DCIT, Udupi V. M/s. ICDS lTD., Manipal

ITA 544/BANG/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60750 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-06-2012
• Assessment Year: 1994-1995
• Appeal Filed On: 27-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA II TAT
• Keywords: Capital asset; Business income; Deemed to accrue or arise in india; Cost of acquisition; Date of conversion; Fair market value
• Section: 45(2); 143(3); 260A

Judgement Text

PAGE 1 OF 8 ITA NOS.543 & 544/B ANG/2009 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BEFORE SHRI N K SAINI, ACCOUNANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NOS.543 & 544/BANG/2009 (ASST. YEARS 1993-94 AND 1994-95) THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, UDUPI. VS M/S ICDS LTD., SYNDICATE HOUSE, MANIPAL. PA NO.AAACI4355H (APPELLANT) (RESPONDENT) DATE OF HEARING 18.06.2012 DATE OF PRONOUNCEMENT 18.06.2012 APPELLANT BY : SHRI S K AMBASTHA, CIT(DR-I), ITAT RESPONDENT BY : SMT. SHEETAL, ADVOCATE O R D E R PER GEORGE GEORGE K : THESE APPEALS INSTITUTED BY THE REVENUE ARE DIRECT ED AGAINST THE CONSOLIDATED ORDER OF THE CIT(A), MANGALORE DAT ED 26.03.2009. THE RELEVANT ASSESSMENT YEARS ARE 1993-94 AND 1994-95. 2. THE DEPARTMENT HAS RAISED NINE IDENTICAL GROUND S IN THESE APPEALS. HOWEVER, THE CRUX OF THE ISSUE RELATES TO THE ASSESSABILITY OF GAINS ARISING ON SALE OF A PROPERTY IN DICKENSON ROAD. 3. BRIEFLY STATED THE FACTS ARE AS FOLLOWS:- THE ASSESSEE HAS SHOWN SALE PRICE OF RS.26,79,125 /- FOR UNDIVIDED PORTION OF LAND IN THE ASSESSMENT YEAR 199 3-94 AND PAGE 2 OF 8 ITA NOS.543 & 544/B ANG/2009 2 RS.37,23,925/- IN THE ASSESSMENT YEAR 1994-95. THE ASSESSEE HAS SHOWN THE INCOME FROM THE SALE OF LAND AS LONG TERM CAPIT AL GAINS IN BOTH THE ASSESSMENT YEARS. IN THE ASSESSMENT ORDERS, THE ASS ESSING OFFICER HAS TREATED THE SALE OF LAND AS INCOME FROM BUSINESS. AGAINST THE SALE PRICES, THE ASSESSING OFFICER HAS ALLOWED PROPORTIONATE COS T OF LAND AT RS.1,00,142/- AND RS/37,872/- AND DETERMINED BUSINE SS INCOME FROM THE SALE OF UNDIVIDED PORTION OF LANDS AT RS.25,78,983/ - AND RS.36,86,053/- IN THE ASSESSMENT YEARS 1993-94 AND 1994-95 RESPECTIVE LY. AGAINST THE ASSESSMENT ORDERS, THE ASSESSEE FILED APPEALS BEFOR E THE CIT(A), WHO DIRECTED THE ASSESSING OFFICER TO COMPUTE CAPITAL G AINS AS PER SECTION 45(2) OF THE ACT, FOLLOWING THE ITAT ORDER ON THE SAME IS SUE FOR THE ASSESSMENT YEAR 1989-90. 3.1 ON FURTHER APPEAL FOR THESE TWO ASSESSMENT YEAR S BY THE DEPARTMENT, THE ITAT HAS HELD THAT THE ISSUE IS COV ERED BY THEIR OWN DECISION IN ASSESSEES CASE FOR THE ASSESSMENT YEAR 1989-90. AGAINST ITAT ORDER, THE DEPARTMENT HAS PREFERRED APPEAL TO THE K ARNATAKA HIGH COURT, WHO REMITTED THE MATTER FOR RE-DECISION BY THE TRIBU NAL WITHIN A STIPULATED PERIOD. HOWEVER, THE ITAT VIDE ORDER DATED 13/4/20 07 IN ITA NO.947/BANG/1997 HAS HELD THAT THE TIME GRANTED BY T HE HONBLE HIGH COURT OF KARNATAKA HAS ALREADY EXPIRED AND THAT THE ADDITI ONAL EVIDENCES/ DOCUMENTS, IF ANY, FILED BY THE ASSESSEE HAS TO BE VE RIFIED BY THE ASSESSING OFFICER BECAUSE THOSE DOCUMENTS WERE NOT PRODUCED A T THE TIME OF ASSESSMENT. IN VIEW OF THIS, THE ITAT HAS THOUGHT IT FIT TO REMIT THE ISSUE BACK TO THE ASSESSING OFFICER FOR DECIDING THE MATT ER AFRESH IN ACCORDANCE WITH LAW. CONSEQUENT TO THE ITAT ORDER, THE ASSESS ING OFFICER HAS PASSED PAGE 3 OF 8 ITA NOS.543 & 544/B ANG/2009 3 FRESH ORDERS UNDER SECTION 143(3) READ WITH SECTION 260A AND 254 DATED 30/12/2008 FOR BOTH THE ASSESSMENT YEARS 1993-94 AND 1994-95 ASSESSING THE INCOME EARNED FROM THE SALE OF UNDIVIDED PORTIO NS OF LAND AS BUSINESS PROFITS. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN A PPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE ASSESSEE HAS EXP LAINED BEFORE THE CIT(A) THAT IT HAD ACQUIRED A PIECE OF LAND ADMEASURING 1, 15,000 SQ FT AT DICKENSON ROAD, BANGALORE IN A COURT AUCTION IN 1972. THE PR OPERTY HAS BEEN TREATED AS INVESTMENT IN THE BOOKS OF ACCOUNT AND ACCORDING LY SHOWN IN THE BALANCE SHEETS UPTO ASSESSMENT YEAR 1986-87. THE COMPANY HAS DECIDED TO CARRY ON THE BUSINESS OF DEVELOPMENT OF PROPERTY IN THE YEAR 1 987 AND, THEREFORE, THE COMPANY PASSED A RESOLUTION UNDER SECTION 149(2A ) OF THE COMPANIES ACT, 1956 ON 9/5/1987. ACCORDINGLY, THE PROPERTY WAS CONVERTED INTO STOCK- IN-TRADE BY PASSING RESOLUTION AT THE BOARD MEETING HELD ON 31.8.1987. ACCORDINGLY, ON SALE OF THE UNDIVIDED PORTIONS OF LA ND IN THE ASSESSMENT YEAR 1993-94 AND 94-95, IT HAS CORRECTLY SHOWN THE INCOME AS LONG TERM CAPITAL GAINS IN ACCORDANCE WITH THE PROVISIONS OF SEC.45(2 ) OF THE IT ACT, 1961. 5. THE CIT(A) HELD THAT SINCE THE ASSESSEE COMPANY HAD CONVERTED THE LAND INTO STOCK-IN-TRADE IN THE YEAR 1 987, THIS CONSTITUTE TRANSFER OF CAPITAL ASSET UNDER THE INCOME TAX ACT IN VIEW OF THE PROVISIONS OF SECTION 45(2) OF THE ACT AND WAS LIABLE TO CAPIT AL GAINS IN THE YEAR OF SALE. THE CIT(A) FURTHER HELD THAT THE ENTIRE PROFITS ARI SING ON CONVERSION OF ASSET CANNOT BE TREATED WHOLLY AS EITHER CAPITAL GAI NS OR BUSINESS INCOME, BUT HAS TO BE TAXED UNDER THE HEADS AS FOLLOWS:- PAGE 4 OF 8 ITA NOS.543 & 544/B ANG/2009 4 (I) INCOME FROM CAPITAL GAINS UNDER SECTION 45(2) : THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE AS ON DATE OF CONVERSION AND THE ORIGINAL COST OF ACQUISITION WOULD ATTRACT CAPITAL GAINS TAX IN THE YEAR OF SALE; AND (II) INCOME FROM BUSINESS : THE DIFFERENCE BETWEEN THE ACTUAL SALE CONSIDERATION AND THE FAIR MARKET VALUE AS ON THE DATE OF CONVERSION IS TO BE ASSESSED AS BUSINESS INCOME. 5.1 THE RELEVANT FINDING OF THE CIT(A) READS AS FO LLOWS:- IN THE APPELLANTS CASE, SINCE THE COMPANY HAS CONV ERTED THE LAND INTO STOCK IN TRADE, THIS CONSTITUTES TRAN SFER OF A CAPITAL ASSET UNDER THE INCOME TAX ACT IN VIEW OF THE PROVISIONS OF SECTION 45(2) AND IS LIABLE TO CAPITA L GAINS TAX IN THE YEARS OF SALE. THEREFORE, THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE AS ON THE DATE OF CONVERSION AND ITS ORIGINAL COST OF ACQUISITION WIL L ATTRACT CAPITAL GAIN. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO ASCERTAIN FAIR MARKET VALUE OF THE LAND AS ON 31.8.1987 (I.E. THE DATE OF CONVERSION OF THE LAND INTO STOCK-IN-TRADE) AND AFTER ALLOWING DEDUCTION OF IND EXED COST AS ON 1.4.1981, WORK OUT CAPITAL GAINS, IN THE YEARS OF SALE ON PROPORTIONATE BASIS. HOWEVER, THE DIFFEREN CE BETWEEN THE ACTUAL SALE CONSIDERATION AND FAIR MARK ET VALUE AS ON THE DATE OF CONVERSION HAS ALSO TO BE A SSESSED AS INCOME FROM BUSINESS IN THE YEARS OF SALE. IN TH IS CASE, SINCE THE ASSET WAS ACQUIRED BY THE APPELLANT IN 1972, WHICH HAS BEEN BROUGHT INTO THE BALANCE SHEET OF THE APPELLANT SINCE 1974, ITS FAIR MARKET VALUE AS ON 1.4.1981 CAN BE TAKEN AS COST OF ACQUISITION. IN V IEW OF THE ABOVE POSITION OF LAW, THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE BUSINESS INCOME AS WELL AS CAPITAL GAINS TAKING INTO ACCOUNT THE PROVISIONS OF SECTION 45(2) OF THE I T ACT, 1961. FOR THIS PURPOSE, THE ASSESSING OFFICER IS FREE TO VERIFY THE CORRECTNESS/VERACITY OF THE FAIR MARKET VALUE AS ON PAGE 5 OF 8 ITA NOS.543 & 544/B ANG/2009 5 1.4.1981 AND AS ON THE DATE OF CONVERSION I.E. 31.8 .1987 SHOWN BY THE APPELLANT. 6. THE DEPARTMENT BEING AGGRIEVED IS IN APPEAL BEF ORE US. 7. THE LEARNED AR, AT THE VERY OUTSET, SUBMITTED TH AT THE ISSUE OF TAXABILITY OF PROFITS ON SALE OF DICKENSON PROPERTY F IRST AROSE IN THE ASSESSMENT YEAR 1989-90 AND THE CIT IN HIS ORDER GIV ING EFFECT TO THE HONBLE HIGH COURT JUDGEMENT IN ITRC NO.45 OF 1999 DATED 7/4/2011, (CIT ORDER DATED 22/11/2011) DECIDED THE ISSUE AT PARA 6 3 IN FAVOUR OF THE ASSESSEE COMPANY. SINCE THE MATTER HAS ATTAINED FIN ALITY FOR 1989-90, THE REVENUE CANNOT BE ALLOWED TO TAKE A DIFFERENT STAND IN THE SUBSEQUENT ASSESSMENT YEAR. 8. THE LEARNED DR WAS UNABLE TO CONTROVERT THE SUB MISSIONS MADE BY THE LEARNED AR. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE CIT, WHILE GIVING EFFECT TO THE HON BLE HIGH COURT JUDGEMENT IN ITRC NO.45/1999 DATED 7/4/2011, HAD DECIDED THAT THE SALE PROCEEDS OF DICKENSON PROPERTY TO BE BIFURCATED AND TAXED AS INC OME FROM CAPITAL GAINS UNDER SECTION 45(2) OF THE ACT AS WELL AS INCOME FR OM BUSINESS. THE RELEVANT FINDING OF THE CIT FOR THE ASSESSMENT YEAR 1989-90 FROM PARA 60 TO 63 OF HIS ORDER READS AS FOLLOWS:- 60. I AM UNABLE TO AGREE WITH THESE FINDINGS. INTENTION OF THE COMPANY TO UNDERTAKE A PARTICULAR L INE OF BUSINESS WAS COMPLETELY BESIDE THE POINT, FOR NOT HING COULD BE DEDUCED FROM A MERE INTENTION, UNTIL SUCH INTENTION WAS ACTUALLY CARRIED OUT. INTENTION OF AN PAGE 6 OF 8 ITA NOS.543 & 544/B ANG/2009 6 ASSESSEE MIGHT BE RELEVANT OR EVEN CENTRAL TO A PEN ALTY OR PROSECUTION PROCEEDING, BUT DECIDEDLY, THE PROCEEDINGS IN THE PRESENT CASE DID NOT INVOLVE PEN ALTY OR PROSECUTION. 61. IT IS A MATTER OF RECORD THAT THE COMPANY KEPT REFLECTING THE DICKENSON ROAD PROPERTY IT ACQUIRED DURING 1972-74 AS AN ASSET IN SUCCESSIVE BALANCE SH EETS UNTIL 1987 UNDER THE HEAD INVESTMENTS. THE DEPARTM ENT CHOSE TO ACCEPT THESE BALANCE SHEETS WITHOUT QUESTI ON AND NEVER REJECTED THE COMPANYS BOOKS OF ACCOUNT. IT WAS ONLY WHEN THE COMPANY CONVERTED A PART OF THE LAN D INTO STOCK-IN-TRADE, SOLD A PART OF IT AND DECLARED THE SALE PROCEEDS IN ITS RETURN FOR ASSESSMENT YEAR 1989 -90 THAT THE DEPARTMENT WENT BACK IN TIME TO FIND THAT THE COMPANY HAD THE INTENTION TO DO BUSINESS ALL ALONG. HOWEVER, AS ARGUED EARLIER, MERE INTENTION IS DIFFE RENT FROM REALITY AND, GIVEN THAT THE COMPANY HAS NOT UNDERTAKEN PURCHASES OR SALES OF ANY OTHER PROPERTY DURING THE WHOLE PERIOD, I SEE NO EVIDENCE TO CONCL UDE THAT THE REAL ESTATE BUSINESS DID INDEED TAKE PLACE RIGHT FROM THE TIME THE DICKENSON ROAD PROPERTY WAS ACQUIR ED DURING 1972-74. 62. I ALSO FIND THAT GAPS IN THE AUCTION PAPERS OR DELAY IN ACQUIRING THE PROPERTY IN QUESTION ARE NOT MATERI AL TO DECIDE THE NATURE OF INCOME ARISING FROM THE SUBSEQ UENT SALE OF SUCH PROPERTY AT A MUCH LATER POINT IN TIME . FIRST, THE GAPS AND THE DELAY HAVE BEEN PLAUSIBLY EXPLAINED TO BE OWING TO COURT PROCEDURES. SECOND, CONVERSION OF LAND INTO STOCK-IN-TRADE RESULTED IN CAPITAL GAINS UNDER SECTION 2(47), WHICH, BEING A DEEMED INCOME CHARGEA BLE TO TAX SEPARATELY BY VIRTUE OF SECTION 45, COULD NOT BE TREATED BUSINESS INCOME. 63. FOR THESE REASONS, I HOLD THAT THE ENTIRE PROFI T ARISING ON CONVERSION OF ASSET (LAND) INTO STOCK-IN - TRADE CANNOT BE TREATED WHOLLY AS EITHER CAPITAL PAGE 7 OF 8 ITA NOS.543 & 544/B ANG/2009 7 GAINS OR BUSINESS INCOME, BUT HAS TO BE TAXED UNDER BOTH THE HEADS AS FOLLOWS:- (III) INCOME FROM CAPITAL GAINS UNDER SECTION 45(2) : THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE AS ON DATE OF CONVERSION AND THE ORIGINAL COST OF ACQUISITION WOULD ATTRACT CAPITAL GAINS TAX IN THE YEAR OF SALE; AND (IV) INCOME FROM BUSINESS : THE DIFFERENCE BETWEEN THE ACTUAL SALE CONSIDERATION AND THE FAIR MARKET VALUE AS ON THE DATE OF CONVERSION IS TO BE ASSESSED AS BUSINESS INCOME. 9.1 THE CIT IN THE ORDER FOR ASSESSMENT YEAR 1989-9 0 HAS CATEGORICALLY CONCLUDED THAT, THE YEAR IN WHICH THE DICKENSON PROPERTY WAS ACQUIRED UP TO THE DATE OF CONVERSION IN 1987 AS ST OCK-IN-TRADE, THE SAME WAS HELD ONLY AS AN INVESTMENT AND CONVERSION OF THE SAME IN THE YEAR 1987 AS STOCK-IN-TRADE OF THE ASSESSEE COMPANY WILL GIVE RISE TO CAPITAL GAINS BY VIRTUE OF PROVISIONS OF SECTION 45(2) OF THE ACT. IT WAS ALSO HELD THAT THE DIFFERENCE BETWEEN THE ACTUAL SALE CONSIDERATION AN D THE FAIR MARKET VALUE AS ON THE DATE OF CONVERSION IS TO BE ASSESSED AS B USINESS INCOME. THE FINDING OF THE CIT FOR THE ASSESSMENT YEAR 1989-90 HAS ATTAINED FINALITY. THEREFORE, THE DEPARTMENT CANNOT BE ALLOWED TO TAKE A DIFFERENT STAND WHEN THE FACTUAL SITUATIONS FOR THESE ASSESSMENT YEA RS WERE IDENTICAL WITH THAT OF THE ASSESSMENT YEAR 1989-90. WHEN THE CIT F OR THE ASSESSMENT YEAR 1989-90 HAS CONCLUDED THAT THE IMPUGNED PROPERT Y DICKENSON ROAD PROPERTY WAS HELD AS AN INVESTMENT UP TO THE DATE O F CONVERSION IN THE YEAR 1987 AND THE SAID FINDING HAS ATTAINED FINALITY, NEC ESSARILY FOR THESE ASSESSMENT YEARS ALSO PART OF THE GAIN ARISING ON SA LE OF IMPUGNED PROPERTY IS LIABLE FOR CAPITAL GAINS TAXATION BY VIRTUE OF PR OVISIONS OF SECTION 45(2) OF PAGE 8 OF 8 ITA NOS.543 & 544/B ANG/2009 8 THE ACT. HENCE, THE FINDING OF THE CIT(A) THAT THE GAINS ARISING ON SALE OF DICKENSON ROAD PROPERTY IS ASSESSABLE UNDER DUAL HEA D I.E. BUSINESS INCOME AND CAPITAL GAINS, INSTEAD OF ASSESSING THE ENTIR E GAINS UNDER THE HEAD BUSINESS, IS CORRECT AND IN ACCORDANCE WITH LAW A ND NO INTERFERENCE IS CALLED FOR. IT IS ORDERED ACCORDINGLY. 10. IN THE RESULT, THE APPEALS FILED BY THE DEPARTM ENT ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH DAY OF JUNE, 2012 SD/- SD/- (N K SAINI) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO:- 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONC ERNED 4. THE CIT(A) CONCERNED 5. THE DR 6. GF MSP/- BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.