TMI Blog1981 (11) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... nd and the factory shed has been shown as fixed assets in the balance-sheet since last several years. Some time in March, 1973, the partnership firm was advised that the said immovable property could be developed by constructing 25,000 sq. ft. of area. Till the date, the said firm had been owning the said property as its capital investment. With effect from 1st Oct., 1973, the partnership firm decided to carry on business of dealing in land and estate and also decided to bring all the said land and the said right to build 25,000 sq. ft. area therein the said business and to develop and exploit the said right in a commercial manner. The partners of the firm, therefore, decided to hold said land and right as stock-in-trade of the said business of dealing in land etc. on and from 1st Oct., 1973. The value of said land as on 1st Oct., 1973 was, therefore, determined by getting a valuation report, valuing the said land at Rs. 3,84,900. The value of the structure which was held as investment was determined at Rs. 92,468 as under: Rs. Value of the shed 42,468 Value of the land 50,000 Total 92,468 As the investment was co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction, shown in the books of accounts, is as under: Trading account Rs. Rs. To Opening stock 6,28,900 By sales 1,25,000 To Gross profit 24,326 By cl. Stock 5,28,226 6,53,226 6,53,226 4. The assessee-firm sold during the accounting period; relevant for the assessment year under consideration, an area of 2500 sq. ft. (industrial Gala) to one M/s/ Vasant Vrajlal Shah in lieu of the construction work, leaving the balance of 12,500 sq. ft. for the purpose of saleable built by area. So, the assessee before the ITO, in the assessment proceedings for the year under consideration, claimed that the assessee had held the said Galas and surrounding land as capital asset of the business and these capital assets had been converted into stock-in-trade. It was further claimed by the assessee that the cost price of the Industrial shed sold (galas) would have to be taken at the market value, after converting the said assets. The ITO did not agree with the assessee's claim as he was of the view that the assessee had sold industrial shed which had been converted into stock-in-tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-firm and one M/s. Vasant Vrajlal Shah for construction of the Industrial Sheds upon the property of the firm; that in view of the above, the finding of the ITO in his order in para 3 that "the assessee has sold Industrial Sheds which have been converted into stock-in-trade" was not correct, since what has been converted into stock-in-trade was the capital asset consisting of the land and the said right to construct 25,000 sq. ft. and additional 70,000 sq. ft. of the area to develop and exploit the said right in a commercial manner; that it was also not correct for the ITO to state that the assessee-firm carried on business earlier and continued the business in different form, as in fact assessing the assessee-firm started the business in dealing in land and estate only from 1st October, 1973; that the ITO wrongly stated that the decision of the Hon'ble Supreme Court in the case CIT vs. Bai Shirinbai K. Kooks did not apply in the case of the assessee; that it was also not true that the activities and sale of industrial sheds was the normal course of business of the assessee-firm; that in view of the above, the amount of Rs. 5,36,432, as stated above, was not taxable. So, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly substituting the figure of Rs. 48,020 for the figure of Rs. 1,06,506 considered by the Income-tax Officer, as profit on sale of Gala." 7. The revenue and the assessee have preferred these cross appeals being dissatisfied with the order of the AAC. Shri A.A. Makhija, ld. Deptl. Rep. in contesting the revenue's appeal, contends that on the facts and in the circumstances of the case and in law, the AAC erred in holding that the cost of industrial galas sold by the assessee was Rs. 76,980 and not Rs. 18,494 as held by the ITO and consequently reducing the profits from the sale of the said industrial galas of Rs. 48,020 as against Rs. 1,06,506 determined by the ITO and that the sale is of the Galas to M/s V.V. Shah not of the land, on which the Galas are standing, and being so, the land is not converted into stock-in-trade. We relie on the paper book containing pages 8. On the other hand, Shri S.P. Mehta, ld. counsel for the assessee, contends that the appeal of the revenue is to be dismissed, and the contentions of Shri A.A. Makhija, ld. Deptl. Rep. referred to above, are to be rejected in view of the fact that when it is the admitted position that the Gala which are standing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Deptl. Rep. contends that the ITO has not accepted the claim of the assessee that the assessment converted the land, referred to above, into stock-in-trade w.e.f. 1st Oct.,1973; rather he merely accepted that the Galas had been converted into stock-in-trade, which means the structure of the Galas and not the land on which the Galas are standing because the land in dispute is belonging to the assessee; so much as that even the transfer-deed between the assessee and M/s. V.V. Shah dt. 12th Oct., 1973 shows that no land has been transferred to him rather the Galas numbering 18 and having an area of 2500 sq. ft. had been sold to him. We do not see any substance in this contention of Shri Makhija, ld. Deptl. Rep. Hence, we reject it and state out reasons. Firstly, the order of ITO is not specific and definite and because if he was not accepting the theory of the assessee of conversion of land into stock-in-trade, then before assessing the income from Galas in the hand of the assessee, he could have determined the relation between the assessee and M/s. V.V. Shah. It was his duty to conclude definitely that the relation between the assessee and M/s. V.V. Shah in respect of the Galas i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out to the assessee for use and occupation for a fixed period and on the expiry of such period, the lessor will take away the material on the construction of the Galas within the appointed time. This is also not there. On the other hand, it is admitted position that the construction of the building in Bombay is in space, i.e. multi-storeyed buildings are being constructed in Bombay either by societies or by owners of the land, and then the flats are sold to the individuals, and such individuals further sell such flats though the land vest either in the society or the individuals, but this does not mean that the owners of the flats are not having any right of ownership in the land; rather, in the case Krishnaraj Jamdas Modi vs. Colaba Land Co.-operative Housing Society Ltd., reported in Maharashtra Law Journal, November, 1979, the Hon'ble Bombay High Court held that on and from the date the society allots the premises to a member, the society creates in him one of the rights which goes with the rights of ownership. Moreover, s. 3(26) of the General Clauses Act, 1897 says that immovable property shall include land, benefits to arise out of land, and things attached to the earth or pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been converted into stock-in-trade in the previous year; relevant for the assessment year under consideration. We are of the opinion that it is merely an area of 25,000 sq. ft. because the assessee brought into stock-in-trade on 1st Oct., 1973 and the area available with it was only 25,000 sq. ft. for bringing into stock-in-trade being an admitted position. No doubt, thereafter, an area of 70,000 sq. ft. was claimed to be available to the assessee for the purpose, and the stand of the assessee is that it was there on 16th Nov.,1974, and it converted the same into stock-in-trade on that day. But the same is not proved from the material on the record, as the Valuation Report of the Valuer regarding it is dated 3rd Feb., 1975, and according to the AAC, the conversion claimed of such land into stock-in-trade is on 16th Oct., 1974; and being so, we reject the stand of the assessee that an area of 70,000 sq. ft. was available to the assessee in the previous year; relevant for the assessment year under consideration, and the same was converted into stock-in-trade on 16th Sep, 1974. Because the materiel on the record does not show that it was available as alleged in view of the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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