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Issues Involved:
1. Nature of income from the sale of plots: business income or capital gains. 2. Timing of conversion of agricultural land into stock-in-trade. 3. Deduction of various expenses while computing business income. Detailed Analysis: 1. Nature of Income from Sale of Plots: The primary issue is whether the income from the sale of plots is business income or capital gains. The assessee claimed it as capital gains, which was initially accepted by the Assessing Officer. However, the Commissioner of Income-tax (CIT) set aside this assessment, directing that the income should be treated as business receipts, citing it resulted in under-assessment and was prejudicial to the revenue's interests. The Tribunal upheld the CIT's decision, emphasizing the need to reassess the income as business income, but also considering the assessee's alternate claim that part of the sale proceeds should be treated as capital receipts. 2. Timing of Conversion of Agricultural Land into Stock-in-Trade: The crucial point is determining when the agricultural land was converted into stock-in-trade. The assessee argued that the land remained agricultural until official approval for conversion was granted on 3-2-1992. The CIT(A) had earlier held that the conversion occurred in 1979 when the original owner expressed an intention to use the land for constructing dwellings for weaker sections. However, the Tribunal found no basis for this, noting that mere intention or offer does not change the land's character. The conversion was deemed to have occurred only on 3-2-1992, when the competent authority granted final approval for converting the agricultural land into non-agricultural land. 3. Deduction of Various Expenses: The Tribunal noted that the revenue authorities had not properly considered the assessee's claim for deducting various expenses while computing business income. This issue was restored back to the Assessing Officer for reconsideration, allowing the assessee to establish their claims for deductions. Conclusion: The Tribunal concluded that the income from the sale of plots should be partly taxed as capital gains and partly as business income. The fair market value of the land as on 1-4-1981 is relevant for computing capital gains, and this matter was remitted to the Assessing Officer for determination. Additionally, the issue of allowing deductions for various expenses was also sent back to the Assessing Officer for proper consideration and decision. Judgment: The assessee's appeal was partly allowed, with directions for reassessment of income bifurcating it into capital gains and business income, and for reconsideration of expense deductions.
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