2001 (7) TMI 33 - HC - Income Tax

Summary

Issues Involved:
The extent of liability of the assessee for alleged capital gain in the assessment year 1968-69, agreement to sell accompanied by delivery of possession constituting a transfer, classification of agricultural land sold for use as house sites, determination of cost of acquisition for capital gain calculation.

Judgment Details:

*Transfer by Execution of Agreement and Delivery of Possession:*
The Tribunal considered the liability of the assessee for capital gain alleged in the assessment year 1968-69. The court analyzed whether an agreement to sell, along with delivery of possession, constitutes a transfer. The court referred to Section 2(47) of the Act, which defined 'transfer' concerning a capital asset. The court concluded that capital gain accrues only upon execution of conveyance deeds, not earlier. The Tribunal rightly directed recomputation of capital gain based on completed transfers by registered deeds.

*Cost of Acquisition for Capital Gain Calculation:*
The assessee purchased land with factory and godown buildings, part of which was used for agricultural operations. Upon selling the land for house sites, a dispute arose regarding the cost of acquisition for capital gain calculation. The court examined whether the market value at the time of conversion to non-agricultural use should be considered. Citing relevant case law, the court determined that the cost of acquisition remains constant, based on the original purchase price. The court rejected the notion of treating the conversion date as the acquisition date for cost calculation.

*Comparison to Previous Case Law:*
The court referred to a similar case involving the conversion of agricultural land into housing sites. In that case, the cost of acquisition was determined based on the original acquisition cost, not the conversion date. The court upheld the Tribunal's decision that the cost of acquisition is the original cost of acquiring the agricultural land, not a notional cost at the time of non-agricultural use.

Conclusion:
The court affirmed the Tribunal's findings that the land lost its agricultural status upon agreement for house site use, the cost of acquisition is based on the original purchase cost, capital gains accrued when sale deeds were executed.