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TMI Blog2005 (6) TMI 236X X X X Extracts X X X X X X X X Extracts X X X X ..... ed an area measuring 7995 sq. ft. on which the showroom of Kamal Co. was functioning. The assessee and his wife were in receipt of rent from Kamal Co. in respect of the said property @ Rs. 300 per month and Rs. 900 per month, respectively. 4. The assessee and his wife in the year 1989 decided to construct a multi-storeyed commercial complex at the said land by demolishing the existing structure for improvement of capital value of property so as to convert low yielding asset to high yielding asset without involving substantial funds. Accordingly, on 15th Dec., 1989, they entered into an agreement with Kamal Co., whereby the said tenant was persuaded to vacate the property for the purpose of constructing the multi-storied commercial building; it would be provided the basement of 6000 sq. ft. and ground floor area of 6000 sq. ft. with mezzanine area of 1500 sq. ft. within 24 months and in turn the rent payable by Kamal Co. would be increased to Rs. 3,000 per month to the assessee and Rs. 6,750 per month to Smt. Ratan Devi Kasliwal. 5. Under the above arrangement of providing the property to tenant, Kamal Co., the assessee started demolishing the old building in December, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft. area of the second floor to various persons for an aggregate consideration of Rs. 22,47,800. In the return filed by the assessee, he calculated the long-term capital gain in respect of the proportionate land area embedded in such sale and short-term capital gain in respect of the building part. The AO was however of the view that as soon as the assessee decided to construct the multi-storied commercial complex by demolishing the existing structure in the year 1990 there has been a conversion of capital asset into stock-in-trade under s. 45(2) and accordingly he calculated long-term capital gain in respect of land by taking the fair market value of land portion in the year 1990 and the remaining difference was taxed as business income. 10. The AO has concluded that the present transaction is an adventure in the nature of trade for the following reasons: (a) The activity is of commercial nature and with a motive to earn profits even though there is no allied existing activity of the assessee. (b) The assessee took his wife into confidence for joint construction and entered into an agreement with Kamal Construction Company for carrying out the construction work. (c) M/s K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties have relied upon, the uncontroverted facts are that the impugned property was owned by the assessee, Kamal Chand Kasliwal and his wife Smt. Ratan Devi Kasliwal, which was occupied by M/s Kamal Co., a family concern consisting of Kamal Chand Kasliwal and his other family members at a rent of Rs. 300 per month and Rs. 900 per month and it is also a fact that existing property remained not an existing property, but was demolished in 1990 and a permission was sought from the Jaipur Development Authority, on our clarification, for making a commercial complex from commercial point of view, comprising of basement, ground floor, mezzanine floor, first floor, second floor, as a total floor area was 28568 sq. ft. which was incommensurate with the maximum permissible area permitted at that time. The covered area increased from 7995 sq. ft. to 26550 sq. ft. and it is also a fact that the total area including common lifts, entrance lobby on IIIrd and IVth floors was 28568 sq. ft. The assessee increased the rent of the area which was with Kamal Co. and further gave on rent to various other tenants, i.e., 155 sq. ft. at a rent of Rs. 13,820 per month and 3215 sq. ft. at a rent of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital value can be increased by making additions/modification or alteration but not by destroying the very identity of the assets and creating a new asset altogether and giving at a low rent to the family concern and to other tenants at higher rent does not make it an arm's length transaction. The sale of the balance space to various persons as per cost appearing at p. 3 of A-3 of paper book, further indicates that the building was a commercial building, for a commercial purposes. The provisions of s. 45(2) which read as under: "(2). Notwithstanding anything contained in sub-s. (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-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of s. 48, the fair market value of the asset 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" Are clearly applicable in the present case as m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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