TMI Blog2013 (4) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Tribunal clearly shows that the material facts relating to the issue under consideration as involved in both these cases are similar in which both the sides had taken similar position. The Tribunal finally accepted the stand of the assessee for the elaborate reasons given in its order in the case of Vidhyavihar Containers Ltd. - there was a conversion of land by the assessee into stock in trade on 15-05-2002 within the meaning of sec. 45(2) and as per the said provision, the profits or gains arising from the transfer by way of such conversion were chargeable to tax as the income of the assessee under the head “capital gains” in the year in which the stock in trade was sold by the assessee. - Decided in favor of assessee. Determination of the year in which capital gain arising from the transfer of land by way of conversion into stock in trade is chargeable to tax. - Held that – Here tribunal made the consideration on the case decided by the Co-ordinate Bench of the Tribunal in the case of Dy.CIT vs. Crest Hotels Ltd. [2000 (2) TMI 788 - ITAT MUMBAI] wherein the capital asset comprising of land and building of the hotel business was converted by the assessee into stock i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate orders passed by the ld. CIT(A)-I, Thane, dated 27-11-2008 and 30-10-2009 for assessment years 2005-06 and 2003-04 respectively involve common issues relating to determination of capital gains arising to the assessee from transfer of plot of land at Sanpada, Vashi, and the same, therefore, have been heard together and are being disposed by this single composite order. 2. The relevant facts of the case giving rise to these appeals are as follows. The assessee is a retired army officer who filed his return of income for assessment year 2005-06 on 30-10-2005 declaring total income of Rs.1,51,08,110/-. For the meritorious service rendered by him in 1965 war with Pakistan, he was awarded 16 acres of agricultural land at Sahabaj Village. The said land was subsequently acquired by the Government and the assessee was compensated in monetary terms for the said acquisition. On further requests and applications made by the assessee, he was given on lease by CIDCO two plots of land one at Sanpada, Vashi, and the other at Nerul, Navi Mumbai as additional compensation for the acquisition of his agricultural land. The plot of land at Sanpada, Vashi, admeasuring 4000 sq. metres was claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the said capital gain, the sale consideration was taken by the assessee at Rs2,49,00,000/- being the Fair Market Value (FMV) of the land at Rs.3,00,00,000/- on the date of conversion to the extent of 83% being FSI transferred after retaining 17% FSI attributable to the constructed area of 20,700 sq. ft. allotted to him. The cost of acquisition of Sanpada land was taken by the assessee at Rs.1,07,90,000/- being 83% of Rs.1,30,00,000/- being the market value of said land on the date of allotment as valued by the Registered Valuer and after deducting the same from the sale consideration, the short-term capital gain of Rs.1,41,10,000/- was offered to tax by the assessee in his return filed for assessment year 2005-06. 4. During the course of assessment proceedings for assessment year 2005-06, the capital gain offered by the assessee was verified by the AO. On such verification, he found that the assessee was not having any prior business exposure or expertise or financial resources to develop the Sanpada land. He also analysed the Development Agreement entered into by the assessee with M/s. Sai Developers and held on such analysis that the land was to be developed by the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,500 sq. ft. of commercial area taken at Rs.1,26,90,000/-. As regards the cost of acquisition of the said land, the AO held that the Sanpada land having been received by the assessee as additional compensation for compulsory acquisition of agricultural land, the same was to be taken at Nil. For this conclusion, he drew analogy from the provisions of sec. 45(5) which provided that the cost of acquisition for additional compensation received upon compulsory acquisition under any law is Nil. Accordingly, capital gain arising from transfer of Sanpada land chargeable to tax in the hands of the assessee was worked out by the AO at Rs.3,84,11,600/- and the same was assessed on substantive basis in the hands of the assessee in the assessment for assessment year 2003-04 completed u/s. 143(3) read with sec. 147 vide an order dated 05-12-2008. The said capital gain was also added by the AO on protective basis in the hands of the assessee in the assessment for assessment year 2005-06 completed u/s. 143(3) vide an order dated 28-12-2007. 6. Against the orders passed by the AO u/s. 143(3) read with sec. 147 for assessment year 2003-04 and u/s. 143(3) for assessment year 2005-06, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional ground so raised has been admitted by us keeping in view that the same involved a legal issue and all the relevant facts necessary for adjudication of the said issue are available on record. 8. We have heard the arguments of both the sides on this preliminary issue involved in assessment year 2003-04 and also perused the relevant material on record. One of the grounds on which the validity of re-assessment made by the AO for assessment year 2003-04 has been challenged by the assessee is that there was no notice issue by the AO u/s. 143(2) during the course of re-assessment proceedings. The ld. DR has not brought anything on record to dispute or controvert the stand of the assessee that there was no notice u/s. 143(2) issued by the AO during the course of re-assessment. He, however, has relied on some Tribunal decisions in support of the Revenue s case that non-compliance of the provisions of sec. 143(2) would not render the re-assessment made by the AO as null and void where jurisdiction was vested in the AO by virtue of the clear provisions of sec. 147/148 itself. The ld. counsel for the assessee, on the other hand, has relied, inter alia, on the decision of Hon ble Bom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l as by the ld. CIT(A) mainly for the reason that there was no business of real estate development actually commenced or carried on by the assessee and it was a case of transfer of land as capital asset simpliciter as per the Development Agreement. In this regard, the ld. counsel for the assessee has explained before us the steps taken by the assessee before entering into Development Agreement by making correspondence with CIDCO for getting approval for the proposed development of the property. He has invited our attention to the said correspondence dated 13-05-2002, 20-05-2002 and 12-06-2002 to show the efforts taken by the assessee much prior to the Development Agreement entered into on 16-09-2002 to obtain the necessary approval of CIDCO for the proposed development of the property. He has also invited our attention to the NOC issued by CIDCO on 21-05-2002 as well as commencement certificate issued by NMMC on 03-08-2002 to show that even prior to the date of Development Agreement, the assessee had taken different steps in the matter of development of his land which, according to him, are sufficient to show that the business of real estate development had not only been commenced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on by the assessee. In our opinion, all the steps taken by the assessee which were very much part of the business activities involved in real estate development are sufficient to show that the business of real estate development was commenced and carried on by the assessee and even the step finally taken by it to entrust the remaining development work to a third party was a part of that business which was done as a matter of commercial expediency. 17. The AO has treated all these steps taken by the assessee to make its property fit for redevelopment as nothing but steps taken by the assessee for disposal of its property. We find it difficult to accept this stand of the revenue authorities. In our opinion, it cannot be lost sight of that a special resolution was passed by the shareholders of the assessee company authorizing commencement of new business, namely, real estate development business in the year 1996 itself and in furtherance to the same, various steps were taken by the assessee company to make its property fit for redevelopment. The user of the land was got converted initially from industrial to commercial and then commercial to residential. Other permissions requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee company itself, the real estate business was already carried on by the assessee and merely because the subsequent work of development of property was entrusted by it to a third party, it cannot be said that the real estate business was never carried on by the assessee. 14. After having held that the business of real estate development was actually commenced and carried on by the assessee, the Tribunal accepted the claim of the assessee that there was conversion of capital asset of land into stock in trade for the purpose of said business within the meaning of sec. 45(2) for the following reasons given in paragraph 19 of its order : 19. Having held that the business of real estate development was duly carried on by the assessee, the next question that arises for consideration is whether there was a conversion of its property by the assessee company into stock in trade within the meaning of section 45(2). As already noted, what section 45(2) envisages the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock in trade of a business carried on by him. In the present case, as demonstrated by the learned counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade, while in the present case involving an individual, an Affidavit-cum-Declaration was made by the assessee before a Notary evidencing the conversion of land into stock in trade. In our opinion, the ratio of the decision of the Co-ordinate Bench of the Tribunal in the case of Vidhyavihar Containers Ltd. thus is squarely applicable to the issue involved in the present case and respectfully following the said decision, we hold that there was a conversion of land by the assessee into stock in trade on 15-05-2002 within the meaning of sec. 45(2) and as per the said provision, the profits or gains arising from the transfer by way of such conversion were chargeable to tax as the income of the assessee under the head capital gains in the year in which the stock in trade was sold by the assessee. We, therefore, decide this issue in favour of the assessee and allow ground no. 1 of the assessee s appeal. 16. The next issue raised in ground no. 2 of assessee s appeal relates to the determination of the year in which capital gain arising from the transfer of land by way of conversion into stock in trade is chargeable to tax. 17. We have heard the arguments of both the sides on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as taken by the assessee at Rs.1,07,90,000/- being 83% of the market value of Rs.1,30,00,000/- of the entire land on the date of allotment as valued by the Registered Valuer. The AO, however, took the same as Nil relying on the provisions of sec. 45(5), while the ld. CIT(A) took the same at Rs.52,000/-, being the premium paid by the assessee for obtaining the said land. As rightly submitted by the ld. counsel for the assessee, a similar issue had come up for consideration before the Co-ordinate Bench of the Tribunal in the case of Atul G. Puranik vs. ITO (132 ITD 499) wherein a similar plot of land was allotted to the assessee as compensation in lieu of agricultural land acquired by the Government under the same scheme called 12.5% scheme and the issue was determination of cost of acquisition of the said plot of land for the purpose of computing capital gains. In this regard, the Tribunal noted that the market value of the plot of land as on the date of allotment is to be considered as full value of consideration at the time of computing capital gain on the first transaction. It was held that once a particular amount was considered as full value of consideration at the time of it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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