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2018 (5) TMI 1648 - AT - Income TaxAssessability of land sold by the assessee - nature of land - business income or capital gain - assessee submitted land had been converted into stock-in-trade from capital asset - application for getting the land as non-agricultural land for the purpose of carrying on the development on the said land - Held that:- The agreement between the parties is to develop the project and sell tenements / flats to the prospective buyers. Reading the terms of agreement, it is clear that the terms have been agreed between the parties for developing the said plot of land and it is eventually sale to different buyers. In order to safeguard its interest, the assessee as owner of the plot of land had agreed to receive consideration in advance i.e. at the time when the amount is received in part but in advance by the developer. But the said amount received by the developer cannot crystallize the transaction of sale of different flats / tenements to the prospective buyers till the project is completed. The developer M/s. J.K.R. Builders has recognized the completion and sale of developed portion in assessment year 2011-12 and has offered the income to tax in the said year. Consequently, the business profits arising to the assessee were taxable in the hands of assessee in the year when the project was completed and tenements / flats were handed over to the prospective buyers. The year under appeal is the year when the assessee received advance which does not culminate any completion of transaction and assessability of the amount as business profits in the hands of assessee. Accordingly, we hold so. Since the amount is not assessable to tax as his business profits in the year under consideration, the capital gains arising on conversion of capital asset into stock-in-trade is also not to be taxed in the hands of assessee in the year under consideration but in the year in which the business profits are to be taxed. The assessee has offered the said income in assessment year 2011-12 as offered by the developer in assessment year 2011-12. The Revenue has opposed the said by pointing out that the developer had followed the project completion method, which is one of the method for recognizing the revenue. Said method which has been followed by the developer is one of recognizing accrual of income in the hands of builder. Accordingly, we find no merit in the stand of Revenue in this regard. As already held that the capital gains has to be worked out on the basis of fair market value of the property as on the date of conversion and not on the basis of market value of the property. Accordingly, grounds of appeal No.1 to 3 raised by the assessee are allowed.
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