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2021 (7) TMI 1083 - AT - Income TaxCorrect head of income - profit on sale of site - capital gain or business income - AO treated the amount received on sale of sites as income from business instead of capital gain and denied exemption u/s. 54F - HELD THAT:- In this case, the purpose and design of assessee in utilization of the land is pointed out towards carrying out adventure in the nature of trade so as to maximise profit from this transaction. As noted earlier, though assessee purchased agricultural land, no agricultural activity has been carried out - as converted into non-agricultural land within 3 months of purchase and later land was converted into small parts of residential units to realise optimum value on sale. The conversion of agricultural land into residential stock in trade of his business of selling the plots of land is for earning profit. In this case, the assessee himself has developed residential plots and then sold it to individual buyers. Therefore, we affirm the findings of the AO that by such plotting of land, the agriculture land has been converted into stock-in-trade in the form of residential plots of assessee’s business. The said conversion and development of residential plots has happened by assessee’s own admission during and the intent of assessee has thus been demonstrated through his own actions. The fair market value of the asset on the date of conversion as reduced by the cost of acquisition is required to be assessed under the head “capital gain” in the year(s) the stock-in-trade is sold or transferred. Sales realization of the stock-in-trade over such fair market value is required to be assessed as “business income”. Therefore, taxability arising on conversion agricultural land into stock-in-trade to the extent it has been sold during the year arises during the impugned assessment year. The matter is accordingly set aside to the file of Assessing Officer to determine the capital gains for fresh consideration in accordance with the provisions of section 45(2) of the Act as well as business income on sale of such plots, after providing opportunity of being heard to the assessee. This issue is accordingly disposed of with the above directions. Appeal of the assessee is partly allowed.
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