DCIT CIR. 2(1), MUMBAI V. M/s. HINDUSTAN SPINNING & WEAVING MILL LTD., MUMBAI

ITA 3621/MUM/2003

• Counselvise Citation: 362119914 RSA 2003
• Duration Of Justice: 8 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 18-08-2010
• Assessment Year: 1994-1995
• Appeal Filed On: 08-05-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Capital asset; Business income; Cost of acquisition; Date of conversion; Fair market value; Difference of opinion; Valuation report; Competent authority; Revised return; Change of opinion; Reassessment proceedings; Set aside; Capital Gains
• Section: 45(2); 143(3); 54F; 5(2); 80HHC; 143(2); 147; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH: MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.3820/MUM/2003 (ASSESSMENT YEAR: 1994-95) THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD., SIR VITHALDAS CHAMBERS, 16, MUMBAI SAMACHAR MARG, MUMBAI -400 003 ..... APPELLANT VS DCIT CENTRAL CIRCLE 2(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI -400 020 ..... RESPONDENT ITA NO.3621/MUM/2003 (ASSESSMENT YEAR: 1994-95) DCIT CENTRAL CIRCLE 2(1), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI -400 020 ..... APPELLANT VS THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD., SIR VITHALDAS CHAMBERS, 16, MUMBAI SAMACHAR MARG, MUMBAI -400 003 ..... RESPONDENT PAN: DC/SR-1/1-H ASSESSEE BY: S/SHRI P.J. PARDIWALLA & NISHANT THAKKAR REVENUE BY: SHRI PAWAN VED O R D E R ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 2 PER R.S. PADVEKAR, JM THESE CROSS APPEALS ONE BY THE ASSESSEE AND ANOTHER BY THE REVENUE ARE FILED CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT (A) - 32, MUMBAI DATED 26.02.2003 FOR THE A.Y. 1994-95. 2. WE FIRST TAKE-UP THE ASSESSEES APPEAL FOR DISPO SAL IN WHICH THE ASSESSEE HAS RAISED QUESTION ON THE VALIDITY OF THE REASSESSMENT PROCEEDINGS BY WAY OF GROUND NO.1 GROUND NO.1 READ S AS UNDER:- 1:1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS E RRED IN HOLDING THAT THE REASSESSMENT PROCEEDINGS WERE IN ACCORDANCE WITH LAW. 1:2 THE APPELLANT SUBMITS THAT THE RE-ASSESSMENT PR OCEEDINGS WERE NOT IN ACCORDANCE WITH LAW AND THE PROVISIONS OF THE ACT AND CONSEQUENTLY THE REASSESSMENT ORDER WAS NUL L AND VOID AND THE COMMISSIONER OF INCOME-TAX (APPEALS) O UGHT TO HAVE HELD AS SUCH. 1:3 THE APPELLANT SUBMITS THAT THE RE-ASSESSMENT PR OCEEDINGS BE HELD TO BE BAD IN LAW AND SHOULD BE STRUCK DOWN. 3. FACTS WHICH REVEALED FROM THE RECORD ARE AS UNDE R. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS 5,32,59,157/- FOR THE A.Y. 1994-95 ON 30.3.1995. T HE RETURN FILED BY THE ASSESSEE WAS ACCEPTED U/S.143(1) AND THE SAME W AS NOT SELECTED FOR THE SCRUTINY. SUBSEQUENTLY, THE ASSESSEE FILED THE REVISED RETURN ON 30.03.1995 AND THE SAME WAS ALSO PROCESSED U/S.1 43(1)(A) IN THE MONTH OF DECEMBER 1996 AND NO NOTICE U/S.143(2) WAS ISSUED. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE A.Y. 1 995-96 OF THE ASSESSEE, THE A.O. NOTICED THAT THE ASSESSEE HAD EN TERED INTO CERTAIN ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 3 PROPERTY TRANSACTIONS WITH ONE DEVELOPER AND THE AS SESSEE HAS ALSO EXECUTED A DEVELOPMENT AGREEMENT OF THE LAND / PROP ERTY TRANSFERRING THE DEVELOPMENT RIGHT IN FAVOUR OF THE DEVELOPER ON CERTAIN TERMS. THE A.O., THEREFORE, CAME TO THE CONCLUSION THAT TH E ASSESSEE SHOULD HAVE OFFERED THE CAPITAL GAIN U/S.45 OF THE ACT BUT NOTHING WAS OFFERED. THE ASSESSEE CLAIMED THAT HE HAS CONVERTE D THE LAND / ASSETS INTO STOCK-IN-TRADE AND BUSINESS INCOME HAS BEEN OF FERED BY THE ASSESSEE. THE A.O., THEREFORE, INITIATED THE PROCE EDINGS U/S.147 AND ISSUED THE NOTICE U/S.148 TO THE ASSESSEE REQUIRING THE ASSESSEE TO FILE THE RETURN OF INCOME. THE ASSESSEE TOOK THE SERIO US OBJECTION ON A NOTICE ISSUED U/S.148 CHALLENGING ITS VALIDITY. TH E ASSESSEE CONTENDED THAT HE HAD OFFERED THE FULL INCOME OUT O F PROPERTY / ASSET TRANSACTION AND HENCE, THERE WAS NO VALID REASON TO ISSUE THE NOTICE U/S.148. THE ASSESSEE ALSO TOOK THE STAND THAT THE NOTICE IS ISSUED MERELY ON THE BASIS OF CHANGE OF OPINION AS THE ORI GINAL RETURN AS WELL AS REVISED RETURN FILED BY THE ASSESSEE WERE ACCEPT ED BY THE A.O. AND AS THE A.O. WAS SATISFIED WITH THE CORRECTNESS OF T HE INCOME RETURNED BY THE ASSESSEE, NO ACTION UNDER SEC. 143(2) IS TAK EN. THE A.O. WAS NOT IMPRESSED WITH THE CONTENTION AND EXPLANATION O F THE ASSESSEE AND HE REJECTED OBJECTIONS ON THE ISSUE OF THE NOTI CE U/S.148 BY RELYING ON THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF PHOOL CHAND BAJRANG LAL V/S. ITO- 203 ITR 456. THE A.O. CONCLUDED THAT THERE WAS SPECIFIC MATERIAL BEFORE HIM AND HEN CE, THERE IS NO MERIT IN THE OBJECTION TAKEN BY THE ASSESSEE. THE ASSESSEE CHALLENGED THE FINDINGS OF THE A.O. ON THE ISSUE OF REOPENING BEFORE THE LD. CIT (A) BUT DID NOT FIND FAVOUR. NOW, THE ASSESSEE HAS RAI SED THE GROUND ON THE VALIDITY OF THE NOTICE ISSUED U/S.148 BY THE A. O. 4. WE HAVE HEARD THE PARTIES AND ALSO PERUSED THE RECORDS. THE ASSESSEE FILED THE RETURN OF INCOME AS WELL AS SUBS EQUENT REVISED RETURN AS PER THE PROVISIONS OF SECTION 139 FOR THE A.Y.1994-95, WHICH WAS NOT SELECTED FOR SCRUTINY AND NO ASSESSMENTS WA S MADE UNDER SEC. 143(3) OF THE ACT. IN THE PROCEEDINGS FOR THE A.Y. 1995-96 IT WAS ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 4 NOTICED BY THE A.O. THAT THE ASSESSEE HAS ENTERED I NTO CERTAIN TRANSACTIONS OF DEVELOPMENT ITS LAND / PROPERTY WIT H THE DEVELOPER BUT NO CAPITAL GAIN WAS DECLARED. THE A.O., THEREFORE, INITIATED THE PROCEEDINGS UNDER SEC. 147 OF THE ACT AND ISSUED TH E NOTICE U/S.148. THE ARGUMENT OF THE LD. COUNSEL IS THAT THERE WAS N O MATERIAL TO OUTSIDE THE FILE BEFORE THE A.O. WE ARE NOT ABLE T O ACCEPT THE CONTENTION OF THE LD. COUNSEL. IN ASSESSEES OWN CA SE WHEN THE ASSESSMENT PROCEEDING WAS UNDERTAKEN BY THE A.O. FO R THE A.Y. 1995- 96, AS PER THE FACTS ON RECORD, IN THE COURSE OF TH E ENQUIRY IT WAS FOUND BY THE A.O. THAT THE ASSESSEE HAS EXECUTED AG REEMENT WITH ONE DEVELOPER FOR FIXED CONSIDERATION BUT NO CAPITAL GA IN U/S.45 HAS BEEN DECLARED OR OFFERED FOR TAX. IN THE CASE OF RAJESH ZAVERI STOCK BROKER 291 ITR 500 THE HONBLE SUPREME COURT HAS HELD THAT THE A.O. HAS SUFFICIENT POWER TO MAKE THE ENQUIRY IN RESPECT OF THE RETURN FILED BY THE ASSESSEE BY ISSUING NOTICE U/S.143(2) AND ON TH E PRETEXT OF ENQUIRY, THE A.O. CANNOT RESORT TO PROCEEDINGS U/S. 147. THE HONBLE SUPREME COURT HAS ALSO HELD THAT THE A.O. HAS FULL POWER IN THAT CIRCUMSTANCES ALSO TO INITIATE THE PROCEEDINGS U/S. 147 SUBJECT TO FULFILLMENT OF THE CONDITIONS OF THE SAID SECTION. IN OUR OPINION, AS PER THE FACTS ON RECORD THERE WAS A MATERIAL BEFORE THE A.O. TO FORM THE BELIEF THAT THE INCOME HAS ESCAPED AN ASSESSMENT AN D IT CANNOT BE SAID THAT THERE WAS NO MATERIAL FOR FORMATION OF TH E BELIEF. AFTER GIVING OUR ANXIOUS CONSIDERATION TO THE RECORD BEFORE US W E CONFIRM THE FINDINGS OF THE LD. CIT (A) THAT THE A.O. HAS VALID LY INITIATED THE PROCEEDINGS U/S.147 OF THE ACT AND NOTICE ISSUED U/ S.148 IS IN CONFORMITY WITH THE LAW. 5. NOW, WE DISPOSE OFF GROUND NO.2 & 3. AS THE ISS UES ARISING FROM THE SAID GROUNDS ARE INTERLINKED AND THE SAID GROUN DS READ AS UNDER:- 2:1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS E RRED IN CONFIRMING THE ASSESSING OFFICERS VIEW THAT THE AP PELLANT HAD NO INTENTION TO CARRY ON BUSINESS OF PROPERTY ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 5 DEVELOPMENT AND IN CONSEQUENTLY NOT ACCEPTING THE CONVERSION OF ITS CAPITAL ASSET INTO STOCK-IN-TRADE . 2:2 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ER RED IN NOT ACCEPTING THE APPELLANTS CONVERSION OF ITS CAPITAL ASSET INTO STOCK-IN-TRADE ON THE GROUND THAT IT WAS NOT IN THE BUSINESS OF PROPERTY DEVELOPMENT PRIOR THERETO. 2:3 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT IT HAD CONVERTED ITS CAPITAL ASSET INTO STO CK-IN-TRADE WITH THE INTENTION OF CARRYING ON ITS BUSINESS OF P ROPERTY DEVELOPMENT AND THE COMMISSIONER OF INCOME-TAX (APP EALS) OUGHT TO HAVE HELD AS SUCH. 2:4 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R BE DIRECTED TO ASSESSEE ITS INCOME FROM THE PROPERTY DEVELOPMENT ACTIVITY AS BUSINESS INCOME AS CLAIME D BY IT. 3:1 THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS ER RED IN CONFIRMING THE ASSESSING OFFICERS VIEW THAT BY ENT ERING INTO A DEVELOPMENT AGREEMENT THE APPELLANT HAD TRANSFERRED A PART OF ITS PROPERTY DURING THE YEAR UNDER CONSIDERATION. 3:2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACT S AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT, IT HAD NOT TRANSFERRED ITS PROPERTY DURING THE YEAR UNDER CONSIDERATION BY ENTERING INTO THE DEVELOPMEN T AGREEMENT AND THE COMMISSIONER OF INCOME-TAX (APPEA LS) OUGHT TO HAVE HELD AS SUCH. ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 6 3:3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICE R BE DIRECTED TO DELETE THE ADDITION SO MADE BY HIM TO I TS TOTAL INCOME IN THIS REGARD AND RE-COMPUTE ITS TOTAL INCO ME ACCORDINGLY. 3:4 WITHOUT PREJUDICE TO THE FOREGOING IN CASE IT IS HELD THAT THE INCOME EARNED BY THE APPELLANT FROM THE PROPERTY DEVELOPMENT ACTIVITY IS ASSESSABLE UNDER THE HEAD CAPITAL GAINS THE APPELLANT SUBMITS THAT THE ASSESSING OFF ICER BE DIRECTED TO COMPUTE THE SAID CAPITAL GAINS AS ALTER NATIVELY CLAIMED BY IT. 6. IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HA S ENTERED INTO DEVELOPMENT AGREEMENT WITH M/S. CAPRIHANS INDIA LIM ITED ON 29.10.1993 IN RESPECT OF THE PROPERTY BEARING CS NO .1903 AND 1904, DR ANAND RAO L. NAIR MARG, MUMBAI HAVING 793.66 SQ. MTRS. OF FREE HOLD LAND AND 590.88 SQ.MTS OF LEASE-HOLD LAND BELO NGING TO THE ASSESSEE AND IN WHICH IS FACTORY PREMISES ALSO. TH E CONSIDERATION FOR TRANSFERRING THE DEVELOPMENT RIGHT WAS FIXED AT RS 19,89,12,000/- AND SAME WAS ALSO MENTIONED IN THE CERTIFICATE ISSUED U /S.269 UL(3) OF THE ACT DATED 17.1.1994. AS PER THE TERMS OF THE AGREE MENT WITH M/S. CAPRIHANS INDIA LIMITED (IN SHORT THE DEVELOPER) WA S TO PAY RS 1 CRORE ON OR BEFORE THE EXECUTION OF THE AGREEMENT, RS 4 C RORES ON OR BEFORE 05.03.1994 AND RS 5 CRORES ON OR BEFORE 30.10.1994 AND BALANCE OF RS 9,89,12,000/- WAS TO BE PAID BY THE TRANSFEREE T O THE ASSESSEE OUT OF REALIZATION OF THE NET SALE PROCEEDS ON SALE OF FLATS/UNITS. IN ADDITION TO THE ABOVE AMOUNT, AS PER CLAUSE 20 OF T HE AGREEMENT, THE ASSESSEE WAS TO BE ALLOTTED 23000 SQ. FT. BUILT-UP AREA IN THE PROPOSED BUILDINGS ON THE PAYMENT OF THE PROJECT COST OF THE DEVELOPMENT ON PRO RATA BASIS, EXCLUSIVE OF COST OF LAND. THE ASSESSEE CO NVERTED 793.66 SQ. MTS OF FREEHOLD PORTION OF THE LAND INTO STOCK- IN-TRADE IN APRIL 1993 AND THE SAME WAS VALUED ON THE DATE OF CONVERSION A T RS 5 CRORES. THE ASSESSEE DECLARED THE PROFIT ON THE PROPERTY/LA ND DEVELOPMENT IN ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 7 THE A.Y. 1995-96, 1996-97 ETC. ON THE PRO RATA BASIS TAKING INTO CONSIDERATION THE NUMBER OF FLATS SOLD AND CONSTRUC TION WORK COMPLETED AND THE SAID INCOME WAS SHOWN AS A BUSINE SS INCOME. THE ASSESSEE HAS ALSO ENTERED INTO AN ANOTHER AGREEMENT WITH M/S. KALPATARU CONSTRUCTION OVERSEAS PVT. LTD. MUMBAI DA TED 28TH JULY 1993 AND APPOINTED THE SAID COMPANY AS MANAGEMENT-C UM-SALES- CONSULTANTS FOR THE ASSESSEES PROJECT. AS OBSERVE D BY THE A.O., AS PER THE AGREEMENT WITH M/S. KALPATARU CONSTRUCTION OVERSEAS PVT. LTD. (IN SHORT PROJECT MANAGERS) THEY WERE SUPPOSED TO S UPERVISE CONSTRUCTION ACTIVITY, TO APPOINT VARIOUS CONTRACTO RS/SUB-CONTRACTORS AND OTHER PERSONS IN CONNECTION WITH THE PROJECT AN D ALSO TO PROMOTE AND ORGANIZE THE SALE OF THE FLATS. AS PER TERMS OF SAID AGREEMENT, IT WAS AGREED THAT THE PROJECT MANAGERS WOULD BE PAID 5% COMMISSION ON THE COST OF THE DEVELOPMENT OF THE PROPOSED BUIL DING AND 2% ON THE GROSS SALE PROCEEDS OF THE SALE OF THE FLATS. IN T HE A.Y. 1994-95 THE ASSESSEE HAS SHOWN PAYMENT OF RS 53.10 LAKHS TO THE PROJECT MANAGERS, WHICH HAS BEEN ADDED TO THE FAIR MARKET V ALUE OF THE PROPERTY CONVERTED INTO STOCK-IN-TRADE. AS STATED EARLIER, AS PER THE TERMS OF AGREEMENT WITH THE DEVELOPER BY M/S. CAPRI HANS INDIA LIMITED, THE ASSESSEE IS TO GET 23000 SQ.FT. OF THE BUILT-UP AREA ON THE PAYMENT OF THE ACTUAL PROJECT COST. THE ASSESSEE C LAIMED THAT THE ENTIRE PROJECT IS OWNED BY THE ASSESSEE AS STOCK-IN -TRADE AND WHENEVER THERE IS SALE OF THE FLATS, THE ASSESSEE I S DECLARING THE PROFITS AS HIS BUSINESS PROFIT. THE A.O. FRAMED THE FOLL OWING THREE ISSUES FOR DETERMINING THE TAX LIABILITY OF THE ASSESSEE IN RE SPECT OF THE LAND/PROPERTY, WHICH WAS CLAIMED TO HAVE BEEN CONVE RTED INTO STOCK- IN-TRADE AND ALSO GIVEN FOR THE DEVELOPMENT TO M/S. CAPRIHANS INDIA LIMITED. 1) WHETHER THE INCOME FROM THE PROPERTY DEVELOPMENT IS BUSINESS INCOME OR IT IS INCOME UNDER THE HEAD C APITAL GAINS. ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 8 2) WHETHER THE INCOME FROM THE PROPERTY DEVELOPMENT IS TO BE TAXED OVER A PERIOD OF TIME IN THE DIFFERENT ASSESS MENT YEARS OR IN THE ASSESSMENT YEAR RELEVANT TO THE PRE VIOUS YEAR IN WHICH THE AGREEMENT WITH THE DEVELOPER WAS EXECUTED AND POSSESSION OF PLOT WAS GIVEN TO HIM. 3) IN VIEW OF THE CLAUSE 20 OF THE AGREEMENT WITH T HE DEVELOPER WHICH STIPULATES THAT THE ASSESSEE WILL B E ENTITLED TO 23000 SQUARE FEET OF BUILT-UP AREA IN T HE SAID PROJECT FOR WHICH IT WILL PAY ONLY THE COST OF CONS TRUCTION (EXCLUDING THE COST OF LAND) TO THE DEVELOPER, THE BENEFIT ACCRUING TO THE ASSESSEE IS TAXABLE? 7. SO FAR AS THE FIRST ISSUE IS CONCERNED, THE A.O. HAS NOTED THAT THE ASSESSEE-COMPANY RUNNING A SPINNING AND WEAVING MILLS AT MUMBAI FOR THE LAST MORE THAN 25 YEARS AND THE ASSE SSEE WAS NEVER IN THE BUSINESS OF SALE OR PURCHASE OF LAND OR DEVELOP MENT OF THE PROPERTY. THE OBJECT CLAUSE OF MEMORANDUM OF ASSOC IATION (MA) OF THE ASSESSEE-COMPANY ALSO DOES NOT HAVE ANY CLAUSE SHOW ING THAT IT CAN DO THE BUSINESS OF THE PROPERTY AND DEVELOPMENT AND ONLY CLAUSE IS AS UNDER:- TO SALE, EXCHANGE OR LEASE THE WHOLE OR PART OF TH E LAND OR OTHER IMMOVEABLE PROPERTY FOR TIME BEING BELONGING TO THE COMPANY AND TAKE PART THE SAME ON LEASE / PURCHASE FOR SUCH A P RICE OR PRICES IN ON SUCH TERMS AND CONDITIONS AS MAY BE AGREED UP ON. THE FREEHOLD LAND WHICH WAS SUBJECTED TO THE DEVELO PMENT AGREEMENT WAS PURCHASED ON 8.04.1937 AND WAS FORMING PART OF THE BLOCK OF ASSETS OF THE ASSESSEE-COMPANY. THE LEASEHOLD LAND ACQUIRED BY THE ASSESSEE VIDE LEASE DEED DATED 02.02.1889. THE A.O . ARRIVED AT A CONCLUSION THAT AS A REAL ESTATE WAS FETCHING THE G OOD PRICE, MANY OF THE TEXTILE MILLS ARE SELLING THEIR PROPERTIES/LAND S IN MUMBAI FOR GENERATING THE FUNDS. THE A.O. ALSO EXAMINED THE D EVELOPMENT ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 9 AGREEMENT BETWEEN THE ASSESSEE AND M/S. CAPRIHANS I NDIA LIMITED DATED 29.10.1993. THE A.O. TOOK NOTE OF THE FACT T HAT THE ASSESSEE WAS NOT RESPONSIBLE FOR ANY LOSS IN THE PROJECT. E VEN AS PER THE AGREEMENT IN PARA 3(III) IT HAS BEEN PROVIDED THAT IF THE SALE PROCEEDS OF THE FLATS ARE FOUND TO BE INSUFFICIENT, IN THAT CASE ALSO IT WAS A DEVELOPER TO PAY THE AGREED AMOUNT BY ANY MEANS. T HE A.O. HAS DISCUSSED DIFFERENT CLAUSES IN THE AGREEMENT IN THE ASSESSMENT ORDER ON PAGE NO.5. IN THE OPINION OF THE A.O. THE ASSES SEE IS ONLY A SILENT SPECTATOR AND DEVELOPMENT OF THE PROPERTY/LAND CAN NOT EVEN BE TREATED AS AN ADVENTURE IN THE NATURE OF THE TRADE . THE A.O. HAS FURTHER NOTED THAT THE TRANSACTION ENTERED INTO BET WEEN THE ASSESSEE AND DEVELOPER IS A SIMPLE CASE OF SALE OF PROPERTY. THE INTENTION OF THE ASSESSEE IS NOT TO GENUINELY CONDUCT THE BUSINESS O F THE PROPERTY DEVELOPMENT BUT FOR GENERATING THE FUNDS AND HENCE, THE PROPERTY/LAND WAS DISPOSED OFF BY WAY OF SALE. THE A.O. ALSO OBSERVED THAT AN APPOINTMENT OF M/S. KALPATARU CONSTRUCTIO N OVERSEAS PVT. LTD AS A PROJECT MANAGERS IS A ONLY DOCUMENTATION F ORMALITY BECAUSE SAID COMPANY AND THE DEVELOPER I.E. M/S. CAPRIHANS INDIA LIMITED ARE THE SUBSIDIARIES COMPANIES AND THERE ARE COMMON DIR ECTORS IN BOTH THE COMPANIES. THE A.O. ALSO NOTED THE NAMES OF TH E COMMON DIRECTORS IN THE ASSESSMENT ORDER. 8. IT IS PERTINENT TO NOTE HERE THAT IT IS CLAIMED BY THE ASSESSEE THAT THE SAID LAND/PROPERTY WHICH WAS EARLIER HELD AS A BUSINESS ASSET WAS CONVERTED INTO STOCK-IN-TRADE IN THE MONTH OF APRIL 1993 AND THE SAID LAND/PROPERTY IS EXPLOITED FOR THE PURPOSE OF THE B USINESS OF THE ASSESSEE BY ENTERING INTO THE DEVELOPMENT AGREEMENT OF THE SAID LAND. IN THE OPINION OF THE A.O., TO HOLD THAT ANY ACTIVI TY AS IN THE ADVENTURE IN THE NATURE OF TRADE , THERE SHOULD BE POSITIVE MATERIAL TO PROVE THAT THE ASSESSEE INTENDED TO TRADE IN THE SAID ACTIVITY AND IN THE ABSENCE OF THE EVIDENCE, IT IS TRANSACTION OF THE TRANSFER OF THE LAND AND THE ASSESSEE HAS ONLY GIVEN COLOUR OF THE BUSINESS TRAN SACTION TO SAID TRANSACTION IN ORDER TO AVOID THE CAPITAL GAINS TAX . AFTER CONSIDERING ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 10 THE DIFFERENT COVENANTS AND TERMS IN THE AGREEMENT FOR DEVELOPMENT LIKE VALUATION OF THE SCRAP OF THE STRUCTURE STANDI NG ON THE PLOT, FACT THAT THE CONSTRUCTION WAS TO BE COMPLETED BY THE DE VELOPER AND THE OCCUPATION AND COMPLETION CERTIFICATE FROM THE COMP ETENT AUTHORITIES WERE TO BE OBTAINED BY THE DEVELOPER. THE FACT THA T THE FUNDS FOR MAKING THE PAYMENTS TO THE ASSESSEE IN RESPECT OF T HE CONSIDERATION IN THE DEVELOPMENT OF THE PLOT AND ALSO ENTIRE EXPE NDITURE ON THE CONSTRUCTION OF THE BUILDINGS WERE TO BE ARRANGED B Y THE DEVELOPER. THE FACT THAT THE STAMP DUTY AND REGISTRATION ARE A LSO TO BE BORNED BY THE DEVELOPER PROVED THAT THE POSSESSION OF THE P ROPERTY/PLOT WAS GIVEN TO THE DEVELOPER AND THE ASSESSEE HAS NO EFFE CTIVE ROLE TO PLAY IN THE CONSTRUCTION OF THE FLATS OR SALE OF FLATS SAVE 23000 SQ. FTS. WHICH ARE TO BE ALLOTTED TO THE ASSESSEE BY THE DEVELOPE R THE A.O. HAS ALSO OBSERVED THAT THE ALLEGED PROJECT MANAGER NAMELY M/ S. KALPATARU CONSTRUCTION OVERSEAS PVT. LTD. WHO IS APPOINTED BY THE ASSESSEE IS A SISTER CONCERN OF THE DEVELOPER COMPANY AND THE B UILDINGS ARE GIVEN THE NAME AFTER CONSIDERING THE KALPATARU GROUP AN D THE SAME WAS SPECIFIED IN CLAUSE 2(A) OF THE DEVELOPMENT AGREEME NT. IN THE OPINION OF THE A.O., THE TRANSFER OF THE LAND OR THE SAID T RANSACTION HAD TAKEN PLACE IN 29TH OCTOBER 1993 AND ACCORDINGLY THE SAME WAS SUBJECTED TO THE CAPITAL GAINS TAX. THE A.O. ALSO REJECTED TH E BUSINESS INCOME OFFERED BY THE ASSESSEE ON THE PRO RATA BASIS AND HELD THAT THE ENTIRE INCOME ON THE TRANSFER OF THE LAND/PROPERTY WAS LIA BLE TO TAX AS CAPITAL GAIN IN THE A.Y. 1994-95. IN CONSEQUENCE, THE A.O. REJECTED ALL THE CLAIMS OF THE ASSESSEE WHICH WERE MADE TREATING THE INCOME FROM SAID PROJECT AS A BUSINESS INCOME. THE A.O. ALSO T OOK THE NOTE OF THE FACT THAT IN THE A.Y. 1996-97 AND 1997-98 THAT THE ASSESSEE OFFERED MAJOR PART OF ITS INCOME FROM THE PROPERTY DEVELOPM ENT BUT AT THE SAME TIME THE ASSESSEE DECLARED THE LOSSES. IN THE F.Y. 1992-93 RELEVANT TO THE A.Y. 1993-94, THE ASSESSEE COMPANY HAS GIVEN THE EMPHASIS ON THE MODERNIZATION PROGRAMME OF THE ASSE SSEE-COMPANY. IT WAS ALSO MENTIONED IN THE FINANCIAL YEAR 1993-94 , THE ASSESSEE WAS PLANNING TO INVEST RS 90 CRORES TO RS 100 CRORES IN THE NEXT THREE TO ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 11 FOUR YEARS FOR THE MODERNIZATION OF THE COMPANY. T HE A.O., THEREFORE, FINALLY CONCLUDED THAT THE INCOME OFFERED BY THE AS SESSEE FROM THE SO CALLED THE DEVELOPMENT OF THE PROPERTY CANNOT BE AC CEPTED AS A BUSINESS INCOME, BUT THE SAME HAD TO BE TAXED UNDER THE HEAD CAPITAL GAINS. IN RESPECT OF THE TREATMENT OF 2 3000 SQ.FT. OF BUILT-UP AREA WHICH AS PER THE AGREEMENT, THE DEVELOPER HAS TO GIVE TO THE ASSESSEE ON THE PAYMENT OF THE PRO RATA COST OF THE PROJECT ATTRIBUTABLE, THE A.O. WAS OF THE OPINION THAT THE ASSESSEE HAS RECEIVED ADDITIONAL BENEFIT BY GETTING BACK THE TOT AL BUILT-UP AREA OF 23000 SQ.FT. AND TO THE EXTENT OF RS 5,235/- PER SQ .FT., WHICH WAS THE BENEFIT IN TERMS OF FAIR MARKET VALUE TO THE ASSESS EE. IN HE OPINION OF THE A.O., DIFFERENCE BETWEEN THE ESTIMATED COST OF THE PROPERTY AND FAIR MARKET VALUE OF THE PROPERTY ON THE DATE OF TH E TRANSFER WAS PART OF THE SALE CONSIDERATION. HE, THEREFORE, MADE THE ADDITION OF RS 12,04,05,000/- TO THE AMOUNT OF THE CONSIDERATION O F THE DEVELOPMENT AGREEMENT AND DETERMINED THE TOTAL CONSIDERATION OF THE DEVELOPMENT OF THE LAND RECEIVED AND ACCRUED BY THE ASSESSEE AT RS 31,93,17,000/- . THE A.O. ALSO ADOPTED THE FAIR MARKET VALUE OF T HE PROPERTY AS ON 1.4.1981 AT RS 50,000/- AND WORKED OUT THE TAXABLE CAPITAL GAIN AT RS 31,92,67,000/-. 9. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT (A). BEFORE THE LD. CIT (A), THE PLEA OF THE ASSESSEE THAT THE PLOT OF LAND WHICH WAS SUBJECT MATTER OF THE DEVELOPMENT AGREEMENT WIT H THE DEVELOPER, WAS CONVERTED INTO STOCK-IN-TRADE IN APRIL 1993, IS NOT ACCEPTED BY THE LD. CIT (A). THE LD. CIT (A) OBSERVED THAT MERELY PASSING OF SOME SPECIAL RESOLUTION BY THE BOARD OF DIRECTORS AND SU BSEQUENT APPROVAL IN AGM DOES NOT PROVE THAT THE ASSESSEE HAS COMMENC ED THE BUSINESS OF THE PROPERTY DEVELOPMENT. THE LD. CIT (A) HELD THAT THE PROPERTY CONVERTED INTO STOCK-IN-TRADE WITHIN THE MEANING OF SECTION 45(2) MUST BELONG TO THE BUSINESS WHICH IS ALREADY IN EXISTE NCE PRIOR TO SUCH CONVERSION. THE LD. CIT (A) ALSO REFERRED TO SOME OF THE DECISIONS OF THE HONBLE SUPREME COURT AS WELL AS THE DECISION O F THE HONBLE HIGH ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 12 COURT IN THE CASE OF MOHANDAS RAMCHODDAS (1993) 203 ITR 304. THE LD. CIT (A) HELD THAT THE CLAIM OF THE ASSESSEE FOR CONVERSION OF THE LAND/PROPERTY INTO STOCK-IN-TRADE WAS NOT GENUINE A ND AS THE STOCK- IN-TRADE DOES NOT BELONG TO A EXISTING BUSINESS WHI CH IS THE PREREQUISITE OF SECTION 45(2) AND CLAIM OF THE CON VERSION OF THE LAND OR PROPERTY INTO STOCK-IN-TRADE WAS ONLY A COLLUSIVE D EVICE FOR POSTPONING CAPITAL GAIN TAX LIABILITY. THE LD. CIT (A) AFTER CONSIDERING THE DIFFERENT CLAUSES IN THE DEVELOPMENT AGREEMENT BETWEEN THE ASSESSEE AND M/S. CAPRIHANS INDIA LIMITED (DEVELOPER) HELD THAT IT IS A CASE OF THE TRANSFER OF THE LAND/PROPERTY WITHIN THE MEANING OF SECTION 2(47) OF THE ACT. THE LD. CIT (A) TOOK THE NOTE OF THE FACT THAT THE ASSESSEE HAS OBTAINED THE CLEARANCE U/S.269UL(3) OF THE I.T. ACT FROM THE APPROPRIATE AUTHORITY IN WHICH THE ASSESSEE COMPANY IS SHOWN AS A TRANSFEROR AND THE DEVELOPER IS AS A TRANSFEREE AND THE CONSIDERATION WAS SHOWN AT RS 19.89 CRORES. BY VIRTUE OF CLAUSE 2 OF THE DEVELOPMENT AGREEMENT THE COST OF DEVELOPMENT HAS B EEN FIXED AT THE SAME RATE ON THE BASIS OF FSI SANCTIONED TO THE ASS ESSEE BUT IT WAS NOTHING BUT THE COST OF THE LAND, WHICH THE DEVELOP ER AGREED TO PAY IN TERMS OF THE DEVELOPMENT AGREEMENT. THE LD. CIT (A ) HAS ALSO TOOK NOTE OF THE FACT THAT THE CONSIDERATION FOR THE SAL E OF FLATS WAS TO BE DETERMINED BY THE DEVELOPER AND THE TERMS AND CONDI TIONS WERE TO BE FIXED BY THE DEVELOPER. MOREOVER, THE DEVELOPER WA S VESTED WITH THE ABSOLUTE DISCRETION TO ENTER INTO AN AGREEMENT TO S ELL AND DISPOSE OF OR ALLOT ALL THE PREMISES, FLAT OR UNITS / TENEMENTS, PARKING SPACES, GARAGES ETC. IN PROPOSED BUILDING ON OWNERSHIP BASI S AND IN SUCH A MANNER AS PRESCRIBED IN THE DEVELOPMENT AGREEMENT. THE LD. CIT (A), FINALLY, HELD THAT THERE WAS TRANSFER OF CERTAIN RI GHTS ATTACHED WITH THE IMMOVABLE PROPERTY TO THE DEVELOPER AND HENCE, THER E WAS A TRANSFER WITHIN THE MEANING OF SECTION 2(47)(IV). SO FAR AS THE CLAIM OF THE CONVERSION OF THE SAID LAND/PROPERTY INTO STOCK-IN -TRADE IS CONCERNED, THE LD. CIT (A) HELD THAT EVEN IF THE CLAIM OF THE CONVERSION OF THE LAND INTO STOCK-IN-TRADE IS ACCEPTED AS GENUINE BUT THE TRANSFER TO THE DEVELOPER IN THE A.Y. 1994-95 OFFERING THE BUSINESS PROFITS IN THE SALE ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 13 OF THE FLATS IN THE SUBSEQUENT ASSESSMENT YEAR CANN OT BE ACCEPTED AS THE FLATS DO NOT CONSTITUTE STOCK-IN-TRADE OF THE A SSESSEE. IN SUM AND SUBSTANCE, THE PLEA OF THE ASSESSEE THAT THE INCOME GENERATED FROM THE DEVELOPMENT OF THE PROPERTY/LAND IS TO BE TREAT ED AS A BUSINESS INCOME AS THE LAND WAS CONVERTED INTO STOCK-IN-TRA DE AND THEREAFTER ONLY IT WAS DEVELOPED AND HENCE, PROFIT GENERATED F ROM THE SALE OF THE FLATS IS TO BE ASSESSED AS A BUSINESS PROFITS WAS N EGATED BY THE LD. CIT (A). SO FAR AS THE ISSUE OF THE FAIR MARKET VALUE OF THE PROPERTY AS ON 1.1.1981 IS CONCERNED, THE ASSESSEE FILED THE VALUA TION REPORT OF THE REGISTERED VALUER, WHICH WAS FORWARDED BY THE LD. C IT (A) TO THE A.O. AND A.O. IN TURN WITH A VIEW TO EXAMINE THE AUTHENT ICITY OF THE VALUATION, REFERRED THE SAME TO THE DVO. AS PER TH E VALUATION MADE BY THE ASSESSEES VALUER, THE FAIR MARKET VALUE OF THE SAID PROPERTY, AS ON 1.4.1981 WAS DETERMINED AT RS 9.69 CRORES BUT AS PER THE VALUATION REPORT OF THE DVO IT WAS DETERMINED AT RS 2.28 CRORES. THE LD. CIT (A) FINALLY CONCLUDED THAT THE VALUATION MA DE BY THE DVO ON THE BASIS OF THE COMPARABLES WAS VERY MUCH REASONAB LE AND VALUATION DETERMINED BY THE DVO HAS TO BE ACCEPTED. HE FURTH ER HELD THAT FOR THE PURPOSE OF WORKING OUT THE INCOME OF THE ASSESS EE BY WAY OF CAPITAL GAIN, THE SAID VALUATION IS ACCEPTED BUT FO R THE PURPOSE OF WORKING OUT THE CAPITAL GAIN, THE VALUE OF STRUCTUR E ON THE SAID LAND WOULD BE EXCLUDED BECAUSE IT IS A DEPRECIABLE ASSET AND SAME HAS TO BE DEALT WITH ONLY U/S.50. THE LD. CIT (A) DID NOT AGREE WITH THE A.O.S OPINION ON THE CONSIDERATION OR BENEFIT ACCR UED TO THE ASSESSEE IN RESPECT OF 23000 SQ.FT. OF CONSTRUCTED AREA WHIC H THE ASSESSEE IS ENTITLED TO GET AS PER TERMS OF DEVELOPMENT AGREEM ENT FROM THE DEVELOPER OUT OF THE CONSTRUCTED BUILDINGS AND HE H ELD THAT THE SAME CANNOT BE CONSIDERED AS FROM PART OF TRANSFER PRICE FOR THE PURPOSE OF CAPITAL GAIN. HE, FURTHER, HELD THAT THE SAID BUIL T-UP AREA OF 23000 SQ.FT. WHICH WAS SUBJECTED TO THE TAXATION AS AND W HEN THE SAME WAS TRANSFERRED. HE, THEREFORE, HELD THAT THE A.O. WAS NOT CORRECT IN ADDING THE MARKET VALUE OF THE 23000 SQ.FT RECEIVAB LE BY THE ASSESSEE ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 14 AS A PART OF THE VALUE OF CONSIDERATION TOWARDS DEV ELOPMENT RIGHTS FROM THE DEVELOPER. 10. THE LD. CIT (A) FINALLY HELD THAT: (I) CONSIDERATION RECEIVABLE BY THE ASSESSEE FROM THE T RANSFER OF DEVELOPMENTS RIGHTS TO THE DEVELOPER AMOUNTING T O RS 19.89 CRORES IS TAXABLE AS INCOME FROM CAPITAL GAIN S IN THE A.Y. 1994-95 TO ESTIMATE VALUE IN RESPECT OF BUILT- UP AREA OF 23000 SQ.FT. RECEIVABLE BY THE ASSESSEE AMOUNTING T O RS 12.04 CRORES WOULD NOT FORM PART OF THE SALE CONSID ERATION / TRANSFER PRICE; (II) RS 5 LAKHS RECEIVABLE BY THE ASSESSEE IN RESPECT OF DEPRECIABLE STRUCTURE WOULD NOT FORM PART OF THE TR ANSFER PRICE; (III) THE FAIR MARKET VALUE OF THE LAND / PROPERTY AS ON 1.4.1981, THE A.O. WOULD MAKE THE RELEVANT ADJUSTME NT IN THE VALUATION MADE BY THE DVO, THE COST OF ATTRIBUT ABLE TO THE STRUCTURE AMOUNTING TO RS 34.50 LAKHS WOULD BE EXCLUDED FROM THE COST PRICE AS ON 1.4.1981 THE A.O . WOULD CALCULATE THE RATIO CONSIDERING 23000 SQ.FT. AREA T O THE TOTAL SANCTIONED FSI AND PROPORTIONATE COST ATTRIBUTABLE WOULD ALSO BE EXCLUDED FOR DETERMINING THE FAIR MARKET VA LUE AS ON 1.4.1981. NOW, THE ASSESSEE AS WELL AS THE REVENUE ARE IN APP EAL BEFORE US. 11. SO FAR AS THE REVENUES APPEAL IS CONCERNED, TH E REVENUE HAS RAISED THE MAIN GRIEVANCES AS UNDER: (I) THE FINDING OF THE LD. CIT (A) THAT FSI AGGREGA TING TO THE EXTENT OF 76456 SQ.FT. WAS TRANSFERRED TO THE DEVEL OPER AND NOT 99456 SQ.FT. AS HELD BY THE A.O.; AND ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 15 (II) THE FINDING OF THE LD. CIT (A) THAT THE MARKET VALU E OF 23000 SQ. FT. OF CONSTRUCTED AREA WHICH THE ASSESSE E WAS ENTITLED TO GET FROM THE DEVELOPER DID NOT FORM PRI CE OF THE DEVELOPMENT OF THE PLOT AND THE SAID AMOUNT CANNOT BE CONSIDERED FOR COMPUTATION OF THE CAPITAL GAIN. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PART IES AND ANXICIOUSLY CONSIDERED ALL THE FACTS AS WELL AS PRE CEDENTS RELIED ON BY THE BOTH THE PARTIES. THE LD. COUNSEL TOOK US THRO UGH THE DIFFERENT EVENTS IN CONNECTION WITH THE DEVELOPMENT AGREEMEN T. IT IS ARGUED THAT THE RESOLUTION WAS PASSED BY THE BOARD OF DIRE CTORS ON 27.06.1990 FOR AMENDING/INCORPORATING CERTAIN OBJEC T CLAUSES IN THE MEMORANDUM OF ASSOCIATION OF THE ASSESSEE-COMPANY B Y WHICH IT WAS PROVIDED FOR COMMENCEMENT OF BUSINESS OF DEVELO PMENT, SALE, LEASE OR DEAL IN LAND OR OTHER IMMOVABLE PROPERTIES VIZ. CONSTRUCTION OF BUILDINGS FOR THE SALE OR OTHER INCIDENTAL ACTIVITI ES IN CONFORMITY WITH THE MEMORANDUM OF ASSOCIATION. THE ASSESSEE GOT AP PROVAL FROM THE ADDL. COLLECTOR AND COMPETENT AUTHORITY, MUMBAI TO INDIAN MANUFACTURING COMPANY LTD. WAS FOR REDEVELOPMENT OF THE PROPERTY ON LEASE. ON 3.09.1991, A LETTER WAS ADDRESSED BY THE MILLS TO THE EXECUTIVE ENGINEER (BUILDING PROPOSAL), BYCULLA, MU MBAI, TO GET PERMISSION FOR REDEVELOPMENT OF THE PART OF THE PRE MISES. THE LD. COUNSEL TOOK US THROUGH THE PAPER BOOK WHERE THE CO PIES OF ALL THE CORRESPONDENCE ARE PLACED. HE SUBMITS THAT THE ASSE SSEE DECIDED TO START THE CONSTRUCTION BUSINESS AND ACCORDINGLY HE CONVERTED THE LAND INTO THE STOCK-IN-TRADE IN APRIL 1993. AS THE ASSE SSEE HAS NOT EXPERTISE IN THE SAID FIELD, THE ASSESSEE HAS ENTER ED INTO AN AGREEMENT WITH M/S. KALPATARU CONSTRUCTION OVERSEAS PVT. LTD. ON 28.7.1993 APPOINTING THEM AS A PROJECT MANAGER-CUM-SALES-CONS ULTANTS. SUBSEQUENTLY, THE ASSESSEE ENTERED INTO DEVELOPMENT AGREEMENT/MOU WITH M/S. CAPRIHANS INDIA LIMITED DATED 29.10.1993 AND M/S. CAPRIHANS INDIA LIMITED AGREED FOR DEVELOPING THE P ROPERTY/LAND OF THE ASSESSEE. THE LD. COUNSEL REFERRED TO SECTION 45(2) OF THE ACT AND ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 16 ARGUES THAT THERE IS NO BAR FOR CONVERTING CAPITAL ASSET INTO STOCK-IN- TRADE AND ONCE THERE IS A CONVERSION INTO STOCK-IN- TRADE THEN THE SAID CAPITAL ASSET FORMS THE PART OF THE STOCK-IN-TRADE AND AS PROVIDED IN SECTION 45(2) WHEN THAT ASSET WILL BE SOLD OR OTHER WISE TRANSFERRED THEN THE SAME WILL BE SUBJECTED TO THE CAPITAL GAIN . HE ARGUES THAT IN THE FINANCIAL YEAR 1993-94 RELEVANT TO A.Y. 1994-95 THE ASSESSEE DID NOT SALE OR TRANSFER THE LAND, WHICH WAS SUBJECT MA TTER OF DEVELOPMENT AND HENCE, THE CONCLUSION DRAWN BY BOTH THE AUTHORI TIES BELOW THAT THERE WAS A TRANSFER OF THE LAND AND THE SAME WAS S UBJECTED TO THE CAPITAL GAIN IN THE A.Y. 1994-95 IS TOTALLY MISPLAC ED. THE LD. COUNSEL FURTHER SUBMITS THAT DEVELOPMENT AGREEMENT IS NOTHI NG BUT IT IS THE INTENTION OF THE ASSESSEE TO COMMERCIALLY EXPLOIT T HE LAND. HE VEHEMENTLY ARGUES THAT THE ASSESSEE APPOINTED THE P ROJECT MANAGERS- CUM-SALES-CONSULTANTS BY ENTERING INTO AGREEMENT WI TH M/S. KALPATARU CONSTRUCTION OVERSEAS PVT. LTD. AND THAT SHOWS THE INTENTION OF THE ASSESSEE TO DO CONSTRUCTION OF THE BUSINESS IN THE WELL ORGANIZED MANNER. THE LD. COUNSEL ALSO REFERS TO T HE DEVELOPMENT AGREEMENT WITH M/S. CAPRIHANS INDIA LIMITED DATED 2 9.10.1993 AND SUBMITS THAT THE SAID COMPANY HAS BEEN GIVEN THE RI GHT FOR DEVELOPMENT CONSTRUCTION BASED ON THE FSI OF THE PR OPERTY AND NO POSSESSION WAS GIVEN TO THE DEVELOPER AND ONLY TEMP ORARY LICENCE WAS GIVEN. HE, THEREFORE, PLEADED THAT AS THE LAND WAS CONVERTED INTO STOCK-IN-TRADE BY THE ASSESSEE IN APRIL 1993 AS THE RE WAS TRANSFER WITHIN THE MEANING OF SECTION 45(2) OF THE INCOME-T AX ACT IN THE A.Y. 1994-95 BUT NO CAPITAL GAIN CAN BE WORKED OUT IN TH AT YEAR AS THERE IS NO SALE OR TRANSFER OF SAID LAND AND HENCE, THE A.O . WAS NOT JUSTIFIED IN WORKING OUT THE CAPITAL GAIN AND BRINGING TO TAX THE SAME. 13. THE LD. COUNSEL PLACED HIS HEAVY RELIANCE ON TH E DECISION OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF THE CIT VS. SWASTIK TEXTILE MILLS LTD. 214 ITR 74. WE HAVE ALSO HEARD THE LD. D.R. WHO SUPPORTED THE FINDINGS OF THE LD. CIT (A) TO THE EX TENT OF HOLDING THAT THERE WAS NO CONVERSION OF THE LAND INTO STOCK-IN-T RADE AS CLAIMED BY ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 17 THE ASSESSEE AS WELL AS THERE WAS A TRANSFER WITHIN THE MEANING OF SECTION 2(47) OF THE ACT AND HENCE, THERE WAS A LIA BILITY FOR CAPITAL GAINS IN THE A.Y. 1994-95. 14. IN OUR OPINION, DIFFERENT FACETS ARE INVOLVED I N RESPECT OF TAXABILITY OF THE LAND WHICH IS CONVERTED INTO STOC K-IN-TRADE, WHICH IN OUR OPINION, ARE AS UNDER:- (I) WHETHER THE LAND OR PROPERTY WAS CONVERTED BY T HE ASSESSEE INTO STOCK-IN-TRADE AS CONTEMPLATED U/S.45 (2) OF THE INCOME-TAX ACT?; (II) IS THERE ANY SALE OR OTHERWISE TRANSFER OF THE PROP ERTY HELD AS STOCK-IN-TRADE BY THE ASSESSEE IN THE PREVIOUS Y EAR RELEVANT TO THE A.Y. 2004-05 BY VIRTUE OF THE DEVE LOPMENT AGREEMENT ENTERED INTO WITH M/S. CAPRIHANS INDIA LIMITED?; (III) WHAT IS THE BASIS ON WHICH THE PROFIT ARISING TO TH E ASSESSEE ON THE SALE OR TRANSFER OF THE LAND WHICH IS HELD AS STOCK-IN-TRADE. 15. SO FAR AS THE FIRST ASPECT OF THE ISSUE, WHETHE R THERE IS A CONVERSION OF LAND INTO THE STOCK-IN-TRADE, WE HAVE CONSIDERED SOME OF THE IMPORTANT FACTUAL ASPECT AS ARE ON RECORD. ADM ITTEDLY, THE ASSESSEE WAS NOT IN THE BUSINESS OF CONSTRUCTION AN D DEVELOPMENT OF THE PROPERTIES. THE MEMORANDUM OF ASSOCIATION (M.A .) WAS AMENDED TO THE EXTENT OF OBJECT CLAUSES BY PASSING THE RESO LUTION BY BOARD OF DIRECTORS ON26.02.1990. AS PER THE EVIDENCE FILED BY THE ASSESSEE, IN THE AGM HELD ON 5.01.1990, SPECIAL RESOLUTION U/S.1 49(2A) OF THE COMPANIES ACT WAS PASSED BY THE SHAREHOLDERS PROVID ING FOR COMMENCING ANY BUSINESS OF THE DEVELOPMENT, SALE, L EASE ETC. IN LAND OR OTHER IMMOVABLE PROPERTIES. THIS SUPPORTS THE C LAIM OF THE ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 18 ASSESSEE THAT THE ASSESSEE TOOK THE STEPS FOR COMME NCING THE DEVELOPMENT AND BUILDING CONSTRUCTION AS A NEW BUSI NESS ACTIVITY (PAGE NO.27 OF THE PAPER BOOK). THERE IS NO BAR IN LAW THAT IF THE ASSESSEE HAS SPECIFIC OBJECT THEN THE ASSESSEE CANN OT CHANGE THE OBJECT AND START THE NEW BUSINESS ACTIVITY. WE FIN D THAT THE ASSESSEE HAS FOLLOWED THE PROVISIONS OF THE COMPANIES ACT, 1 956 AND ACCORDINGLY AMENDED THE MEMORANDUM OF ASSOCIATION W HICH HAS BEEN GIVEN THE APPROVAL BY THE SHAREHOLDERS IN THE AGM. AS PER THE PLEA OF THE ASSESSEE, THE ASSESSEE HAD A SURPLUS LAND AND F OR GENERATING THE FUNDS FOR DEVELOPMENT OR MODERNIZATION OF THE ASSES SEES FACTORY, IT WAS DECIDED TO EXPLOIT THE SAME. 16. SECTION 45(2), WHICH IS A RELEVANT SECTION TO D ECIDE THE ISSUE, READS AS UNDER:- 45. (1) ANY PROFITS OR GAINS ARISING FROM THE TRANSFER OF A CAPITAL ASSET EFFECTED IN THE PREVIOUS YEAR SHALL, SAVE AS OTHERWISE PROVIDED IN SECTIONS 54, 54B, 54D, 54E, 54EA, 54EB, 54F , 54G AND 54H, BE CHARGEABLE TO INCOME-TA X UNDER THE HEAD CAPITAL GAINS, AND SHALL BE DEEMED TO BE THE INCOME OF THE PREVIOUS YEAR IN WHICH THE TRANSF ER TOOK PLACE. (1A) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECT ION (1), WHERE ANY PERSON RECEIVES AT ANY TIME DURING ANY PR EVIOUS YEAR ANY MONEY OR OTHER ASSETS UNDER AN INSURANCE F ROM AN INSURER ON ACCOUNT OF DAMAGE TO, OR DESTRUCTION OF, ANY CAPITAL ASSET, AS A RESULT OF (I) FLOOD, TYPHOON, HURRICANE, CYCLONE, EARTHQUA KE OR OTHER CONVULSION OF NATURE; OR (II) RIOT OR CIVIL DISTURBANCE; OR (III) ACCIDENTAL FIRE OR EXPLOSION; OR (IV) ACTION BY AN ENEMY OR ACTION TAKEN IN COMBATING AN ENEMY (WHETHER WITH OR WITHOUT A DECLARATION OF WAR), THEN, ANY PROFITS OR GAINS ARISING FROM RECEIPT OF SUCH MONEY OR OTHER ASSETS SHALL BE CHARGEABLE TO INCOME -TAX UNDER THE HEAD CAPITAL GAINS AND SHALL BE DEEMED TO BE THE INCOME OF SUCH PERSON OF THE PREVIOUS YEAR IN W HICH ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 19 SUCH MONEY OR OTHER ASSET WAS RECEIVED AND FOR THE PURPOSES OF SECTION 48, VALUE OF ANY MONEY OR THE F AIR MARKET VALUE OF OTHER ASSETS ON THE DATE OF SUCH RE CEIPT SHALL BE DEEMED TO BE THE FULL VALUE OF THE CONSIDE RATION RECEIVED OR ACCRUING AS A RESULT OF THE TRANSFER OF SUCH CAPITAL ASSET. EXPLANATION.FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESSION INSURER SHALL HAVE THE MEANING ASSIGN ED TO IT IN CLAUSE (9) OF SECTION OF THE INSURANCE ACT, 1938 (4 OF 1938). (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (1), THE PROFITS OR GAINS ARISING FROM THE TRANSFER BY W AY OF CONVERSION BY THE OWNER OF A CAPITAL ASSET INTO, OR ITS TREATMENT BY HIM AS STOCK-IN-TRADE OF A BUSINESS CA RRIED ON BY HIM SHALL BE CHARGEABLE TO INCOME-TAX AS HIS IN COME OF THE PREVIOUS YEAR IN WHICH SUCH STOCK-IN-TRADE IS S OLD OR OTHERWISE TRANSFERRED BY HIM AND, FOR THE PURPOSES OF SECTION 48, THE FAIR MARKET VALUE OF THE ASSET ON T HE 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. (3). 16A. AS PER THE ABOVE PROVISION, THERE IS NO BAR FO R CONVERTING THE CAPITAL ASSET INTO STOCK-IN-TRADE OF THE BUSINESS C ARRIED ON BY THE ASSESSEE. THE OBJECTION OF THE A.O. IS THAT THE AS SESSEE WAS NOT IN THE BUSINESS OF REAL ESTATE EITHER DEVELOPMENT OR CONST RUCTION OF THE BUILDINGS AND HENCE, THE CONVERSION OF THE LAND WHI CH IS A CONTEMPLATED U/S.45(2) CANNOT BE HELD TO BE A PART OF THE STOCK-IN- TRADE. THE LD. COUNSEL RELIED ON THE DECISION OF T HE ITAT MUMBAI IN THE CASE OF ACIT VS. JEHANGIR T. NAGREE 23 SOT 512 IN WHICH THE TRIBUNAL HAS CONSIDERED THE EXPRESSION BUSINESS CA RRIED ON BY HIM IN SECTION 45(2) OF THE ACT AND HELD THAT IT IS NOT NECESSARY THAT IT SHOULD BE THE SAME BUSINESS PERTAINING TO THE ASSET S, WHICH ARE CONVERTED. IN OUR OPINION, AS THERE IS NO BAR FOR THE ASSESSEE TO COMMENCE ANY BUSINESS WITHIN THE FOUR CORNERS OF TH E LAW AND AS IN THE PRESENT CASE, NOWHERE IT IS THE CASE OF THE A.O . THAT THE BUSINESS OF THE ASSESSEE WAS CLOSED AND ASSESSEE WAS NOT IN THE BUSINESS AT ALL, IN OUR OPINION, THE INTERPRETATION OF THE SAID PROV ISION GIVEN BY BOTH AUTHORITIES BELOW IS NOT CORRECT. WE, THEREFORE, H OLD THERE IS ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 20 CONVERSION OF LAND/ PROPERTY WITHIN THE MEANING OF SEC. 45(2) OF THE ACT AS CLAIMED BY THE ASSESSEE IN APRIL 1993 AND AT TRACTS THE PROVISIONS OF SECTION 45(2) OF THE ACT AND WE ACCOR DINGLY DEAL WITH THE ISSUE. 17. NOW THE NEXT ISSUE BEFORE US IS WHETHER THE DEV ELOPMENT AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND M/S . CAPRIHANS INDIA LIMITED (IN SHORT THE DEVELOPER) ON 29.10.199 3 CONTEMPLATES TRANSFER WITHIN MEANING OF SEC.45(2). INITIAL PA RT OF THE AGREEMENT DEALS WITH THE TITLE HISTORY OF THE SAID LAND. I N THE RECITAL CLAUSE (G) PROVIDES THAT THE ASSESSEE IS DESIRING TO REDEVELOP A PORTION OF THE SAID PLOT OF LAND BY DEMOLISHING THE EXISTING STRUCTURE TO THE EXTENT OF 6754.52 SQ. METERS (72705.65 SQ.FT.) TO BE UTILIZED FOR RESIDENTIAL-CUM- COMMERCIAL USE. IT IS FURTHER STATED THAT THE ASSE SSEE HAS SOUGHT FOR NECESSARY PERMISSION OF THE RELEVANT AUTHORITIES CO NCERNED AND ALL THE PERMISSIONS BY THE COMPETENT AUTHORITIES ARE GRANTE D WHICH REFERENCES ARE FOUND IN CLAUSE (H) AND CLAUSE (I). IN CLAUSE (L), IT IS STATED THAT BOMBAY MUNICIPAL CORPORATION HAS CONVEY ED TO THE ASSESSEE ITS INTIMATION OF DISAPPROVAL (IOD) VIDE I .O.D. DATED 23.06.1993 AND HAS ALSO ISSUED A COMMENCEMENT CERTI FICATE DATED 10.07.1993 TO THE ASSESSEE. CLAUSE (N) IN THE AGRE EMENT STATES THAT THE ASSESSEE HAS APPOINTED M/S. KALPATARU CONSTRUCT ION & OVERSEAS PVT. LTD. AS THEIR MANAGEMENT-CUM-SALES-CONSULTANTS WHICH IS REFERRED AS A PROJECT MANAGERS. 18. WE HAVE ALREADY HELD THAT THE ASSESSEE HAS CONV ERTED LAND/ PROPERTY INTO STOCK-IN-TRADE IN APRIL 1993. AS PER THE PROVISIONS OF SECTION 45(2) OF THE ACT, ONCE THE CAPITAL ASSETS I S CONVERTED INTO STOCK-IN-TRADE THEN IT FORMS THE PART OF THE STOCK- IN-TRADE AND IT HAS LOSES ITS CHARACTER AS A CAPITAL ASSET. IN THE OPI NION OF THE A.O. AS WELL AS THE LD. CIT (A) THERE WAS CONVERSION OF THE PROP ERTY / LAND INTO STOCK-IN-TRADE AS CONTEMPLATED U/S.45(2) OF THE ACT AND BOTH THE AUTHORITIES HAVE GONE ON PREMISE THAT AS THERE IS N O CONVERSION OF THE ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 21 LAND INTO STOCK-IN-TRADE THEN THE ISSUE HAS TO BE C ONSIDERED U/S.45(2) OF THE ACT. ONCE THE ISSUE COMES WITHIN THE PURVIE W OF SECTION 45(2) THEN TO THE LIMITED PURPOSE, AT THE POINT OF CONVER SION, THE DEFINITION OF THE TRANSFER GIVEN U/S.247 IS APPLICABLE. IT IS PERTINENT TO TAKE THE NOTE OF THE SAID PROVISION THAT SECTION 247 DEFINES THE TERM TRANSFER IN RESPECT OF CAPITAL ASSET AND NOT FOR THE STOCK -IN-TRADE. SO THE DEFINITION OF THE TRANSFER AS PER SECTION 247 CANNO T HOLD GOOD ONCE THE NATURE OF THE ASSET IS CHANGED INTO STOCK-IN-TRADE AND IT BECAME THE TRADING COMMODITY AND HENCE NORMAL PROVISIONS EITHE R WITH THE SALES OF GOODS ACTS AND OR TRANSFER OF PROPERTY ACT ARE A PPLICABLE. IN THE PRESENT CASE, THE ISSUE PERTAINING TO IMMOVABLE PR OPERTY WHICH WE HAVE TO TAKE INTO CONSIDERATION THE PROVISIONS OF S ECTION WHICH COMES UNDER TRANSFER OF PROPERTY ACT. BOTH THE AUTHORITI ES HAVE NOT DISPUTED THAT THE LAND IS GIVEN FOR THE DEVELOPMENT PURPOSE TO THE DEVELOPER. 19. LET US CONSIDER THE OTHER OPERATIVE CLAUSES OF THE AGREEMENT. (I) CLAUSE (2) PROVIDES FOR THE CONSIDERATION TO BE PAID BY THE DEVELOPER TO THE ASSESSEE AS AN OWNER TOWARDS COS T OF DEVELOPMENT. IT IS PROVIDED THAT THE CONSIDERATION TO BE PAID BY THE DEVELOPER IS BASED ON THE FLOOR SPACE INDEX (FSI) SANCTIONED BY THE CORPORATION WHICH INCLUDES AREA OF BALCONIES PLUS AREA COVERED BY LIFTS, STAIRCASE AND COMMON LANDINGS, SERVANTS TOILETS, ETC. AND FOR TOTAL FSI AGGREGATING IS 99456 SQ.FT. COST/CONSIDERATION TO BE PAID BY THE DEVELOPER IS FIXED AT ` 19,89,12,000/-. IT IS ALS O PROVIDED THAT THE ASSESSEE WOULD NOT GET ANYTHING MORE THAN THE ABOVE AMOUNT EVEN IF SUBSEQUENTLY DEVELOPER GET THE EXTRA AREA FOR CON STRUCTION. (II) CLAUSE (3) OF THE AGREEMENT PROVIDES FOR THE PAYMENT OF THE CONSIDERATION/COST BY THE DEVELOPER TO THE ASSE SSEE. ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 22 (III) IN CLAUSE (4), IT IS PROVIDED THAT DEPOSIT, SCRUTINY FEES AND OTHER COSTS, CHARGES AND EXPENSES UP TO THE DATE OF OBTAINING OF THE COMMENCEMENT CERTIFICATE IN RESPECT OF THE BUILDING S PROPOSED TO BE CONSTRUCTED ON THE SAID PLOT SHALL ALSO BE BORNE AN D PAID BY THE OWNER. (IV) BY VIRTUE OF CLAUSE (5), THE ASSESSEE HAS AGRE ED THAT HE WOULD MAKE AVAILABLE THE DEVELOPER THE SAID PLOT IN VACANT AND PEACEFUL CONDITION FOR THE PURPOSES OF REDEVELOPMEN T LATEST BY 30.10.1993. IT IS FURTHER PROVIDED THAT THE ASSESS EE HAS GRANTED LICENCE AND AUTHORITY TO ENTER UPON AND REMAIN ON T HE SAID PLOT, TO COMMENCE AND COMPLETE CONSTRUCTION OF THE PROPOSED NEW BUILDING/S IN ACCORDANCE WITH THE REVISED BUILDING PLANS TO BE APPROVED BY THE CORPORATION AND OTHER CONCERNED AUTHORITIES. (V) THE CLAUSE (11) PROVIDES THAT IT WILL BE TH E RESPONSIBILITY OF THE DEVELOPER TO COMPLETE THE CONSTRUCTION AND OBTA IN OCCUPATION AND/OR COMPLETION CERTIFICATES FROM THE CONCERNED A UTHORITIES AND TO ARRANGE FOR OBTAINING SUCH FINANCE AS MAY FROM TIME TO TIME BE REQUIRED FOR MAKING PAYMENT TO THE OWNER VIDE CLAUS E 3 ABOVE. THE DEVELOPER IS ALSO AUTHORIZED TO GIVE THE SAID PLOT OF LAND AS A SECURITY FOR ARRANGING FINANCE. (VI) CLAUSE (19) PROVIDES THAT THE DEVELOPER SHAL L BE ENTITLED TO SELL AND DISPOSE OF OR ALLOT ALL THE PREMISES, F LATS OR UNITS, PARKING SPACES, GARAGES ETC. ON OWNERSHIP BASIS FOR SUCH CONSIDERATION AND ON SUCH TERMS, CONDITIONS, AGREEMENTS AND COVENANTS AS THEY MAY IN THEIR ABSOLUTE DISCRETION DEEM FIT AND FOR THAT PUR POSE TO ENTER INTO AGREEMENTS FOR SALE OF FLATS/TENEMENTS/COMMERCIAL P REMISES AND OTHER PREMISES ON OWNERSHIP BASIS EITHER BY WAY OF PACKAGE DEAL OR PIECE-MEAL SUBJECT TO THE TERMS, CONDITIONS. (VII) CLAUSE (20) PROVIDES THAT THE ASSESSEE IS E NTITLED TO ALLOTMENT OF AGGREGATE BUILT-UP AREA OF 23000 SQ.FT . FROM THE DEVELOPER, ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 23 IN ADDITION TO THE COST/CONSIDERATION OF ` 19,89,12 ,000/- AND ASSESSEE SHALL PAY OR REIMBURSE ACTUAL PROJECT COST OF THE D EVELOPMENT ON PRO RATA BASIS TO THE DEVELOPER AND ACTUAL PROJECT COST SHALL BE EXCLUSIVE OF THE COST OF LAND. 20. IN VIEW OF THE ABOVE TERMS OF THE AGREEMENT, TH E ASSESSEE HAS NOT TRANSFERRED THE OWNERSHIP OF LAND TO THE DEVELO PER. THE ASSESSEE HAS MERELY GIVEN THE LICENSE TO EXPLOIT THE SAID LA ND FOR THE CONSTRUCTION PURPOSE TO THE DEVELOPER AND THE DEVEL OPER WILL BE ONLY THE LICENSEE WITH SOME ADDITIONAL RIGHTS. THE A RGUMENT OF LD. A.R. IS THAT THE ASSESSEE HAS GIVEN THE POSSESSION OF TH E SAID PROPERTY / LAND TO THE DEVELOPER AND BY VIRTUE OF SECTION 2(47 ) THERE IS TRANSFER ON 29.10.1993 WHEN THE AGREEMENT IS ENTERED INTO INTO WITH M/S. CAPRIHANS INDIA LIMITED, THE DEVELOPER. WE HAVE AL READY EXPLAINED THAT ONCE THE CHARACTER OF THE CAPITAL ASSET IS C HANGED ON CONVERSION AS STOCK-IN-TRADE THEN THE DEFINITION OF THE TRAN SFER GIVEN IN SECTION 2(47) HAS NO APPLICATION AND WE HAVE TO CONSIDER ME ANING OF THE WORD TRANSFER UNDER THE PROVISIONS OF THE TRANSFER OF THE PROPERTY ACT. 21. THE LD. D.R. ARGUES THAT THE ASSESSEE HAS GIVEN THE POSSESSION TO THE DEVELOPER IN PART PURPOSE OF THE DEVELOPMENT AGREEMENT AND OTHERWISE ALSO THERE IS A TRANSFER WITHIN THE MEANI NG OF THE TRANSFER OF PROPERTY ACT AS WELL AS CONTEMPLATED U/S.45(2) AND HENCE, THE CAPITAL GAIN IS TAXABLE IN A.Y. 1994-95 WHICH IS BEFORE US. SECTION 53 OF THE TRANSFER OF THE PROPERTY ACT ONLY GIVES THE PROTECT ION TO THE TRANSFEREE IN RESPECT OF THE IMMOVABLE PROPERTY GIVEN IN HIS P OSSESSION BY WRITTEN CONTRACT THAT IF THE TRANSFEREE IS READY TO PERFORM HIS PART OF THE CONTACT THEN THE TRANSFEROR CANNOT TAKE BACK TH E POSSESSION OF THE PROPERTY FROM THE TRANSFEREE. THE PROTECTION PROVI DED TO THE TRANSFEREE U/S.53A AS ON THE PRINCIPLES OF EQUITY. WHEN WE CONSIDER THE SALE OF GOODS OR A PROPERTY THEN MERELY BECAUSE THE POSSESSION IS GIVEN AS PROVIDED IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT THEN ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 24 NOWHERE IT IS PROVIDED THAT THE TRANSFER OF THE TIT LE OR OWNERSHIP IS COMPLETE. 22. OUR ABOVE VIEW IS SUPPORTED BY THE DECISION OF THE ITAT CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF R. GOP INATH (HUF) VS. ACIT (2010) 133 TTJ (CHENNAI) 595. IN THE SAID CAS E ALSO THE APPELLANT-ASSESSEE CONVERTED A LAND INTO STOCK-IN-T RADE AND THEREAFTER ENTERED INTO A DEVELOPMENT AGREEMENT ON 1.9.2003. AGREEMENT WITH THE DEVELOPER NAMELY M/S. COTTON CITY DEVELOPERS PV T. LTD. THE QUESTION AROSE AT WHAT POINT OF TIME THE CAPITAL GA IN WILL BE TAXABLE U/S.45(2). IN THE SAID CASE, THE LD. CIT (A) HAS P LACED HIS HEAVY RELIANCE ON THE DEFINITION OF THE TRANSFER AS GIV EN IN SECTION 247. AS THE ASSESSEE HAS GIVEN THE POSSESSION TO THE DEVELO PER AND HENCE THE VIEW WAS TAKEN BY THE AUTHORITIES BELOW THAT DUE TO THE FICTION CREATED IN SECTION 247 BY REFERRING TO SECTION 53A WITH THE TRANSFER OF THE PROPERTY ACT, THERE WAS A TRANSFER. BY REJECTING T HE ARGUMENT OF THE DEPARTMENT, THE TRIBUNAL HAS HELD AS UNDER:- 9. WE ARE UNABLE TO AGREE WITH THE CONTENTIONS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE TRANSACTION OF TRANSFER IS COMPLETE BY APPLYING THE PROVISIONS OF S. 53A OF TRANSFER OF PROPERTY ACT ON THE DATE WHEN THE POSSE SSION OF THE PROPERTY WAS HANDED OVER TO THE DEVELOPER AS PE R THE DEVELOPMENT AGREEMENT DT. 1ST SEPT., 2003. SEC. 53A OF THE TRANSFER OF PROPERTY ACT DOES NOT PROVIDE THE CONDI TIONS FOR TRANSFER BUT IT PROVIDES PROTECTION TO THE TRANSFER EE OF ANY IMMOVABLE PROPERTY BY A WRITTEN CONTRACT, THE TERMS OF WHICH CONSTITUTE THE TRANSFER AND CAN BE ASCERTAINE D WITH REASONABLE CERTAINTY AND THE TRANSFEREE AS PART PERFORMANCE OF THE CONTRACT HAS TAKEN THE POSSESSIO N OF THE PROPERTY AND HAS PERFORMED OR WILLING TO PERFORM HI S PART OF CONTRACT, THEN EVEN THE SAID CONTRACT THOUGH REQUIR ED TO BE REGISTERED HAS NOT BEEN REGISTERED AND THE TRANSFER HAS NOT BEEN COMPLETED IN THE MANNER PRESCRIBED THEREFORE B Y LAW, THE TRANSFEROR IS BARRED FROM ENFORCING AGAINST THE TRANSFEREE ANY RIGHT IN RESPECT OF THE PROPERTY OTH ER THAN THE RIGHT EXPRESSLY PROVIDED BY THE TERMS OF THE CO NTRACT. UNDER THE IT ACT, 1961 BY INSERTING CLS. (V) AND (V I) OF S. 2(47), THE DEFINITION OF THE TERM TRANSFER INCLUDES THE TRANSACTION WHICH FULFILS THE CONDITIONS PROVIDED U NDER 53A ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 25 OF TRANSFER OF PROPERTY ACT. THEREFORE, S. 53A OF T HE IT ACT, 1961 (SIC-TRANSFER OF PROPERTY ACT) IS BORROWED ONL Y WITH RESPECT TO THE TRANSFER OF CAPITAL ASSET AS PROVIDE D UNDER S. 2(47) OF THE ACT, 1961 AND THE SAME IS NOT APPLICAB LE IN OTHER CASES WHICH DO NOT FALL UNDER S. 2(47) OF THE ACT, 1961. SEC. 45(1) OF THE IT ACT, 1961 DEALS WITH THE PROFIT AND GAIN ARISING FROM THE TRANSFER CAPITAL ASSET, W HEREAS S. 45(2) DEALS WITH THE PROFIT OR GAIN ARISING FROM TH E TRANSFER BY WAY CONVERSION OF CAPITAL ASSET INTO STOCK-IN-TR ADE AND SHALL BE CHARGEABLE TO INCOME-TAX IN THE PREVIOUS Y EAR IN WHICH SUCH STOCK-IN-TRADE IS SOLD OR OTHERWISE TRAN SFERRED. THEREFORE, THE TIME CHARGEABILITY TO INCOME-TAX OF CAPITAL GAIN ARISING FROM THE CONVERSION OF CAPITAL ASSET T O STOCK-IN- TRADE IS THE POINT WHEN THE STOCK-IN-TRADE IS SOLD OR OTHERWISE TRANSFERRED, WHEREAS THE CHARGEABILITY OF CAPITAL GAIN UNDER S. 45 OF THE IT ACT, 1961 FROM TRANSFER OF CAPITAL ASSET SHALL BE THE PREVIOUS YEAR IN WHICH THE TRANS FER TOOK PLACE INCLUDING THE TRANSFER AS PROVIDED UNDER S. 2 (47) OF THE IT ACT, 1961. THE SALE/TRANSFER OF TOCK-IN-TRAD E CANNOT BE EQUATED WITH THE TRANSFER CAPITAL ASSET. THE DEC ISIONS RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTAT IVE AS WELL AS THE LOWER AUTHORITIES ARE WITH RESPECT TO T HE TRANSFER OF CAPITAL ASSET UNDER S. 2(47) OF THE IT ACT, 1961 AND NOT IN RESPECT OF STOCK-IN-TRADE. THEREFORE, TH ESE DECISIONS ARE NOT RELEVANT AND APPLICABLE THE FACTS OF THE PRESENT CASE. AS FAR AS S. 53A OF THE TRANSFER OF P ROPERTY ACT IS CONCERNED, THE SAID SECTION PROVIDES ONLY A PROTECTION TO THE TRANSFEREE ON FULFILMENT OF CERTAIN CONDITIO NS PROVIDED THEREIN BUT DOES NOT PROVIDE THAT EVEN ON FULFILMEN T OF THAT CONDITION THE TRANSFER IS COMPLETE. AS PER PROVISIO N OF S. 53A OF THE TRANSFER OF PROPERTY ACT WHEN A RIGHT IS CREATED IN FAVOUR OF THE TRANSFEREE WHICH CANNOT BE DEFEATE D, OTHERWISE THEN BY THE TERMS AND CONDITIONS EXPRESSL Y PROVIDED IN THE CONTRACT ITSELF. 23. IN OUR OPINION, THERE IS NO TRANSFER OF THE PRO PERTY OR LAND BY VIRTUE OF DEVELOPMENT AGREEMENT ENTERED INTO BY T HE ASSESSEE WITH THE DEVELOPER ON 29.10.2003 WITHIN THE MEANING OF S EC. 45(2) AS SAID LAND WAS STOCK-IN-TRADE OF THE ASSESSEE ON THE DATE OF SAID AGREEMENT. IN VIEW OF THE A.O. THE ASSESSEE IS SILENT SPECTATO R AND HAS NO ACTIVE PART IN THE DEVELOPMENT OF THE LAND. WE ARE UNABLE TO ACCEPT THE SAID VIEW. AS PER THE EVIDENCE ON RECORD, WE FIND THAT THE LAY OUT OF LAND AND BUILDING PLANS HAVE BEEN PREPARED AND GOT APPRO VED BY THE ASSESSEE-COMPANY. MOREOVER, THE ASSESSEE HAS APPOI NTED M/S. ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 26 KALPATARU CONSTRUCTION & OVERSEAS PVT. LTD. AS THE PROJECT MANAGER FOR HANDLING THE PROJECT AND ALSO TO AGREED TO MAKE THE PAYMENT OF CERTAIN PERCENTAGE OF COMMISSION TO THEM. THE ASSE SSEE HAS ALSO FILED A COPY OF AGREEMENT FOR SALE OF THE FLATS WHEN THE FLATS ARE SOLD BY THE DEVELOPER. ON THE PERUSAL OF THE COPY OF THE SAID AGREEMENT WE FIND THAT THE ASSESSEE HAS SHOWN AS AN OWNER OF THE PR OPERTY. MERELY BECAUSE THE CONTRACTUAL LIABILITIES PUT ON THE DEVE LOPER IN RESPECT OF ANY BREACH OR VIOLATION OR DEFECT IN THE CONSTRUCTI ON THAT ITSELF CANNOT LEAD FOR PRESUMPTION THAT DEVELOPER IS ONLY FULL FL EDGED OWNER OF THE LAND. IN THE DEVELOPMENT AGREEMENT ALSO IT IS PROV IDED THAT THE DEVELOPER SHALL APPOINT UNDER THE GUIDANCE FROM THE PROJECT MANAGER OF THE ASSESSEE, CONTRACTOR, SUB-CONTRACTOR, LABOUR CONTRACTOR, WATCH AND WARD, STAFF ETC. OR ANY OTHER AGENCIES FOR THE PURPOSE OF CONSTRUCTION AND COMPLETION OF THE PROPOSED BUILDIN GS THAT ALSO MAKES THE ASSESSEES CASE STRONG THAT THE ASSESSEE IS NOT MERE SILENT SPECTATOR BUT HAS APPOINTED THE AGENCY TO MONITOR D EVELOPMENT OF THE LAND. THE A.O. ALSO STATES THAT THAT THE DEVELOPER IS REQUIRED TO MAINTAIN ACCOUNT OF THE ENTIRE PROJECT AND THERE IS NO RESPONSE ON THE ASSESSEE. IN OUR OPINION, THE SAID CLAUSE IS NECES SARY, AS THE ASSESSEE HAS TO BE ALLOTTED 23000 SQ.FT. OF THE BUILT-UP ARE A FROM THE CONSTRUCTED FLATS OR PREMISES AND ASSESSEE IS GOING TO BEAR THE COST OF CONSTRUCTION OF 23000 SQ.FT. EXCLUSIVE OF THE COST OF THE LAND. IT IS PERTINENT TO TAKE THE NOTE OF THE UNDERSTANDING BET WEEN THE ASSESSEE AND THE DEVELOPER THAT COST OF THE LAND IS NOT INCL UDED IN RESPECT OF THE COST TO BE BORNE BY THE ASSESSEE. 24. THE LD. CIT D.R. REFERRED TO THE DECISION IN TH E CASE OF CHATURBHUJ DWARKADAS KAPADIA VS. CIT 260 ITR 503 (B OM) IN SUPPORT HIS ARGUMENT THAT EVEN THE DEVELOPMENT AGREEMENT IS COVERED IN THE DEFINITION OF THE TRANSFER GIVEN U/S.2(47) OF THE A CT AND HENCE, IN THE CASE OF PRESENT ASSESSEE, THE DEVELOPMENT AGREEMENT WITH THE DEVELOPER DATED 29.10.2003 IS ALSO FULL-FLEDGED A GREEMENT FOR DEVELOPMENT IN WHICH FINAL LICENCE IS GIVEN TO THE DEVELOPER TO ENTER ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 27 INTO THE LAND AND CARRIED OUT THE CONSTRUCTION, HEN CE THERE IS A CAPITAL GAIN TAXABLE IN THE A.Y. 2004-05. IN OUR OPINION, THE DECISION IN THE CASE OF CHATURBHUJ DWARKADAS KAPADIA (SUPRA) CANNOT BE APPLIED TO THE ASSESSEES CASE FOR THE SIMPLE REASON THAT THER E IS NO ISSUE OF THE CONVERSION OF THE CAPITAL ASSET INTO STOCK-IN-TRADE BUT THE ISSUE WAS WHETHER THE DEVELOPMENT AGREEMENT CONTEMPLATES THE TRANSFER OF CAPITAL ASSET WITHIN THE MEANING OF SECTION 45(1) R .W.S. 2(47) OF THE I.T. ACT. IN THE PRESENT CASE, THE CORE ISSUE IS DETERM INATION OF THE TAXABILITY U/S.45(2) AND THE PARAMETERS FIXED BY TH E LEGISLATURE TWO PROVISIONS ARE TOTALLY DIFFERENT IN SECTIONS 45(1) AND 45(2). HENCE, THE PRINCIPLES LAID DOWN IN THE CASE OF CHATURBHUJ DWAR KADAS KAPADIA (SUPRA) HAVE NO DIRECT APPLICATION TO THE ASSESSEE S CASE. 25. WE, THEREFORE, HOLD THAT THOUGH THE ASSESSEE HA S GIVEN THE POSSESSION TO THE DEVELOPER VIDE DEVELOPMENT AGREEM ENT DATED 29.10.2003, THE PROVISIONS OF SECTION 2(47) DEFININ G THE TERM TRANSFER CANNOT BE APPLIED AS WHAT IS HANDED OVER TO THE DEV ELOPER BY THE ASSESSEE IS NOT CAPITAL ASSET BUT A STOCK-IN-TRA DE. AS PER THE TERMS OF THE DEVELOPMENT AGREEMENT, A DEVELOPER HAS AGREE D TO PAY THE SUM OF RS 19,89,12,000/- AS THE COST OF DEVELOPMENT OF PLOT WHICH IS BASED ON THE FLOOR SPACE INDEX (FSI) AREA SANCTIONED BY T HE CORPORATION. TOTAL FSI SANCTIONED BY THE CORPORATION IS 99456 SQ .FT. WE FIND THAT, AS PER THE TERMS OF THE AGREEMENT, THE DEVELOPER HA S TO ALLOT 23000 SQ.FT. BUILT-UP AREA OUT OF TOTAL CONSTRUCTED AREA. AS PER THE TERMS AND CONDITIONS OF THE DEVELOPMENT AGREEMENT, THE DE VELOPER AGREED TO PAY THE COST OF THE DEVELOPMENT TO THE ASSESSEE IN THE FOLLOWING MANNER:- I) RS 1 CRORE ON OR BEFORE THE DATE OF AGREEMENT; II) AND BALANCE AMOUNT OUT OF THE SALE PROCEEDS IN TWO LUMP- SUM INSTALLMENTS I.E. RS 4 CRORES AND RS 5 CRORES. IT IS ALSO PROVIDED THAT, IN CASE THE SALE PROCEEDS ARE F OUND TO BE INSUFFICIENT THEN THE DEVELOPER IS BOUND TO PAY THE SAID ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 28 PAYMENT OF 9 CRORES, AS AGREED BY ARRANGING THE REQ UISITE FINANCE; III) THE BALANCE AMOUNT OF RS 9,89,12,000/- TO BE P AID OUT OF REALIZATION OF NET SALES PROCEEDS I.E. 60% OF THE S ALE PROCEEDS IN THE QUARTERLY INSTALLMENTS. IF WE CONS IDER THE TERMS OF THE MODE OF PAYMENTS OF THE COST OF THE DEVELOPMENT, IT IS SEEN THAT EXCEPT RS 1 CRORE IN R ESPECT OF RS 18,89,12,000/- THE DEVELOPER IS AT LIBERTY TO MA KE THE PAYMENT OUT OF THE NET SALE PROCEEDS I.E. AFTER RED UCING 40% TOWARDS THE COST THAT ALSO SUGGESTS THAT AS THE PROPERTY WOULD BE DEVELOPED BY THE DEVELOPER THEN ACCORDINGLY THE COST OF DEVELOPMENT WOULD BE PAID B Y THE DEVELOPER. 26. IN OUR OPINION, MERELY BECAUSE DEVELOPMENT RIGH TS OF CONVERTED LAND ARE GIVEN TO THE BUILDER THAT CANNOT BE TREATE D AS A SALE OR TRANSFER OF THE LAND/PROPERTY WHICH IS A STOCK-IN- TRADE OF THE ASSESSEE. 27. WE FIND THAT THE ASSESSEE HAS DECLARED THE PROF IT FROM THE PROPERTY DEVELOPMENT IN THE ASSESSMENT YEAR 1995-96 , 1996-97, 1997-98 ON PRO RATA BASIS, AS IT IS BUSINESS INCOME AS UNDER:- ASSESSMENT YEARS 1995-96 1996-97 1997-98 TOTAL AMOUNT IN RS 275 LAKHS 727 LAKHS 659 LAKHS 1661 28. WE, THEREFORE, CONFINING OUR FINDING TO YEAR BE FORE US HOLD THAT: (I) THE ASSESSEE HAS CONVERTED LAND/PROPERTY INTO STOCK -IN- TRADE IN APRIL 2003 WITHIN THE MEANING OF SECTION 4 5(2) OF THE ACT. (II) AS THERE IS NO TRANSFER OF THE LAND HELD AS STOCK- IN-TRADE IN THE A.Y. 2004-05, IN PURSUANCE OF THE DEVELOPMEN T AGREEMENT WITH M/S. CAPRIHANS INDIA LIMITED, NO CAP ITAL GAIN CAN BE BROUGHT TO TAX IN A.Y. 2004-05. ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 29 WE, ACCORDINGLY, ALLOW GROUND NO.2 AND GROUND NO.3 IN THE LIGHT OF OUR ABOVE DISCUSSION. 29. THE NEXT ISSUE IS IN RESPECT OF THE DISALLOWANC E OF GUEST HOUSE EXPENDITURE OF RS 3,02,761/- AND THIS ISSUE ARISES FROM GROUND NO.4 IN ASSESSEES APPEAL. 30. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUB MITS THAT THE IDENTICAL ISSUE HAS BEEN SET ASIDE BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE A.Y. 1992-93 AND 1993-94 AND IN THIS Y EAR ALSO, AS THE FACTS ARE IDENTICAL THE SAID ISSUE MAY BE SET ASIDE TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION. THE LD. D.R. HAS NO OBJECT ION FOR SETTING ASIDE THE ISSUE. WE, ACCORDINGLY, SET ASIDE THE DISALLOW ANCE OF THE GUEST HOUSE EXPENDITURE TO THE FILE OF THE A.O. FOR FRESH ADJUDICATION IN THE LIGHT OF THE DIRECTIONS OF THE TRIBUNAL IN THE ASSE SSEES OWN CASE IN THE A.YS.1992-93 AND 1993-94. ACCORDINGLY, GROUND NO.4 IS SET ASIDE. 31. GROUND NO.5 IN THE ASSESSEES APPEAL IS IN RESP ECT OF THE QUANTUM OF DEDUCTION TO BE ALLOWED U/S.80HHC. 32. WE HAVE HEARD THE PARTIES. IT WAS NOTICED BY T HE A.O. THAT THE ASSESSEE HAS NOT REDUCED THE INTEREST RECEIVED OF R S 57.29 LAKHS AND INSURANCE CLAIM OF RS 64.54 LAKHS FROM THE PROFITS OF THE BUSINESS WHILE COMPUTING THE DEDUCTION U/S.80HHC. THE A.O., THEREFORE, REDUCED THE ABOVE SUMS FROM THE PROFITS OF THE BUSI NESS AND ACCORDINGLY WORKED OUT THE DEDUCTION U/S.80HHC. TH E LD. COUNSEL SUBMITTED THAT THE GRIEVANCE OF THE ASSESSEE IS IN RESPECT OF INTEREST RECEIVED BY IT ON OUTSTANDING SALE PROCEEDS AND THE SAME IS TO BE TREATED AS AMOUNT OF THE SALE PRICE. EXPLANATION ( BAA) TO SECTION 80HHC CANNOT BE APPLIED. IN OUR OPINION, THERE IS A SUBSTANCE IN THE ARGUMENT OF LD. COUNSEL. THE INTEREST CHARGED ON D ELAYED PAYMENT ON THE CUSTOMER CANNOT BE TREATED AT PAR WITH THE I NTEREST, AS ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 30 CONTEMPLATED IN EXPLANATION (BAA). THE INTEREST RE COVERED FROM THE CUSTOMER FOR THE SUPPLY OF THE GOODS FORMS THE PART OF THE SALE PRICE. WE, THEREFORE, ALLOW THE PLEA OF THE ASSESSEE FOR N OT TO EXCLUDE THE INTEREST ELEMENT RECOVERED FROM THE CUSTOMERS FOR D ELAY IN PAYMENT OF THE PRICE OF THE GOODS. AT THE SAME TIME, WE FIND THAT THE REQUIRED FACTS ARE NOT ON RECORD. WE, ACCORDINGLY, RESTORE THIS ISSUE TO THE FILE OF THE A.O. WITH THE DIRECTION TO DECIDE THE SAME A FRESH AFTER CONSIDERING THE EVIDENCE FILED BY THE ASSESSEE IN T HE LIGHT OF OUR ABOVE DISCUSSION. ACCORDINGLY, GROUND NO.5 IS ALLOWED FO R STATISTICAL PURPOSES. 33. NOW, WE TAKE-UP THE REVENUES APPEAL BEING ITA NO.3621 OF 2003. 34. GROUND NO.1 TO 7 ARE IN RESPECT OF THE TREATMEN T TO BE GIVEN TO 23000 SQ.FT. OF BUILT-UP AREA TO BE ALLOTTED TO THE ASSESSEE BY THE DEVELOPER IN ADDITION TO THE CONSIDERATION OR PRICE DEVELOPMENT OF THE LAND. 35. AS PER THE TERMS OF THE DEVELOPMENT AGREEMENT , THE ASSESSEE- COMPANY IS TO BE ALLOTTED 23000 SQ.FT. BUILT-UP ARE A, WHICH WAS TREATED BY THE A.O. AS A BENEFITS OR ADDITIONAL CON SIDERATION FOR GIVING THE LAND FOR DEVELOPMENT. AS PER THE TERMS OF THE DEVELOPMENT AGREEMENT, THE ASSESSEE HAS TO PAY THE ACTUAL PROJ ECT COST OF 23000 SQ.FT. TO THE DEVELOPER, EXCLUDING THE COST OF THE LAND. THE A.O. DETERMINED THE FAIR MARKET VALUE OF 23000 SQ.FT AS ON THE DATE OF TRANSFER AND DIFFERENCE BETWEEN THE ESTIMATED COST OF CONSTRUCTION AND SAID FMV WAS WORKED OUT AT RS 5,235/- PER SQ.FT. AN D THE A.O. DETERMINED THE ADDITIONAL BENEFIT AS A PART OF CONS IDERATION AT RS 12,04,05,000/-. THE A.O. ADDED THE SAID RS 12,04,0 5,000/- FOR DETERMINING THE TOTAL SALE CONSIDERATION/COST PRICE FOR THE LAND DEVELOPMENT. THE LD. CIT (A) WAS OF THE OPINION TH AT AS THE ASSESSEE- COMPANY HAS TO RECEIVE 23000 SQ.FT. BUILT-UP AREA A T CONSTRUCTION COST ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 31 ONLY, HENCE, THE CONSIDERATION OF RS 19.89 CRORES W AS IN RESPECT OF THE DEVELOPMENT RIGHTS OF 76456 SQ.FT. OF FSI. IN OUR OPINION, THE VIEW TAKEN BY THE LD. CIT (A) APPEARS TO BE CORRECT AS S AVE THE DEVELOPMENT RIGHT, NOTHING IS GIVEN TO THE DEVELOPER AND AT THE MOST THE DEVELOPER CAN SALE OUT THE BUILT-UP AREA TO THE EXTENT OF 764 56 SQ.FT. AS PER THE TERMS OF AGREEMENT ON THE SAID 23000 SQ.FT. OF CONS TRUCTED AREA ONLY THE ASSESSEE AS THE SOLE RIGHT TO DECIDE THE PRICE AND OTHER CONDITIONS FOR SALE. WE, THEREFORE, CONCUR WITH THE FINDINGS OF THE LD. CIT (A) THAT THE ASSESSEE HAS ONLY TRANSFERRED PART OF ITS DEVEL OPMENT RIGHT AND RECEIVED CONSIDERING STIPULATED IN THE AGREEMENT FO R SUCH TRANSFER AND RETAINED THE BALANCE DEVELOPMENT RIGHTS WITH ITSELF , IN RESPECT OF WHICH THE DEVELOPER IS TO CARRY OUT CONSTRUCTION FOR THE ASSESSEE AND HANDED-OVER THE SAME TO THE LATER AT CONSTRUCTION C OST ONLY. IF WE CONSIDER THAT THE COST PRICE/ CONSIDERATION FOR THE DEVELOPMENT OF THE PLOT IS ONLY TO THE EXTENT OF 76456 SQ.FT. OF THE F SI THEN WHILE WORKING OUT THE CAPITAL GAIN U/S.45(2) THE YEAR IN WHICH TH ERE IS SALE OR TRANSFER OF THE SAME WITHIN MEANING OF SEC. 45(2), THE PRO RATA COST OF ACQUISITION AS WELL AS THE FAIR MARKET VALUE AS D ECLARED ON THE DATE OF THE CONVERSION, HAS TO BE REDUCED AND THEREAFTER CA PITAL GAIN IS TO BE WORKED OUT. WE, ACCORDINGLY, WITH THE ABOVE OBSERV ATIONS, CONFIRM THE ORDER OF THE LD. CIT (A) TO THE EXTENT THAT NO ADDITION CAN BE MADE IN RESPECT OF THE 23000 SQ.FT. OF BUILT-UP AREA WHI CH WOULD BE ALLOTTED TO THE ASSESSEE BY THE DEVELOPER TREATING THE SAME AS AN ADDITIONAL CONSIDERATION OR PRICE FOR DEVELOPMENT OF LAND. WE , ACCORDINGLY, DISMISS GROUND NO.1 TO 7 IN THE REVENUES APPEAL. 36. GROUND NO.8 IS IN RESPECT OF THE EXCLUSION OF T HE ELEMENT OF EXCISE DUTY AND SALES-TAX FROM THE TOTAL TURNOVER. 37. THE LD. D.R. WAS FAIR ENOUGH TO SUBMIT THAT, NO W, THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. LAXMI MACHINE WORKS 290 ITR 667. WE ACCORDINGLY DISMISS GROUND NO.8. ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 32 38. GROUND NO.9 READS AS UNDER:- 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DIRECTING THAT NO PROPORTI ONATE EXPENDITURE CAN BE ATTRIBUTABLE TO THE DIVIDEND INC OME AND THE DEDUCTION CLAIMED BY THE ASSESSEE CANNOT BE BRO UGHT DOWN. 39. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUB MITS THAT THE ISSUE IS IN RESPECT OF DEDUCTION U/S.80M. HE FURTH ER SUBMITS THAT, NOW, THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF THE HONBLE SPECIAL BENCH OF THE ITAT, CHANDIGARH IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORP. L TD. V/S. DY. CIT, SPL RANGE-102 ITD 1 (CHD)(SB). WE HAVE ALSO HEARD THE LD. D.R. WE FIND THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE IN THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORP. LTD.(S UPRA) AS SUBMITTED BY THE LD. COUNSEL. WE, THEREFORE, CONFI RM THE ORDER OF THE LD. CIT (A) ON GROUND NO.9 IS DISMISSED. 40. GROUND NO.10 IS IN RESPECT OF DISALLOWANCE OF T HE PRIOR PERIOD EXPENSES. 41. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUB MITS THAT THIS IS THE REPETITIVE ISSUE AND IS ARISING FROM ASSESSEES OWN CASE SINCE A.Y. 1989-90 (79 ITD 291). THE LD. D.R. SUBMITS THAT JU ST TO KEEP THE ISSUE ALIVE, THE REVENUE HAS TAKEN THE GROUND. THE RE IS NO DISCUSSION IN THE ASSESSMENT ORDER AND THE A.O. HAS MERELY DIS ALLOWED RS 11,61,490/-. MOREOVER AS SUBMITTED BY THE LD. COUN SEL, THIS ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF THE ASSE SSEE BY THE TRIBUNAL. WE ACCORDINGLY CONFIRM THE ORDER OF THE LD. CIT (A) ON THIS ISSUE AND GROUND NO.10 IS DISMISSED. ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 33 42. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 3 TH MAY 2011. SD/- SD/- ( P.M. JAGTAP ) ACCOUNTANT MEMBER ( R.S. PADVEKAR ) JUDICIAL MEMBER MUMBAI, DATE: 13 TH MAY 2011 COPY TO:- 1) THE APPLICANT. 2) THE RESPONDENT. 3) THE CIT (A) CENT III, MUMBAI. 4) THE CIT CENTRAL -IV, MUMBAI. 5) THE D.R. F BENCH, MUMBAI. BY ORDER / / TRUE COPY / / ASSTT. REGISTRAR I.T.A.T., MUMBAI *CHAVAN ITA 3820/M/2003 ITA 3621/M/2003 THE HINDOOSTAN SPINNING AND WEAVING MILLS LTD. 34 SR.N. EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT DICTATED ON 23.04.2011 SR.PS 2 DRAFT PLACED BEFORE AUTHOR 26.04.2011 SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER