1998 (9) TMI 20 - HC - Income Tax

Summary

Issues involved: The judgment involves questions related to the computation of business profits on the sale of lands, specifically focusing on the proper valuation method and the timing of treating the land as stock-in-trade.

Issue 1 - Computation of Business Profits: The Tribunal had to determine whether the assessee's computation of business profits on the sale of lands at Nawab Gardens was correct. The key consideration was whether the market value at the date of conversion to business asset should be used for valuation, rather than the original purchase price. The Tribunal found that the land was developed and sold as stock-in-trade only after 1972, not earlier, and that the company decided to treat the land as stock-in-trade in 1972. This decision was supported by resolutions, entries in books, and other documentation. The Tribunal relied on a previous court decision regarding shares being converted into stock-in-trade, stating that the taxable profit should be based on the market value at the time of conversion, not the original purchase price.

Issue 2 - Cost of Acquisition: The critical question was whether the cost of acquisition for the land sold should be based on the price paid in 1968 when acquired, or the revalued price in 1972 when it was converted to stock-in-trade. The Tribunal determined that the land was initially held as an investment until 1972 when it was converted to stock-in-trade for development and sale. Therefore, the cost of acquisition was considered to be the market rate at the time of conversion, in line with the decision regarding shares being converted into stock-in-trade.

Issue 3 - Correctness of Income-tax Officer's Computation: The Tribunal concluded that the Income-tax Officer's computation of profit was not correct as the land was not developed or sold as stock-in-trade until after 1972. The Tribunal's findings indicated that the land was held as an investment until the company decided to treat it as stock-in-trade in 1972, leading to the proper valuation method being the market rate at the time of conversion. Consequently, the Tribunal ruled in favor of the assessee, determining that all questions referred should be answered in favor of the assessee and against the Revenue.