9911796707
TMI Blog2015 (3) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... l land. - Decided against assessee. Computation of capital gain - which is the year in which the capital gain has to be charged - year in which the conversion was made or the year in which the land was sold after the same was converted into stock-in-trade? - Held that:- In the case on hand, the assessee claims that only 188 cents of and was sold in the assessment year 2007-08. No material is available on record in respect of the year in which the remaining land was sold. Therefore, the assessing officer has to ascertain when the remaining portion of the land was actually sold after the same was converted into stock in trade. The capital gain shall be charged in the year in which the land was sold after conversion into stock in trade. Accordingly, the orders of the lower authorities to that extent is set aside and the issue of charging capital gain is remitted back to the file of the assessing officer to find out the assessment years in which the land was actually sold after the same was converted into stock in trade and bring the profit on conversion of the land into stock in trade to capital gain in the assessment years in which the land was actually sold. Apart from the capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for expansion of its factory. According to the ld.representative, the land was situated next to the assessee s factory at Kadayiruppu, Aikaranadu North Village which is a village panchayat and beyond 8 kms radius of municipality. However, the local people objected for the explanation of the factory in the land purchased by the assessee. Accordingly, the proposal for expansion of the factory was dropped and the same was converted into residential flats with an intention to develop villa projects. Since the object of the company does not permit the assessee to do business in real estate by converting the land into residential plots, a resolution was passed on 19-09-2006 to convert the land into residential plots. Accordingly, the said land was converted into residential plots by dividing into plots and part of the plots to the extent of ₹ 1,18,23,750 was sold during the financial year relevant to assessment year 2007-08. According to the ld.representative, the assessee claimed gain on sale of the land as exempt from capital gain since it was an agricultural land situated in the village panchayat. However, the assessing officer brought 50% of the gain on sale of the land as capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of converting the land into a factory site. Though the assessee purchased the rubber plantation, which may be an agricultural land, the assessee never used the land for agricultural activity. Instead of expanding the factory, the assessee divided the land into a housing site for the purpose of promoting villa project. In fact, part of the land was sold in the assessment year 2007-08. According to the ld.DR, even though the land was situated in the village panchayat, the assessee purchased the land and removed the existing rubber plantation for the purpose of expansion of factory, thereafter the same was converted into housing site. The land was divided into housing sites and the same was sold. After purchase of the land, the land was converted into stock in trade in the books of account and the same was sold to several people. Therefore, according to the ld.DR, u/s 45(2), conversion of capital asset into stock in trade is chargeable to capital gain in the year in which the same was converted. On sale of the land, the assessee is liable to pay tax on the income as business income. Therefore, according to the ld.DR, the CIT(A) rightly confirmed the orders of the assessing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Village Officer 20-10-2010 Aikkaanadu North 6. From the above certificate it appears that the land in re-survey Nos 324/1, 324/2, 324/3 324/4 was owned by the assessee company and the same was agricultural land and used for agricultural purpose. The certificate was admittedly issued on 20-10-2010 by village officer, Aikkaranadu North village. However, from the resolution said to be passed by the assessee company on 19-09-2006 as extracted by the CIT(A) says that the land was situated at resurvey Nos. 299/4, 324/2, 324/3, 324/5, 324/1, 324/6 and 299/2 of Aikkaranadu North village. The village officer certifies only resurvey Nos. 324/1, 324/2, 324/3 324/4 belonging to the assessee and it was agricultural land. In respect of land in resurvey Nos.299/4, 299/2, 324/5 and 324/6 there is no material available on record to sugg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said to be issued by the village officer has no relevance in view of the facts admitted by the assessee. Hence, there is no justification in the claim of the assessee that the land is an agricultural land. This Tribunal is of the considered opinion that the subject land is not an agricultural land. 7. Now coming to the issue of capital gain, admittedly, the land was converted into stock in trade by resolution dated 19-09-2006 which falls in the assessment year 2007-08. We have carefully gone through the provisions of section 45(2) of the Act which reads as follows: (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-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purpose of section 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 s a result of the transfer of the capital asset. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 5. What is clear from the above is that transfer or conversion of capital asset into stock-in-trade will attract tax under capital gains and liability arises in the year in which the stock-in-trade after conversion is sold. In this case, admittedly the assessee converted the fixed assets held in the form of land into stock-in-trade in the asst.yr.1992-93 and since the land which had the book value of only ₹ 1,52,909 was revalued at ₹ 18 lakhs and profit of ₹ 16,47,091 was credited in the general reserve, the conversion of land into stock-in-trade which resulted in huge profit to the assessee was assessable to tax under s.45(2) for the previous year relevant for the assessment year in which the land was sold. Admittedly, the land in pieces were sold in the course of three3 qsst.yrs.1993-94, 1994-95 and 1995-96. By virtue of the operation of s.45(2), the should have charged taxable capital gains under s.45(2) in respect of the land sold in each of the assessment years. However, assessments for 1993-94 and 1994-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making investment in exempted income. It is true that Rule 8D was introduced only in the assessment year 2008-09, but even otherwise, the assessee cannot claim any expenditure for earning the exempted income. According to the ld.DR under the Income-tax Act what is allowable as expenditure is only the expenditure incurred in connection with earning income which is taxable. If any income is not subjected to income-tax under the Income-tax Act, 1961, then the expenditure incurred for earning that part of income has to be ignored. Therefore, it is for the assessee, according to the ld.DR, to establish that sufficient interest free funds were available with the assessee for making investment to earn income which was exempted from taxation. 11. On the contrary, Shri Thomson Thomas, the ld.representative for the assessee submitted that the assessing officer disallowed ₹ 1,88,63,289 for the assessment year 2008-09. A similar disallowance was made in respect of interest, bank charges, etc. on the ground that the borrowed funds were used for earning exempt income. According to the ld.representative, the assessee has sufficient capital and reserve as per the audited accounts. When t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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