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2016 (1) TMI 939 - ITAT CHENNAI

2016 (1) TMI 939 - ITAT CHENNAI - TMI - Conversion of income as Stock in trade - capital gain or business income - Held that:- Admittedly, the assessee, the owner of the capital asset converted the same into stock-in-trade in the year 2005. Though the assessee converted the investment as stock-in-trade, it offered the capital gains from the transaction in these two assessment years as income from capital gains. It is not correct. In our opinion, the Assessing Officer has to compute the income un .....

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rom capital gains and thereafter income has to be computed as income from business. The stand of the assessee right from the beginning and even now before us that capital asset in question are its investment and any gain on sale is capital gain and not business. This is not based on any sound principles.

The assessee has converted the property as stock-in-trade in the year 2005 when it entered into an agreement with Project Engineer and from that date onwards the assessee's landed pr .....

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har, Adv ORDER Per Chandra Poojari, Accountant Member These two appeals of the Revenue are directed against different orders of Commissioner of Income-tax (Appeals)-V, Chennai, for assessment years 2008-09 and 2009-10. Since common issue is involved in these appeals, they were clubbed together, heard together and are disposed of by this common order for the sake of convenience. 2. As the facts are common, we narrate the facts of assessment year 2008-09 in I.T.A.No. 1276/Mds/2011. 3. The facts of .....

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99 at the time of demerger of MPL Parts & Services Pvt. Ltd. by means of a transfer deed duly registered on 03.11.1999. During the assessment year 2008-09 relevant to the financial year ending 31-03-08, the assessee has sold a part of the said land after constructing thereon a IT Park called MPL Infinity. The construction of the said building appears to have started in 2006 after obtaining CMDA permission and after demolishing this service centre. The said building along with proportionate l .....

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jects of the appellant as contained in its Memorandum of Association include as item No:5 "to develop, construct, acquire, lease and maintain Information Technology Parks and Software Development Parks and equip the same with all infrastructure and to deal with the same in any manner". 4) The appellant has developed the land in a planned manner by getting plan permit, building licence, NOC's etc., and this clearly shows that the intention of the appellant was to exploit the land, d .....

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a free of cost, proving the fact that the appellant had plan to develop the land, construct an IT Park and sell the same in order to make hay while the real estate sector was in a boom which is nothing but a business activity. 6) Even before the sale of the IT Park-I in the year 2008 the appellant had not only constructed IT Park-II known as MPL Silicon Towers, but had entered into Develop Agreements with the Purchasers wherein the assessee is stated as a Developer. 5. On appeal, the CIT(A) obse .....

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the following grounds: "2.1 The Ld. CIT(A) erred in directing the Assessing Officer to treat the income out of sale of property under the head Capital Gains as against income considered by the assessing Officer under the head Business. 2.2 The Ld. CIT(A) failed to note that this is not a case of occasional capital gains arising to the assessee but a well planned and organised business course of activity by which the assessee has obtained profits. 2.3 Having regard to the following decision .....

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e, the assessee acquired the said property in the year 1999. According to the assessee's counsel, during the assessment year 2008-09, the assessee sold the building IT Park-I and the income generated from the sale has to be considered as income from capital gains. The assessee-company during the year 2004, that in view of the blooming real estate market and need for Information Technology sector, decided to shift the workshop and service center to a rented premises and construct an IT Park. .....

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assessee converted its investment into stock-in-trade. There was no restriction for the assessee to hold the land either as a business asset or as an investment and also there was no bar on the assessee in undertaking alongwth its business developing IT Park in a land which was originally treated as fixed asset in its books of account. The assessee by entering into an agreement with Project Engineer in the year 2005 for development of IT Park, the assessee converted the fixed asset into stock-i .....

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assessee in the year 2005, after holding the property for long time it want to change the use of the property by developing IT Park. Being so, upto 2005, the asset should be considered as fixed asset and provisions of sec. 45(2) to be applied for the purpose of determining the income. Sec. 45(2) of the Act deals with conversion by owner of a capital asset into stock-in-trade which generates profits or gains. These profits and gains are taxable in the assessment year in which the said stock-in-tr .....

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d the cost of acquisition has to be assessed under the head capital gains. The second step is to find out business income for finding out the difference between the sale price and the market price on the date of conversion of the stock-in-trade. 7. In the present case, admittedly, the assessee, the owner of the capital asset converted the same into stock-in-trade in the year 2005. Though the assessee converted the investment as stock-intrade, it offered the capital gains from the transaction in .....

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