2002 (12) TMI 42 - HC - Income Tax

1. Whether, Tribunal was right in holding that the lands held by the assessee had not been converted into stock in trade? - 2. Whether Tribunal was right in rejecting the alternate claim of the assessee regarding the computation of capital gains on transfer of lands? - When the final fact-finding authority has recorded a finding that there is no material to prove that the sale consideration has been paid for discharge of the mortgage amount, we have no material to go against that finding Both questions are answered in the affirmative

Summary

Issues Involved:

1. Whether the Tribunal was right in holding that the lands held by the assessee had not been converted into stock-in-trade?
2. Whether the Tribunal was right in rejecting the alternate claim of the assessee regarding the computation of capital gains on transfer of lands?

Detailed Analysis:

Issue 1: Conversion of Lands into Stock-in-Trade

The core issue is whether the lands held by the assessee were genuinely converted into stock-in-trade. The assessee, a private limited company engaged in the textile business, claimed to have started a real estate business from the assessment year 1982-83 by converting part of its vacant land into stock-in-trade. This conversion was allegedly supported by a resolution passed on January 1, 1981, and corresponding entries in the books of account. However, the Assessing Officer (AO) did not accept this claim, finding that the property in question was sold during the relevant previous year based on agreements made in 1969 and 1970. The AO concluded that the higher valuation of the property was an attempt to avoid capital gains tax, thus treating the transactions as sales of immovable property and computing long-term capital gains.

The Commissioner of Income-tax (Appeals) accepted the assessee's claim, but the Tribunal reversed this decision, finding that the land was not in the assessee's possession as of January 1, 1981, and that the alleged conversion was not genuine. The Tribunal noted that the minutes produced were on loose sheets and were an afterthought to avoid capital gains liability. Furthermore, the Tribunal found that the properties were sold under various agreements in 1969 and 1970 and that the conversion claim was not supported by any material evidence.

The High Court upheld the Tribunal's findings, emphasizing that the only evidence for the conversion was the resolution dated January 1, 1981. The court highlighted that under Section 193 of the Companies Act, minutes must be recorded in a bound book with consecutively numbered pages, which was not done in this case. The Tribunal also noted that the properties were already in the possession of agreement holders since 1969 and 1970, making the conversion claim implausible. The court concluded that the Tribunal's finding that the conversion was not genuine was a factual determination based on the evidence, and thus, upheld the Tribunal's decision.

Issue 2: Computation of Capital Gains

The alternative claim by the assessee was that part of the sale consideration went towards discharging a mortgage debt, and thus, this amount should be deducted when computing capital gains. The Tribunal rejected this claim, stating that there was no evidence to show that any consideration went into discharging the mortgage debt. The Tribunal found that the properties were released from the mortgage before the sale deeds were executed. The High Court concurred with the Tribunal, noting that the assessee did not provide any evidence to support the claim that the sale consideration was used to discharge the mortgage. The court pointed out that the final fact-finding authority (the Tribunal) had recorded a finding that there was no material to prove the claim, and thus, upheld the Tribunal's decision.

Conclusion:

The High Court answered both questions in the affirmative, against the assessee and in favor of the Revenue, concluding that the Tribunal was right in holding that the lands were not converted into stock-in-trade and in rejecting the alternative claim regarding the computation of capital gains.