M/s. Deensons Trading Co. Pvt. Ltd., CHENNAI V. ITO, CHENNAI

ITA 2774/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7658 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 29-12-2016
• Assessment Year: 1997-1998
• Appeal Filed On: 26-09-2016
• Court: TRIBUNAL
• Department Lawyers: V NANDA KUMAR
• Assessee Lawyers: A S SRIRAMAN
• Keywords: Capital asset; Business income; Business expenditure; Cost of acquisition; Date of conversion; Fair market value
• Section: 2(14); 10

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: CHENNAI . . . , !'. . # $ % , ' () BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.2774/MDS/2016 * +* /ASSESSMENT YEAR: 1997-98 M/S.DEENSONS TRADING CO. P. LTD., (FORMERLY DEEN REAL ESTATES P. LTD.), 75, M.C.ROAD, CHENNAI-600 021. VS. THE INCOME TAX OFFICER, COMPANY CIRCLE-I(4), CHENNAI. [PAN: AA A C D 1255 H ] ( ,- /APPELLANT) ( ./,- /RESPONDENT) ,- 0 1 / APPELLANT BY : MR.A.S.SRIRAMAN, ADV. ./,- 0 1 /RESPONDENT BY : MR. V.NANDA KUMAR, JCIT # 0 2' /DATE OF HEARING : 29.12.2016 34+ 0 2' /DATE OF PRONOUNCEMENT : 22.02.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST AN ORDER DATED 04.07.2016 OF COMMISSIONER OF INCOME TAX (APPEALS)- 1, CHENNAI, IN ITA NO.220/07-08/A.III FOR THE AY 1997-98. ITA NO.2774/MDS/2016 :- 2 -: 2.0 ALL THE GROUNDS OF THE APPEAL ARE RELATED TO DATE OF RECKONING OF ACQUISITION OF THE PROPERTY FOR THE PURPOSE OF COMP UTATION OF CAPITAL GAINS. THE ASSESSEE IS DEALING IN REAL ESTATE BUSINESS. D URING THE AY 1995-96, THE ASSESSEE HAS SHIFTED THE PROPERTY FROM THE SCHE DULE OF INVENTORIES(STOCK IN TRADE) TO THE SCHEDULE OF INVE STMENTS. THE SUBMITTED THAT THE ASSESSEE HAS CLOSED THE REAL ESTATE BUSINE SS AND ENTERED INTO THE TEXTILE BUSINESS AND CONVERTED THE STOCK IN TRADE I NTO INVESTMENTS. HOWEVER, THE ASSESSING OFFICER (HEREINAFTER REFERRE D TO AS AO) FOUND THAT THE ASSESSEE HAS PAID MMD PLAN SUBMISSION CHARGES O F RS.15,300/- IN THE SAME ASSESSMENT YEAR AND HENCE THE AO WAS OF THE V IEW THAT THE ASSESSEE WAS CONTINUING THE REAL ESTATE BUSINESS IN THE AY 1995-96 ALSO AND THE CHARACTER OF THE ASSET CONTINUED TO BE STOC K IN TRADE DESPITE THE BOOK ENTRIES PASSED. ACCORDINGLY THE AO ASSESSED TH E ENTIRE INCOME AS BUSINESS INCOME AGAINST THE LONG TERM CAPITAL GAINS CLAIMED BY THE ASSESSEE AMOUNTING TO RS.1,88,171/-. THE MATTER T RAVELLED UP TO ITAT AND THE CO-ORDINATE BENCH OF ITAT A BENCH, CHENNA I, IN ITA NO.2317/MDS/03 DATED 20.10.2006 SET ASIDE THE ORDER OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE DE NOVO. IN THE SECO ND ROUND, THE AO HAS PASSED ORDER U/S.143(3) R/W SEC.254 OF INCOME TAX A CT ON A TOTAL INCOME OF RS.6,17,353/-. IN THE SECOND ROUND, THE AO HELD THAT THE ASSETS IS CONTINUED TO BE STOCK IN TRADE TILL FY 1996-97, THE REFORE, REJECTED THE INDEXATION BENEFIT TO THE ASSESSEE. ITA NO.2774/MDS/2016 :- 3 -: 3.0 THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A) A ND THE LD.CIT(A) REJECTED THE ASSESSEES CONTENTIONS REGAR DING LONG TERM CAPITAL LOSS AND HELD THAT THE SALE TRANSACTION REPRESENTS SHORT TERM CAPITAL GAINS. 4.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSES SEE FILED APPEAL BEFORE THIS TRIBUNAL. APPEARING FOR THE ASSESSEE, T HE LD.AR SUBMITTED THAT THE ASSESSEE WAS IN REAL ESTATE BUSINESS AND ACQUIR ED THE PROPERTIES FOR THE PURPOSE OF CARRYING ON REAL ESTATE BUSINESS AND DECLARED THEM AS STOCK IN TRADE. SUBSEQUENTLY, THE ASSESSEE WAS UNA BLE TO CONTINUE THE BUSINESS IN REAL ESTATE AND SHIFTED ITS BUSINESS TO TEXTILES AND IN THE FY 1994-95, HE CONVERTED THE STOCK IN TRADE AS INVESTM ENTS BY BOOK ENTRY IN THE BOOKS OF ACCOUNTS. THE SAID PROPERTIES WERE SOL D IN THE FY 1996-97 AND DECLARED THE RESULTANT GAINS UNDER LONG TERM CA PITAL GAINS AND SUBMITTED THE RETURN OF INCOME. HOWEVER, THE AO FO UND THAT THE COMPANY HAS CHANGED THE BUSINESS FROM REAL ESTATE TO TRADIN G COMPANY BY VIRTUE OF SPECIAL RESOLUTION DATED 09.08.1997 U/S.21 OF COMPA NYS ACT AND THE AMENDMENT OF OBJECT CLAUSE III(A) WAS MADE BY INCLU DING CLAUSE III(A) 5 OF SECTION 17 OF COMPANIES ACT AND RESOLVED TO CARR Y ON VARIOUS OTHER BUSINESS ACTIVITIES INCLUDING THE TEXTILE BUSINESS WHICH THE ASSESSEE IS CARRYING ON AT PRESENT. THEREFORE, THE AO IS OF TH E VIEW THAT THE COMPANY CAN TREAT THE STOCK IN TRADE AS INVESTMENT ONLY FRO M THE FY 1997-98 BUT NOT FOR THE EARLIER YEARS. ACCORDINGLY, THE AO REJ ECTED THE CLAIM OF THE ASSESSEE. THE LD.CIT(A) HELD THAT SINCE THE ASSESS EE WAS CONVERTED THE STOCK IN TRADE TO INVESTMENT DURING THE FY 1994-95 RELEVANT TO THE AY ITA NO.2774/MDS/2016 :- 4 -: 1995-96. THE PERIOD OF HOLDING FOR THE PURPOSE OF CAPITAL GAINS SHOULD BE RECKONED FROM THE AY 1995-96 AND AS A RESULT, THE P ERIOD OF HOLDING WAS LESS THAN 36 MONTHS SINCE THE ASSET WAS SOLD DURING THE FY 1996-97 RELEVANT TO THE AY 1997-98 AND THE LD.CIT(A) HELD T HAT THE RESULTANT CAPITAL GAINS SHOULD BE SHORT TERM CAPITAL GAINS. 5.0 APPEARING FOR THE ASSESSEE, MR.SRIRAMAN, ADVOCATE, ARGUED THAT THE COMPANY WAS INCORPORATED FOR CARRYING OUT THE REAL ESTATE BUSINESS AND PURCHASED TWO PROPERTIES AT NO.107, G.A.ROAD ON 31. 01.1990 FOR RS.8,47,976/-, ON 09.03.1992 AND IT PURCHASED ADJAC ENT PROPERTY AT NO.36, KAPPAL POLU STREET FOR THE COST OF RS.2,18,2 48/- DURING THE FY 1989-90 & 1991-92. SINCE, THE COMPANY WAS UNABLE T O CONTINUE THE REAL ESTATE BUSINESS, IT HAS CHANGED ITS BUSINESS TO TEX TILE AND CONVERTED THE STOCK IN TRADE TO INVESTMENTS DURING THE FY 1994-95 AND SOLD THE PROPERTY IN FY 1996-97 RELEVANT TO THE AY 1996-97. SINCE THE PROPERTY WAS ACQUIRED IN 1989-90 & 1991-92, THOUGH HELD AS STOCK IN TRADE AND SOLD IN THE FY 1997-98 THE HOLDING PERIOD WAS MORE THAN 36 MONTHS AND THE LD.AR CONTENDED THAT THE ASSETS SHOULD BE TREATED A S CAPITAL ASSETS AND INDEXATION REQUIRED TO BE ALLOWED FROM THE DATE OF ACQUIRING THE ASSETS SINCE THERE WAS NO CHANGE IN THE CHARACTER OF THE P ROPERTY. THE LD.AR ALSO RELIED ON THE DECISION OF THIS BENCH IN THE CA SE OF SHRI VINNY SAWHNEY IN ITA NO.993/MDS/15 DATED 19.02.2016, WHEREIN THE CO-ORDINATE BENCH CAME TO CONCLUSION THAT THE FIRST DATE OF ACQUISITI ON HAS TO BE ADOPTED AS DATE OF ACQUISITION OF THE ASSET. THE CO-ORDINATE BENCH IN THE CASE CITED ITA NO.2774/MDS/2016 :- 5 -: SUPRA PLACED RELIANCE ON THE DECISION OF THE PUNE B ENCH OF THIS TRIBUNAL IN KALYANI EXPORTS & INVESTMENT PVT. LTD. VS. DCIT (20 01) 78 ITD 95 (TM). 5.0 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. THE QUESTION WHICH ARISES AND NEEDS AN ANSWER IS W HAT WOULD BE THE PERIOD OF HOLDING OF THE ASSET-WHETHER IT WO ULD RELATE BACK TO THE DATE WHEN (PERSONAL) CAPITAL ASSET WAS CONVERTED IN TO BUSINESS ASSET A FEW YEARS BACK OR THE DATE OF CONVERSION NOW FROM B USINESS ASSET BACK TO CAPITAL ASSET?. WE HAVE CAREFULLY GONE THROUGH THE RELEVANT PROVISIONS OF INCOME TAX ACT AND REPRODUCE THE SAME HEREUNDER: (1) SECTION 2(14)- CAPITAL ASSET MEANS PROPERTY O F ANY KIND HELD BY AN ASSESSEE, WHETHER OR NOT CONNECTED WITH HIS BUSINES S OR PROFESSION, BUT DOES NOT INCLUDE- (I) ANY STOCK-IN-TRADE, CONSUMABLE STORES OR RAW MATERI ALS HELD FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION; (II) PERSONAL EFFECTS, THAT IS TO SAY, MOVABLE PROPERTY (INCLUDING WEARING APPAREL AND FURNITURE) HELD FOR PERSONAL USE BY THE ASSESSEE OR ANY MEMBER OF HIS FAMILY DEPENDENT ON HIM, BUT EXCLUDES - (A) JEWELLERY ; (B) ARCHAEOLOGICAL COLLECTIONS ; (C) DRAWINGS ; (D) PAINTINGS ; (E) SCULPTURES ; OR (F) ANY WORK OF ART. EXPLANATION:- FOR THE PURPOSES OF THIS SUB-CLAUSE, JEWELLERY INCLUDES- (A) ORNAMENTS MADE OF GOLD, SILVER, PLATINUM OR ANY OTHER PRECIOUS METAL OR ANY ALLOY CONTAINING ONE OR MORE OF SUCH PRECIOUS METALS, WHETHER OR NOT CONTAINING ANY PRECIOUS OR SEMI-PREC IOUS STONE, AND WHETHER OR NOT WORKED OR SEWN INTO ANY WEARING APPA REL ; (B) PRECIOUS OR SEMI-PRECIOUS STONES, WHETHER OR NO T SET IN ANY FURNITURE, UTENSIL OR OTHER ARTICLE OR WORKED OR SE WN INTO ANY WEARING APPAREL ; (III) AGRICULTURAL LAND IN INDIA, NOT BEING LAND SI TUATE- (A) IN ANY AREA WHICH IS COMPRISED WITHIN THE JURIS DICTION OF A MUNICIPALITY (WHETHER KNOWN AS A MUNICIPALITY, MUNICIPAL CORPORA TION, NOTIFIED AREA COMMITTEE, ITA NO.2774/MDS/2016 :- 6 -: TOWN AREA COMMITTEE, TOWN COMMITTEE, OR BY ANY OTHE R NAME) OR A CANTONMENT BOARD AND WHICH HAS A POPULATION OF NOT LESS THAN T EN THOUSAND ACCORDING TO THE LAST PRECEDING CENSUS OF WHICH THE RELEVANT FIGURES HAVE BEEN PUBLISHED BEFORE THE FIRST DAY OF THE PREVIOUS YEAR ; OR (B) IN ANY AREA WITHIN SUCH DISTANCE, NOT BEING MORE THAN EIGHT KILOMETRES, FROM THE LOCAL LI MITS OF ANY MUNICIPALITY OR CANTONMENT BOARD REFERRED TO IN ITEM (A), AS THE CENTRAL GOVERNMENT MAY, HAVING REGARD T O THE EXTENT OF, AND SCOPE FOR, URBANISATION OF THAT AREA AND OTHER RELEVANT C ONSIDERATIONS, SPECIFY IN THIS BEHALF BY NOTIFICATION IN THE OFFICIAL GAZETTE ; (IV) 6 PER CENT. GOLD BONDS, 1977, OR 7 PER CENT. GOLD BONDS, 1980, OR NATIONAL DEFENCE GOLD BONDS, 1980, ISSUED BY THE CENTRAL GOV ERNMENT ; (V) SPECIAL BEARER BONDS, 1991, ISSUED BY THE CENTRAL GOVERNMENT ; (VI) GOLD DEPOSIT BONDS ISSUED UNDER THE GOLD DEPO SIT SCHEME, 1999, NOTIFIED BY THE CENTRAL GOVERNMENT ; 2. SECTION 2 (29A)- LONG-TERM CAPITAL ASSET MEAN S A CAPITAL ASSET WHICH IS NOT A SHORT-TERM CAPITAL ASSET ; 3. SECTION 2 (42A)- (42A) SHORT-TERM CAPITAL ASSE T MEANS A CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN THIRTY-SIX MONTHS IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER : PROVIDED THAT IN THE CASE OF A SHARE HELD IN A CO MPANY OR ANY OTHER SECURITY LISTED IN A RECOGNISED STOCK EXCHANGE IN INDIA OR A UNIT OF THE UNIT TRUST OF INDIA ESTABLISHED UNDER THE UNIT TRUST OF INDIA ACT, 1963 (52 OF 1963), OR A UNIT OF A MUTUAL FUND SPECIFIED UNDER CLAUSE (23D) OF SECTION 10 65OR A ZERO COUPON BOND, THE PROVISIONS OF THIS CLAUSE SHALL HAVE EFFECT AS IF FOR THE WORDS THIRTY-SIX MONTHS, THE WORDS TWELVE MONTHS HAD BEEN SUBSTIT UTED : EXPLANATION 1.- (I) IN DETERMINING THE PERIOD FOR W HICH ANY CAPITAL ASSET IS HELD BY THE ASSESSEE- (A) IN THE CASE OF A SHARE HELD IN A COMPANY IN LI QUIDATION, THERE SHALL BE EXCLUDED THE PERIOD SUBSEQUENT TO THE DATE ON WHICH THE COMPANY GOES INTO LIQUIDATION ; (B) IN THE CASE OF A CAPITAL ASSET WHICH BECOMES THE PROPERTY OF THE ASSESSEE IN THE CIRCUMSTANCES MENTIONED IN SUB-SECTION (1) OF S ECTION 49, THERE SHALL BE INCLUDED THE PERIOD FOR WHICH THE ASSET WAS HELD BY THE PREVIOUS OWNER REFERRED TO IN THE SAID SECTION ; (C) IN THE CASE OF A CAPITAL ASSET, BEING A SHARE OR SHARES IN AN INDIAN COMPANY, WHICH BECOMES THE PROPERTY OF THE ASSESSEE IN CONSI DERATION OF A TRANSFER REFERRED TO IN CLAUSE (VII) OF SECTION 47, THERE SHALL BE IN CLUDED THE PERIOD FOR WHICH THE SHARE OR SHARES IN THE AMALGAMATING COMPANY WERE HE LD BY THE ASSESSEE; (D) IN THE CASE OF A CAPITAL ASSET, BEING A SHARE OR ANY OTHER SECURITY (HEREAFTER IN THIS CLAUSE REFERRED TO AS THE FINANCIAL ASSET) SUB SCRIBED TO BY THE ASSESSEE ON THE BASIS OF HIS RIGHT TO SUBSCRIBE TO SUCH FINANCIAL A SSET OR SUBSCRIBED TO BY THE PERSON IN WHOSE FAVOUR THE ASSESSEE HAS RENOUNCED H IS RIGHT TO SUBSCRIBE TO SUCH FINANCIAL ASSET, THE PERIOD SHALL BE RECKONED FROM THE DATE OF ALLOTMENT OF SUCH FINANCIAL ASSET ; (E) IN THE CASE OF A CAPITAL ASSET, BEING THE RIG HT TO SUBSCRIBE TO ANY FINANCIAL ASSET, WHICH IS RENOUNCED IN FAVOUR OF ANY OTHER PE RSON, THE PERIOD SHALL BE RECKONED FROM THE DATE OF THE OFFER OF SUCH RIGHT B Y THE COMPANY OR INSTITUTION, AS THE CASE MAY BE, MAKING SUCH OFFER ; (F) IN THE CASE OF A CAPITAL ASSET, BEING A FINANC IAL ASSET, ALLOTTED WITHOUT ANY PAYMENT AND ON THE BASIS OF HOLDING OF ANY OTHER FI NANCIAL ASSET, THE PERIOD SHALL BE RECKONED FROM THE DATE OF THE ALLOTMENT OF SUCH FINANCIAL ASSET ; (G) IN THE CASE OF A CAPITAL ASSET, BEING A SHARE OR SHARES IN AN INDIAN COMPANY, WHICH BECOMES THE PROPERTY OF THE ASSESSEE IN CONSI DERATION OF A DEMERGER, THERE SHALL BE INCLUDED THE PERIOD FOR WHICH THE SHARE OR SHARES HELD IN THE DEMERGED COMPANY WERE HELD BY THE ASSESSEE ; ITA NO.2774/MDS/2016 :- 7 -: (H) IN THE CASE OF A CAPITAL ASSET, BEING TRADING O R CLEARING RIGHTS OF A RECOGNISED STOCK EXCHANGE IN INDIA ACQUIRED BY A PERSON PURSUA NT TO DEMUTUALISATION OR CORPORATISATION OF THE RECOGNISED STOCK EXCHANGE IN INDIA AS REFERRED TO IN CLAUSE (XIII) OF SECTION 47, THERE SHALL BE INCLUDED THE P ERIOD FOR WHICH THE PERSON WAS A MEMBER OF THE RECOGNISED STOCK EXCHANGE IN INDIA IM MEDIATELY PRIOR TO SUCH DEMUTUALISATION OR CORPORATISATION ; (HA) IN THE CASE OF A CAPITAL ASSET, BEING EQUITY S HARE OR SHARES IN A COMPANY ALLOTTED PURSUANT TO DEMUTUALISATION OR CORPORATISA TION OF A RECOGNISEDSTOCK EXCHANGE IN INDIA AS REFERRED TO IN CLAUSE (XIII) OF SECTION 47, THERE SHALL BE INCLUDED THE P ERIOD FOR WHICH THE PERSON WAS A MEMBER OF THE RECOGNISEDSTOCK EXCHANGE IN INDIA IMM EDIATELY PRIOR TO SUCH DEMUTUALISATION OR CORPORATISATION ; (HB) IN THE CASE OF A CAPITAL ASSET, BEING ANY SPEC IFIED SECURITY OR SWEAT EQUITY SHARES ALLOTTED OR TRANSFERRED, DIRECTLY OR INDIREC TLY, BY THE EMPLOYER FREE OF COST OR AT CONCESSIONAL RATE TO HIS EMPLOYEES (INCLUDING FORMER EMPLOYEE OR EMPLOYEES), THE PERIOD SHALL BE RECKONED FROM THE D ATE OF ALLOTMENT OR TRANSFER OF SUCH SPECIFIED SECURITY OR SWEAT EQUITY SHARES ; (I I) IN RESPECT OF CAPITAL ASSETS OTHER THAN THOSE M ENTIONED IN CLAUSE (I), THE PERIOD FOR WHICH ANY CAPITAL ASSET IS HELD BY THE A SSESSEE SHALL BE DETERMINED SUBJECT TO ANY RULES WHICH THE BOARD MAY MAKE IN TH IS BEHALF : EXPLANATION 2.- FOR THE PURPOSES OF THIS CLAUSE, T HE EXPRESSION SECURITY SHALL HAVE THE MEANING ASSIGNED TO IT IN CLAUSE (H) OF SE CTION 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) ; EXPLANATION 3.- FOR THE PURPOSES OF THIS CLAUSE, T HE EXPRESSIONS SPECIFIED SECURITY AND SWEAT EQUITY SHARES SHALL HAVE THE MEANING RESPECTIVELY ASSIGNED TO THEM IN THE EXPLANATION TO CLAUSE (D) OF SUB-SEC TION (1) OF SECTION 115WB; 4. SECTION 45(2)- NOTWITHSTANDING ANYTHING CONTAIN ED IN SUB-SECTION (1), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY WAY O F CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOC K-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 OTHER WISE TRA NSFERRED BY HIM AND, FOR THE PURPOSES OF SECTION 48, THE FAIR MARKET VALUE OF TH E ASSET ON THE DATE OF SUCH CONVERSION OR TREATMENT SHALL BE DEEMED TO BE THE F ULL VALUE OF THE CONSIDERATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF THE CAPITAL ASSET. 7.0 ITAT DELHI BENCH IN THE CASE OF S SPLENDOR CONSTRUC TION VS INCOME- TAX OFFICER, WARD 9(2), NEW DELHI- IT APPEAL NO. 32 5 (DELHI) OF 2007- [ASSESSMENT YEAR 2003-04]-OCTOBER 24, 2008 AND REPO RTED IN (2009)-27- SOT-39(DEL) CONSIDERED THE IDENTICAL ISSUE AND HELD THAT THE DATE OF CONVERSION OF STOCK IN TRADE IS THE DATE FOR RECKON ING THE HOLDING PERIOD FOR DETERMINING THE LONG TERM CAPITAL ASSET. 7.1 CATCHWORDS FROM THAT DECISION- SECTION 45, READ WITH SECTIONS 2(29A) AND 2(42A) OF THE INCOME-TAX ACT, 1961 CAPITAL GAINS CHARGEABLE AS ASSESSMENT YEAR 2003-04 WHETHER FOR ASCERTAINING AS TO WHETH ER A CAPITAL ASSET IS A SHORT- TERM CAPITAL ASSET OR A LONG-TERM CAPITAL ASSET, PERIOD FOR WHICH SAID ASSET IS HELD BY ASSESSEE AS CAPITAL ASSET ALONE HAS TO BE R ECKONED HELD, YES ASSESSEE COMPANY WAS ENGAGED IN BUSINESS OF DEVELOPING AND S ELLING FREEHOLD IMMOVABLE ITA NO.2774/MDS/2016 :- 8 -: PROPERTIES IN FINANCIAL YEAR 1998-99, ASSESSEE CO MPANY ACQUIRED A PROPERTY I.E. LAND FOR A CERTAIN CONSIDERATION AND SAME WAS SUBJE CTED TO DEVELOPMENT IN FINANCIAL YEARS 2000-01 AND 2001-02 INCURRING CERTA IN EXPENDITURE COST OF ACQUISITION OF SAID PROPERTY ALONG WITH DEVELOPMENT EXPENDITURE INCURRED IN RESPECT THEREOF WAS SHOWN BY ASSESSEE COMPANY AS IT S STOCK IN TRADE IN BALANCE SHEET UP TO 31-3-2002 AS ON 1-4-2002 SAID PROPERT Y WAS CONVERTED BY ASSESSEE COMPANY INTO INVESTMENT AND SAME WAS SOLD ON 12-12- 2002 AUTHORITIES BELOW, TAXED PROFITS ARISING FROM SAID SALE AS SHORT-TERM CAPITAL GAIN WHETHER SINCE ASSESSEE SOLD PROPERTY IN QUESTION WITHIN 36 MONTHS FROM DATE IT WAS CONVERTED INTO CAPITAL ASSET, I.E., INVESTMENT, AUTHORITIES B ELOW RIGHTLY BROUGHT TO TAX PROFIT ARISING FROM SALE OF SAID PROPERTY AS SHORT TERM CA PITAL GAIN HELD, YES REASONING ADOPTED IN THIS CASE WAS THAT THE DEFINI TION OF CAPITAL ASSET AS GIVEN IN SECTION 2(14) OF THE ACT DOES NOT INCLUDE STOCK-IN-TRADE HELD BY THE ASSESSEE FOR THE PURPOSE OF HIS BUSINESS OR PROFESSION. THE PROPERTY IN QUESTION WHICH WAS H ELD BY THE ASSESSEE AS STOCK-IN-TRADE COULD NOT BE REGARDED AS A CAPITAL ASSET UP TO 31-03-2002 AND IT BECAME A CAPITAL ASSET ONLY ON 01-04-2002 WHEN THE SAME WAS CONVERTED FROM STOCK-IN-TRADE INT O INVESTMENT. THE ASSESSING OFFICER RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS. SANTOSH L. CHOWGULE [1998] 234 ITR 0787 WHEREIN IT WAS HELD TH AT IT IS ONLY THE LIFE OF THE CONVERTED ASSET (BEING SHARE IN TH IS CASE) HAVE TO BE (RE)CONSIDERED IN RECKONING WHETHER IT IS A SHORT-T ERM OR LONG TERM CAPITAL ASSET. RELIANCE WAS ALSO PLACED BY THE ASSE SSING OFFICER ON COMMISSIONER OF INCOME-TAX VS. CHUNILAL KHUSHALDAS [1974] 093 ITR 0369(GUJ) AND MANECKLAL PREMCHAND (DECD.) VS. C OMMISSIONER OF INCOME-TAX [1990] 186 ITR 0554(BOM) WHEREIN IT W AS HELD THAT BONUS SHARES ARE ACQUIRED BY A SHAREHOLDER WHEN THE Y ARE ISSUED AND THEY MUST BE TAKEN TO BE HELD BY THE SHAREHOLDE R FROM THE DATE OF THEIR ISSUE AND NOT FROM THE DATE WHEN THE ORIGI NAL SHARES IN ITA NO.2774/MDS/2016 :- 9 -: RESPECT OF WHICH THEY ARE ISSUED WERE ACQUIRED BY T HE ASSESSEE THE TRIBUNAL ENDORSED THE VIEWS OF THE ASSESSING OFFIC ER. IN THE CASE BEFORE THE GUJARAT HIGH COURT IN COMMISSIONER OF IN COME-TAX VS. CHUNILAL KHUSHALDAS [1974] 093 ITR 0369 BONUS SHARE S WHICH WERE ISSUED ON 5TH SEPTEMBER, 1961 WERE SOLD ON 12TH SEP TEMBER, 1961 AND IT WAS HELD BY THE HIGH COURT THAT THE BONUS SH ARES WERE SHORT- TERM CAPITAL ASSETS WITHIN THE MEANING OF SECTION 2 (42A) AS THEY WERE NOT HELD BY THE ASSESSEE FOR MORE THAN TWELVE MONTHS. 8.0 IN THE INSTANT CASE, THE APPELLANT HAS ACQUIRED THE PROPERTY IN 1988- 89 AND 1991-92, THE PROPERTY REMAINED IN THE HANDS OF THE ASSESSEE COMPANY AS STOCK IN TRADE AND THE PROPERTY WAS TRAN SFERRED AS INVESTMENT IN THE BOOKS OF ACCOUNTS DURING THE FY 1994-95 AND SOLD IN 1996-97.THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE W AS DEALING IN REAL ESTATE AND ALL THE EXPENSES HAVE BEEN CLAIMED REGUL ARLY AS BUSINESS EXPENSES AND HAVE BEEN ALLOWED TOO. DURING THE A.Y 1997-98 ALSO THE ASSESSEE HAS ALSO PAID MMDA PLAN SUBMISSION CHARGES OF RS,15300/- AND CLAIMED AS DEDUCTION. THE ABOVE FINDING OF THE AO S HOWS THAT THOUGH THE ASSESSEE CLAIMED TO HAVE CONVERTED THE ASSET IN TO INVESTMENT IN BOOKS OF ACCOUNTS CONTINUED TO CLAIM THE MAINTENANCE EXPENSE S AS BUSINESS EXPENDITURE. EVEN OTHERWISE ALSO FROM THE DATE OF C ONVERSION OF THE ASSET IT WAS HELD AS CAPITAL ASSET IN THE HANDS OF THE AS SESSEE FOR LESS THAN 36 MONTHS. THE LD. CIT(A) HELD THE ASSET AS SHORT TERM CAPITAL ASSET PLACING ITA NO.2774/MDS/2016 :- 10 -: RELIANCE ON COORDINATE BENCH DECISION IN THE CASE O F LOHIA METALS P LTD VS ACIT 131 TTJ 472. THE COORDINATE BENCH IN THE CASE CITED (SUPRA) HELD THAT THE HOLDING PERIOD PRESCRIBED IN S. 2(42A) OF THE A CT HAS TO BE RECKONED WHEN THE ASSET I.E., SHARES BECAME CAPITAL ASSET. THE LD.A.R RELIED ON THE DECISION OF ITAT, CHENNAI D BENCH D ECISION IN THE CASE OF SHRI VINAY SAWHANY VS ITO ITA.NO.993/MDS/2015 DATED 19/02/2016.THE COORDINATE BENCH DELIVERED THE RULING PLACING RELIA NCE ON ITAT, PUNE THIRD MEMBER DECISION IN THE CASE OF KALYANI EXPORTS & INVESTMENT PVT. LTD. VS. DCIT (2001) 78 ITD 95 (TM). THE ISSUE BEFORE THE HONBLE THIRD MEMBER WAS WHEN SHARES WERE PURCHASED PRIOR TO 01-04-1981 THE ASSESSEE HAD TO BE ALLOWED THE OPTION OF SUBSTITUTION, SHOULD BE CO NFINED TO THE FACTS OF THE CASE AND IS ALSO DISTINGUISHABLE.. IN THAT CASE THE SHARES WHICH WERE ACQUIRED IN 1977 WERE CONVERTED INTO CAPITAL ASSET ON 01-07-1988 AT ORIGINAL PURCHASE PRICE OF RS.17 PER SHARE AND THE TRIBUNAL HELD THAT THE ASSESSEE SHOULD BE PERMITTED TO SUBSTITUTE THE MARK ET VALUE AS ON 01-04- 1981 IN LIEU OF PURCHASE COST AS ON 01-07-1988 AS P ER PROVISIONS OF 55(2)(B)(II).THE TRIBUNAL IN THAT CASE WAS DEALING ONLY WITH COST OF ACQUISITION AND NOT PERIOD OF HOLDING. THEREFORE TH E RULING OF HONBLE THIRD MEMBER IN THE CASE CITED IS NOT APPLICABLE IN THE A SSESSEES CASE. THE COORDINATE BENCH IN THE CASE OF VINAY SAWHANY HAS N OT CONSIDERED THE DECISIONS OF LOHIA METALS AND THE DELHI TRIBUNAL DE CISION CITED (SUPRA). EVEN OTHERWISE THE FACTS OF THE ASSESSES CASE ARE DISTINGUISHABLE FROM THE DECISION OF VINAY SAWHANYS CASE AS DISCUSSED EARLI ER. IN THE CASE OF THE ASSESSEE THE ASSESSING OFFICER HAS GIVEN CLEAR FIND ING THAT THE ASSESSEE ITA NO.2774/MDS/2016 :- 11 -: WAS CLAIMING THE EXPENSES REGULARLY BY DEBITING TO THE PROFIT AND LOSS ACCOUNT. IN THE ASSESSEES CASE THE FACTS ARE SIMIL AR TO THAT OF LOHIA METALS AND SPLENDOR CONSTRUCTIONS AND THEREFORE SQU ARELY APPLICABLE. ACCORDINGLY WE HOLD THAT THE CIT(A) RIGHTLY HELD TH E ASSET AS SHORT TERM CAPITAL ASSET AND THE GAINS SHOULD BE TAXED AS SHOR T TERM CAPITAL GAINS SINCE THE HOLDING PERIOD WAS LESS THAN 36 MONTHS FR OM THE DATE OF CONVERSION OF STOCK IN TRADE IN TO THE CAPITAL ASSE T. ACCORDINGLY, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE ASSESSEE S APPEAL. 9.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND FEBRUARY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( !' . . # $ % ) (D.S.SUNDER SINGH) ' /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 22 ND FEBRUARY, 2017. TLN 0 . 2$6 76+2 /COPY TO: 1. ,- /APPELLANT 4. # 82 /CIT 2. ./,- /RESPONDENT 5. 69 .2 /DR 3. # 82 ( ) /CIT(A) 6. '* < /GF