TaxTMI 
TaxTMI 
2017 (12) TMI 1326
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....e lead case. 3. The grounds of appeal raised by the assessee(in lead case in ITA No. 1925/Kol/2010),reads as under: "1. That the Commissioner of Income-tax (Appeals) was wrong in holding that the assessee's transactions in relation to sale of undivided shares of land to various flat buyers through the developer, had allegedly constituted business and profit from such transactions was allegedly taxable under the head of Profits and Gains from Business or Profession. 2. That without prejudice to the contention raised in Ground No. 1 above, the Commissioner of Income-tax (Appeals) was wrong in rejecting the assessee's contention that there had not been any joint venture between the assessee and the developer. 3. That without prejudice to the contention raised in Ground No. 1 above, the Commissioner of Income-tax (Appeals) failed to appreciate the fact that there had not occurred any conversion by the assessee of the undivided shares of land into stock which could allegedly attract the provisions of section 45(2). 4. That the Commissioner of Income-tax(Appeals) was wrong in holding that the provisions of Section 28(iv) would allegedly be applicabl....
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....e produced by the assessee and also would accord full opportunity of hearing to the assessee without being influenced by the observations of the CIT. The Assessing Officer issued notices under sections 143(2) and 142(1) and asked for various details and explanations in regard to the fresh assessment to be made. The assessee duly submitted all the relevant documents as asked by the Assessing Officer and also those which were considered to be necessary for the purposes of fresh assessment before the Assessing Officer. The assessee had entered into an agreement with M/s. Navin Housing & Properties Ltd. for transferring its own land to the said company for development by the said company into a residential complex. It was specifically mentioned in the relevant agreement that the assessee would be paid the sale price of the land by way of the sale proceeds of the flats that the said company would receive in relation to the 50% of the built up area. This arrangement for payment of sale price for land was made for ensuring due payments to be made by the above-mentioned company for the sale price of the land transferred by the assessee. Every action in regard to the sanctioning of necessar....
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....ng capital gain and business income of the assessee by applying the provisions of section 45(2) of the Act. In addition to this he enhanced the assessment by observing the followings: "However, I find that the Assessing Officer has not properly applied provision of section 45(2) of the Act for computing capital gain and business income of the assessee. As per the provision of section 45(2), capital gain on conversion of capital asset into stock in trade shall be chargeable to income tax as income of the previous year in which such stock in trade is sold or otherwise transferred by him. The Assessing Officer has, in his order, charged the capital gain on sale of the entire land during the year under consideration. However, the assessee has not sold the entire piece of land at one go. As stated earlier, it had got the land developed into two residential projects consisting of a number of flats which were sold over a period of several years. What is sold to the ultimate customer is the proportionate land i. e. respective undivided share in the land. It is not the case here, as if the assessee had sold the entire land to the developer who then sold the flat to the ultimate cus....
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....t. Thus, the assessee derived a benefit amounting to cost of construction borne by the developer in respect of the flats retained by the assessee. The benefit was in form of improvement in value of the assessee's property. Also, this benefit occurred because of the business venture carried on by the assessee for which the agreement of development of land had been entered into with the developer. Clause (iv) of section 28 provides, that the value of any benefit or perquisite, whether converted into money or not arising from business or the exercise of a profession shall be chargeable to income tax under the head profits or gains of business or profession. Since the benefit amounting to cost of construction of retained flats arose to the assessee form its business venture the same shall be chargeable as business income in the respective year(s) in which the assessee decided to retain the flats for own use/giving on rent and thus re-converted the same from stock in trade to asset. This shall be over and above the capital gain and business income discussed in the preceding paragraph. According to the working given by the assessee long term capital gain for the year and busines....
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....ed out by the developer. In accordance with the agreement, the developer was allowed to enter into the assessee's land and commence construction of flats. Thereafter registration of conveyance deed in respect of the undivided share of land allocable to each of the flats, was made. As per the agreement the assessee was to be paid the sale price of the undivided share of the land comprised in the sale price of each of the flats by way of sale proceeds of the flats that the developer would receive in relation to 50% of the built up area. The assessee did not have anything to say as regards the selection of the buyers or flats or the prices to be paid by the buyers of the flats and all these issues were to be decided by the developer in its own discretion. During the A. Y. 2006-07, the assessee on the basis of the execution of the conveyance deed in relation to the undivided shares of land, received Rs. 5,96,56,580/-. The assessee estimated the cost at Rs. 1,00,000 of the portions of the land allocable to flats (relating to both the assessee's share as well as the developer's share) which were transferred during the year. In accordance with the agreement in respect of the sale of each ....
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....paid interest free advances to the assessee at the time of entering into the assessee's land for the commencement of the construction also shows that the assessee and the developer were not carrying on business jointly. iv. The fact that in the event of undue delay beyond a specific period of thirty-six months in completing the construction, the developer was required to pay a penalty of Rs. 5/- per sq. ft. per month to the assessee also shows that the assessee and the developer were not carrying on any business jointly. Based on the above reasons, the ld Counsel for the assessee has reiterated that there had never occurred any conversion of assessee's land into stock in trade and therefore there should not have been any application of section 45(2). In this regard, theld counsel for the assessee,relied on the decision of the Hon'ble Allahabad High Court in the case of Amrit Corp. Ltd. vs. Addl. CIT (Order dated 29. 04. 2014) [(2014) 226 taxman 1 (All], wherein it was held that to make the provision application, there must be a positive act on the part of the owner of the capital asset to transfer the asset by way of conversion into stock in trade or treating such capit....
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....n entered into with the developer. Clause (iv) of section 28 provides, that the value of any benefit or perquisite, whether converted into money or not arising from business or the exercise of a profession shall be chargeable to income tax under the head profits or gains of business or profession. Since the benefit amounting to cost of construction of retained flats arose to the assessee form its business venture the same shall be chargeable as business income in the respective year(s) in which the assessee decided to retain the flats for own use/giving on rent and thus re-converted the same from stock in trade to asset. This shall be over and above the capital gain and business income. This way, ld DR for the Revenue defended the order of enhancement made by the ld CIT(A) in respect of retain flats for own use and re-converted the same from stock in trade to asset. 10. Having heard the rival submissions perused the material available on record, we note that for application of Section 45(2) of the Income tax Act, it is necessary that the transfer by way of conversion should be by the owner of the capital asset or by way of the treatment of the capital asset by him as stock-in-tr....
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....art of the assessee, (owner of land), the provision of section 45(2) of the Act does not apply. Therefore, in the assessee`s case under consideration, it is not the case of the Revenue that the assessee has transferred by way of conversion of the land, converted the land into stock in trade or has treated such land as stock in trade of his business. There is no such material in this regard on record that assessee has converted his land into stock in trade. Therefore, we are of the view that the assessee has not demonstrated any activity from his side which shows that the assessee has converted his land into stock in trade. The assessee in the case under consideration has not converted his land into stock in trade, he has given his land to the Developer to construct the flats, and as per the agreement of development the assessee got (50% built up area), flats, and out of the flats, so got, by the assessee from developer, he let out as rental accommodation and was getting rent income. The assesssee has been offering the rental income for taxation. We also note that some of theflats, were sold by the assessee in subsequent years and the assessee offered the capital gain tax thereon....