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TMI Blog2002 (5) TMI 204X X X X Extracts X X X X X X X X Extracts X X X X ..... erted into assessee's stock-in-trade during the accounting year ended on 31-3-1983. On conversion the market value of the land was estimated by a Chartered Valuer. As per his report, the value of the converted land as on 1-4-1982 was Rs. 27.29 lakh. A multi-storied building was constructed on the said land by the assessee. A portion of the building was transferred to United Bank of India by registered Deed of Conveyance during the accounting year ended on 31-3-1989 relevant to the assessment year 1989-90. 3. In the return of income the assessee had admitted the profit on the sale of building under the head 'Business" at Rs. 12,65,376. According to the Assessing Officer, provision of sections 45(2)/2(47)(iv) of the Act was introduced with effect from 1-4-1985. He was of the view that conversion of the land into stock-in-trade was a transfer within the meaning of section 2(47)(iv) of the Act. According to section 45(2) of the Act, the difference between the sale price and the market value of the land as on the date of conversion was assessable as business profit and the difference between such market value and the original cost of the land was assessable as capital gain under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd for computation of capital gain, the matter was restored to the Assessing Officer. After quoting section 45(2), it observed in paragraph 4 of its order in ITA No. 217(Cal.) of 1990 dated 21-12-1993 as under: "In our opinion the section in unambiguous. The capital gain is attracted in the case of an asset converted from asset to stock-in-trade for the purpose of capital gains, at the point of conversion but at the point of sale or transfer capital gains will be computed and included on the basis of difference between the cost of the capital asset and the market price or value on the date of conversion. And the difference between the market value on the date of conversion and the sale value would be the business income. This has nothing to do with the law applicable on the date of conversion. Both the capital gains and business income would be charged in the assessment year when the sale or otherwise transfer took place. In view of the above, we are of the opinion that the order of the learned CIT(A) should be reversed on this point. However, for justice we feel that in the matter of computation of capital gains i.e., determination of value at the time of conversion should be pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the present circumstances of the case because these cases relate to assessment year prior to insertion of sections 2(47)(iv)/45(2) of the Act with effect from assessment year 1985-86. 8. At the request of the Bench, Mr. G.N. Singh, Advocate appeared to assist the Court as amicus curiae. According to Mr. Singh, the conversion took place during the year ended on 31-3-1983. Construction was completed during the year ended on 31-3-1985. The deeming provisions contained in section 45(2) were not in existence even at the time of construction. Therefore, when the conversion took place before 1-4-1985, section 45(2), has no application since the same came into effect from 1-4-1985. According to Mr. Singh, the word 'transfer' in relation to a capital asset includes the conversion of capital asset into stock-in-trade only with effect from 1-4-1985 when the amendment came into effect under section 2(47) of the Act. In nutshell the submission of Mr. Singh is that since the conversion took place before 1-4-1985, the provision of section 45(2) cannot be applied even if the actual transfer of the converted stock-in-trade by a registered sale deed is taken effect after 1-4-1985. 9. We hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other provisions. Under this subsection (2) of section 45, it is clear that capital gain shall be charged in the previous year in which such stock-in-trade which is known to be so only after conversion, is sold or otherwise transferred. Admittedly, the transfer of stock-in-trade in the present case was effected by way of registered Deed of Conveyance during the present assessment year. Therefore, in our opinion, the first appellate authority was justified in holding that capital gain is to be computed in the previous year even though that conversion was effected before 1-4-1985. This sub-section supersedes provision of sub-section (1) and provides for charging of capital gain in the year when the converted stock-in-trade is sold or otherwise transferred by him. For the purpose of section 48 also this section has provided the method for computing capital gain in such circumstances, i.e., the fair market value of the asset on the date of such conversion shall be deemed to be the full value of the consideration received or accruing as a result of transfer of capital asset. We do not find any ambiguity in the said provision under section 2(47)(iv) which provision also came into eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion as for assessment of income of wife from admission in a firm and income accruing after 1937 from a firm formed before 1937 and before the introduction of section 16(3) in 1937 was answered by the Court as under: "Sub-section (3) of section 16 of the Act was introduced in 1937. For the purpose of its application it is immaterial whether partnership was formed before or after 1937, and whether the transfer was affected before or after that date. However, the sub-section deals only with income arising after its introduction, It clearly aims at following an individual's attempt to avoid or reduce the incidence of tax by transferring his assets to his wife or minor child, or admitting his wife as a partner or admitting his minor child to the benefits of the partnership, in a firm in which such individual is a partner." Similarly, in Raja Ajai Varma v. Assessing Authority [1964] 51 ITR 308, the Allahabad High Court dealing with section 4A of the U.P. Agrl. Income-tax Act, which was similar to section 16(3) of the 1922 Act, observed: "On a plain reading of the section there is little or no scope for the contention that the income for the assessment year after the insertion of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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