TaxTMI 
TaxTMI 
2018 (1) TMI 130
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....t is on this very land, that the Ghaziabad Vanaspati Unit of the assessee was located. On closure of the said Ghaziabad Vanaspati unit, the assessee, pursuant to a scheme of rehabilitation in the financial years 2001 -02/2002-03, decided to sell surplus land of the said unit. Based on the aforesaid, from the financial year 2002-03, relevant to the assessment year 2003-04, the assessee started selling the surplus land. Gains arising on sale of the surplus land were declared under the head 'capital gain' by the assessee in the returns of income for the assessment years 2003-04 to 2006-07. During the relevant previous year 2006-07, the assessee had offered for taxation ' long term capital gain' of Rs. 1,68,93,649/- and 'business income' of Rs. 1,32,84,593/- on account of sale of industrial land measuring 7681.458 sq. yards, which was converted into stock in trade during the relevant previous year 2006-07, by applying the provisions of section 45(2) of the Income Tax Act, 1961 (The Act). The assessing officer, however, held/ observed that the assessee had converted the above land from capital asset to stock-in-trade during the financial year 2002-03 and not in the financial year 20....
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....ion of Ld. CIT (A) in both the years under appeal in directing the AO to take the Fair Market Value (FMV) of land on 01/04/1981 @ Rs. 100/- per sq. yard as against Rs. 20/- per sq. yard adopted by the AO. 3.0 The Ld. AR submitted that the primary issue that arises for consideration is whether the industrial land was converted into stock in trade on 01.04.2002 (as held by the assessing officer) or on 01.04.2006 (as contended by the assessee)? It was submitted that the following facts demonstrate that the Industrial Land was held as Capital Asset till assessment year 2006- 07 are as under:- (i) The industrial land under consideration was held since 1940-41 and housed the Ghaziabad Vanaspati Unit of the assessee. Thus, there can be no dispute that the land was not acquired and held for sale but for exploitation/ use as a capital asset. (ii) Sale of land was part of the Rehabilitation Scheme framed by the Board for Industrial Finance and Reconstruction (BIFR) and on the directions of the BIFR, an Asset Sale Committee (ASC) was constituted for the purpose of sale of asset of the erstwhile Ghaziabad Vanaspati Unit, including the surplus land. Furthermore, the sale co....
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....s taken for amendment of the Memorandum of Association and also for the commencement of business of real estate under section 149(2A) of the Companies Act, 1956. (iii) In the audited financial statements for the relevant Assessment Year 2007-08, the assessee had shown its results separately for 'real estate'. (iv) Note given in Note 12 of Schedule O - Notes to Accounts reads as under:- "13. Segment information for the year ended 31st March, 2007 (a) Business Segments Based on the guiding principles given in Accounting Standard As-17 "Segment Reporting" issued by the Institute of Chartered Accountants of India, the Company's business segments include Milk/Milk products (manufacture of dairy milk & milk products) & Real Estate". 3.02 It was submitted that, thus, it is evident, that the industrial land was held as capital asset till assessment year 2006-07; and that the industrial land was converted from capital asset into stock-in-trade in assessment year 2007-08 only. 3.03 The Ld. AR drew our attention to the recent decision of the Hon'ble Allahabad High Court in assessee's own case for assessment years 2003-04 to 2006-07 wherein th....
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....wner of a capital asset into stock-in-trade of a business or owner has treated such capital asset as stock-n-trade of a business. 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 capital asset as stock-in-trade of a business. In the absence of such a positive act on the part of the owner of the capital asset, the provision of Section 45(2) does not apply. In the present case, it is not the case of the revenue that the owner has transferred, by way of conversion of the capital asset, converted the capital asset into stock-in-trade or has treated such capital asset as stock-in-trade of a business. There is no such material in this regard on record. The assessing authority, while initiating the proceeding, under Section 148, read with Section 147, has inferred such conversion of capital asset into the stock-in-trade and applied the provision of Section 45 (2), which is wholly erroneous. " 3.05 It was submitted that the fact that the land was held by the assessee as "capital asset" till assessment year 2006-07 stands accepted by the Revenue, wh....
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....him" clearly refer to a positive act on the part of the owner of either converting his capital asset into stock in trade or treating the same as such. The Ld. AR reiterated that for section 45(2) to apply what is relevant and conclusive is the conduct of the owner of the capital asset and nothing else. If the assessee/owner has not converted/treated his capital asset into as stock in trade in any particular year, then it will not be open to the assessing officer to hold that the capital asset was, for the purposes of tax under section 45(2) of the Act, treated as or converted into stock in trade. Further, only the positive act/ conduct of the owner- assessee in converting/ treating the capital asset into/as stock in trade is relevant to determine the applicability of section 45(2) of the Act and nothing else. 3.09 The Ld. AR also invited the Bench's attention to the decision of the Mumbai Bench of the Tribunal in the case of Jehangir T. Nagree: [2008] 23 SOT 512 (MUM) wherein the Tribunal held that under section 45(2) of the Act it was the sweet will of the assessee to decide as to when he intended to convert his investment into stock in trade. 3.010 As regards the observations ....
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....ng Enterprises vs. DCIT: 127 ITD 94 (Bang.) 3.013 Our attention was also invited to the following decisions wherein it has been held that to determine the nature of an asset, one must look at the intention of an assessee at the time of purchase of an asset-whether the same was to be held as "capital asset" or as "stock-in-trade":- CIT v. Mohakapur Ice and Cold Storage: 281 ITR 354~(A1I.) Bhogilal H. Patel v. CIT: 74 ITR692 (Bom.) CIT v. Anandlal Becharlal & Co.: 107 ITR 677 (Bom.) CIT v. B.K. Bhaumik: 245 ITR 614 (Del.) Marudhar Hotels Pvt. Ltd. v. ACIT: ITA No. 75/Ju./2012 3.014 The Ld. AR submitted that in light of the aforesaid facts and legal position and also applying the ratio of decision of the Hon'ble Allahabad High Court in the assessee's own case (supra), the provisions of section 45(2) of the Act were not at all applicable till the financial year relevant to the assessment year 2005-06. He submitted that the assessing officer may, therefore, be directed to accept the gains as declared in the return of income on the basis of conversion of land in the financial year 2006-07, i.e. the year under consideration. 3.10 On th....
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....plicable for leasehold land or for freehold land. 3.14 The Ld. AR further submitted that during the year ended 30th June, 1985, the assessee had revalued the value of land in the books of accounts on the basis of the report of an approved valuer vide report dated 8th October, 1985, (available at pages 94-122 of the paper book) wherein the valuer had valued the land at Ghaziabad at Rs. 12,50,000/- per acre, i.e. Rs. 258 per sq. yard. Thus, land having market value of Rs. 258 per sq. yard in 1984-85 could not be valued at Rs. 20/- per sq. yard as on 1.04.1981. The Ld. AR submitted that this fact also substantiates the claim of the assessee that the value of land as on 1.04.1981 was Rs. 190/- per sq. yard. 3.15 It was further submitted that in case the assessing officer disagreed with the valuation done by the Registered Valuer, he ought to have pointed out the discrepancies therein and recorded the reasons for doing so. Reliance, in this regard, was placed on the following decisions: CWT vs Raghunath Singh Thakur: 304 ITR 268 (HP) Sosamma Paulose vs JCIT: 79 TTJ 573 (Coch.) Shanti Complex vs ITO: 63 ITD 181 (Pat.) (TM) Chitra Publicity Compan....
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....ng on the valuation report wherein the circle rate of Rs. 100/- per square yard was extrapolated in relation to the saleable area. It was submitted that such extrapolation is correct and necessary considering that out of total area of 77,638 yd.², the GDA granted approval for sale to the extent of 43,425 yd.² (later revised to 43,418 yd.²) and the remaining land to the extent of 34,213 yd.² (later revised to 33,794 yd.²) occupied by parks, roads, pavements, drains, water supply system and other public utility services which were to be transferred to the GDA without consideration. The Ld. AR submitted that the additional evidences are being placed to substantiate the averment of the assessee that the saleable area of land was approved at 43,425 yd.² (later 43,418 yd.²) and therefore, the fair market value of land as on 01/04/1981 should be proportionately enhanced and determined at Rs. 190/- per square yard. It was further submitted that this fact was brought to the knowledge of the AO vide letter dated 23/12/2009 and the AO as well as the Ld. CIT (Appeals) had never disputed the fact that out of total area, the saleable area was only 43,425 yd.&su....
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....al statement 2007-08, the assessee, for the first time, showed the financial results separately for real estate. 5.1 These above facts demonstrate that the industrial land was held as capital asset till assessment year 2006-07 and the industrial land was converted into stock-in-trade in the financial year 2006-07 and not 2002-03 as held by the Assessing Officer. Further, the Hon'ble Allahabad High Court in assessee's own case in Tax Writ Nos. 47 to 50 of 2010 in the case of Amrit Corporation Ltd. vs ACIT reported in 275 CTR 174 (All) has also held in assessee's favour by impliedly holding that the transfer for the purpose of capital gains did not take place in the year 2002-03. Although this judgment of the Hon'ble Allahabad High Court was rendered in respect of validity of reassessment proceedings, the Hon'ble High Court did hold in Para 33 and 34 of the order as under:- 33. Section 45(2), as referred hereinabove, provides the profit or gain arising from the transfer by way of conversion by the owner of the capital asset into, or its treatment by him as, stock-in- trade of a business carried on by him shall be chargeable to income tax as his income of the previous year....
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....t the land was a long term capital asset in the hands of the assessee during the financial years 2002-03 to 2005-06 and that there was no conversion of capital asset into stock-in-trade under the provisions of section 45(2) of the Act during such period as contemplated by the revenue. 5.4 Therefore, on count also, there can be no question of the very same land being treated as having been converted into stock-in-trade in financial year 2002-03, as contended by the department, for the purpose of computation of capital gains during the year under consideration. 5.5 Further, the Hon'ble Court has also recognized the fact that in order to attract provisions of section 45(2) of the Act, there must be some 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 capital asset as stock-in-trade of the business. It is amply clear that in absence of a positive act on the part of the owner of the capital asset, the provisions of section 45(2) will not apply. 5.6 It is undisputed that there was no act on the part of the assessee to convert such land into stock-in-trade during the financial years 2002-03....
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....cond issue arising for our consideration is the determination of Fair Market Value of the land on 1st April, 1981. The assessee had claimed Fair Market Value at Rs. 190/- per sq yard. The assessee had relied on the valuation report of a registered Valuer in arriving at the Fair Market Value. However, the Assessing Officer had rejected the valuation report and had adopted the Fair Market Value of land at Rs. 20/- per sq yard as intimated by UPSIDC filed in pursuance of notice u/s section 133(6) of the Act. On appeal, the Ld. CIT (A) determined the Fair Market Value at Rs. 100/- per sq yd according to the existing circle rate and now department is contesting the valuation at Rs. 100/- per sq. Yard in place of Rs. 20/- per sq. yard whereas the assessee is challenging the valuation of Fair Market Value at Rs. 100/- per sq yd instead of Rs. 190/- as claimed by the assessee. 5.9 It is seen that the assessee wanted to adopt the Fair Market Value @Rs. 190/- per sq yd based on the fact that out of the total land measuring 77,638 sq yards, the saleable land area was only 46,232 sq yards in terms of clause (iv) of the agreement made between the assessee and the GDA vide agreement dated 3rd....
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....be appropriately enhanced so as to offset the reduction in the total saleable area. 5.12 The Bench had raised a query and had asked the Ld. AR to demonstrate before the Bench that the transfer ownership of the areas/facilities as contemplated in clause (iv) of the agreement with GDA had actually taken place and the Ld. AR has filed an application for admission of additional evidence in terms of Rule 29 of the ITAT Rules, 1963 in this regard and we deem it fit to admit the same. The Ld. AR has placed on record an affidavit from the Chairman and MD of the assessee company stating that under the terms of the agreement, the assessee company did not have any right over parks, roads, pavements, drains, water supply system, public utility services etc. i.e. the common areas and facilities and these were to be transferred to the local body free of cost. It has also been averred in the said affidavit that in terms of the agreement, the assessee company was neither entitled to receive any consideration nor has received any consideration in respect of said common areas and facilities and that the residents of the township have the right to use these common areas and facilities. It has furt....