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2013 (1) TMI 427 - AT - Income TaxShort term capital gain arising out on transfer of land - assessee had acquired certain plots of land during assessment year 1991-92 which was converted into stock-in-trade on 31.3.2000 by passing a Board Resolution - whether on 31.3.2000 when the land had not been converted into non-agricultural land, it can be considered as a non-agricultural land and whether the conversion by the assessee into stock-in-trade was legally valid? - Held that:- Even though the land had not been converted into non-agricultural land on 31.3.2000, there is no dispute that the land was situated in the industrial zone and was meant for industrial use. As decided in CWT Vs Officer-in-charge (Court of Wards) (1976 (8) TMI 2 - SUPREME COURT), that for a land to be agricultural, it was required to be shown its connection with agricultural purpose and user and not merely possibility of usage by some future owner. Also that the entry in the revenue records though prima facie constituted good evidence but was not conclusive in determining the true nature of land. In the present case, no connection of the land to the agricultural purposes or user is established. In fact, land was not meant for agricultural purposes and had also not been used by the assessee for agricultural purposes. Thus, even though the land had not been converted into non-agricultural it remained non-agricultural land. The conversion into non-agricultural land was necessary for the purpose of usage of the land for industrial purpose and merely because the land was not converted the same could not be considered as agricultural as there was no connection of the land to the agricultural purpose and user. Argument of the DR that since land was beyond Municipal limits the same has to be considered as agricultural cannot be accepted as it is not the location of the land but its connection with agricultural purpose and user which makes it agricultural. The term “agricultural land” has not been defined either in the Income tax Act or in Wealth Tax Act, therefore, tests laid down by the Hon'ble Supreme Court to determine the true nature of land in a case relating to Wealth tax Act will be equally applicable in case of Income tax Act. Thus land was non-agricultural on the date of conversion on 31.3.2000 and, therefore, a capital asset. The conversion into stock-in-trade was supported by Board Resolution & also declared by the assessee in the return for the assessment year 2000-01. The assessee was also involved in real estate activities and therefore conversion of the non-agricultural land has to be considered as stock -in-trade of the business of the assessee. The notes to the audited accounts also mentioned this fact and differences between cost of land and market value had been credited into capital reserve. Therefore, see nothing illegal about the conversion of land by the assessee into stock -in-trade - no infirmity in the order of CIT(A) in applying the provisions of section 45(2)& provisions of section 50C will not apply to computation of capital gain on conversion of land in assessment year 2000-01 as the said provisions were effective only for assessment year 2003-04 - in favour of assessee.
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