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2018 (1) TMI 130 - AT - Income TaxCapital gain - effective date of Conversion of capital asset into stock in trade - whether the industrial land held by the assessee was converted into stock-in-trade on 1st April 2002 (as held by the Assessing Officer) or on 1st April 2006 (as contended by the assessee) - Held that - It was only in financial year 2000-01 that the assessee had sought permission for converting the said land from industrial to residential but this does not imply that the assessee had converted the land into stock-in-trade during the financial year 2000-01. We find merit in the contention of the assessee that the land was converted from capital asset to stock-in-trade only during the year under consideration i.e. FY 2006-07 and not any time before that because the language of section 45(2) of the Act provides that capital asset held by the owner is converted by him into stock-in-trade or capital asset is treated as stock-in- trade by the owner and in both the situations the emphasis is on the treatment given by the owner of the capital asset. Thus till the time the owner himself either converts the capital asset into stock-in-trade the provisions of section 45(2) of the Act will not be attracted. Thus what is provided is that only positive act/conduct of the owner assessee in applying/treating a capital asset into stock-in-trade is relevant to determine the applicability of section 45(2) of the Act. We also agree with the assessee s contention that since the assessee had applied for obtaining permission from the Ghaziabad Development Authority (GDA) Ghaziabad for conversion of industrial land into residential land during financial year 2002-03 the land cannot be treated as converted in the financial year 2002-03 as in terms of section 45(2) of the Act the conversion takes place only by the voluntary act of the assessee for such conversion and a mere act of seeking permission for conversion of land use will not come within the definition of transfer . Therefore we hold that the industrial land was held as capital asset till assessment year 2007-08 and the same was converted into stock-in-trade only in the financial year 2006-07 and not in assessment year 2003-04 as contended by the department. Determination of Fair Market Value of the industrial land as on 01.04.1981 - Held that - Assessing Officer adopted value of 20/- per sq yd which the Ld. CIT (A) himself has rejected on the ground that the value of 20/- per sq yd as intimated by the UPSIDC was not applicable to the assessee s case as the assessee s land did not fall under the UPSIDC area. We find no reason to interfere with the findings of the Ld. CIT (A) in this regard as this finding is duly supported by letter from the UPSIDC dated 17.12.2009 addressed to the ACIT Ghaziabad which mentions that the assessee s land did not come under the jurisdiction of the UPSIDC. Thus the sole ground in department s appeals in both the years stands dismissed. Computation of long term capital gain - whether the figure of 100/- sq yd being the circle rate as adopted by the ld. CIT (A) is to be sustained or the value of 190/- per sq yd as contended by the assessee - Held that - Although the assessee has duly been following up the matter pertaining to the issuance of completion certificate the transfer of ownership of the open areas/facilities in terms of clause (iv) of the agreement is still not complete as per the letter dated 25.09.2012 issued by the GDA. It is also pertinent that these additional evidences filed by the assessee have not been examined by the lower authorities. Therefore while we do agree with the assessee s contention that the Fair Market Value as on 1.4.1981 should be enhanced so as to include the cost of unsaleable area in terms of open space/facilities etc. the issue will necessarily have to be decided by the Assessing Officer after duly considering the valuation report submitted by the assessee supporting the Fair Market Value of 190/- per sq yd as neither the Assessing Officer nor the Ld. CIT (A) have commented upon the same. We also hold that should the assessee be able to demonstrate before the Assessing Officer that the transfer of ownership of unsaleable area has taken place as contemplated in clause (iv) of the agreement the assessee should be allowed due weightage of the same while computing the market value of the same as on 1.4.1981. Accordingly ground nos. 2 2.1 and 2.2 for both the years in assessee s appeal stand allowed for statistical purposes.
Issues Involved:
1. Conversion of industrial land into stock-in-trade. 2. Determination of Fair Market Value (FMV) of land as on 01.04.1981. Issue-wise Detailed Analysis: 1. Conversion of Industrial Land into Stock-in-Trade: The primary issue was whether the industrial land was converted into stock-in-trade on 01.04.2002 (as held by the Assessing Officer) or on 01.04.2006 (as contended by the assessee). The assessee argued that the industrial land was held as a capital asset till the assessment year 2006-07 and was converted into stock-in-trade only in the financial year 2006-07. The following facts supported the assessee's claim: - The land was held since 1940-41 and housed the Ghaziabad Vanaspati Unit, indicating it was not acquired for sale but for use as a capital asset. - The sale of land was part of a rehabilitation scheme framed by the Board for Industrial Finance and Reconstruction (BIFR). - Financial statements from 2003 to 2006 showed the land as a capital asset. - Wealth tax returns filed for assessment years 2003-04 to 2006-07 showed the land as a taxable asset, with substantial wealth tax paid. - The Memorandum of Association was amended in September 2005 to include real estate as one of the main objects. - The audited financial statements for 2007-08 showed separate results for real estate for the first time. The Tribunal concluded that the industrial land was indeed held as a capital asset until the assessment year 2006-07 and was converted into stock-in-trade in the financial year 2006-07, not in 2002-03 as held by the Assessing Officer. This conclusion was supported by a judgment from the Hon’ble Allahabad High Court in the assessee’s own case, which held that there was no conversion of the capital asset into stock-in-trade in the financial years 2002-03 to 2005-06. 2. Determination of Fair Market Value (FMV) of Land as on 01.04.1981: The second issue was the determination of the FMV of the land as on 01.04.1981. The assessee had claimed the FMV at ?190 per sq. yard based on a valuation report from a registered valuer. The Assessing Officer rejected this valuation and adopted ?20 per sq. yard as intimated by the Uttar Pradesh State Industrial Development Corporation (UPSIDC). The CIT (A) determined the FMV at ?100 per sq. yard based on the existing circle rate. The Tribunal noted that the Assessing Officer's adoption of ?20 per sq. yard was not applicable as the land did not fall under the jurisdiction of UPSIDC. The Tribunal agreed with the principle that the FMV should be proportionately enhanced due to the reduction in the saleable area of the land. The saleable area was only 46,232 sq. yards out of the total 77,638 sq. yards, with the remaining area occupied by parks, roads, pavements, drains, and public utility services which were to be transferred to the Ghaziabad Development Authority (GDA) without consideration. The Tribunal directed the Assessing Officer to re-examine the issue of FMV, taking into account the valuation report submitted by the assessee and the additional evidence provided. The Tribunal emphasized that the FMV should be appropriately enhanced to reflect the reduced saleable area. Conclusion: The Tribunal allowed the appeals of the assessee, holding that the industrial land was converted into stock-in-trade in the financial year 2006-07 and directed the Assessing Officer to re-determine the FMV of the land as on 01.04.1981 after considering the additional evidence and the valuation report. The appeals of the department were dismissed.
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