TaxTMI 
TaxTMI 
1981 (11) TMI 76
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....tilised as Flour Mill. The said piece of land and the factory shed has been shown as fixed assets in the balance-sheet since last several years. Some time in March, 1973, the partnership firm was advised that the said immovable property could be developed by constructing 25,000 sq. ft. of area. Till the date, the said firm had been owning the said property as its capital investment. With effect from 1st Oct., 1973, the partnership firm decided to carry on business of dealing in land and estate and also decided to bring all the said land and the said right to build 25,000 sq. ft. area therein the said business and to develop and exploit the said right in a commercial manner. The partners of the firm, therefore, decided to hold said land and right as stock-in-trade of the said business of dealing in land etc. on and from 1st Oct., 1973. The value of said land as on 1st Oct., 1973 was, therefore, determined by getting a valuation report, valuing the said land at Rs. 3,84,900. The value of the structure which was held as investment was determined at Rs. 92,468 as under: Rs. Value of the shed 42,468 Value of the land 50,000 Total 92,468 As the investment was converted into stoc....
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....t year under consideration, an area of 2500 sq. ft. (industrial Gala) to one M/s/ Vasant Vrajlal Shah in lieu of the construction work, leaving the balance of 12,500 sq. ft. for the purpose of saleable built by area. So, the assessee before the ITO, in the assessment proceedings for the year under consideration, claimed that the assessee had held the said Galas and surrounding land as capital asset of the business and these capital assets had been converted into stock-in-trade. It was further claimed by the assessee that the cost price of the Industrial shed sold (galas) would have to be taken at the market value, after converting the said assets. The ITO did not agree with the assessee's claim as he was of the view that the assessee had sold industrial shed which had been converted into stock-in-trade, and income from the same had to be treated as business income, and would have to be taxed on the basis of difference of the original cost (before the date of conversion) and the sale-price in other words, the difference between the original cost and the sale-price was to be taxed as business income. He further found that the assessee-firm since carried on business earlier and contin....
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.... ft. and additional 70,000 sq. ft. of the area to develop and exploit the said right in a commercial manner; that it was also not correct for the ITO to state that the assessee-firm carried on business earlier and continued the business in different form, as in fact assessing the assessee-firm started the business in dealing in land and estate only from 1st October, 1973; that the ITO wrongly stated that the decision of the Hon'ble Supreme Court in the case CIT vs. Bai Shirinbai K. Kooks did not apply in the case of the assessee; that it was also not true that the activities and sale of industrial sheds was the normal course of business of the assessee-firm; that in view of the above, the amount of Rs. 5,36,432, as stated above, was not taxable. So, on these facts and circumstances, it was contended by the ld. counsel for the assessee, that the ITO should have adopted the cost price of the sheds sold as indicated by the assessee, referred to above. 6. The AAC, on considering the aforesaid contentions of the ld. counsel for the assessee, and the record of the case, found that an addition of Rs. 48,020 out of Rs. 1,06,506 made by the ITO was to be sustained, observing as under: "....
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.... Rs. 76,980 and not Rs. 18,494 as held by the ITO and consequently reducing the profits from the sale of the said industrial galas of Rs. 48,020 as against Rs. 1,06,506 determined by the ITO and that the sale is of the Galas to M/s V.V. Shah not of the land, on which the Galas are standing, and being so, the land is not converted into stock-in-trade. We relie on the paper book containing pages 8. On the other hand, Shri S.P. Mehta, ld. counsel for the assessee, contends that the appeal of the revenue is to be dismissed, and the contentions of Shri A.A. Makhija, ld. Deptl. Rep. referred to above, are to be rejected in view of the fact that when it is the admitted position that the Gala which are standing on the land have been sold to M/s. V.V. Shah, then it is the land on which the Galas are standing is also sold, in view of the fact that in Bombay, the buildings are constructed in space, and not on ground, and every flat-holder is the owner of the flat, when such flat in the building is sold to him. Therefore, the purchaser of such flat is the owner of the flat which is nothing else than the owner of the land on which the flat is standing and being so, the land has been converted i....
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....2th Oct., 1973 shows that no land has been transferred to him rather the Galas numbering 18 and having an area of 2500 sq. ft. had been sold to him. We do not see any substance in this contention of Shri Makhija, ld. Deptl. Rep. Hence, we reject it and state out reasons. Firstly, the order of ITO is not specific and definite and because if he was not accepting the theory of the assessee of conversion of land into stock-in-trade, then before assessing the income from Galas in the hand of the assessee, he could have determined the relation between the assessee and M/s. V.V. Shah. It was his duty to conclude definitely that the relation between the assessee and M/s. V.V. Shah in respect of the Galas is either that of landlord and tenant or leave and licence or lessor and lessee, which he did not do, but simply stated that the income of the assessee from the Galas is that of business as it was in the past. In the past, there was clear relationship of landlord and tenant as the assessee rented out the sheds and the machinery to the parties. Therefore, we hold that assessing the income from these sheds as business income on the basis of the past record is misconceived. Moreover, the grou....
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....als further sell such flats though the land vest either in the society or the individuals, but this does not mean that the owners of the flats are not having any right of ownership in the land; rather, in the case Krishnaraj Jamdas Modi vs. Colaba Land Co.-operative Housing Society Ltd., reported in Maharashtra Law Journal, November, 1979, the Hon'ble Bombay High Court held that on and from the date the society allots the premises to a member, the society creates in him one of the rights which goes with the rights of ownership. Moreover, s. 3(26) of the General Clauses Act, 1897 says that immovable property shall include land, benefits to arise out of land, and things attached to the earth or permanently fastened to anything attached to the earth. Therefore, from the decision of the Hon'ble Bombay High Court, and the provision of s. 3(26) of the General Clauses Act, it is clear that when the Galas haven been sold to M/s. V.V. Shah, and there is no doubt about it, in our mind, because Shri Shah took over these Galas in lieu of the money expended by him on the development of the land, and the construction of not only these Galas but of the equivalent number, and being so, the assesse....
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....see is that it was there on 16th Nov.,1974, and it converted the same into stock-in-trade on that day. But the same is not proved from the material on the record, as the Valuation Report of the Valuer regarding it is dated 3rd Feb., 1975, and according to the AAC, the conversion claimed of such land into stock-in-trade is on 16th Oct., 1974; and being so, we reject the stand of the assessee that an area of 70,000 sq. ft. was available to the assessee in the previous year; relevant for the assessment year under consideration, and the same was converted into stock-in-trade on 16th Sep, 1974. Because the materiel on the record does not show that it was available as alleged in view of the facts that the Valuation Report is dated 3rd Feb., 1975 and the assessee, for the conversion claimed two dates 16th Sep., 1974 and 16th Oct., 1974 respectively, as stated above. Moreover, the finding of the AAC that when the land was converted into stock-in-trade at that point of time, the extra right to construct additional 70,000 sq. ft. of land did not exist, and being so, the assessee did not obtain its benefit goes unrebutted. Accordingly, we hold that the land measuring 25,000 sq. ft. has been c....