TMI Blog2018 (2) TMI 2028X X X X Extracts X X X X X X X X Extracts X X X X ..... duly executed and assessed by stamp valuation authorities. All these facts taken together shows clearly that the assessee has taken affirmative steps and actions where he has got the land use changed to residential and converted his resort land into residential stock-in-trade of his business of selling the plots of land for earning profit. The very nature and purpose of the resort land has been changed and such change is an irreversible change where very nature and purpose of the land has been changed from resort to residential. It is not a case that the buyers have acquired resort plots and subsequently changed it to residential use. In this case, the assessee itself has sought land use conversion and developed residential plots and then sold it to individual buyers as residential plots. Therefore, we are of the view that by such plotting of land, the resort land has been converted into stock-in-trade (in form of residential plots) of assessee s business. The development of residential plots and said conversion has happened by assessee s own admission during financial year 2009-10 and the intent of the assessee has thus been demonstrated through his own deeds and actions. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee derives income from interest, rent and share trading. He filed the return declaring income of ₹ 58,68,080/- which included long term capital gain of ₹ 32,73,855/- after claiming deduction u/s 54 of ₹ 20 lakhs. 2.1 In course of assessment proceedings, assessee explained that he was having a land at Khasra Nos. 9, 12, 26 and 27 at Village Livari, Ajmer which was purchased by him for ₹ 4,40,000/- from Shri Madan Mohan Batwara on 17.10.1996. On this land, there was an agricultural connection and the land was used for agricultural purpose as is evident from Khasra Girdavari. The assessee has shown the said agricultural land in his personal Balance Sheet under the head fixed assets and agricultural income was also declared in the return of income for AYs 2003-04 to 2005-06. 2.2 In the meanwhile, the assessee applied for conversion of this agricultural land for use of resort to Urban Improvement Trust, Alwar and accordingly a lease deed was executed on 04.07.2003 for converting the said plot of land as a resort plot. A residential house over a part of the said land was constructed in the year 2003 for the assessee s own use as well as let out purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the entirety of the case vide order dated 24.11.2014 held that the profit earned on sale of plot has to be assessed as income from capital gain. Thus once this issue is decided by the predecessor Ld. CIT(A) in favour of the assessee, without any distinguishable facts, the Ld. CIT(A) was not justified in holding that the income from sale of plots during the year is to be assessed as business income. It is a settled principle of law that the appellate authorities should respect the orders of other authorities in same hierarchy. In this connection reference is made to the decision of Hon ble Supreme Court in case of Radhasaomi Satsang vs. CIT 193 ITR 321. Again the Hon ble Supreme Court in case of Parashuram Pottery Works Co. Ltd. vs. ITO 1977 CTR 32 / (1977) 106 ITR 1 held as under: At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasijudicial controversies as it must in other spheres of human activity. In view of above, the Ld. CIT(A) was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -06 which is accepted by the department. The assessee has not carried out any dealing in the real estate in earlier years. He only converted the land use from agricultural to resort and then to residential for better utilisation and thereafter for exploitation of his capital asset. Infact, the factors mentioned by the Hon ble Supreme Court, are supportive to the facts of the case of the assessee. 2.10 In various cases, it has been held that purchase of land once upon a time and thereafter selling the same in piecemeal after development, the profit arising would be taxed under the head Capital Gain and cannot be treated as adventure in the nature of trade. Some of these decisions are as under: Commissioner of Income-tax vs. Sohan Khan Mohan Khan [2008] 304 ITR 194 (RAJ) Saroj Kumar Mazumdar vs. Commissioner of Income Tax (37 ITR 242) (SC) Janki Ram Bahadur Ram vs. Commissioner of Income Tax (57 ITR 21) (SC) CIT vs. Sureshchand Goyal 298 ITR 277 (MP) CIT vs. A Mohammed Mohideen 176 ITR 393 (Madras) In view of above, it was submitted that the AO be directed to assess the gain from sale of plots as long term capital gain and after allowing deduction u/s 54 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 97,16,600/-. 8. That the AO had considered the income arisen out of the above mentioned sale as business income by treating it as adventure in the nature of trade . 5.3.2 Now, the moot question in the present grounds of appeal is whether the sale of plots comes under the purview of adventure in the nature of trade or not . In this regard, the appellant had cited a large number of judicial pronouncements in favour of its claim. I have gone into the plethora of judgments cited by the appellant. However the gist of most the cited judgments hinge broadly on the parameters set by the Hon ble Supreme Court in the case of G. Venkataswamy Naidu vs. CIT (1959) 35 ITR 594 (SC). Therefore it is pertinent to go into the rationale and the parameters set by the Apex court in the said judgment. Therefore, the above mentioned judgment has laid down certain tests to find out whether a particular transaction of purchase and sale would amount to an adventure in the nature of trade or not, and at the same time cautioned that in each case, it is the total effect of all relevant factors and circumstances that determine the character of the transaction. The Supreme Court in that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have also noted the above mentioned Apex court judgment where it has said that just as the conduct of the purchaser subsequent to the purchase of a commodity improving or converting it so as to make it more readily resalable is a relevant factor in determining the character of the transaction, so would is conduct prior to purchase be relevant if it shows a design and purpose. I have clearly noted a purpose and design in the utilization of the land and it all pointed towards a business sense and eventually a business transaction. The appellant has cited Hon ble Rajasthan High Court judgment in the case of Sohan Khan and Mohan Khan as reported in 304 ITR 194 (Raj.), in favour of his claim. I have perused the judgment. However, the concluding para of the judgment has itself said that: .......it is the different story that the question, as to whether a particular transaction falls within the category of adventure in the nature of trade or is merely a transaction of transfer of capital asset, since depends on appreciation of facts.... I have found that the present case is distinguished from facts of the case decided by the Hon ble Rajasthan High Court judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cemeal after development, the profit arising would be taxed under the head Capital gain and cannot be treated as arising out of adventure in the nature of trade and brought to tax under the head profits and gains of business . We have gone through these contentions and decisions which have been cited by the ld AR at the Bar and we are of the view that these decisions, rendered in the context of individual facts and circumstances of the case, have either decided a particular transaction as a disposal of capital asset rendering it to be brought to tax under the head capital gains or as adventure in the nature of trade rendering it to be brought to tax as a disposal of stockin- trade under the head profits and gains from business . 6. At the same time, there are situations where a capital asset, subsequent to initial acquisition, is converted or treated as stock-intrade of business carried on by the assessee. In such cases, the intention at the time of purchase or acquisition would not be of much relevance. What is of more relevance is to determine the intention at the subsequent point in time, through conduct and affirmative actions, that the capital asset so purchased initi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45, it is clear that capital gain shall be charged in the previous year in which such stock-in-trade, which is known to be so only after conversion, is sold or otherwise transferred. Admittedly, the transfer of stock-in-trade in the present case was effected by way of registered deed of conveyance during the present assessment year. Therefore, the first appellate authority was justified in holding that capital gain was to be computed in the previous year even though that conversion was effected before 1-4-1985. This sub-section supersedes provision of sub-section (1) and provides for charging of capital gain in the year when the converted stock-in-trade is sold or otherwise transferred. For the purpose of section 48 also this section has provided the method for computing capital gain in such circumstances, i.e., the fair market value of the asset on the date of such conversion shall be deemed to be the full value of the consideration received or accruing as a result of transfer of capital asset. There is no ambiguity found in the said provision. Under section 2(47)(iv ), which provision also came into effect from 1-4-1985, when an asset is converted by the owner as stock-in- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in the business of trading in shares enabling the assessee to avail the benefit of section 45(2) of the Act. To our mind the restrictive meaning as suggested by the revenue should not be given to the words 'business carried on by him' in the light of the use of the words in other sections of the Act like section 28(i). Moreover, in the instant case, the assessee was already in the business of manufacture and sale of furniture and section 45(2) does not state that the investment can only be converted in a stock in trade of the business of trading in shares. The assessee can undertake multiple business activities under his proprietary concern. Besides, the manufacturing and sale of furniture, the assessee can also deal in trading in shares in the name of same proprietary concern keeping the stock in trade of shares separate. From any angle, if the facts of the case are viewed, we would find that the conversion of investment in shares and securities in stock in trade is valid and the assessee is entitled to benefit of section 45(2) of the Act in the light of huge volume of transactions in shares. 10. In this regard, reference can also be drawn to the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... care of the facts, where the assessee does not transfer capital assets into stock-in-trade, but the asset is treated as stock-in-trade. Section 45(2) provides as follows:- 45(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from 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 shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. 27. We do not find that the income tax authorities and the Tribunal committed any error in applying Section 45 (2) of the Act for the purposes of assessment for the relevant assessment years, and by adopting a notional value for the purposes of fixing the price for land for stamp duty for working out business income from the sale of land. They correctly adopted a method, which was fair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in stock in trade can be determined in the hands of EML and the computation cannot be questioned by the department. Levy of tax is postponed at the time of actual transfer or sale. Under Section 45(2) of the Act, the section charges to capital gains conversion of investment, into stock in trade but postpones the charge of tax to the time, such stock in trade is sold or transferred. Once converted into stock in trade, the asset will continue to be treated as stock in trade, as mentioned in the section itself. Application of provisions of Section 45(2) will not reconvert the converted stock in trade back into an investment. Consideration of sale of such converted asset will always be assessed as profits of business. The said provision was interpreted by the Assessing Officer under the said section. 23. Following the decision of this Court, in the case of Ambadi Enterprises Ltd. (supra), wherein it is held as follows:- The Tribunal has also found that the land had not been developed earlier and that the investment made by the assessee in the year 1968 was only by way of investment and not to treat the lands as its stock-in-trade. The money required for the purchase of the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... version into stock-in-trade (since this would be the cost to the business) and not the original cost to the assessee .. 24. Therefore, in the light of the decisions rendered by this court as well as the Hon'ble Supreme Court and the orders passed by the coordinate bench of the Income Tax Appellate Tribunal, in the case of Essorpe Mills Ltd. (supra) wherein the revenue has accepted the sale of 50% of the same property by the Essorpe Holdings Pvt. Ltd., to an extent of 5.075 acres of land for the assessment year 2009-10, directing the Assessing Officer to apply the provisions of Section 45(2) of the Act and compute the capital gains upto to the date of conversion into stock in trade, and thereafter on actual sale of the land i.e. the difference between the value of sale and stock in trade to be considered as business income . 12. Applying the ratio laid down in the above cited decisions, in the instant case, we find that the agricultural land initially purchased in year 1996 was converted and the land use changed to resort purposes in year 2002 and necessary approval sought from Nagar Vikas Niyas, Alwar. Thereafter, the said resort land was used for marriage and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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