TMI Blog2014 (9) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... property does not seem to be stock-in-trade by the execution of the dissolution deed - there is no mode which provides for conversion of stock-in-trade into capital assets except by agreement of parties - the deed of dissolution achieves that objective - In the case of Khatau Valabhdas, the Court was concerned with the division of stock-in-trade i.e. grocery products - the business of the partnership was of builders/contractors and not of buying and selling the land and the partners at the material time were not engaged in any construction activity and no such construction was being carried out on the land - A building was to be put up on the land purchased by the erstwhile partnership firm but the land remained vacant and nothing is done on the land or to the land so as to show it as stock-in-trade and not treat it as capital assets share of the assessee - the Tribunal had no material to come to the conclusion that the land sold by the applicant/ assessee was stock-in-trade and the Tribunal was not justified to treat it as business income – Decided in favour of assessee. - Income Tax Reference No. 268 of 1997 - - - Dated:- 12-9-2014 - S. C. Dharmadhikari And A. K. Menon,JJ. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties agreed that they will repay the loan that they had borrowed for the purchase of land out of their own resources. Effective from the date of dissolution I.e. 1st April, 1985, the parties were retaining the land as co-owners of the lands. The rest of the contents of the deed are not relevant for the present purpose. 6. In the assessment order for the period 1988-89, the assessee filed return of income on 29th June, 1988 showing the income of ₹ 15,49,110/-. He claimed long term capital gains in the sum ₹ 8,22,754/. The assessing officer recorded that the above two plots were sold by the alleged co-owners on 16th September, 1987 to M/s. Abhishek Construction Co. for a consideration of ₹ 37,50,000/- and profit on the sale of these two plots have been claimed by the assesses as well as Smt. Amrutben Chedda as long term capital gains. 7. On behalf of the assessee, it is submitted that the plots of land in question were not stock-in-trade but capital assets. The assessing officer treated the same as business income after providing for deduction of amounts of stamp duty, costs and registration fees and capitalization interest, etc. and arrived at a figure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal held that in the absence of conveyance of the land in the individual names of the partners, they could not be treated as co-owners and the consequent gains could not be assessed as long term capital gains but as stock-in-trade. The Tribunal was of the view that the lands were brought with the intention to develop and carry out construction as builder and contractor. The character and nature of the land continues to be in the hands of the co-owners as such and constituted stock-intrade of the partnership firm and the same was the gain from the business income. 11. We have heard Dr.Shivram, learned Senior Counsel appearing on behalf of the Applicant and Mr.Suresh Kumar, learned counsel appearing on behalf of the revenue. Dr.Shivram submitted that when the dissolution took place, the land became the absolute property of two individuals in equal shares which they subsequently disposed of by a single document, namely conveyance executed on 16th September, 1987 in favor of M/s.Abhishek Construction Co. Dr. Shivram, then, submitted that the gains from the conveyance of the property constituted long term capital gains in view of the fact that the gains were made from sale of capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains . 15. While determining the question, the Court observed that it should be borne in mind that grocery articles are not purchased by trader by way of investment to acquire a capital asset, but they are always purchased as stock-in-trade. They are purchased to be resold as a part of a scheme of profit making. The commodities sold were stock-in-trade of the partnership firm and unless there was something to indicate that the assessee had intended to hold the stock as capital, it would have to be held that the sale of grocery articles was made as part of trading activity. 16. Dr.Shivram, then, relied upon the decision of Gujarat High Court in the case of 158 ITR 540 Ramjibhai Dahyabhai V/s. Commissioner of Income Tax. The Gujarat High Court has considered the decision of this Court in Khatau Vallabhdas in which the case under the deed of dissolution of a partnership firm dealing in grocery, the stock-in-trade was divided amongst the partners who agreed to pay the same at cost. 17. As against this, Mr.Suresh Kumar submitted that the property was at all times stock-in-trade of the erstwhile partners of the firm and after the dissolution of the partnership, the partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of land (1) bearing survey No.14, Hissa No.3, admeasuring 8016 sq.mts. and survey No.15, Hissa No.2 (Part) admeasuring 4406 sq.mts. at village Diwanman Taluka, Vasai, Dist. Thane as per conveyance deeds executed with vendors on 2nd April, 1982... ... AND WHEREAS the parties hereto have now decided to convert the partnership assets i.e. individual co-ownership 2 plots of land as their personal capital assets.... From the recitals which precede clause (3), it is clear that at the material time i.e, the parties treated two plots of land as stock-intrade and it is only at the time of dissolution, they agreed to convert the partnership assets i.e. having co-ownership of the two plots into a personal capital asset. The property in the hands of the partners, therefore, did undergo change in nature by way of conversion of property into capital assets from its earlier nature of partnership property. Thus, in terms of the judgment of Khatau Vallabhdas (supra), the property did undergo a change in its nature and, therefore, became eligible for being treated as capital asset subject to all other applicable provisions of law. In this respect, the fact of non registration need not enga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets and invested the sale proceeds in specified assets. It was held in that case that the amount of depreciation availed of by the erstwhile firm, was not liable to be brought to tax in the hands of the assessee. 23. The next judgment relied upon by Dr.Shivram is 198 ITR 131 Gulabrai Hanumanbox V/s. Commissioner of Wealth Tax in which the facts pertain to the house property jointly held in equal shares by the assessee and other co-owner for the assessment year in question. In the assessment order, the report of the valuer of the assessee was accepted and the share of the half property in the case of co-sharer was taken for a particular amount. The assessee in question then sought the same benefit as given to the co-owner. In that case, we find that the transaction of the co-sharer was entitled to the benefit, then the assessee will be similarly placed and it would be highly improper to burden a co-sharer with higher rate of tax and if such an action is sanctioned, it would militate against the principles of equality of laws enshrined in article 14 of the Constitution. This in our view, is not relevant in the present case since there is no evidence that the cosharer was gi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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