TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 1554
X X X X Extracts X X X X
X X X X Extracts X X X X
....n trade. Further, it was noticed that the assessee company has shown the income under long term capital gain/loss with indexation, whereas the profit from selling the land should have been taxed as short term capital gain. The assessee company was asked why the income shown under the long term capital gain/loss should not be treated as short term capital gain and taxed as business income because the period of holding the land as capital (asset) is less than 36 months. 2.1. The assessee filed written reply before A.O. which is reproduced in the assessment order in which assessee submitted that the land sold during the F.Y. 2013-14 relevant to A.Y. 2014-15 was procured during F.Y. 2006- 2007/2007-2008. Accordingly the land sold during A.Y. 2014-15 was held for more than 36 months. The Assessee Company was holding the assets as capital assets and not as stock-in-trade. The sale of capital asset is assessable as capital gain/loss under the provisions of Section 45 of the Income Tax Act, 1961. The assessee has not sold the stockin trade, hence, the same cannot be treated as business income. This fact is also demonstrated from the balancesheet of the assessee company where the land rema....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al gain of Rs. 7,22,29,231/- on the sale of land, therefore, it was assessed as such as short term capital gain and tax was charged at the rate applicable on normal business income. The A.O. accordingly made the addition of Rs. 7,22,29,231/-. 3. The addition was challenged before the Ld. CIT(A). The Ld. CIT(A) recorded the facts of the case in the impugned order that assessee company had selected certain lands for procurement at Vallah and Verka bye-pass near Amritsar, Punjab in the F.Y. 2006-2007 and the same was shown in stock in trade in the books of account of the assessee company. In view of the Notification dated 11.11.2004 of the Ministry of Defence, Government of India, no construction was permissible/possible as the lands were situated within 1000 yards from the Vallah Ammunition Dump. On 07.12.2006, it entered into a MOU with Ansal Housing and Constructions Ltd (AHCL) through which, it intended to and agreed to transfer its rights, title and interest in the aforesaid land to AHCL for an agreed consideration. However, in July 2008, when FIRs were lodged at Vallah and Verka Police Stations by the Army seeking demolition of structures already built (In view of the MoD Not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vs. Canara Bank Ltd., 63 ITR 328 (SC). The assessee also relied upon Judgment of Hon'ble Delhi High Court in the case of DLF Housing and Construction vs. CIT 141 ITR 806 (Del.). The assessee also relied upon Judgment of the Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd., vs. CIT AIR 1971 SC 2145. The assessee also relied upon Judgment of Hon'ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan [2003] 263 ITR 706 (SC) in which it was held that "the principle of substance over form to determine the real characteristics of a transaction is to be considered." It was submitted that A.O. failed to appreciate the question in the cases referred to by him in the assessment order was that when a stock in trade is converted to a capital asset, should the period for which it was held as stock-in-trade be included in computing the total holding period. However, the question in the present case is entirely different as the assessee does not contend that the period for which it was held as stock-in-trade needs to be included. On the contrary, it was submitted in the present case, that irrespective of the entry in the books of accounts, the asset was....
X X X X Extracts X X X X
X X X X Extracts X X X X
....would transfer part of the subject parcel of the land, in proportion to Rs. 34 crores received by the assessee. The income of these amounts of Rs. 34 lakhs was booked upon completion of conveyance of the land as capital loss, part of which was during A.Y. 2013-2014 and balance during A.Y. 2014-2015 in appeal. The assessee claimed long term capital loss on account of transfer of the land. The finings of the A.O. are illegal because the capital asset was acquired way back in F.Y. 2006-2007, therefore, the benefit of indexation should have been allowed from the date of acquisition in F.Y. 2006- 2007. Learned Counsel for the Assessee submitted that money received by the assessee from Ansal was shown as loan in the books of account as it was clear that no development of land will take place and no business activity will be carried on at all. The period of holding to be reckoned from date of acquisition. Learned Counsel for the Assessee relied upon Order of ITAT, Chennai Bench in the case of Vinny Sawhney vs. ITO ITA.No.993/Chennai/2015, Dated 19.02.2016. He has submitted that A.O. did not consider nature of the land because of the Notification issued by the Ministry of Defence and stay ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd maintenance contractors and infrastructure development. The assessee procured the land in question at Vallah and Verka, Amritsar in F.Y. 2006-2007/2007-2008. The assessee entered into MOU with AHCL, through which, it intended to and agreed to transfer its rights, title and interest in the aforesaid land to AHCL for an agreed consideration. However, in July, 2008, FIR was lodged at Vallah and Verka Police Station by Army seeking demolition of the structure already built in view of Ministry of Defence Notification Dated 11.11.2004. Thus, AHCL refused to honour further demand as per MOU Dated December, 2006. The assessee filed copy of the Notification dated 11.11.2004. The same reads as under : "In exercise of powers conferred by Section 3 of the Works of Defence Act, 1903 (& of 1903), the Central Government hereby declares that it is necessary to impose the restrictions specified in clause (b) of Section 7 of the said Act upon the use and enjoyment of the land described in the Schedule below, being land lying in the vicinity of Valla Ammunition Dump, District Amritsar in the State of Punjab, in order that the said land may be kept free from buildings and other obstructions fr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... settled Law that income tax does not recognize hypothetical or notional income which is not received or accrued to the assessee. We rely upon the Judgments of Hon'ble Supreme Court in the case of Sutlez Cotton Mills Ltd., vs. Commissioner of Income Tax, West Bengal (1979) 116 ITR 1 (SC), in which it was held as under: "It is now well settled that the way in which entries are made by an assessee in his books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss. The assessee may, by making entries which are not in conformity with the proper principles of accountancy, conceal profit or show loss and the entries made by him cannot, therefore, be regarded as conclusive one way or the other. What is necessary to be considered is the true nature of the transaction and whether in fact it has resulted in profit or loss to the assessee." 6.2. The Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd., 227 ITR 172 (SC) in which it was held as under : "Book entries are not determinative of income of assessee. When the question is, whether a receipt of money is taxable or not, or whether certain deduc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....idle in the Karachi branch of the bank, and further conceded before the High Court that there was no evidence that the blocked balance was in fact employed by the Karachi branch for internal banking operations in Pakistan or for its business in Pakistan and other foreign currencies, it was not permissible for the Commissioner, in the appeal before the Supreme Court, to challenge the findings of fact in the statement of case or to produce additional evidence in the Supreme Court for controverting those findings." 6.3. The Hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd., 225 ITR 746 held as under : "Under the Act, income chargeable to tax is the income that is received or is deemed to be received in India in the previous year relevant to the year for which assessment is made or the income that accrues or arise or is deemed to accrue or arise in India during such year. The computation of such income is to be made in accordance with method of accounting regularly employed by the assessee. If income does not result at all there cannot be a tax even though in bookkeeping an entry is made about a hypothetical income which does not materialize." 6.4. Considering the fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be treated as long term capital gain. If the date of acquisition of the property is taken as 01.04.2009, the date on which the land was converted into capital asset, then it has to be treated as short term capital gain. 4. We have carefully gone through the decision of Pune Bench of this Tribunal in Kalyani Exports (supra). The Pune Bench, by majority opinion, found that irrespective of the character of the asset at the point of acquisition, be the "capital asset" within the meaning of 2(14) of the Act or not, the cost of acquisition of the asset has to be treated on the date on which the property was actually acquired. The Tribunal has also found that the asset cannot be acquired first as non-capital asset at one point of time and again as capital asset at different point of time. The Tribunal further observed that there can be only one acquisition of asset, i.e. when the assessee acquired it for the first time irrespective of the character at that point of time. In fact, the Tribunal has observed as follows:- "19. On a careful consideration of the issue, my answer to the first question is in the affirmative. The matter appears to me to be concluded by the judgment of the Ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t be confined to a case where the asset has become a capital asset by legislative intervention. The true ratio of the decision is that there is only one point of acquisition of an asset and the cost on that date has to be reckoned, irrespective of the character of the asset at that point of time, be it capital asset within the meaning of section 2(14) or not. If that is the true ratio and I firmly believe it is then the question whether it became a capital asset by the act of the assessee or by an amendment to the law is, in my humble opinion, irrelevant." 5. In view of the above, the first date of acquisition, i.e. 20.12.2006, has to be treated as date of acquisition of capital asset. The actual date of sale of the property is 21.01.2010, which is beyond 36 months from the date of original acquisition. Hence, the asset has to be treated as long term capital asset. Therefore, the profit on sale of such land has to be treated as long term capital gain. Hence the assessee is eligible for deduction under Section 54F of the Act subject to the compliance with the conditions prescribed in Section 54F of the Act. In view of the above, we are unable to uphold the order of the lower autho....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... sale of agricultural land. Agricultural income does not loss right to exemption merely because it can be brought under one or other of the heads of the income set out in section 6 of the Act. It is nobody's case that purchase and sale of agricultural land as such was the business or one of the trading activities of the assessee. Indeed, the fact that agricultural operations were being carried on in the land in question throughout would warrant the inference that it was yielding Income and, as such, it was being dealt with as a capital Investment. Capital is the source of income and income is the fruit of capital, Judging from this aspect also, it is difficult to hold that the lands in question partook of the nature of stock-in-trade." 6.6. The assessee, therefore, rightly contended that findings of the A.O. is incorrect because the capital asset was acquired way back in F.Y. 2006-2007 which is accepted by the A.O, as such, on date of sale period of holding would be beyond 36 months. Therefore, benefit of indexation should be allowed as the asset was acquired way back in F.Y. 2006-2007. Considering the facts and circumstances of the case, it is clear that impugned land remain ....