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TMI Blog2022 (2) TMI 1453X X X X Extracts X X X X X X X X Extracts X X X X ..... ed such a situation and has brought on the Statue books the provisions of section 45(2) of the Act by virtue of the Taxation laws (Amendment) Act, 1984 w.e.f 1.4.1985 and there is now a statutory recognition that even asset initially acquired as investment can be subsequently converted into stock-in-trade. Apparently, none of the decisions cited by the Ld.AR considers the impact of the provisions of section 45(2) of the Act, which to our mind, make those decisions distinguishable. As per section 45(2), profits 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 business carried on by him, shall be chargeable to tax as income of the previous year in which such stock in trade is sold or otherwise transferred and for the purpose of section 48, the fair market value of the asset on the date of such conversion shall be deemed to be full value of consideration received or accruing as a result of the transfer of capital asset. Therefore, fair market value of the asset on the date of conversion as reduced by the cost of acquisition is required to be assessed under the head capital gain . Further, sales reali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed. 7. For the above and other grounds that may be urged at the time of hearing of the appeal, your Appellant humbly prays that the Appeal may be allowed and justice rendered. 2 . At the outset, the Ld. AR submitted that the appeal was filed with the delay of 41 days before the Hon ble Tribunal. It was submitted that assessee s counsel Shri S.R. Kiron, Chartered Accountant who was not keeping good health and was also suffering from acute low back pain. The doctors had advised complete bed rest resulting in him not attending his office regularly. He started attending office regularly from 01.02.2019 and immediately took action to file the appeal. The Ld.AR requested that the delay of 41 days neither being deliberate nor being in their control may kindly be condoned. On the contrary, the Ld. DR placed reliance on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. Considering the circumstances under which the delay was caused in filing the present appeal before this Tribunal and that nothing contrary could be established by the revenue before us. We place reliance on following observations b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KIADB allotted industrial land of 15.36 acres at Jigani Industrial Area on Lease-cum-sale basis in the year 2007. The assessee after getting land allotted in its name started its First phase of activity by taking up the construction of medicine manufacturing unit with the financial assistance from State Bank of India. 3.1 The assessee took two years to complete its first phase of project that is construction of building to suit the manufacturing activity of cancer medicine. This covered almost 3.5 acre of land and in the year 2010-11 assessee started commercial operations. 3.2 The Ld.AO noted that within 2 years from the date of its commencement of operations, the assessee treated the loan to be NPA. The assessee submitted before the Ld.AO that it decided to repay loan by selling the unutilised land, which was meant for construction of Hospital. The manufacturing unit utilised 3.5 acres of land leaving an area of about 12 acres as unutilised available for sale. The assessee submitted that the area meant for sale was bigger to sell to any normal industry and hence, the assessee appointed an agency to assist in land disposal. It was submitted that the agency suggested to form approac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer has clearly brought out the intention of the appellant in his order. Further, the doctrine of res-judicata is not applicable to the Income-tax proceedings as each assessment year is independent of each other and identical controversies can arise in two different assessment years. Therefore, the contention of the appellant that the earlier Assessing Officer has treated this transaction as capital gains cannot be accepted. The grounds are therefore not allowed. 5 . Aggrieved by the order of Ld.CIT(A), the assessee is in appeal before this Tribunal. The Ld.AR submitted that ground nos. 1 7 are general in nature. 6. Ground No. 2 is in respect of the treatment by the revenue of the sale proceeds from sale of unutilised industrial land allotted by KIADB to assessee as business profits and adventure in the nature of trade as against capital gains treated by the assessee. 6.1 The Ld.AR submitted that the land was plotted into small plots and provide approach road as assessee was not getting any buyer who could purchase 12 acres of land. 6.2 He submitted that the assessee has been holding plots from 2007 and the asset has been held as long term capital asset and sale pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fields of nuclear medicine, Radiation Therapy, and Medical Diagnostics such as Cyclotron, Radioisotope and Radiopharmaceutical generation such as Technetium-99 and others, Linear Accelerators, Tomotherapy Proton Therapy PET/CT and other diagnostics and High dose radiation. 9. The Ld.DR referring to page 42 of paper book submitted that the land forms part of fixed assets and therefore is to be considered as stock and trade. Supporting the orders of the authorities below, the Ld.DR submitted that assessee in the garb of reducing the losses has sold the lands to earn profit and therefore such activity has been rightly considered as adverture in the nature of trade. We have perused the submissions advanced by both sides in light of records placed before us. 10 . It is the contention of the Ld.AR is that, the assessee never intended to enter into any real estate business/adventure. It was submitted that due to losses incurred by assessee in its business, the land had to be sold for better realisation of the capital asset. It is submitted that for this reason the same is sold after plotting and construction of approach roads. It was submitted that selling of land after plotting it out i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the previous year in which such stock in trade is sold or otherwise transferred and for the purpose of section 48, the fair market value of the asset on the date of such conversion shall be deemed to be full value of consideration received or accruing as a result of the transfer of capital asset. Therefore, fair market value of the asset on the date of conversion as reduced by the cost of acquisition is required to be assessed under the head capital gain . Further, sales realization of the stock-in-trade over such fair market value is required to be assessed as business income . 11.4 In this regard, we refer to the decision of the Hon ble Special Bench of the Tribunal at Calcutta, in case of Octavius Steel Co Ltd. v. Asstt. CIT [2002] 83 ITD 87 (Cal.) (SB), wherein it was held as under: 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 been provided therein that such profit arising from the transfer by way of conversion as stock-in- trade shall be chargeable to income-tax as income of the previous year in which such stock-in-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally sold as stock-in-trade; in other words, not in the year of conversion, but the year of actual sale. In the two cases before the Supreme Court, the decision was that on conversion there is no profit as no one can make profit out of himself. That situation is now taken care of by introducing section 45(2). It provides for taxation where the converted stock-in-trade is sold and the difference between the market value on the date of conversion and actual cost is the capital gain. That was what had been assessed by the Assessing Officer. Accordingly, the order of the first appellate authority was to be upheld. 11.5 We also refer to the decision of Hon ble Mumbai Tribunal in case of Asstt. CIT v. Jehangir T. Nagree reported in (2008)23 SOT 512, wherein it was held as under: .From a careful perusal of the relevant provisions of section 45(2) of the Act, we find that there should be the conversion of investment or capital asset by the owner as stock in trade of a business carried on by him. The words 'business carried on by the assessee' does not mean that before conversion of investment or capital asset in stock in trade the business must be in existence. If the assessee star ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in on transfer of property up to the date of conversion into stock-in-trade has to be assessed under the head capital gains and the gain in respect of property i.e. after the date of conversion into stock-in-trade has to be assessed as business income. As the Assessing Officer computed the entire sale consideration under the head long term capital gains, he did not apply the provisions of Section 45(2) of the Act. Therefore, the Assessing Officer should compute the business income in respect of stock-in- trade of the property, taking into consideration the provisions of section 45(2) of the Act, in accordance with law, after giving adequate opportunity of hearing to the assessee. 22. The provisions of Section 45(2) is a charging section for capital gains. It will apply, whenever a land, which originally was treated as investment and later converted into a stock in trade, is sold or transferred. So the land in this case was converted into a stock in trade in the hands of EML and as demerger is not a transfer, the capital gains under that section is charged when the land was sold by the assessee company. The capital gains accruing on conversion of the land in stock in trade can be de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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