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TMI Blog2016 (2) TMI 732X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting the A.O. to compute the capital gain u/s.45(2) read with 2(47)(iv) as against the action of the AO in treating the same as business income without appreciating the fact that land shown as investment was converted into stock-in-trade but at the time of sale the property became flat. 3. The brief facts of the case are that the assessee is a company and its nature of business is construction and acquired land time to time during the period 1988-89 to 1998-99. The said land was held by the assessee as investment and the same appeared under the head investment in the books of accounts. In the assessment year 2004-05, the said capital asset was converted into stock in trade and thereafter, flats were constructed on the said land and said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the said land as per the approved valuer's valuation report dated 23.10.2003 was Rs. 10 lakh per cottah. Copy of valuation report is enclosed.As per the provisions of sec 45(2) read with sec 2(47)(iv) no capital gain is payable at the time of transfer of conversion of capital asset into stock in trade. The said capital gain becomes payable at the time when stock is sold. Accordingly no capital gain arose in the year of transfer, i.e. in the financial year 2003-04 relevant to Asst Year 2004-05. After the conversion of the land into stock in trade, flats were constructed and same were sold along with proportionate share of land to the buyers. As per the provisions sec 45(2) read with sec 2(47)(iv) of Income Tax Act assessee computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the flats sold are more than 1000 sft and the asseessee is not entitled to claim exemption U/s 80 IB of the Act. The assessee has shown the value of the land at Rs. 60 laks, but, however the valuation report of the concerned Sub Registrar showed Rs. 5 laks. The provision of section 45(2) read with sec 2(47)(iv) does not become applicable to the present case for the reason that the does deal with land trading and relied on the AO's order. In reply the AR submitted the assessee company had acquired a land during 1988-89 to 1998-99 for the purpose of investment and accordingly was shown as investment in the balance sheet. The same was held as a capital asset till financial year 2002-03 relevant to Assessment year 2003-04. In the financial y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset 10. The plain reading of the provision above speaks that the notional profit arising from transfer by way of conversion of capital asset into stock in trading will be chargeable to tax as capital gain in the year in which stock in trade is sold. For this purpose the fair market value of the capital asset on the date of conversion as stock in trade shall be deemed to be the value of consideration. 11. The special Bench of Kolkata in the case of Octavis Steel and Co. Ltd. v. ACIT reported in 83 ITD 87 (KOL.)(SB) held as below On a plain reading of the aforesaid section 45(2) it is clear that this provision was enacted for computing capital gains in respect of transfer of converted asset into stock-in-trade of a business. It has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto effect from 1-4-1985, when an asset is converted by the owner as stock-in-trade of business, such conversion is to be treated as transfer. Corresponding amendment was made in section 45 for computing capital gain arising out of such transfer. 12. Whereas Mumbai 'D' Bench in the case of Ramesh Abaji Walwaval kar vs ACIT, Range-3 held as below: "Coming to the issue relating to determination of cost of acquisition of 'S' land for the purpose of computing long-term capital gains, as already noted that there was a conversion of capital asset of land into stock in trade by the assessee for the business of real estate development and capital gain arising from the transfer of land by way of such conversion was chargeable to tax in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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