TMI Blog2013 (1) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,000 - 20,000 Total Rs.1,28,10,657 2.1 The assessee had also incurred expenses aggregating to Rs.150.63 lacs as per details given below : F.Y. Nature of expense Amount (Rs. in lacs) 1994-95 Land leveling expense 5.80 1994-95 Boring 0.65 1994-95 Fencing 7.41 1994-95 Consulting charges, advertisement marketing legal fees, traveling and hotel expenses 36.27 1995-96 Stamp duty and registration 0.95 1996-97 Land revenue 0.09 1996-97 Legal expense 0.05 1996-97 Interest capitalized 99.41 Total Rs.150.63 2.2 The assessee claimed that the land had been converted into stock in trade on 31.3.2000. The assessee, therefore, computed the capital gain being difference of market value as on 31.3.2000 and cost of acquisition as long term capital gain under section 45(2) of the Income tax Act, 1961 (the Act). The market value as on 31.3.2000 as per valuer s report was Rs.3.54 crores and indexed cost of acquisition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he land even after conversion to non-agricultural was actually for industrial purposes. The assessee had converted the land into stock-in-trade with a view to commercially exploit the land and such conversion could not be considered as void. The conversion into stock-in-trade had been accepted by the AO in the current assessment under section 143(3) for assessment year 2000-01 and thereafter all along the land had been shown as stock-in-trade and accepted in assessments upto assessment year 2006-07. It was, therefore, not proper for the AO to question the conversion already accepted in assessment year 2000-01. The assessee further submitted though the authorities permitted the use for industrial purpose, it did not mean that the assessee could not carry on industrial activities. The assessee converted land into stock-in-trade to carry out real estate development for providing the property for buyers for industrial purposes. It was pointed out that incident of transfer upon conversion happened in the year of conversion which had become final and only taxability was to be considered in the year of sale. 2.6 The AO however, did not accept the contentions raised. It was observed by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. He, therefore excluded interest cost and computed cost of acquisition at Rs.1,73,57,000/- and short term capital gain was computed at Rs.27,62,93,000/-. 3. The assessee disputed the decision of AO and submitted before CIT(A) that the assessee was engaged in the business of manufacturing of specialized chemicals and in development of real estate. It also submitted that the real estate business had been started by it since 1994 in which year the assessee had contributed land at Malad as its share of capital in partnership firm known as Bombay Properties , a property which was subsequently developed and sold in 1997. The assessee converted other lands situated at Gorgeaon into stock-in-trade and had entered into a joint venture with Mahindra Realities Infrastructure Developers and profit derived there from had been declared as business income. Thereafter on 31.3.2000 the assessee converted land under consideration into stock-in-trade with a view to develop the same commercially in pursuance of Board Resolution. The conversion of land into stock-in-trade was duly mentioned in the notes to the accounts for the year ended 31.3.2000 and the difference of cost and market value on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 63 as per which agricultural land could be transferred for non-agricultural purpose. Therefore, right from the date of acquisition of the land by the assessee, it was considered as non-agricultural land by the revenue authorities, otherwise it could not have been transferred for industrial use. The land had been purchased for industrial use. Merely because the land was shown as agricultural land in revenue records, the same could not be considered as agricultural land in absence of any user of the land for agricultural purposes. For land to be classified as agricultural, it should be meant for agricultural use and should be actually used or ordinarily used for agricultural purposes. The land in this case could not be used for agricultural purpose being in industrial zone. The MOA of the assessee also did not permit agricultural activities. Moreover, the issue of conversion of land into stock-in-trade had already been decided and became final in assessment year 2000-01. 3.2 Therefore CIT(A) agreed with the assessee that the provisions of section 45(2) were required to be invoked for computation of income chargeable to tax as per which the gain based on market value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. As regards conversion in assessment year 2000-01, it was submitted that the issue had not been examined by the AO in that assessment year as it had no impact on computation of income. Therefore, there was no lack of jurisdiction on part of the AO in assessment year 2007-08 in which income was being computed from sale of land to look into issue of conversion as the AO had to examine all aspects relating to computation of capital gain. It was also submitted that the term agricultural land must be interpreted with respect to literal meaning as the same was clear and unambiguous. He referred to the judgment of the Hon'ble Supreme Court in the case of Orissa State Warehousing Corporation Vs CIT (237 ITR 589) in this regard and several other judgments. It was thus argued that land in this case became capital asset only on 27.5.2004 when it was converted into non-agricultural and it was accordingly urged that approach adopted by the AO in respect of short term capital gain should be accepted. 4.1 The ld. AR for the assessee on the other hand reiterated the submissions made before the lower authorities that the area in which the land was situated had been declared by the governme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 86). It was also pointed out that factum of conversion was not in dispute and only applicability of provisions of section 45(2) was disputed. It was argued that the land being non-agricultural which had been converted into trading stock on 31.3.2000, provisions of section 45(2) have to be applied and profit had to be computed under the said provisions in the year of sale. In relation to application of provisions of section 50C, it was submitted that the same were not applicable to computation of business profit and since the provisions were effective from assessment year 2003-04, the same did not apply to computation of capital gain for assessment year 2000-01. It was accordingly urged that the order of CIT(A) should be upheld. 5. We have perused the records and considered the rival contentions carefully. The dispute raised in this appeal is regarding computation of capital gain from sale of land. The assessee had acquired certain plots of land during assessment year 1991-92 to 2003-04 under Bombay Tenancy and Agricultural Act. 1958. The area in which land was situated had been notified by the government as industrial zone. The assessee had been allotted land to be used for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant to the computation of income nor had been specifically examined by the AO. The AO has thus rejected the claim of conversion as on 31.3.2000 as null and void. As per the AO, capital asset came into existence on 27.5.2004 when the land was converted into non-agricultural land and since the same was sold within a period of three years on 25.5.2006. The AO has computed short term capital gain from sale of land. 5.2 Thus the main dispute is 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. We find 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. The claim of the assessee that the land was not meant for agricultural use nor any agricultural activity had been carried on by the assessee on the said land after the date of acquisition has not been controverted before us. The agricultural land has not been defined in the Act. The issue as to what would constitute agricultural la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned with the definition of agricultural land which has not been defined in either of the Acts. 5.4 In view of the foregoing discussion we hold that the 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 for which no dispute has been raised. The assessee was also involved in real estate activities and therefore conversion of the non-agricultural land has to be considered as stockin-trade of the business of the assessee. The conversion of land into stock-in-trade had been duly declared by the assessee in the return for the assessment year 2000-01. 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. We therefore, see nothing illegal about the conversion of land by the assessee into stockin-trade. A copy of the order dated 29.2.1992 of the competent authority as per which the land was acquired by the assessee also did not prohibit the sale of land. It clearly stated that sale of land was permitted for industrial purposes. Since the land was non-agricultural and coul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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