ACIT Cir- I Solapur, Solapur V. Shri Takalikar Ajit Narsinh, Solapur

ITA 1752/PUN/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72398 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 30-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Keywords: Capital asset; Business income; Cost of acquisition; Date of conversion; Fair market value
• Section: 45(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.1752/PN/2012 A.Y. 2001-02 ITO, WARD-1(2), PUNE APPELLANT VS. SHRI TAKALIKAR AJIT NARSINH, 125-2A/2B, TAKALIKAR FARMS, BIJAPUR ROAD, JULE SOLAPUR, SOLAPUR PAN: AAMPT9536C RESPONDENT APPELLANT BY : SHRI A.K. M ODI RESPONDENT BY : SHRI S.N . PURANIK DATE OF HEARING: 28.11.2013 DATE OF ORDER : 29.11.2013 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY REVENUE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL)-III, (SHORT CIT (A)-III) PUNE, DATED 30.05.2011 FOR A.Y. 2001-02 ON THE FOLLOWING GROUNDS. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A)-III, PUNE WAS NOT JUSTIFIED IN G RANTING RELIEF OF RS.12,29,410/- TREATING THE ASSESSMENT OF ASSESSEES TRANSACTION, RELATING TO CAPITAL ASSET, AS LONG TERM CAPITAL GAIN, AS AGAINST ASSESSED BY THE ASSES SING OFFICER AS SHORT TERM CAPITAL GAIN. 2. THE ORDER OF THE CIT(A) BE VACATED AND THAT OF THE AO BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER A NY OF THE ABOVE GROUNDS OF APPEAL. 2 2. ASSESSEE IS A PROPERTY DEVELOPER AND BUILDER AND HE IS PROPRIETOR OF TWO FIRMS NAMELY 'SINDHU VIHAR' AND ' SINDHU CONSTRUCTIONS. FACTS OF THE CASE AS EMERGING FROM THE RECORDS ARE THAT THE ASSESSEE WAS CARRYING ON THE BUSINESS ACTIVITIES AS A BUILDER, DEVELOPER, CONTRACTOR, ETC. DURING THE PER IOD RELEVANT TO THE ASSESSMENT YEARS UNDER CONSIDERATION. WHILE HE WAS CARRYING ON ACTIVITY OF SALE OF LAND, ETC. UNDER TH E TRADE NAME. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT THE APPE LLANT ALONG WITH HIS TWO BROTHERS, NAMELY, SHRI SAJIT TAKALIKAR AND SHRI JAYANT TAKALIKAR, JOINTLY ACQUIRED A LANDED PROPERT Y LOCATED AT CTS NO.L25/2A/2B AT JULE, SOLAPUR BY WAY OF INHERIT ANCE FROM THEIR GRAND-MOTHER. ON 25/09/1997, THE TWO BROTHERS OF ASSESSEE EXECUTED A POWER OF ATTORNEY IN FAVOUR OF ASSESSEE WHEREBY AUTHORIZING BY HIM TO PROCEED FURTHER FOR C ONVERTING THE LAND FOR NON-AGRICULTURE PURPOSE, ITS DEVELOPMENT, TO GET THE LAYOUT SANCTIONED FROM THE APPROPRIATE AUTHORITY, C ONSTRUCTION THEREOF ETC. SUBSEQUENTLY, AN AGREEMENT TO THIS EFF ECT WAS ENTERED INTO BETWEEN THE ASSESSEE AND HIS TWO BROTH ERS IN FEBRUARY 2000 AS PER WHICH THE ASSESSEE WAS TO PAY HIS TWO BROTHERS RS.60 LACS EACH BESIDES TWO PLOTS EACH BEA RING NO.21 & 22 AND PLOT NO.23 & 24 TO SHRI SAJJIT AND JAYANT TA KALIKAR RESPECTIVELY. AS PER THE AGREEMENT, THE ASSESSEE PA ID AN AMOUNT OF RS.1,40,000/- TO SHRI SAJJIT DURING THE PERIOD 2 1.04.1999 TO 01.01.2000 AND RS.1,20,000/- TO SHRI JAYANT DURING 02.01.1999 TO 18.12.1999 AND TOOK POSSESSION OF THE LAND ADMEA SURING 128500 SQ. MTRS. AND COMMENCED THE DEVELOPMENT ACTI VITIES. THE ASSESSING OFFICER WAS OF THE VIEW THAT IN THE LIGHT OF THE ABOVE DEVELOPMENTS, THERE WAS CONVERSION OF LAND INTO STO CK-IN-TRADE RESULTING IN CAPITAL GAINS IN THE HANDS OF THE ASSE SSEE WITHIN THE MEANING OF SEC.45(2) OF THE I.T. ACT. IN RESPONSE TO THE ENQUIRY ON BEHALF OF ASSESSEE, ASSESSEE SUBMITTED THAT THE LAND STILL BELONGED TO THE THREE BROTHERS INCLUDING HIM AND HE WAS NOT THE ABSOLUTE OWNER OF THE PROPERTY. IT WAS CLAIMED THAT THE L/3 RD OF 3 THE PROPERTY WAS STILL OWNED BY EACH BROTHER AND TH E ASSESSEE WAS DEVELOPING THE SAME AND THE PROFITS AROSE OUT O F THE SAME WERE BEING OFFERED TO TAX IN THE RESPECTIVE RETURNS . IT WAS ALSO SUBMITTED ON BEHALF OF THE ASSESSEE THAT HE WAS NOT LIABLE TO ANY CAPITAL GAINS SINCE, THE PORTION THAT BELONGED TO H IM WAS STILL NOT DEVELOPED AND SALES WERE TO BE DONE ON COMPLETION O F AGREEMENT PAYMENT UP TO 31.12.2006. ASSESSING OFFICER DID NOT AGREE WITH THE ARGUMENT OF PUT FORWARD ON BEHALF OF ASSESSEE D ENYING THE APPLICABILITY OF THE PROVISIONS OF SEC. 45(2). ASSE SSING OFFICER EMPHASIZED THAT TWO BROTHERS OF THE ASSESSEE HAD AL LOWED THE POSSESSION OF THEIR LAND TO ASSESSEE AND THEY HAVE AGREED TO RECEIVE THE PRICE OF RS.60 LAKHS IN CONSIDERATION T HEREOF. THE ASSESSING OFFICER WAS OF THE VIEW IN THE CIRCUMSTAN CES, TRANSFER IS IN PURSUANCE OF THE CONTRACT OF A NATURE REFERRE D TO IN SEC.53A OF THE TRANSFER OF PROPERTY ACT, 1882 AND THUS, THE RE WAS TRANSFER OF PROPERTY HELD BY THE TWO BROTHERS OF ASSESSEE, W ITHIN THE MEANING OF SEC. 2(47) OF THE I.T. ACT AND FOR ALL P RACTICAL PURPOSES, THE ASSESSEE SHRI AJIT TAKALIKAR BECAME O WNER OF THE SAID PROPERTY. ACCORDING TO ASSESSING OFFICER, TRAN SFER OF CERTAIN RIGHTS THROUGH ACCRUING TO A PERSON THROUGH A POWER OF ATTORNEY ARRANGEMENT CONSTITUTED TRANSFER FOR THE PURPOSE OF SEC.2(47) OF THE I.T. ACT. THE TWO BROTHERS OF THE ASSESSEE TRAN SFERRED THEIR RIGHTS OVER THE PROPERTY BY VIRTUE OF THE AGREEMENT EXECUTED AND THE POWER ATTORNEY TO THE ASSESSEE TO ALLOW HIM TO DEVELOP AND SELL THE PROPERTY, FOR WHICH THEY RECEIVED THE COLL ECTIVE CONSIDERATION OF RS.1.2 CRORES. THE ASSESSING OFFIC ER ALSO OBSERVED THAT THE TWO BROTHERS HAD NOT CONTRIBUTED ANYTHING FOR THE DEVELOPMENT ACTIVITIES ETC. AS THEY HAD ALREADY RECEIVED THEIR SHARE OF CONSIDERATION AGREED UPON. THUS, THE ASSES SING OFFICER CONCLUDED THAT BOTH THE BROTHERS OF ASSESSEE TRANSF ERRED THEIR RIGHTS IN THE LANDED PROPERTY TO ASSESSEE AND THAT HE WAS THE OWNER OF THE ENTIRE PROPERTY. HE FURTHER HELD THAT THE PROPERTY SO ACQUIRED WAS CONVERTED BY ASSESSEE TO STOCK-IN-TRAD E AND STARTED 4 THE BUSINESS OF DEVELOPING, PLOTTING AND SALE OF LA ND, THEREFORE, HE WAS LIABLE TO CAPITAL GAINS IN TERMS OF PROVISIONS OF SEC.45(2) OF THE I.T. ACT. THE WORKING OF CAPITAL GAINS FROM THE ACTIVITY WAS WORKED OUT BY THE ASSESSING OFFICER, AS UNDER: AREA IN SQ. FT. VALUE IN RS. TOTAL LAND ACQUIRED FOR DEVELOPMENT 9,21,766 1,20,00,000/- ADD: DEVELOPMENT EXPENDITURE INCURRED IN F.Y. 99-00 7,79,872/- IN F.Y. 00-01 1,05,000/- -- 8,84,872/- ------------- ------------------ 8,21,766 1,28,84,872/- ========== ============ THE COST OF ACQUISITION WAS THUS, WORKED OUT AT RS. 13.97 PER SQ. FT. BASED ON SUCH VALUATION, THE SHORT TERM CAPITA L GAINS WERE WORKED OUT BY THE ASSESSING OFFICER AS UNDER:- PLOTS SOLD 50330.04 SQ. FT. FAIR MARKET VALUE OF PLOT SOLD RS.21,93,500/- LESS: COST OF ACQUISITION (50330 X 13.97) RS.7,03,110/- -------------------- SHORT TERM CAPITAL GAINS RS.14,90,390/- =============== THE SHORT TERM CAPITAL GAINS SO WORKED OUT BY ASSE SSING OFFICER WAS ADDED TO THE INCOME OF ASSESSEE. 3. MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AU THORITY, HAVING CONSIDERED THE SUBMISSIONS ON BEHALF OF ASSE SSEE, THE CIT(A) DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. TH E SAME HAS BEEN OPPOSED BEFORE US ON BEHALF OF REVENUE INTER A LIA STATED THAT UNDER THE FACTS AND CIRCUMSTANCES, ASSESSING OFFICE R WAS JUSTIFIED IN COMPUTING THE SHORT TERM CAPITAL GAINS , THEREFORE, ORDER OF THE CIT(A) NEEDS TO BE VACATED. CIT(A) HA S ERRED IN ACCEPTING THE FACTS AND CIRCUMSTANCES OF THE CASE T HAT PORTION OF LAND BELONGING TO ASSESSEES SHARE WAS NOT DEVELOPE D OR SOLD, THEREFORE, THERE WAS NO INSTANCE OF TRANSFER AS CON TEMPLATED 5 UNDER THE PROVISIONS OF SEC. 2(47) R.W.S. 45(2) OF I.T. ACT. THUS, ASSESSEE WAS NOT LIABLE FOR ANY SHORT TERM CAPITAL GAINS. CIT(A) ALSO ERRED IN FACTS AND CIRCUMSTANCES OF THE CASE B Y ADMITTING ADDITIONAL / ALTERNATIVE GROUNDS IN RESPECT OF PRO- RATA EXPENSES WHERE, ASSESSING OFFICER WAS RIGHTLY DISALLOWED 1/3 RD OF SUCH EXPENSES PERTAINING TO ASSESSEES SHARE OF LAND, WH ICH WAS NOT DEVELOPED, SOLD ETC. 4. ON OTHER HAND, LEARNED AUTHORIZED REPRESENTATIVE RELIED ON THE DECISION OF CIT(A) AND SUBMITTED THAT CIT(A) WA S JUSTIFIED IN HOLDING THAT LONG TERM CAPITAL GAINS IN RESPECT OF 1/3 RD SHARE IN THE PROPERTY WOULD WORKED OUT TO RS.2,60,980/-. TH IS OBJECTION OF LONG TERM CAPITAL GAINS IS ALSO IN COMPUTATION A DOPTED BY ASSESSING OFFICER IN ASSESSEES OWN CASE FOR A.Y. 2000-01. ADMITTEDLY, ASSESSEE FAILED TO DECLARE THIS LONG TE RM CAPITAL GAINS IN RETURN OF INCOME FILED FOR THE YEAR UNDER CONSID ERATION. ACCORDINGLY, CIT(A) DIRECTED THE ASSESSING OFFICER TO ENSURE THAT LONG TERM CAPITAL IS BROUGHT TO TAX IN THE SUBSEQUE NT YEARS AS WELL AS WHEN REMAINING PORTION OF SALEABLE AREA OF THE LAND WAS IN QUESTION WAS SOLD. IT MAKES CLEAR THAT REVENUE HAS ACCEPTED THIS CLAIM IN A.Y. 2000-01 WHILE THE REVENUE AUTHOR ITIES HAS DEVIATED FROM HIS EARLIER STAND IN THE YEAR UNDER C ONSIDERATION I.E. 2001-02. THE RELEVANT FINDINGS OF CIT(A) ARE AS UNDER: 2.4.1 BEFORE DECIDING ISSUE ON HAND, IT IS ALSO NE CESSARY TO REFER TO THE PROVISIONS OF SEC. 2(47)(IV) AND SEC. 45(2) AS APPLICABLE TO THE YEAR UNDER APPEAL. SECTION 2(47)( IV) OF THE I T ACT TREATS CONVERSION OF A CAPITAL ASSET INTO STO CK-IN-TRADE OF BUSINESS CARRIED ON BY THE ASSESSEE AS A 'TRANSF ER'. HOWEVER, UNDER SEC. 45(2), SUCH TRANSFER DOES NOT A TTRACT LEVY OF CAPITAL GAINS TAX IN THE ASSESSMENT YEAR RE LEVANT TO FINANCIAL YEAR IN WHICH SUCH CONVERSION TOOK PLACE BUT CAPITAL GAINS TAX IS LEVIABLE ]N THE YEAR IN WHICH SUCH CONVERTED ASSET IS SOLD OR OTHERWISE TRANSFERRED. THE LIABILITY TO CAPITAL GAINS-TAX FOR THE YEAR IN WHIC H SUCH CONVERTED ASSET IS SOLD WILL BE IN ADDITION TO THE TAX LIABILITY IN RESPECT OF PROFITS MADE BY HIM ON SALE OF THE SA ID ASSET AS HIS STOCK OF BUSINESS. FOR EXAMPLE, AN ASSESSEE CON VERTS 6 1,000 SHARES OF A COMPANY, HELD BY HIM AS CAPITAL A SSET, INTO HIS STOCK-IN-TRADE OF HIS SHARE BUSINESS ON 1- 1-2000 WHEN THE MARKET VALUE OF THE SHARE WAS RS.2,000/- E ACH. SUPPOSE, H HAD ACQUIRED THOSE SHARES AT THE COST O F RS. 1,000/- EACH. WHEN HE SELLS THOSE SHARES ON 15-4-20 00 AT THE RATE OF RS.2,500/- EACH, HE WILL BE LIABLE TO T AX NOT ONLY FOR CAPITAL GAINS BUT ALSO AS BUSINESS PROFITS FOR ASSESSMENT YEAR 2001-02. THE WORKING OF GAINS / PROFITS WILL B E AS UNDER: FAIR MARKET VALUE OF SHARES ON DATE OF CONVERSION I.E. 1-1-2000 RS.20 LACS COST OF ACQUISITION OF THOSE SHARES RS.10 LACS TAXABLE CAPITAL GAINS RS. 10 LACS 2. COMPUTATION PF BUSINESS PROFITS: DEEMED COST OF ACQUISITION OF STOCK-IN-TRADE RS.20 LACS OF BUSINESS ON THE DATE OF CONVERSION. SALE CONSIDERATION OF THE ABOVE SHARES RS.25 LACS ------------- BUSINESS PROFITS RS.5 LACS ------------- 2.4.2 THE FACTS OF THE PRESENT CASE ARE NOW EXAMINE D VIS-A- VIS THE ABOVE LEGAL POSITION UNDER SEC. 45(2). A) CONVERSION OF LAND INTO STOCK-IN-TRADE: THE CRUCIAL POINT FOR DETERMINATION IN THE PRESENT CASE IS AT WHAT POINT OF TIME, THE LAND IN QUESTION HELD AS IN VESTMENT BY THE APPELLANT AND HIS TWO BROTHERS WAS CONVERTED INTO STOCK-IN-TRADE BY THE APPELLANT. THE CONTENTION OF THE APPELLANT IS THAT THE LAND GOT CONVERTED INTO STOCK -IN-TRADE SOON AFTER EXECUTION OF POWER OF ATTORNEY BY THE TW O BROTHERS OF THE APPELLANT AND THE CAPITAL GAINS ON CONVERSION OF THE LAND HELD AS INVESTMENT INTO STOC K-IN- TRADE HAS TO BE BROUGHT TO TAX UNDER SEC. 45(2) IN THE HANDS OF THE APPELLANT AND HIS TWO BROTHERS AT 1/3 SHARE EACH AND IT IS NOT LEGALLY CORRECT TO BRING THE ENTIRE CAPIT AL GAINS ON CONVERSION THAT TOO AS SHORT TERM CAPITAL GAINS IN THE HANDS OF THE APPELLANT. IT IS ARGUED THAT BY NO STRETCH O F IMAGINATION, IT CAN BE SAID THAT THE ACQUISITION OF DEVELOPMENT RIGHTS IN THE 2/3 OF TOTAL LAND BELONGI NG TO HIS BROTHERS IS HIS INVESTMENT IN THE LAND. ACCORDING T O THE APPELLANT, THE SAID RIGHTS WERE ACQUIRED ONLY AS ST OCK-IN- TRADE IN THE NORMAL COURSE OF BUSINESS OF THE APPEL LANT. ON THE CONTRARY, THE CASE OF THE ASSESSING OFFICER IS THAT THE ENTIRE LAND INCLUDING 2/3 LAND ACQUIRED FROM APPELL ANT'S BROTHERS WAS HELD AS INVESTMENT UP TO A.Y. 2000-01 AND THE CAPITAL GAINS ON CONVERSION OF LAND INTO STOCK-IN T RADE IS 7 EXIGIBLE TO TAX IN THE HANDS OF THE APPELLANT ONLY AS THE CONVERSION HAD TAKEN PLACE AFTER THE DEVELOPMENT AGREEMENT ENTERED INTO BY THE APPELLANT AND HIS TWO BROTHERS ON 11.02.2000. IT IS THEREFORE NECESSARY T O PERUSE THE POWER OF ATTORNEY EXECUTED BY THE TWO BROTHERS AND, THE SUBSEQUENT DEVELOPMENT AGREEMENT ENTERED INTO IN FEBRUARY 2000. ON PERUSAL OF THE POWER OF ATTORNEY, IT IS NOTICED THAT THE OTHER TWO CO-OWNERS (BROTHERS) OF THE LAND HAVE ONLY AUTHORIZED THE APPELLANT TO INITIATE NECE SSARY STEPS LIKE CONVERSION OF LAND INTO NA USE, OBTAININ G NECESSARY SANCTION FROM THE AUTHORITIES CONCERNED F OR ULC CLEARANCE, LAY OUT SANCTION ETC. AND NEITHER THE PO SSESSION OF THE LAND NOR THE OWNERSHIP RIGHTS OVER THE LAND WERE TRANSFERRED TO THE APPELLANT UNDER THE POWER OF ATT ORNEY. THE POWER OF ATTORNEY WAS ONLY A SORT OF LICENSE GI VEN TO THE APPELLANT TO TAKE NECESSARY STEPS AND OBTAIN APPROV ALS FROM THE GOVT. AGENCIES CONCERNED FOR THE DEVELOPMENT OF THE LAND. THE BROTHERS OF THE APPELLANT CONTINUED TO BE THE LEGAL OWNERS OF THE PROPERTY AND HAVE NOT PARTED WITH THE POSSESSION OF THEIR SHARE IN THE LAND. THEREFORE, I T IS DIFFICULT TO ACCEPT THE CONTENTION THAT SOON AFTER THE EXECUT ION OF THE POWER OF ATTORNEY IN FAVOR OF THE APPELLANT AND SAN CTION OF THE LAYOUT PLAN; THE WHOLE OF THE LAND WAS CONVERTE D INTO STOCK IN-TRADE. IN FACT, ON VERIFICATION OF THE AS SESSMENT RECORD OF THE BROTHERS OF THE APPELLANT, IT WAS FOU ND THAT THEY ADMITTED THAT THEIR UNDIVIDED SHARE IN THE PRO PERTY WAS TRANSFERRED TO THE APPELLANT ONLY IN FEBRUARY 2 000 AND ACCORDINGLY, ADMITTED THE CAPITAL GAINS FOR THE ASS ESSMENT YEAR 2000-01. THEREFORE, IT WAS ONLY BY VIRTUE OF DEVELOPMENT AGREEMENT EXECUTED IN FEBRUARY 2000, TH E APPELLANT ACQUIRED COMPLETE RIGHTS OVER THE PROPERT Y AND THERE WAS 'TRANSFER' OF 2/3 SHARE OF THE LAND BELON GING TO HIS BROTHERS TO THE APPELLANT AS CONTEMPLATED IN SEC. 2 (47). TILL FEBRUARY 2000, THE LAND WAS HELD AS INVESTMENT BY T HE APPELLANT AND HIS TWO BROTHERS TO THE EXTENT OF THE IR RESPECTIVE 1/3 SHARE IN THE LAND. THUS, THE CONVERS ION OF THE LAND INTO STOCK IN TRADE HAD TAKEN PLACE ONLY A FTER THE APPELLANT ACQUIRED THE COMPLETE RIGHTS OVER THE 2/3 SHARE IN THE LAND BELONGING TO HIS TWO BROTHERS UNDER THE DEVELOPMENT AGREEMENT EXECUTED IN FEBRUARY 2000. B) CAPITAL GAINS ON CONVERSION OF LAND INTO S TOCK-IN- TRADE: HAVING HELD THAT CONVERSION OF THE LAND INTO STOCK- IN-TRADE HAD TAKEN PLACE' IN FEB 2000, THE NEXT QUESTION THA T ARISES IN WHOSE HANDS THE CAPITAL GAINS ARISING ON CONVERS ION OF THE LAND IS TO BE BROUGHT TO TAX UNDER SEC.45(2) OF THE I T ACT. AS ALREADY MENTIONED, THE APPELLANT BECAME THE ABSOLUTE OWNER OF THE ENTIRE LAND IN FEBRUARY 2000 BY 8 VIRTUE OF AGREEMENT ENTERED WITH HIS TWO BROTHERS. WHEN A PART OF THE LAND WAS SOLD DURING THE YEAR UNDER CONSIDERATION BY WAY OF DEVELOPED PLOTS, THE CAPITA L GAINS ON CONVERSION OF THE LAND SOLD IS REQUIRED TO BE BROUG HT TO TAX IN THE HANDS OF THE APPELLANT RESPECT OF THE ENTIRE PORTION OF THE LAND SOLD AND TO THE EXTENT OF ONLY 1/3 RD SHARE IN THE PROPERTY AS CLAIMED BY THE APPELLANT. THE CAPITAL G AINS UNDER SEC.45(2) IN RESPECT OF THE LAND SOLD DURING THE YEAR IS REQUIRED TO BE ASSESSED UNDER TWO HEADS; (I) IN RES PECT OF TWO THIRD SHARE OF THE LAND SOLD, THE CAPITAL GAINS WILL BE REQUIRED TO BE ASSESSED AS SHORT TERM CAPITAL GAINS AND THE COST OF ACQUISITION WILL BE THE PROPORTIONATE COST OUT OF THE TOTAL COST OF RS.1,20,00,000/- + COST OF THE FOUR P LOTS AS AGREED UNDER THE DEVELOPMENT AGREEMENT (II) IN RESP ECT OF L/3 RD SHARE OF THE LAND SOLD WHICH WAS INHERITED BY THE APPELLANT, THE CAPITAL GAINS HAVE TO BE ASSESSED UN DER LONG TERM CAPITAL GAINS AND THE COST OF ACQUISITION WILL BE RS.2.79 PER SQ. FT. AS ON 01/04/1981 THEREFORE, THE APPELLA NT IS LIABLE TO PAY LONG TERM CAPITAL GAINS UNDER SEC.45( 2) OF THE I.T. ACT TO THE EXTENT OF LAND SOLD DURING THE YEAR IN RESPECT OF THE L/3 RD SHARE OF THE LAND AND SHORT TERM CAPITAL GAINS IN RESPECT OF THE 2/3 RD SHARE OF THE LAND AS UNDER: (I) CAPITAL GAINS ON CONVERSION OF APPELLAN T'S OWN 1/3 SHARE IN THE LAND (INHERITED): AS DISCUSSED EARLIER, THE APPELLANT INHERITED 1/3 U NDIVIDED SHARE IN THE LAND, WHICH WAS CONVERTED INTO STOCK-I N-TRADE ALONG WITH THE 2/3 SHARE ACQUIRED FROM HIS BROTHERS IN FEB, 2000. AS DISCUSSED HEREINABOVE, ALTHOUGH SUCH CONVE RSION OF CAPITAL ASSET INTO STOCK IN TRADE WILL BE A TRAN SFER OF THE PREVIOUS YEAR IN WHICH THE ASSET SO CONVERTED BUT T HE CAPITAL GAIN WILL NOT ARISE IN THE PREVIOUS YEAR IN WHICH THE ASSET IS CONVERTED BUT WILL ARISE IN THE PREVIOUS Y EAR IN WHICH SUCH CONVERTED ASSET IS SOLD OR OTHERWISE TRA NSFERRED. INDEXATION OF COST OF ACQUISITION WILL BE DONE TILL THE PREVIOUS YEAR IN WHICH THE CONVERSION TOOK PLACE. T HE ASSESSING OFFICER ASSESSED THE CAPITAL GAINS ON CON VERSION APPELLANT'S OWN SHARE IN THE LAND ALSO AS SHORT TER M CAPITAL GAINS UNDER SEC. 45(2). BUT, THE CAPITAL GAINS ON S ALE OF APPELLANT'S 1/3 PORTION OF THE LAND DURING THE YEAR IS REQUIRED TO BE BROUGHT TO TAX AS LONG TERM CAPITAL GAINS AS THE APPELLANT HAD INHERITED L/3 RD SHARE OF THE LAND BEFORE 01/04/1981 FROM HIS GRANDMOTHER. DURING THE YEAR, T HE APPELLANT SOLD 50,330 SQ. FT. AND THE APPELLANT'S S HARE (OWN) IS 16,777 SQ. FT. THE COMPUTATION OF LONG-TERM CAPI TAL GAINS IN RESPECT OF THIS CONVERTED LAND SOLD DURING THE Y EAR IS AS FOLLOWS: 9 COMPUTATION OF LONG TERM CAPITAL GAINS: 1. TOTAL AREA OF THE LAND (OWNED BY THREE BROTHERS) AB OUT 13 HECTORS 2. FAIR MARKET VALUE PER ACRE AS ON 01/04/1981 RS.60, 000/- 3. VALUE PER HECTOR WILL BE RS.1,50,000/- 4. TOTAL FAIR MARKET VALUE RS.19,50,000/- 5. VALUE OF APPELLANT'S INHERITED 1/3 RD SHARE I.E. AS ON 01/04/1981 RS.6,50,000/- 6. AREA UNDER PLOTS I.E. SALEABLE AREA (AS PER LAYOUT) 65,215 SQ. MTRS. 7. APPELLANT'S INHERITED 1/3 RD SHARE 21, 738 SQ. MTRS. 8. FAIR MARKET VALUE OF SALEABLE AREA PER SQ. MTR 650000/21738 RS.29.90 9. FAIR MARKET VALUE OF SALEABLE AREA PER SQ. FT. AS ON 01/04/1981 RS.2.78 10. DURING A.Y. 2001-02, I.E. YEAR UNDER APPEAL, PLOT AREA SOLD AS PER THE ASSESSMENT ORDER 50,330 SQ. FT. 11. SHARE OF THE APPELLANT IN THE AREA SOLD BE ING 1/3 RD 16,777 SQ. FT. 12. FAIR MARKET VALUE AS ON 01/04/1981 (16,777XRS.2.78) RS.46,640/- 13. INDEX COST FOR YEAR OF CONVERSION F.Y. 200 0-01 (389), RS.1,81,429/- THEREFORE, INDEXED COST = 46,640X389/100 14. FAIR MARKET VALUE OF CONSIDERATION 60,00,0 00/- (APPELLANT'S 1/3 RD SHARE CONVERTED INTO STOCK IN TRADE) PLUS VALUE OF TWO PLOTS RETAINED BY EACH BROTHER R S.1,70,000/- (APPROX.) 15 CONSIDERATION PER SQ. MTR 61,70,000 / 21,7 38 SQ. MTRS. RS.283/- CONSIDERATION PER SQ. FT. RS.26.37 16. DEEMED CONSIDERATION OF LAND SOLD DURING TH E YEAR RS.4,42,409/- AS ON THE DATE OF CONVERSION 16777 SQ. FT. X RS.26. 37 LESS: INDEXED COST OF ACQUISITION RS.1,81,429/ - -------------------- LONG TERM CAPITAL GAINS RS.2,60,980/- WHILE COMPUTING THE FAIR MARKET VALUE OF THE LAND S OLD AS ON THE DATE OF CONVERSION AT SR.NO.14 OF THE ABOVE TABLE, BASED ON THE CONSIDERATION PAID TO HIS BROTHERS, TH E APPELLANT HAS TAKEN ONLY THE CASH COMPONENT OF RS.6 0 LAKHS AND IGNORED THE FAIR MARKET VALUE AS ON THE D ATE OF CONVERSION OF TWO DEVELOPED PLOTS RETAINED BY EACH BROTHER. THE MARKET VALUE OF THESE TWO PLOTS ADMEASURING 617 SQ. MTRS. AS ON THE DATE OF CONVERSION WOULD BE ABOUT RS.L,70,000/-(APPROX.) WHICH IS ALSO REQUIRED TO BE ADDED TO THE CONSIDERATION OF RS.60 LAKHS TO ARRIVE AT THE F MV OF THE PROPERTY AS ON THE DATE OF CONVERSION INTO STOCK IN TRADE. IF THE MARKET VALUE OF THESE TWO PLOTS OF RS.1,70,000/ - IS ALSO CONSIDERED, THE CONSIDERATION AS ON THE DATE OF CON VERSION WOULD BE RS.283/- PER SQ. MTR. OR RS.26.37 PER SQ. FT. THE CONSIDERATION FOR APPELLANT' SHARE OF 16,777 SQ. FT . WOULD BE RS.4,42,409/- AS AGAINST RS.4,30,330/- CONSIDERED B Y THE 10 APPELLANT. ACCORDINGLY, THE LONG TERM CAPITAL GAINS IN RESPECT OF APPELLANT'S L/3 RD SHARE IN THE PROPERTY WOULD WORK OUT TO RS.2,60,980/-. THIS COMPUTATION OF LONG TERM CAPITAL, GAIN IS ALSO IN LINE WITH THE COMPUTATION ADOPTED BY THE ASSESSING OFFICER IN THE APPELLANT'S OWN CASE F OR THE A.Y. 2000-01. ADMITTEDLY, THE APPELLANT FAILED TO DECLAR E THIS LONG TERM CAPITAL GAINS IN THE RETURN OF INCOME FIL ED FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER SHA LL ENSURE THAT LTCG IS BROUGHT TO TAX IN THE SUBSEQUEN T YEARS ALSO AS WHEN THE REMAINING PORTION OF SALEABLE AREA OF THE LAND IN QUESTION IS SOLD. (II) CAPITAL GAINS ON CONVERSION OF 2/3 SHARE IN THE LAND ACQUIRED FROM BROTHERS OF THE APPELLANT UNDER THE AGREEMENT ENTERED IN FEB. 2000: AS ALREADY MENTIONED THE APPELLANT ACQUIRED 2/3 SHA RE IN THE LAND FROM HIS TWO BROTHERS, WHICH WAS ALSO CONV ERTED INTO STOCK-IN-TRADE ALONG WITH HIS OWN 1/3 SHARE IN FEBRUARY 2000. AS PER THE DEVELOPMENT AGREEMENT, THE CONSIDE RATION PAID BY THE APPELLANT TO HIS BROTHERS WAS RS.60 LAK HS + TWO PLOTS EACH. IN RESPECT OF THIS 2/3 SHARE IN THE LAN D, THE CAPITAL GAINS ON SALE OF A PORTION OF THE LAND DURI NG THE YEAR IS REQUIRED TO BE BROUGHT TO TAX AS SHORT TERM CAPI TAL GAINS AS THE APPELLANT HAD ACQUIRED THE LAND IN FEB 2000 FROM HIS BROTHERS. THE COMPUTATION OF LONG-TERM CAPITAL GAIN S IN RESPECT OF THIS CONVERTED LAND SOLD DURING THE YEAR WOULD BE AS FOLLOWS: COMPUTATION OF SHORT TERM CAPITAL GAINS: 1. TOTAL AREA OF THE LAND ABOUT 13 HECTORS 2. AREA UNDER PLOTS I.E. SALEABLE AREA (AS PER LAYOUT PLAN) 65,215 SQ.MTRS. 3. APPELLANT'S ACQUIRED 2/3 RD SHARE 43,476 SQ.MTRS. 4. DURING A.Y. 2001-02, I.E. YEAR UNDER APPEAL, PLOT AREA SOLD 50,330 SQ. FT. AS PER THE ASSESSMENT ORDER 5. 2/3 OF THE LAND SOLD (2/3 OF 50,330) 33,553 SQ. FT. 6. FAIR MARKET VALUE OF CONSIDERATION 1,20,00,000 + FOUR PLOTS OF THE VALUE OF 3,40,000/- (APPROX. AS ON THE DATE OF 1,23,40,000 CONVERSION) 7 CONSIDERATION FOR SHORT TERM CAPITAL GAINS RS.8,84,792 FOR A.Y. 2001 -02, 33553 SQ. FT. X RS.26.37 8 COST OF ACQUISITION RS.8,84,792 9 SHORT TERM CAPITAL GAINS NIL 11 2.4.3 IT IS TO BE MENTIONED HERE THAT IN THE PRESEN T CASE, THE YEAR ACQUISITION AND THE YEAR OF CONVERSION BEING T HE SAME, THE FAIR MARKET VALUE OF THE LAND AS ON THE DATE OF CONVERSION I.E. IN FEB 2000 AND THE COST OF ACQUISI TION OF 2/3 SHARE IN THE LAND ACQUIRED FROM HIS BROTHERS IN FEB, 2000 IS THE SAME AND SHORT TERM CAPITAL GAINS IN SU CH CASES WOULD BE NIL. HOWEVER, THE DIFFERENCE BETWEEN FMV O F THE LAND SOLD AS ON THE DATE OF CONVERSION (BEING THE C OST OF ACQUISITION IN THE PRESENT CASE) AND THE ACTUAL SAL E CONSIDERATION ON SALE OF LAND EVERY YEAR IS TO BE T REATED AS BUSINESS RECEIPT, WHICH THE APPELLANT CONSIDERED IN THE PROFIT & LOSS A/C FILED FOR THE YEAR UNDER APPEAL. THIS FACTUAL LEGAL FINDING OF CIT(A) NEED NO INTER FERENCE FROM OUR SIDE, WHEREBY ASSESSING OFFICER HAS BEEN DIRECT ED TO BRING LONG TERM CAPITAL GAINS OF RS.2,60,900/- ARISING ON CONVERSION OF LAND IN QUESTION AND SOLD DURING THE YEAR TO TAX AS AGAINST SHORT TERM CAPITAL GAINS OF RS.14,90,390/- COMPUTED BY AS SESSING OFFICER. ACCORDINGLY, CIT(A) WAS JUSTIFIED IN GIVI NG CONSEQUENTLY RELIEF OF RS.1,29,410/- TO THE ASSESSEE. SAME IS U PHOLD. 5. IN THE RESULT, APPEAL FILED BY REVENUE IS DISMIS SED. PRONOUNCED IN THE OPEN COURT ON THIS THE DAY 29 TH OF NOVEMBER, 2013. SD/- SD/- (G.S. PANNU) (SHAILENDRA KUMAR YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 29 TH NOVEMBER 2013 GCVSR COPY TO:- 1) DEPARTMENT 2) ASSESSEE 3) THE CIT(A)-III, PUNE 4) THE CIT-III, PUNE 5) THE DR, B BENCH, I.T.A.T., PUNE. 6) GUARD FILE BY ORDER //TRUE COPY// SENIOR PRIVATE SECRETARY, I.T.A.T., PUNE