M/s Futuristic Diagnostic Imaging Centre Private Limited , Bangalore V. The Income Tax Officer Ward-2(3)(4), Bangalore

ITA 259/BANG/2019

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8647 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 11-02-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MATHIVANAN M
• Keywords: Capital asset converted into stock in trade; Capital asset; Business income; Cost of acquisition; Fair market value; TDS; Capital Gains
• Section: 45(2); 48; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH : BANGALORE BEFORE SHRI. B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No. 259/Bang/2019 Assessment Year : 2014-15 M/s. Futuristic Diagnostic Imaging Centre Pvt. Ltd., No. 4, Sai Prema, 6 th Cross, NR Colony, Bangalore – 560 019. PAN: AAACF7842E Vs. The Income Tax Officer, Ward – 2[3][4], Bangalore. APPELLANT RESPONDENT Assessee by : Shri G. Venkatesh, Advocate Revenue by : Shri Mathivanan .M, CIT DR Date of Hearing : 14-12-2021 Date of Pronouncement : 18-02-2022 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against the order dated 31/10/2018 passed by Ld.CIT(A)-2, Bangalore for assessment year 2014-15 on following grounds of appeal: “1. The Order of The Learned Authorities Below, in so far as it is against the Appellant is opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case. 2. The Learned Authorities Below have erred in holding the realisation from sale of unutilised industrial land allotted by KIADB is assessable as revenue profits as an adventure in the nature of trade and not as capital accretion assessable as capital gains as returned by the Appellant. They failed to prove their contention with material evidence to that effect. Hence the addition of Page 2 of 15 ITA No. 259/Bang/2019 Rs.12,54,98,299 made as revenue profits deserves to be deleted. 3. The Learned Authorities Below have erred in restricting the credit to be given to TDS at Rs.39,24,156 as per Original return filed by the Appellant as against a TDS of Rs.53,62,080 as per 26AS. Hence the difference in TDS of Rs.14,37,924 deserves to be allowed by lifting the restriction imposed. 4. The Learned Authorities Below ought not to have charged interest under section 234 B on the tax resulting from the addition of Rs.12,54,98,299 as business income from sale of land. Hence the interest of Rs.79,40,064 levied deserves to be deleted. 5. The Learned Authorities Below ought not to have charged interest under section 234 C on the tax resulting from the addition of Rs.12,54,98,299 as business income from sale of land. Hence the interest of Rs.12,15,071 levied deserves to be deleted. 6. Without prejudice to the foregoing, The Learned Authorities Below are not justified in denying the Appellant indexation cost to the cost of acquisition while arriving at the business income of Rs.12,54,98,299 from the sale of land. The same deserves to be allowed. 7. For the above and other grounds that may be urged at the time of hearing of the appeal, your Appellant humbly prays that the Appeal may be allowed and justice rendered.” 2. At the outset, the Ld. AR submitted that the appeal was filed with the delay of 41 days before the Hon’ble Tribunal. It was submitted that assessee’s counsel Shri S.R. Kiron, Chartered Accountant who was not keeping good health and was also suffering from acute low back pain. The doctors had advised complete bed rest resulting in him not attending his office regularly. He started attending office regularly from 01.02.2019 and immediately took action to file the appeal. The Ld.AR Page 3 of 15 ITA No. 259/Bang/2019 requested that the delay of 41 days neither being deliberate nor being in their control may kindly be condoned. On the contrary, the Ld. DR placed reliance on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. Considering the circumstances under which the delay was caused in filing the present appeal before this Tribunal and that nothing contrary could be established by the revenue before us. We place reliance on following observations by Hon’ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors., reported in (1987) 167 ITR 471 wherein, Hon’ble Court observed as under:- “The Legislature has conferred the power to condone delay by enacting section 51 of the Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on de merits ". The expression “sufficient cause” employed by the Legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice that being the life-purpose of the existence of the institution of courts. It is common knowledge that this court has been making a justifiably liberal approach in matters instituted in this court. But the message does not appear to have percolated down to all the other courts in the hierarchy. And such a liberal approach is adopted on principle as it is realized that : 1. Ordinarily, a litigant does not stand to benefit by lodging an appeal late. 2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties. ......................................................1.Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had Page 4 of 15 ITA No. 259/Bang/2019 sufficient cause for not preferring the appeal or making the application within such period.” Considering the submissions by both sides and respectfully following the observation by Hon’ble Supreme Court, we find it fit to condone the delay of 41 days caused in filing the present appeal before this Tribunal and admit the appeal. 3. Brief facts of the case are as under: The assessee is a company incorporated under Companies Act with the main object to Manufacture & sale of Cancer Medicine. The assessee has an objective of constructing a Big Cancer Hospital to provide medical facility to the patients. The Ld.AO observed that the assessee submitted a project report to KIADB to allot suitable land for manufacturing of medicine as well as for construction of Hospital. After a detailed study of the project, the KIADB allotted industrial land of 15.36 acres at Jigani Industrial Area on Lease-cum-sale basis in the year 2007. The assessee after getting land allotted in its name started its First phase of activity by taking up the construction of medicine manufacturing unit with the financial assistance from State Bank of India. 3.1 The assessee took two years to complete its first phase of project that is construction of building to suit the manufacturing activity of cancer medicine. This covered almost 3.5 acre of land and in the year 2010-11 assessee started commercial operations. 3.2 The Ld.AO noted that within 2 years from the date of its commencement of operations, the assessee treated the loan to be NPA. The assessee submitted before the Ld.AO that it decided to repay loan by selling the unutilised land, which was meant for construction of Hospital. The manufacturing unit utilised 3.5 acres of land leaving an area of about 12 acres as unutilised Page 5 of 15 ITA No. 259/Bang/2019 available for sale. The assessee submitted that the area meant for sale was bigger to sell to any normal industry and hence, the assessee appointed an agency to assist in land disposal. It was submitted that the agency suggested to form approach road and to make industrial plots of 1 to 3 acre. The suggestion worked out & sale of plots was started in the year 2012-13 and completed in the year 2014-15. The assessee realised money by sale of plots in the year 2012-13 and also in 2013-14 and repaid almost entire loan amount to State Bank of India to come out of the interest burden. Before the Ld.AO, assessee submitted that the beginning year of sale was in Assessment year 2013-14 and the sale of few plots were declared as Long term capital gains. The assessee had filed the return of income for the Assessment year 2014-15 showing the Long term capital gains on sale of plots during the relevant previous year. During the assessment proceedings, the Ld.AO called for details / documents in support of assessee’s submissions. In response, the Authorised representative submitted various documents as called for. The Ld.AO held the transaction of sale of land as business transaction and set off the carry forward business loss out of the income so arrived. The assessee objected to the treatment of sale of lands as a Business income instead of Long term capital gains and cited following case laws in support of it.  CIT Vs Sudhita Devi Jain 259 ITR671(P&H)  CIT Vs Suresh Chand Goyal 298 ITR 277 (MP).  CIT Vs Mohammed Mahideen 176 ITR 393 (Mad). Inspite of the objections, the Ld.AO passed the order treating the transactions as business income. Page 6 of 15 ITA No. 259/Bang/2019 4. Aggrieved by the order of Ld.AO, assessee preferred appeal before Ld.CIT(A). The Ld.CIT(A) considered the issue by observing as under. “4. Since the assessee had intetion of selling the land in future, he entered into an agreement for 'Project Management Services' with on M/s Sunlarge consultants Private Ltd. Bangalore, dated 02.04.2012. On perusal of the facts of the case as brought out by the Assessing Officer I am of the opinion that though at the point of time of allotment of the land by KIADB it was for specific purpose since it was not carried out by the appellant and during the course his intention had been changed to sell the land for a profit thereby in the transactions while selling the land in piece meal the intention of the appellant was surfaced clearly that it was a profit motive intention. Further, the registration as per the sale deed to various buyers at various point of time is also revealed the intention of the appellant that it was a profit motive. The Assessing Officer has clearly brought out the intention of the appellant in his order. Further, the doctrine of res-judicata is not applicable to the Income-tax proceedings as each assessment year is independent of each other and identical controversies can arise in two different assessment years. Therefore, the contention of the appellant that the earlier Assessing Officer has treated this transaction as capital gains cannot be accepted. The grounds are therefore not allowed.” 5. Aggrieved by the order of Ld.CIT(A), the assessee is in appeal before this Tribunal. The Ld.AR submitted that ground nos. 1 & 7 are general in nature. 6. Ground No. 2 is in respect of the treatment by the revenue of the sale proceeds from sale of unutilised industrial land allotted by KIADB to assessee as business profits and adventure in the nature of trade as against capital gains treated by the assessee. 6.1 The Ld.AR submitted that the land was plotted into small plots and provide approach road as assessee was not getting any buyer who could purchase 12 acres of land. Page 7 of 15 ITA No. 259/Bang/2019 6.2 He submitted that the assessee has been holding plots from 2007 and the asset has been held as long term capital asset and sale proceeds of such land has to be treated as capital gains. The Ld.AR submitted that assessee was allotted the land of about 15 acres and 36 guntas by KIADB in the year 2007 under lease cum sale basis. It was allotted to the assessee for construction of medicine manufacturing unit and also to have a cancer hospital of bigger size. The Ld.AR submitted that, assessee constructed factory building utilising about 3 acres of land and started production of medicines in A.Y. 2010-11. The said unit was financed by State Bank of India. The Ld.AR submitted that the activity was not yielding any profits and assessee continuously sustained loss from A.Ys. 2010-11 to 2013-14. 6.3 The Ld.AR submitted that in such circumstances, in view of accumulated losses and the loan along with interest that amounted of assessee, a decision was made to dispose of excess land which was meant for hospital construction in order to repay the loan taken from State Bank of India. The Ld.AR submitted that assessee appointed consultants for carrying on sale of the land. 6.4 The Ld.AR thus submitted that the sale could not be treated as adventure in the nature of trade rather it has to be treated as capital gains in the hands of the assessee and the benefits arising thereof needs to be given to assessee. 7. In support of, the Ld.AR placed reliance on the following decisions. Page 8 of 15 ITA No. 259/Bang/2019 i. CIT (Central) v. Bagmane Developers (P.) Ltd [2017] 392 ITR 379 (Karnataka) ii. Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC) iii. Sri Gajalakshmi Ginning Factory Ltd. V. CIT [1952] 22 ITR 502 (Madras) iv. CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578 (Madras) v. CIT v. A. Mohammed Mohideen [1989] 176 ITR 393 (Madras) vi. CIT v. Raunaq Singh Swaran Singh [1972] 85 ITR 220 (Delhi) vii. Bhogilal H. Patel v. CIT [1969] 74 ITR 692 (Bombay) viii. CIT v. Suresh Chand Goyal [2007] 298 ITR 277 (Madhya Pradesh) ix. CIT v. Sushila Devi Jain [2003] 259 ITR 671 (Punjab & Haryana) x. CIT v. Mohakampur Ice & Cold Storage [2005] 281 ITR 354 (Allahabad) xi. Deputy CIT v. Smt. Thankamma Simon [2015] 55 taxmann.com 331 (Cochin — Trib.) 8. On the contrary, the Ld.DR submitted that the said land was allotted to assessee by KIADB in order to facilitate assessee for contructing medical labs and cancer hospital. The Ld.DR submitted that the memorandum of association reveals that assessee was carrying out activities of diagnostic imaging in the fields of nuclear medicine, Radiation Therapy, and Medical Diagnostics such as Cyclotron, Radioisotope and Radiopharmaceutical generation such as Technetium-99 and others, Linear Accelerators, Tomotherapy Proton Therapy PET/CT and other diagnostics and High dose radiation. 9. The Ld.DR referring to page 42 of paper book submitted that the land forms part of fixed assets and therefore is to be considered as stock and trade. Supporting the orders of the authorities below, the Ld.DR submitted that assessee in the garb of reducing the losses has sold the lands to earn profit and therefore such activity has been rightly considered as adverture in the nature of trade. We have perused the submissions advanced by both sides in light of records placed before us. Page 9 of 15 ITA No. 259/Bang/2019 10. It is the contention of the Ld.AR is that, the assessee never intended to enter into any real estate business/adventure. It was submitted that due to losses incurred by assessee in its business, the land had to be sold for better realisation of the capital asset. It is submitted that for this reason the same is sold after plotting and construction of approach roads. It was submitted that selling of land after plotting it out in order to secure better price, cannot be treated as adventure in the nature of trade or business. It is the submission of assessee that there is nothing on record to show that the land when acquired was with an intention to sell it by plotting. 10.1 Reliance was placed on various decisions, where it was 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 arising out of adventure in the nature of trade and brought to tax under the head "profits and gains of business". 11. We have gone through the decisions which were cited by the Ld.AR. We are of the view that these decisions, rendered are in the context of individual facts and circumstances of that 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 stock-in-trade under the head "profits and gains from business". 11.1 We note that assessee treated the land acquired as fixed asset by including it in the block of assets and not as current asset. In the present facts, the asset is acquired as capital asset Page 10 of 15 ITA No. 259/Bang/2019 for purposes of business carried on by the assessee, the intention at the time of purchase or acquisition and the intention at the subsequent point in time, through conduct and affirmative actions, reveal that the capital asset so purchased initially was converted or treated as stock-in-trade of the business carried on by the assessee. 11.2 The legislature has in its wisdom envisaged such a situation and has brought on the Statue books the provisions of section 45(2) of the Act by virtue of the Taxation laws (Amendment) Act, 1984 w.e.f 1.4.1985 and there is now a statutory recognition that even asset initially acquired as investment can be subsequently converted into stock-in-trade. Apparently, none of the decisions cited by the Ld.AR considers the impact of the provisions of section 45(2) of the Act, which to our mind, make those decisions distinguishable. 11.3 As per section 45(2), profits & 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 business carried on by him, shall be chargeable to tax as income of the previous year in which such stock in trade is sold or otherwise transferred and for the purpose of section 48, the fair market value of the asset on the date of such conversion shall be deemed to be full value of consideration received or accruing as a result of the transfer of capital asset. Therefore, fair market value of the asset on the date of conversion as reduced by the cost of acquisition is required to be assessed under the head "capital gain". Further, sales realization of the stock-in-trade over such fair market value is required to be assessed as "business income". Page 11 of 15 ITA No. 259/Bang/2019 11.4 In this regard, we refer to the decision of the Hon’ble Special Bench of the Tribunal at Calcutta, in case of Octavius Steel & Co Ltd. v. Asstt. CIT [2002] 83 ITD 87 (Cal.) (SB), wherein it was held as under: "On a plain reading of the aforesaid section 45(2) it is clear that this provision was enacted for computing capital gains in respect of transfer of converted asset into stock-in-trade of a business. It has been provided therein that such profit arising from the transfer by way of conversion as stock-in- trade shall be chargeable to income-tax as income of the previous year in which such stock-in-trade is sold or otherwise transferred. Section 45(2) starts with a non obstante clause. Therefore, the provision of section 45(2) supersedes all the other provisions. Under sub-section (2) of section 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-trade of business, such conversion is to be treated as transfer. Corresponding amendment was made in section 45 for computing capital gain arising out of such transfer. In the present case the asset was converted into stock-in- trade before 1-4-1985. Even assuming that before 1-4- 1985 such conversion could not be said to be transfer within the meaning of section 2(47 )(iv) but admittedly, after 1-4-1985, the extended meaning of the word 'transfer' was applicable in respect of such conversion. Page 12 of 15 ITA No. 259/Bang/2019 However, capital gain could not be computed unless such stock-in-trade was sold or otherwise transferred. The gain arose only on sale or transfer otherwise. It did not amount to giving retrospective effect to the statutes but applying the law applicable on the date of taxable event, i.e., sale of converted assets. The CBDT Circular No. 397, dated 16-10-1984 clarifies that capital gain in cases of converted assets in closing stock would be chargeable in the year when such converted asset is actually sold as stock-in-trade; in other words, not in the year of conversion, but the year of actual sale. In the two cases before the Supreme Court, the decision was that on conversion there is no profit as no one can make profit out of himself. That situation is now taken care of by introducing section 45(2). It provides for taxation where the converted stock-in-trade is sold and the difference between the market value on the date of conversion and actual cost is the capital gain. That was what had been assessed by the Assessing Officer. Accordingly, the order of the first appellate authority was to be upheld." 11.5 We also refer to the decision of Hon’ble Mumbai Tribunal in case of Asstt. CIT v. Jehangir T. Nagree reported in (2008)23 SOT 512, wherein it was held as under: "....From a careful perusal of the relevant provisions of section 45(2) of the Act, we find that there should be the conversion of investment or capital asset by the owner as stock in trade of a business carried on by him. The words 'business carried on by the assessee' does not mean that before conversion of investment or capital asset in stock in trade the business must be in existence. If the assessee starts the business by converting the investment into stock in trade instead of purchasing it from the market can it not be called that the assessee 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 Page 13 of 15 ITA No. 259/Bang/2019 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." 11.6 We draw reference to the decision of the Hon'ble Madras High Court in case of CIT v. Essorpe Holdings (P.) Ltd. (2017) 83 taxmann.com 280, upheld the view taken by the Hon’ble Chennai Tribunal in case of M/s. Essorpe Holdings(P.) Ltd. vs. ACIT reported in (2015) 44 CCH 920. Hon'ble Madras High Court held as under: '21. A part of the land measuring 5.075 acres, out of the total extent of 10.150 acres, were sold even before filing the demerger application before this Court. The aforesaid sale was not brought to the notice of the High Court. The High Court of Madras, as per the Scheme of Demerger approved EML demerging with M/s. EHPL, transferring the real estate division of EML to EHPL as a going concern. As on 31.03.2010, the assessee company has shown the land in question as stock in trade and the same was later converted as Fixed Asset, by the Board Resolution. In the case of sale of 50% of the same property, out of 10.150 acres of land, for the assessment year 2009-10 was considered, by the co-ordinate Bench of the Tribunal in the case of Essorpe Mills Ltd. (supra), wherein it was held that the gain on transfer of property up to the date of conversion into stock-in-trade has to be assessed under the head "capital gains" and the gain in respect of property i.e. after the date of conversion into stock-in-trade has to be assessed as business income. As the Assessing Officer computed the entire sale consideration under the head long term capital gains, he did not apply the provisions of Section 45(2) of the Act. Therefore, the Assessing Officer should compute the business income in respect of stock-in- trade of the property, taking into consideration the provisions of section 45(2) of the Act, in accordance with law, after giving adequate opportunity of hearing to the assessee. 22. The provisions of Section 45(2) is a charging section for capital gains. It will apply, whenever a land, which originally was treated as investment and later converted Page 14 of 15 ITA No. 259/Bang/2019 into a stock in trade, is sold or transferred. So the land in this case was converted into a stock in trade in the hands of EML and as demerger is not a transfer, the capital gains under that section is charged when the land was sold by the assessee company. The capital gains accruing on conversion of the land 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.” 12. Based on the above discussions, we direct the Ld.AO to compute the income from the sale of land during the year under consideration as business income and also to grant benefit of section 45(2) to the assessee. Accordingly the grounds raised by assessee stands dismissed. In the result the appeal filed by assessee stands dismissed. Order pronounced in the open court on 18 th February, 2022. Sd/- Sd/- (B.R. BASKARAN) (BEENA PILLAI) Accountant Member Judicial Member Bangalore, Dated, the 18 th February, 2022. /MS / Page 15 of 15 ITA No. 259/Bang/2019 Copy to: 1. Appellant 4. CIT(A) 2. Respondent 5. DR, ITAT, Bangalore 3. CIT 6. Guard file By order Assistant Registrar, ITAT, Bangalore