TMI Blog2006 (5) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... time, the agricultural land owned by the assessee was converted into stock-in-trade. ( iii )Whether deduction is available to the assessee on account of various expenses incurred, while computing income under the head business income. 2. Vide letter dated 28-4-2006, the assessee seeks admission and adjudication of the following additional grounds of appeal : ( i )On the facts and circumstances of the case, the ld. CIT(A) erred in not considering the relevant material, i.e., Hon ble Bombay High Court judgment in the case of CIT v. V.A. Trivedi [1988] 172 ITR 95 1 . ( ii )The ld. CIT(A) erred in considering the irrelevant material i.e., Hon ble Supreme Court judgments in the cases of P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735; CIT v. Vyas Dhotiwala [1959] 35 ITR 55 and Raja J. Rameshwar Rao v. CIT [1961] 42 ITR 179. The ld. counsel, Shri Dastur, was fair enough to concede that the aforesaid additional grounds do not survive on account of the ITAT s order dated 31-10-2000 in the case of the assessee for the assessment year 1994-95 in ITA No. 2108/Mum./98 (copy at pages 135 to 152 of the Paper Book). Accordingly, the additional grounds are dismi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or construction of dwellings (copy of MoUs at pages 49 to 67 of the PB). On 16-11-1992, the executors entered into agreements with the purchasers for sale of sub-plots and sample copy of such agreement is at pages 91 to 100 of the PB. On 16-11-1992, a tripartite agreement was entered into among the executors, the contractors and the purchasers for construction of dwellings on the said plots. A sample copy of the agreement is at pages 101 to 107 and 108 to 114 of the PB. 4. The income arising to the assessee on the sale of the plots was offered for taxation as capital gains in the return of income filed for the assessment year 1994-95. The Assessing Officer accepted the assessee s claim that the income was chargeable to tax under the head capital gains and accordingly the assessment was made on 27-3-1997. The Commissioner of Income-tax, Central-III, Mumbai set aside the aforesaid assessment order under section 263 of the Income-tax Act on 5-2-1998. It would be appropriate to reproduce below the relevant part of the CIT s order from pages 12 and 13 of his order : "Treatment of the sale proceeds as capital receipts has resulted in under assessment of income, thereby rendering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re would be no loss to the revenue is bereft of any substance. Assuming that it is so, the CIT having been given directions to the Assessing Officer to consider the claim of the assessee while framing the fresh assessment, the assessee should have no cause of grievance. The Assessing Officer is bound to compute the business income in accordance with law and if the computation of income is less than the income assessed by the Assessing Officer, the assessee is bound to be benefited. Since it is not so, the parties are pursuing the litigation. We are therefore of the considered view that the decision of the CIT in holding that the order of the Assessing Officer was erroneous and prejudicial to the interests of the revenue is in order and we find no justification to interfere." 6. In the backdrop of the above-mentioned factual scenario, we have heard both the sides and have carefully gone through the relevant facts as emerging from the record. Shri Dastur pointed out, at the outset, that the most important question to be decided in this case is as to at what point of time the agricultural land was converted into stock-in-trade. The answers to other controversies involved in this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT DR, Shri Indra Kumar, strongly supported the orders of the revenue authorities and reiterated that the offer was made by the original owner in the year 1979 for conversion of the agricultural land into stock-in-trade. It is, therefore, contended that the ld. CIT(A) has rightly held that the conversion took place in the year 1979. 8. We have given a careful consideration to the rival submissions and in our view there is hardly any basis for holding that the agricultural land automatically got converted into stock-in-trade in the year 1979. In the year 1979, the original owner of the agricultural land only expressed his intention and offered to construct the dwellings for weaker sections of the society on the surplus land and he submitted application under section 21 of the ULC Act. In our view, mere expression of intention or mere making an offer does not in any way change the character of the land. The land continued, for all practical and legal purposes, to be agricultural land and even agricultural operations were carried out till the year 1981. The user of the land cannot be changed unless final approval is received from the competent authority for conversion of agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me under the head capital gains. The computation of income under the head capital gains is to be under section 48 of the Income-tax Act. Accordingly, under section 48, the full value of the consideration shall be deemed to be the fair market value as on the date of conversion and the cost of conversion and the cost of any improvement shall be deducted. If the asset has been acquired prior to 1-4-1981, the fair market value as on 1-4-1981 has to be adopted as cost of acquisition. After determination of income under the head capital gains, the second step would be to determine the business income arising from the sale of stock-in-trade, which would be the difference between the sale consideration and the fair market value as on the date of conversion. This is the scheme of section 45(2) of the Income-tax Act. In our view, the revenue authorities have erred in bringing to the charge of tax the entire sale consideration as business income. As mentioned above, the income has to be bifurcated between capital gains and business income as mandated under the provisions of the Income-tax Act. Therefore, with regard to the first issue, we feel that the income has to be brought to the charge o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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