused the record. The assessee acquired land through lease agreement in 1971. The assessee constructed threatre building and started the business of firm exhibition as well as rental income from shops and building. Later on, the real estate business was started. In January, 1988, the assessee introduced FSI as stock-in-trade. The assessee passed accounting entry in the books of account by crediting Rs. 1,10,25,000 to the account of capital reserve A/C" and debiting to the account of FSI Right A/c". These are the undisputed f....

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....eemed as "transfer". The combined reading these sections is that capital arising on conversion of a capital asset into stock-in-trade are charged to tax in the previous year in which such converted asset is actually sold or otherwise transferred but it never says that capital gain are chargeable to tax in the previous year in which the transfer by way of conversion takes place. Section 45(2) further provides that for the purpose of computing the capital gains, in such cases, the fair market value of the capital asset on the date on which it was converted into or treated as stock-in trade shall be deemed to be the full value of consideration received or accruing as a result of the transfer of the capital asset. Therefore, as per the provisio....