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TMI Blog2022 (2) TMI 770X X X X Extracts X X X X X X X X Extracts X X X X ..... he hypothetical buyer in the hypothetical market. For example and for the purpose of income-tax Act, this has been explained and elaborated in section 55 wherein specified date for cost of construction as also for substituting the fair market value for cost of construction is given, like in the present case before us, where the conversion took place as on 20.02.2012. The fair market value can be determined by taking the surrounding circumstances like sale instances of the area, urbanization of that area, future prospects, valuation of similar properties by the Revenue Department or scope of industrialization or growth of these can be considered by determining the fair market value. But for this purpose, the fair market value if could not be ascertained by the Income Tax Officer, the same can be referred to a technical person as conceded by both the sides. Hon ble Supreme Court in the case of Groz-Beckert Saboo Ltd [ 1978 (11) TMI 2 - SUPREME COURT ] we are of the view that this matter needs reconsideration just to ascertain the fair market value of assessee s agricultural land of 7.54 acres converted into stock-in-trade and held as capital asset. The AO has to refer this ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough Agreement for sale deed dated 20.02.2012. 3 20.02.2012 5.62 acres @ ₹ 27 lakhs per acres 151.74 Purchase of agricultural land as stock-in-trade from Mr.T. Venkatesan through Agreement for sale deed dated 20.02.2012 4 20.02.2012 6.06 acres @ ₹ 27 lakhs per acre 163.62 Purchase of agricultural land as stock-in-trade from Mr.T. Ramanikanth through Agreement for sale deed dated 20.02.2012 Total 29.67 801.09 The assessee before the AO claimed that he has purchased agricultural land at Sl.No.2,3 4 at the prevailing market rate of ₹ 27 lakhs per acres. But this prevailing market rate is much higher than the guideline value fixed by the Stamp Valuation Authority for registering the sale deed i.e., ₹ 51,500/-. The AO noted the fact that the assessee has converted his own agricultural land as stock-in-trade and the same was held as capital asset in the name of the assessee admeasuring 7.54 acres. The AO noted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has considered the entire layout of 29.67 acre for application of guideline value for conversion. Out of the above 29.67 acres, only 7.54 acre is conversion of capital asset into stock in trade. Rest was purchased as stock in trade. For the purchase of stock in trade, the actual consideration was rightly considered by the appellant. Therefore, the AO shall compute the value based on guideline value only for 7.54 acres. Interest under 234A, B and C may be computed as per law. Aggrieved now assessee is in appeal before the Tribunal. 5. Before us, the ld.counsel for the assessee Shri Vijayaraghavan took us through the provisions of section 45(2) of the Act, wherein the legislature has brought into concept of fair market value of the asset as on the date of conversion and that shall be deemed to be the full value of consideration received or accruing as a result of transfer of such capital asset. The ld.counsel has stated that the agricultural land is a capital asset because it is converted as stock-in- trade and it has to be valued in term of the provisions of section 45(2) of the Act. The ld.counsel stated that the fair market value cannot be the guideline value as set out by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The fair market value has been defined in the provisions of section 2(22)(B) of the Act, in relation to a capital asset and which means the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date. 7.1 We noted from the case law of Hon ble Supreme Court relied on by the assessee in the case of CIT vs. Bai Shirinbai K. Kooka, (1962) 46 ITR 0086, wherein the issue of adoption of fair market value is discussed by the majority view as under:- 11. In an earlier part of this judgment we have taken pains to point out the distinction between Kikabhai s case (supra) and the case under our consideration. In view of that distinction, we do not think that it is really necessary in the present case to re-examine the ratio of the decision in Kikabhai's case (supra). What then is the basis for computing the actual profits in the present case? We think that the basis must be, as the High Court has put it, the ordinary commercial principles on which actual profits are computed. We think that the approach of the High Court was correct and normally the commercial profits out of the transaction of sale of an article must be the difference between wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business as part of its stock. If that be so, the cost of these raw materials and semi-finished needles to the business could not be said to be nil, but, on the principle laid down by this Court in CIT vs. Bai Shirinbai K. Kooka (1962) 46 ITR 86 (SC) : TC14R.129, and subsequently followed in CIT vs. Hantapara Tea Co. ~td. (1973) 89 ITR 258 (SC) : TC17R.1227, it would be the market value of these raw materials and semi-finished needles as on 30th Sept., 1961. It is now well settled by these decisions that where an assessee converts his capital assets into stock-in-trade and starts dealing in them, the taxable profit on the sale must be determined by deducting from the sale proceeds the market value at the date of their conversion into stock-in-trade (since this would be the cost to the business) and not the original cost to the assessee. Here, the original cost of these raw materials and semi-finished needles to the assessee was undoubtedly nil because these goods were received by the assessee from the West German collaborators free of cost, but they were introduced in the business and converted into its stock on 30th Sept., 1961, and, therefore, their market value as on 30th Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 1962, that these amounts were transferred to the credit of the capital reserve account. But that cannot make any difference to the correct legal inference to be drawn from the proved facts because the nomenclature of the account or accounts in which the credit entries were made is not material but what is really decisive is that these amounts were debited to the respect accounts of Wire and Strip and Semi Processed Needles as representing their real value on 30th Sept., 1961. These raw materials and semi-finished needles were introduced in the business as part of its stock at their real value represented by the sums of ₹ 44,448.20 and ₹ 30,000. The aggregate amount of ₹ 74,448.20 made up of ₹ 44,448.20 and ₹ 30,000 was, therefore, liable to be deducted in determining the profit of the business and it was rightly debited to the trading account. 7.3 We have gone through the definition given in the Act in the provision for section 2(22B) of the Act, whereby it is defined that as to how the fair market value is to be substituted in place of cost of acquisition. According to Section 2(22B) of the Act, it is the price which the capital asset wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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