1984 (12) TMI 325 - AT - Income Tax

Summary

Issues Involved:
1. Whether the conversion of the assessee's share in the property into stock-in-trade constituted a "transfer" resulting in taxable capital gains.
2. Whether entering into an agreement with the builders resulted in the transfer of the assessee's share in the property to a partnership or joint venture, leading to capital gains.

Detailed Analysis:

1. Conversion of Property into Stock-in-Trade:

The first issue was whether the conversion of the assessee's share in the property into stock-in-trade on 6-11-1979 constituted a "transfer" resulting in taxable capital gains. The Income Tax Officer (ITO) referred to the Supreme Court decision in CIT v. Bai Shirinbai K. Kooka, holding that the conversion of the property into stock-in-trade resulted in a transfer of a capital asset, generating taxable capital gains. However, the Commissioner (Appeals) disagreed, finding the claim of conversion as "got-up evidence" and "merely a make-believe." The Commissioner (Appeals) observed that there was no evidence of business activities associated with real estate, such as advertisements or business income from Ashok Kapur & Co. The Commissioner (Appeals) concluded that the alleged conversion was a method of evading tax and did not accord with human probability, especially given the property was ancestral and used for self-residence.

The Tribunal agreed with the Commissioner (Appeals), stating there was no material to show the assessee started a business on 6-11-1979. The Tribunal emphasized that transfer requires two parties-a transferor and a transferee-and the ITO's observation that the assessee and his business are two separate identities was irrelevant. The Tribunal also noted that the law, as it stood, did not consider such conversion as a "transfer," and the amendment by the Taxation Laws (Amendment) Act, 1984, was not clarificatory but intended to bring such situations into the taxation net.

2. Agreement with Builders and Transfer to Partnership or Joint Venture:

The second issue was whether entering into an agreement with Ansal Properties & Industries (P.) Ltd. on 19-11-1979 resulted in the transfer of the assessee's share in the property to a partnership or joint venture, leading to capital gains. The ITO and the Inspecting Assistant Commissioner (IAC) held that the agreement constituted a partnership or joint venture, with the assessee contributing his land and the builder incurring construction expenses. The IAC cited decisions from various High Courts, including A. Abdul Rahim, Travancore Confectionery Works v. CIT and Addl. CIT v. M.A.J. Vasanaik, to support the view that introducing a capital asset into a partnership constitutes a transfer.

The Commissioner (Appeals) upheld this view, finding that the agreement envisaged a form of partnership with common possession, exploitation, and sharing of the constructed space. The Commissioner (Appeals) concluded that the assessee transferred his share in the property to a partnership business, resulting in capital gains.

The Tribunal, however, disagreed. It noted that the agreement did not create a partnership but was a principal-to-principal arrangement. The Tribunal highlighted that the agreement explicitly stated there was no partnership, joint venture, or association of persons. The Tribunal found that the assessee continued to be the owner of the property, and the builder had no right, title, or interest in the land until the completion of the construction. The Tribunal emphasized that the ownership of the land remained with the assessee throughout the construction period, and there was no introduction of the property into a partnership or joint venture.

The Tribunal also considered relevant case laws, including CIT v. Hind Construction Ltd. and CIT v. Kartikey V. Sarabhai, but found them inapplicable as there was no partnership or introduction of the property into a firm in this case.

Conclusion:

1. The conversion of the assessee's property into stock-in-trade on 6-11-1979 did not constitute a "transfer" resulting in taxable capital gains.
2. The agreement with Ansal Properties & Industries (P.) Ltd. did not create a partnership or joint venture, and there was no transfer of the assessee's property, leading to capital gains. The assessee continued to be the owner of the property, and the addition in respect of capital gains was deleted.

Result:
The appeal was allowed.