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TMI Blog1989 (6) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant in the Building Projects Division." For examination of the issues in appeal, in their entire perspective the factual background of the case is required to be kept in close focus. This is as under. 2. The assessee is a private limited company incorporated under the Indian Companies Act, 1913 on 20th day of July, 1955. The Memorandum of Association of the Company records various objects for which the company is established. These, inter alia, are to carry on the business of canners and preservers, growers and dealers of fruit, vegetable, herbs, medicines, etc. It is also entitled as per these objects to carry on the business of treating, flavouring, colouring, manufacturing, processing, purchasing and selling and exporting and importing in any manner frozen foods of all description. These objects are recorded seriatim and are quite explicit. Object 8A reads as under : 8A(i) : To purchase, take on lease or in exchange or otherwise acquire any lands and buildings, or flats or any part of the buildings or rights whether in proposed building or in an existing building wheresoever situate, and any estate or interest in, and any rights connected with, any such lands an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A had been obtained. 3. In view of the decision taken by the Board of Directors of the Company to start separate Divisions for processed foods and building projects, it was considered essential that certain changes be made in the fixed assets position of the company by transferring certain fixed assets of the company to the stock-in-trade of "building projects Division". The directors, therefore, decided to transfer the assets from the processed food division to the registered office division at book value. After revaluation these assets were then transferred to the building projects Division. It was also decided "to temporarily suspend food processing activities in the present factory shed and to reorganise the same in another place". Thus, the land and property of the company at Ishwar Nagar, Okhla Industrial Estate, New Delhi was transferred from the fixed assets in the Processed Foods Division through the Registered Office Division to stock-in-trade of the building projects division with the purpose of developing, dealing and doing all acts relating to the commercial exploitation of this property in all its aspects. The properties decided to be so transferred were got valued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT v. Hind Construction Ltd. [1972] 83 ITR 211, the assessee-company has pointed out that the difference of Rs. 23,74,889 again attracts neither capital gains tax nor otherwise in view of the definitions of capital gain given in section 2(47) etc. It has been argued that for a transfer two parties are required i.e., one seller and the other purchaser and no one can sell any thing to oneself. It has been contended that merely because of the conversion of the value of assets lying in the form of investment to stock-in-trade cannot in itself make a transaction for computation of any profit or even capital gain. The contention of the assessee has been considered. " 4. For the year under appeal, the return of income was filed on30th Sept., 1985declaring loss of Rs. 23,68,428. The IAC(A) noted that during the year the assessee-company had two types of business activities, namely, processing of food and vegetables and food products and building and construction of commercial flats. The assessee had prepared separate Profit Loss Account and Balance-Sheet for these two activities and had also submitted a consolidated Profit and Loss Account and Balance-Sheet. In the building projects Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the asst. year 1980-81 and the conversion was not only noted but accepted also. Therefore, by virtue of the ratio decidendi of the judgment of the Supreme Court in the case of CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 for the purpose of determining the profits on sale of goods in which such converted property is used is to be taken at its market value on the date of conversion. Reliance for this proposition was also placed upon the judgment of the Supreme Court in the case of CIT v. Hantapara Tea Co. Ltd. [1973] 89 ITR 258. The ld. counsel for the assessee argued that the authorities below have wrongly interpreted the amendments to section 2(47) and section 45(2) of the Act. It was argued that since conversion was done in the accounting period relevant to the assessment year 1980-81 and the sale has taken place in the accounting period relevant to the asst. year 1985-86, the amended provisions did not apply to the case of the assessee in the manner attempted to be applied by the authorities below. It was emphasised that the amended law will apply to conversion that take place on or after1-4-1985. Therefore, the assessing authority erred in not accepting the commercial results ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1984, w.e.f.1-4-85. Clause (iv) of sub-section (47) provides that transfer in relation to a capital asset to include : (iv) In a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ; Taxation Laws (Amendment) Act, 1984 inserted sub-section (2) to section 45 w.e.f.1-4-1985. The substituted sub-section (2) reads as under : "(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him shall, for the purposes of section 48, the fair market value of the assets on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset." 10. Now, when we come to section 48, we find that it provides mode of computation and deductions and lays down that the income charg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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