The Hooghly Flour Mills Co. Ltd., Howrah V. DCIT, CC-XVI, Kolkata, Kolkata

ITA 615/KOL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62095 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-05-2012
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 21-04-2011
• Court: TRIBUNAL
• Department Lawyers: K R MONDAL
• Assessee Lawyers: R K SAHAY
• Keywords: Capital asset; Business income; Cost of acquisition; Date of conversion; Fair market value; Capital receipt
• Section: 45(2); 2(14)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH A, KOLKATA () BEFORE , ,, , , SHRI MAHAVIR SINGH, JUDICIAL MEMBER. /AND . .. . ! ! ! !. .. . , '# SHRI C.D.RAO, ACCOUNTANT MEMBER $ $ $ $ / ITA NO . 615/KOL/2011 %& '(/ ASSESSMENT YEAR : 2007-08 (*+ / APPELLANT ) THE HOOGHLY FLOUR MILLS CO.LTD., HOWRAH (PAN: AABCT 2310 A) (,-*+/ RESPONDENT ) D.C.I.T., CENTRAL CIRCLE- XVI, KOLKATA. *+ . / '/ FOR THE APPELLANT: SHRI R.K.SAHAY ,-*+ . / '/ FOR THE RESPONDENT: SHRI K.R.MONDAL 0%1 . !# /DATE OF HEARING : 18.04.2012. 2' . !# /DATE OF PRONOUNCEMENT : 04.05.2012. '3 / ORDER . .. . ! ! ! !. .. . , '# PER SHRI C.D.RAO, AM THE ABOVE APPEAL IS FILED BY ASSESSEE AGAINST ORDER DATED 16.12.2010 OF THE LD. CIT-(A)-CENTRAL-II, KOLKATA PERTAINING TO A.YR. 2 007-08. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL :- 1. THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMING T HE ALLOWANCE OF COST INFLATION INDEX OF F.Y. 2002-2003 WHICH IS THE INDEX OF YEAR OF CONVERSION OF FIXED ASSETS INTO STOCK, AS AGAINST COST INFLATION INDEX OF F.Y. 2006-2007 WHICH IS THE YEAR OF SALE. THE SAID TREATMENT IS BAD IN LAW AND IS LIABL E TO BE QUASHED. 2. THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONFIRMI NG THE TREATMENT OF RENTAL INCOME AS INCOME FROM HOUSE PROPERTY INSTEAD OF BUSINESS I NCOME. 3. THE BRIEF FACTS IN THIS APPEAL IN RESPECT OF GR OUND NO.1 AS APPEARING IN THE IMPUGNED ORDER AT PARAS 2.1 AND 2.2 ARE AS UNDER :- 2 2.1 ASSESSING OFFICER HAS STATED IN THE ASSESS MENT ORDER THAT APPELLANT COMPANY CONVERTED 48 KOTTAH LAND TO STOCK IN TRADE ON 05.12 .2002 AT AN ESTIMATED FAIR MARKET VALUE OF RS. 96 IAKH, IE RS 2 IHKH PER KOTTAH. THE COST OF THIS LAND WAS RS 93,348 WHEN IT WAS INITIALLY PURCHASED, WHOSE FAIR MARKET VALUE WAS CONSIDERED AT RS 19,000 PER KOTTAH AS ON 01.04.1981 FOR THE PURPOSE OF INCOME T AX. ASSESSING OFFICER FURTHER STATED THAT 4 KOTTAH OF LAND OUT OF 48 KOTTAH OF LAND WAS SOLD BY APPELLANT IN FINANCIAL YEAR 2003-04 AND THE CORRESPONDING CAPITAL GAINS WERE OF FERED FOR TAXATION IN RELEVANT ASSESSMENT YEAR 2004- 05. ASSESSING OFFICER STATED THAT FROM THE BALANCE LAND OF 44 KOTTAH, APPELLANT HANDED OVER 14.88 KOTTAH TO A DEV ELOPER BINDHYACHAL SINGH HUF WITH AN UNDERSTANDING IN FINANCIAL YEAR 2003-04 TO RECEI VE RS 100/SQ FEET FROM DEVELOPER BEFORE DEVELOPER SELLS THE CONSTRUCTED SUPER BUILT UP AREA OF BLOCK D, BLOCK E AND WESTERN PORTION OF BLOCK A ON THIS PART OF LAND A S CONSIDERATION FOR SALE OF THIS LAND. ASSESSING OFFICER STATED THAT APPELLANT RECEIVED TH E CONSIDERATION FOR SALE OF 14.88 KOTTAH OF LAND FROM THE DEVELOPER DURING THE FINANC IAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER APPEAL AND THEREFORE APPELLANT OFFERED T HE CORRESPONDING CAPITAL GAIN REALIZED ON SUCH LAND AT THE TIME OF CONVERSION OF THIS LAND INTO STOCK IN TRADE ON 05.12.2002 AT A RATE OF RS 2 LAKH PER KOTTAH WHEREA S THE FAIR MARKET VALUE WAS RS 19,000 PER KOTTAH AS ON 01.04.1981. THE CONVERTED VALUE OF THIS LAND AT THE RATE OF RS 2 IAKH PER KOTTAH IS RS 29.76 LAKH. ASSESSING OFFICER INDE XED THE COST OF RS 19,000 PER KOTTAH IN RESPECT OF SALE IN FINANCIAL YEAR 2006- 07 OF 14 .88 KOTTAH LAND AT 447(COST INFLATION INDEX FOR ASSESSMENT YEAR 2002-03) BECAUSE IT WAS C ONVERTED INTO STOCK IN TRADE IN FINANCIAL YEAR 2002-03. ASSESSING OFFICER CALCULATE D THE INDEXED COST AT RS. 12,63,758 FOR 14.88 KOTTAH OF LAND WHICH WAS CONVERTED TO STO CK IN TRADE IN FINANCIAL YEAR 2002- 03 AT A RATE OF RS 2 LAKH PER KOTTAH FOR RS. 29,76, 000. ASSESSING OFFICER CALCULATED THE CAPITAL GAIN AT RS. 17,12,242. 2.2 ASSESSING OFFICER HAS STATED THAT THE BALANCE LAND OF 29.12 KOTTAH OUT OF TOTAL LAND OF 44 KOTTAH WAS IN POSSESSION OF APPELLANT AN D APPELLANT CONSTRUCTED ON ITS OWN ON THIS PART OF THE LAND. ASSESSING OFFICER STATED THA T OUT OF THE TOTAL SALEABLE CONSTRUCTED AREA OF 51,010 SQ FEET, APPELLANT SOLD 25,710 SQ FT . DURING THE FINANCIAL YEAR 2006-07, IE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER AP PEAL. ASSESSING OFFICER CALCULATED THE LAND SOLD IN PROPORTION OF THE SAID CONSTRUCTED AREA SOLD. THE PROPORTIONATE AREA OF LAND APPARENTLY SOLD IS (25710/ 51010) X 29.12 KATT AH = 14.677 KOTTAH. THE CONVERTED VALUE OF THIS LAND IN FINANCIAL YEAR 2002-03 AT THE RATE OF RS 2 LAKH PER KOTTAH IS RS 29.35 LAKH AND THE FAIR MARKET VALUE OF THIS LAND A T THE RATE OF RS 19,000 PER KATTAH AS ON 01.04.1981 IS RS. 2,78,864. ASSESSING OFFICER INDEX ED THE COST OF RS 2,78,864 IN RESPECT OF SALE IN FINANCIAL YEAR 2006-07 OF 14.677 KOTTAH LAND AT 447( COST INFLATION INDEX FOR ASSESSMENT YEAR 2002-03) BECAUSE IT WAS CONVERTED I NTO STOCK IN TRADE IN FINANCIAL YEAR 2002-03. ASSESSING OFFICER CALCULATED THE CAPI TAL GAIN AT RS. 16,88,785. 3.1. ON APPEAL THE LD. CIT(A) HAS CONFIRMED THE SAM E BY OBSERVING AS UNDER :- 4. 1 HAVE GONE THROUGH THE ASSESSMENT ORDER AND SU BMISSIONS OF APPELLANT. THE DISPUTE OF YEAR OF SALE OF LAND ARISING OUT OF DEVELOPMENT CONTRACT OF APPELLANT WITH THE DEVELOPER IN FINANCIAL YEAR 2003-04 AND THE DISPUTE IN RESPECT OF TAXABILITY OF CORRESPONDING CAPITAL GAINS ON ACCOUNT OF CONVERSIO N OF SUCH LAND INTO STOCK IN TRADE EARLIER IN FINANCIAL YEAR 2002-03 WAS RESOLVED VIDE ORDER OF HBLE ITAT-KOLKATA IN APPEAL NO 106/KOL/2009 FOR ASSESSMENT YEAR 2004-05. HBLE ITAT CONFIRMED THE CONTENTION OF APPELLANT THAT THE YEAR OF SALE OF LA ND WOULD BE THE YEAR IN WHICH THE DEVELOPMENT ON SUCH LAND IS COMPLETE AND APPELLANT HAS RECEIVED THE CONSIDERATION ON THE BASIS OF AREA CONSTRUCTED ON SUCH LAND BY THE D EVELOPER. THERE IS NO DISPUTE NOW THAT 3 THE ENTIRE LAND OF 14.88 KATTAH GIVEN TO DEVELOPER MAY BE CONSIDERED AS SOLD IN FINANCIAL YEAR 2006-07, IE THE FINANCIAL YEAR RELEV ANT TO ASSESSMENT YEAR UNDER APPEAL. IN ADDITION TO THE SALE OF 14.88 KATTAH OF LAND TO THE DEVELOPER, THERE IS ADDITIONAL SALE OF ABOUT 14.677 KATTAH OF APPELLANTS OWN LAND ON ACCOUNT OF SALE OF CONSTRUCTION ON SUCH LAND BY APPELLANT ITSELF DURING THE FINANCIAL YEAR 2006-07. THE RATE OF CONVERSION OF RS 2 LAKH PER KATTAH FROM ASSET TO STOCK IN TRAD E IN FINANCIAL YEAR 2002-03 IS THE SAME IN CASE OF BOTH THE LANDS AND THE COST OF ACQU ISITION AT THE FAIR MARKET RATE OF RS 19,000 PER KATTAH IS ALSO THE SAME FOR BOTH THE LAN DS. THERE IN NO DISPUTE IN RESPECT OF VALUE OF CONVERSION AT A RATE OF RS 2 LAKH PER KATT AH OF THE LAND TO STOCK IN TRADE IN FINANCIAL YEAR 2002-03. THE CONVERSION OF AN ASSET BY THE OWNER INTO STOCK IN TRADE IS A TRANSFER AS PER SECTION 2(47) OF THE L.T.ACT. THE REFORE FOR THE PURPOSE OF INCOME TAX ACT THERE IS A TRANSFER ON 05.12.2002 WHEN APPELLAN T CONVERTED ITS ASSET, IE, LAND INTO STOCK IN TRADE. ON ACCOUNT OF SUCH TRANSFER THE CAP ITAL GAIN COULD HAVE ARISEN ON 05.12.2002 U/S 45(1) OF THE L.TACT AND COULD BE TAX ABLE IN ASSESSMENT YEAR 2003-04. HOWEVER, BY VIRTUE OF SECTION 45(2) WHICH STARTS WI TH THE CLAUSE NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTION 45(1), THE CAPIT AL GAIN ON ACCOUNT OF CONVERSION OF ASSET INTO STOCK IN TRADE IS TAXED IN THE YEAR IN W HICH SUCH CONVERTED STOCK IN TRADE IS ACTUALLY SOLD. IN THE PRESENT CASE, THE FINANCIAL Y EAR IN WHICH CONVERSION OF 48 KATTAH OF LAND INTO STOCK IN TRADE TOOK PLACE IS 2002-03. IN FINANCIAL YEAR 2006-07, SALE OF 14.88 KATTAH OUT OF SUCH CONVERTED LAND TO THE DEVELOPER AND 14.667 KATTAH OUT OF SUCH CONVERTED LAND ASSOCIATED WITH SALE OF APPELLANTS OWN CONSTRUCTION TOOK PLACE. THEREFORE, AS PER THE PROVISIONS OF SECTION 45(2), THE CAPITAL GAIN THAT WILL ARISE OUT OF CONVERSION OF LAND INTO STOCK IN TRADE IN FINANCIAL YEAR 2002-03, HAS TO BE TAXED IN FINANCIAL YEAR 2006-07 IN WHICH SUCH CONVERTED LAND 14.88 + 14.667 KATTAH IS SOLD. THE METHOD OF COMPUTATION OF ANY INCOME CHARGEABLE UNDE R THE HEAD CAPITAL GAIN IE, U/S 45(1) OR 45(2) ETC., IS PROVIDED IN SECTION 48. THE CONSIDERATION FOR COMPUTATION U/S 48 IS PROVIDED IN SECTION 45(2) ITSELF AND IT IS THE V ALUE AT WHICH 14.88 KATTAH LAND OR 14.667 KATTAH LAND WAS CONVERTED INTO STOCK IN TRADE. THIS VALUE IS RS 29,76,000 AND RS. 29,35,310 RESPECTIVELY, CALCULATED AT A RATE OF RS 2 LAKH PER KATTAH. THE ONLY DISPUTE IS IN RESPECT OF THE VALUE OF INDEXED COST OF ACQUISI TION WHICH IS REQUIRED TO BE DEDUCTED FROM THE CONSIDERATION OF RS. 29,76,000 AND RS. 29, 35,310. THE INDEXED COST OF ACQUISITION HAS BEEN DEFINED IN CLAUSE (III) OF EX PLANATION TO SECTION 48 AS UNDER: (III) INDEXED COST OF ACQUISITION MEANS AN AMOUN T WHICH BEARS TO THE COST OF ACQUISITION THE SAME PROPORTION AS COST INFLATION I NDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED BEARS TO THE COST INFLATION INDEX FOR T HE FIRST YEAR IN WHICH THE ASSET WAS HELD BY THE ASSESSEE OR FOR THE YEAR BEGINNING ON T HE 1ST DAY OF APRIL, 1981, WHICHEVER IS LATER; THE DEFINITION CLEARLY REFERS TO THE COST INFLATIO N INDEX FOR THE YEAR IN WHICH THE ASSET IS TRANSFERRED, AS MENTIONED ABOVE THE ASSET, IE LA ND WAS TRANSFERRED AS PER CLAUSE (IV) OF THE DEFINITION OF 1TRANSFER U/S 2(47) IN FINANCIA L YEAR 2002-03 WHEN IT WAS CONVERTED INTO STOCK IN TRADE. I HAVE ALREADY STATED THAT THE CAPITAL GAIN COULD BE TAXED IN ASSESSMENT YEAR 2003-04 U/S 45(1) OF THE 1.T.ACT BU T FOR THE PROVISIONS OF SECTION 45(2) WHICH HAS ONLY EXTENDED THE YEAR OF TAXABILIT Y FROM THE YEAR OF CONVERSION OF ASSET TO THE YEAR OF SALE OF CONVERTED STOCK IN TRA DE BY OVERRIDING THE PROVISIONS OF SECTION 45(1). WHEN APPLYING THE MECHANICAL PROVISI ONS OF COMPUTATION OF ANY CAPITAL GAIN U/S 48, THE PHRASE THE YEAR IN WHICH THE ASSE T IS TRANSFERRED IN CLAUSE (III) OF EXPLANATION TO SECTION 48 DEFINING INDEXED COST OF ACQUISITION, HAS TO BE UNDERSTOOD THE SAME AS DEFINED UNDER CLAUSE (IV) OF THE DEFINI TION OF TRANSFER U/S 2(47). THEREFORE I HOLD THAT THE ASSET LAND WAS TRANSFERRED IN FINAN CIAL YEAR 2002-03 AND THE COST 4 INFLATION INDEX OF FINANCIAL YEAR 2002-03 WILL APPL Y IN CALCULATION OF CAPITAL GAIN ON ACCOUNT OF SUCH TRANSFER, HOWEVER, AS THIS TRANSFER WAS A CONVERSION OF ASSET INTO STOCK IN TRADE THE CAPITAL GAIN IS TAXED IN THE YEAR OF SALE OF STOCK IN TRADE BY VIRTUE OF OVERRIDING PROVISIONS OF SECTION 45(2), IE IN FINANCIAL YEAR 2 006-07. IN FACT A SIMILAR QUESTION AROSE BEFORE HBLE ITAT-DEIHI IN CASE OF SPLENDOR C ONSTRUCTIONS (P) LTD. V. ITO 122 TTJ 34 WHERE HBLE ITAT-DELHI HAVE REFERRED TO SECT ION 2(14) OF THE L.T.ACT WHEREIN IT WAS SPECIFICALLY STATED THAT CAPITAL ASSET DOES NOT INCLUDE STOCK-IN-TRADE HELD BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS OR PROFESS ION. FROM FINANCIAL YEAR 2002-03 TILL FINANCIAL YEAR 2006-07 THE LAND WAS KEPT AS STOCK I N TRADE BY THE APPELLANT AND CLAIMING INDEXATION FOR THIS PERIOD WHEN THE LAND W AS NOT A CAPITAL ASSET IS NOT JUSTIFIED. IN VIEW OF ABOVE DISCUSSION, I CONFIRM THE COMPUTAT ION OF CAPITAL GAIN BY ASSESSING OFFICER IN RESPECT OF SALE OF LAND OF 14.88 KATTAH AND 14.667 KATTAH AT RS. 17,12,242 AND RS. 16,88,785 RESPECTIVELY. 3.2. AGGRIEVED BY THIS ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L APPEARING ON BEHALF OF ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES THAT THE ASSESSEE HAS SUBMITTED CONVERTED FIXED ASSETS INTO STOCK IN TRADE DURING THE FINANCIAL YEAR 2002-2003 AND FILED ITS RETURN OF IN COME CONSIDERING THE PROVISIONS OF SECTION 45(2) WHICH THE ASSESSING OFFICER HAS ACCEP TED BUT HAS ALLOWED THE BENEFIT OF COST INFLATION INDEX OF F.Y. 2002-2003 (I.E. THE YE AR OF CONVERSION OF FIXED ASSETS INTO STOCK) INSTEAD OF THE COST INFLATION INDEX OF F.Y. 2006-07 (I.E. THE YEAR OF SALE). ASSESSEE SUBMITTED THAT ASSESSING OFFICER HAS NOT C ITED ANY PROVISION OF INCOME TAX ACT OR ANY JUDICIAL DECISION IN RESPECT OF SUCH A T REATMENT. ASSESSEE SUBMITTED THAT IF THE INCOME PERTAINS TO A.Y. 2007-08 THEN ALL PROVIS IONS RELATING TO A.Y. 2007-08 SHALL APPLY AND ACCORDINGLY THE COST INFLATION INDEX OF F INANCIAL YEAR 2006-2007 AND NOT THAT OF FINANCIAL YEAR 2002-2003 SHOULD HAVE BEEN A PPLIED BY THE ASSESSING OFFICER. THE LD. AR FOR ASSESSEE FURTHER SUBMITTED THAT IT I S NOT MENTIONED IN SECTION 45(2) OR OTHERWISE IN INCOME TAX ACT THAT COST INFLATION IND EX OF THE YEAR OF CONVERSION SHOULD BE CONSIDERED. IN THE APPEAL OF ASSESSMENT Y EAR 2004-05 THE MATTER OF YEAR OF TAXABILITY OF CAPITAL GAIN ON CONVERSION OF LAND TO STOCK IN TRADE WAS DECIDED AND IT WAS NOT REQUIRED TO BE DECIDED IN THAT APPEAL AS WH ICH YEAR SHOULD BE CONSIDERED FOR COST INFLATION INDEX. THE COPY OF ORDER OF HBLE IT AT FOR ASSESSMENT YEAR 2004-05 IN APPEAL NO 106/KOL/2009 CONFIRMING THE ORDER OF C IT(A) AND HOLDING THAT IN CASE OF CONVERSION OF LAND INTO STOCK IN TRADE THE CORRESPO NDING CAPITAL GAIN ARISING U/S 45(2) 5 WILL BE TAXABLE IN THE YEAR OF ACTUAL RECEIPT OF SA LE CONSIDERATION FOR SUCH LAND AND NOT IN THE YEAR IN WHICH DEVELOPMENT AGREEMENT WAS MADE . IN VIEW OF THESE SUBMISSIONS, HE SUBMITTED THAT THE REVENUE IS NOT JUSTIFIED TO C ALCULATE THE LONG TERM CAPITAL GAIN BASED ON THE COST INFLATION INDEX APPLICABLE FOR A. YR.2007-08. THEREFORE HE REQUESTED TO SET ASIDE THE ORDERS OF THE REVENUE AUTHORITIES AND DIRECT AO TO ADOPT THE COST OF INFLATION INDEX FOR A.YR.2007-08. 5. ON THE OTHER HAND, THE LD. DR APPEARING ON BEHAL F OF THE REVENUE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 6. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF MATERIALS AVAILABLE ON RECORD, IT IS OBSERVED THAT THE CASE L AWS RELIED BY LD. CIT(A) IN THE CASE OF SPLENDOR CONSTRUCTIONS (P)LTD VS ITO 122 TTJ 34 ARE NOT APPLICABLE IN THE FACTS OF THE CASE BECAUSE OF THE REASON THAT THE FACTS IN TH E CASE OF SPLENDOR CONSTRUCTIONS (P)LTD (SUPRA) ARE THAT RELATING TO THE ASCERTAINME NT OF CAPITAL GAINS EITHER SHORT TERM OR LONG TERM ARE NOT AT ALL RELATING THE COST OF IN DEXATION. WHEREAS IN THIS CASE THE FACTS ARE NOT SIMILAR TO THAT OF THE ABOVE. IN OUR CONSIDERED OPINION, WHEN ONCE THE REVENUE HAS COMPUTED THE LONG TERM CAPITAL GAIN BAS ED ON THE SALE DEED WHICH WAS EXECUTED IN THE FINANCIAL YEAR 2006-07 RELEVANT TO ASSESSMENT YEAR 2007-08 THE COST OF INDEXATION TO BE APPLIED IS THE ONE WHICH IS APP LICABLE TO ASSESSMENT YEAR 2007-08. IN THE SIMILAR SET OF FACTS AND CIRCUMSTANCES THE H ONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT AND ANOTHER VS RUDRA INDUSTRIAL COMMERC IAL CORPORATION (2011) 244 CTR (KAR) 304 HAS HELD AS UNDER :- CAPITAL GAINSCOMPUTATIONRELEVANT DATE FOR APPLY ING COST INFLATION INDEX ASSESSEE-FIRM WHICH OWNED AN IMMOVABLE PROPERTY, CO NVERTED THE SAME INTO STOCK-IN- TRADE IN THE YEAR 1987-88 AND ENTERED INTO AN AGREE MENT WITH A COMPANY TO DEVELOP THE PROPERTY AND CONSTRUCT FLATS THEREONAT THAT STAGE REVENUE DID NOT TREAT THE SAID ARRANGEMENT AS A TRANSFERCAPITAL GAIN WAS COMPUTED ONLY WHEN THE ASSESSEE EXECUTED REGISTERED SALE DEEDS IN FAVOUR OF THE PUR CHASERS OF FLATS IN THE FINANCIAL YEAR 1992-93IT IS THE MARKET VALUE ON THE DATE OF TRANS FER THAT IS RELEVANT FOR COMPUTATION OF CAPITAL GAINS, AND FOR ARRIVING AT THAT MARKET V ALUE THE PRESCRIBED COST INFLATION INDEX RELEVANT TO THE DATE OF TRANSFER IS TO BE TAKEN INT O ACCOUNT AND NOT THAT ON THE DATE OF CONVERSIONTHEREFORE, AO COMMITTED ERROR IN TAKING THE COST INFLATION INDEX OF 1987- 88 INSTEAD OF COST INFLATION INDEX APPLICABLE TO TH E FINANCIAL YEAR 1992-93. 6 6.1. IN OUR CONSIDERED OPINION THE FACTS OF THE PRE SENT CASE ARE AKIN TO THAT OF THE ONE DECIDED BY HONBLE KARNATAKA HIGH COURT. THEREF ORE BY PLACING RELIANCE ON HIGH COURTS DECISION WE SET ASIDE THE ORDERS OF THE REV ENUE AUTHORITIES AND DIRECT AO TO COMPUTE THE CAPITAL GAINS AFTER GIVING THE COST INF LATION INDEX APPLICABLE FOR THE FINANCIAL YEAR 2006-07. THEREFORE GROUND NO1 RAISED BY ASSESEE IN THIS APPEAL IS ALLOWED. 7. THE FACTS RELATING TO GROUND NO.2 RAISED BY ASSE SSEE IN THIS APPEAL ARE THAT WHILE DOING THE SCRUTINY ASSESSMENT ASSESSING OFFICER HAS TREATED THE AMOUNT OF RS.1,20,000/- SHOWN BY ASSESSEE AS BUSINESS INCOME UNDER THE RENTAL INCOME BY OBSERVING AS UNDER :- (4) RENTAL INCOME AS SHOWN BY THE ASSESSEE AS BUSINESS INCOME - IT IS SETTLED POSITION OF LAW THAT THE RENTAL INCOME EARNED FROM A H.P GIVEN ON RENT SHOULD BE TREATED AS INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND THE DEDUCTIONS ARE ALLOWABLE AS PER CHAPTER IVC OF THE INCOME TAX ACT 1961. DEDU CTION UNDER THE HEAD BUSINESS ( CHAPTER IVD) IS NOT ALLOWABLE FROM THAT INCOME. H OWEVER, ASSESSEE IN ITS COMPUTATION OF INCOME HAS CONSIDERED THIS HOUSE PRO PERTY INCOME AS BUSINESS INCOME WITHOUT ANY APPARENT REASONS. THE PROVISION OF ACT IS VERY SPECIFIC THAT UNLESS THE ASSESSEES IS FULLY ENGAGED IN THE BUSINESS OF GIVI NG HIS HOUSE PROPERTIES FOR RENT AND DERIVING RENT IS THE MAIN INCOME OF THAT BUSINESS, THE INCOME CAN NOT BE CHARGED UNDER THE HEAD BUSINESS INCOME. THIS POSITION IS CLEAR FR OM THE DECISIONS OF VARIOUS APPELLATE AUTHORITIES. UNDER THE HEAD RENTAL INCOME THE ASSESSEE HAS SHOWN INCOME OF RS.1.20,000/- SO FROM THAT INCOME DEDUCTION U/S 23 OF IT ACT AND STANDARD DEDUCTION U/S24(A) IS ONLY ALLOWABLE. THE ASSESSEE HAS NOT FURNISHED ANY MUNIC IPAL CHARGE RECEIPTS FOR ENTITLEMENT OF DEDUCTION U/S23 OF I.T ACT. HENCE, STANDARD DEDU CTION THAT IS 30% OF THE RENTAL INCOME RECEIVED HAS BEEN ALLOWED AND REST AMOUNT IS TAXABLE AS RENTAL INCOME FROM HOUSE PROPERTY. 7.1. ON APPEAL THE LD. CIT(A) HAS CONFIRMED THE SAM E BY OBSERVING AS UNDER :- 4. 1 HAVE GONE THROUGH THE ASSESSMENT ORDER AND SU BMISSIONS OF APPELLANT. THE DECISION OF HBLE SUPREME COURT IN CASE OF MAHESHWA RI DEVI JUTE MILLS LTD. (1965)57 ITR 36 (SC) IS NOT APPLICABLE IN CASE OF ASSESSEE A S THE MAIN ISSUE IN THAT CASE WAS TAXABILITY OF SALE OF LOOM HOURS AS CAPITAL RECEIPT OR REVENUE RECEIPT AND FACTS OF THE CASE HAD NO SIMILARITY WITH TAXABILITY OF RENTAL INCOME AS INCOME FROM HOUSE PROPERTY OR BUSINESS INCOME. IN CASE OF ASSESSEE, SIMPLY A SMAL L SUM OF RS 1,20,000/- WAS RECEIVED ON ACCOUNT OF RENT BY THE ASSESSEE. IT CANNOT BE CA LLED RENT RECEIVED ON ACCOUNT OF ANY COMPLEX BUSINESS ACTIVITY RELATED TO ANY COMMERCIAL ASSET. THE RECEIPT OF RENT OF RS. 1.20,000 IS AN EARNING ON ACCOUNT OF RENT FROM FLAT OR FLATS WHICH IS STOCK IN TRADE AND WAS GIVEN ON RENT BY ASSESSEE AS A MATTER OF CHANCE RATHER THAN WITH A MOTIVE TO EXPLOIT IT AS THE BUSINESS ASSET. IN CASE OF ATMA RAM PROPE RTIES (P) LIMITED VS JCIT 102 TTJ 345(ITAT-DELHI) , UNDER SIMILAR CIRCUMSTANCE, HBLE SPECIAL BENCH HAD HELD THAT - IF IT 7 IS A CASE OF LETTING OUT OF A PROPERTY OWNED BY THE ASSESSEE SIMPLICITOR AND NOT A CASE OF EXPLOITATION OF THE PROPERTY BY WAY OF COMPLEX COMM ERCIAL ACTIVITY, THE RENTAL INCOME EARNED FROM THE SAID PROPERTY WOULD BE CHARGEABLE T O TAX UNDER THE HEAD INCOME FROM HOUSE PROPERTY AND NOT UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IN VIEW OF THE ABOVE MENTIONED FACTS AND POSITION OF L AW I HOLD THAT ASSESSING OFFICER HAS CORRECTLY CHARGED THE RENTAL INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. 7.2. AGGRIEVED BY THIS ASSESSEE IS IN APPEAL BEFORE US. 8. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L APPEARING ON BEHALF OF ASSESSEE HAS REITERATED THE SUBMISSIONS MADE BEFORE THE REVENUE AUTHORITIES THAT ASSESSEE IS CONSTRUCTING FEW BUILDINGS FOR SALE AND A PART OF THE PROPERTY, TILL IT WAS SOLD OUT, WAS LET OUT AND THE ASSESSEE EARNED INCOM E OF RS. 1,20,000/- AS RENT. THE BUSINESS OF ASSESSEE IS THE BUSINESS OF REAL ESTATE / BUILDERS/ DEVELOPERS. ASSESSEE SUBMITTED THAT LETTING OUT OF LAND / BUILDING IS PA RT OF ITS BUSINESS. HE FURTHER RELIED ON THE DECISION IN CASE OF CIT V. MAHESHWARI DEVI JUTE MILLS LTD. (1965) 57 ITR 36 (SC) WHEREIN THE HONBLE SUPREME COURT HELD THAT RECEIPT BY THE EXPLOITATION OF A COMMERCIAL ASSET IS THE PROFIT OF THE BUSINESS, IRR ESPECTIVE OF THE MANNER IN WHICH THE ASSET IS EXPLOITED BY THE OWNER OF THE BUSINESS, FO R THE OWNER IS ENTITLED TO EXPLOIT IT TO HIS BEST ADVANTAGE EITHER BY USING IT HIMSELF PERSO NALLY OR BY LETTING IT OUT TO SOMEBODY ELSE. THEREFORE HE REQUESTED TO SET ASIDE THE ORDERS OF THE REVENUE AUTHORITIES AND DIRECT AO TO TREAT THE INCOME OF RS .1,20,000/- AS BUSINESS INCOME OF ASSESSEE. 9. ON THE OTHER HAND, THE LD. DR APPEARING ON BEHAL F OF THE REVENUE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 10. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CARE FUL PERUSAL OF MATERIALS AVAILABLE ON RECORD, IT IS OBSERVED THAT IN THE CAS E OF ATMA RAM PROPERTIES (P) LIMITED VS JCIT 102 TTJ 345(ITAT-DELHI) AS RELIED BY LD. CI T(A) THE ASSESSEE HAS RECEIVED THE RENT FROM THE TENANTS AS PER THE TERMS OF THE A GREEMENT OF SALE AND THE SAID PROPERTY HAS NEVER BEEN TREATED AS BUSINESS OR COMM ERCIAL ACTIVITY IN THE HANDS OF ASSESSEE. WHEREAS IN THE PRESENT CASE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL ESTATE/BUILDERS/DEVELOPERS AND LETTING OUT OF LAND IS PART OF ITS BUSINESS. THEREFORE IN 8 OUR CONSIDERED OPINION THE CASE LAWS RELIED ON BY A SSESSEE IN THE CASE OF CIT VS. MAHESHWARI DEVI JUTE MILLS LTD. (1965) 57 ITR 36 (S C) IS SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE. THEREFORE WE SET ASIDE T HE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE ALSO AND DIRECT AO TO DELETE THE ADDI TION OF RS.1,20,000/- AS BUSINESS INCOME OF ASSESSEE. 11. IN THE RESULT THE APPEAL OF ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 04.05.2012. SD/- SD/- , ,, , MAHAVIR SINGH, JUDICIAL MEMBER . .. . ! ! ! !. .. . , , , , '# '# '# '# , C.D.RAO, ACCOUNTANT MEMBER. ( (( (!# !# !# !#) )) ) DATE: 04.05.2012. R.G.(P.S.) '3 . ,4 5'4'6- COPY OF THE ORDER FORWARDED TO: 1. M/S.THE HOOGHLY FLOUR MILLS CO.LTD., 20, ROUND TANK LANE, HOWRAH-711101. 2 D.C.I.T., CENTRAL CIRCLE-XVI, KOLKATA. 3. THE C.I.T. 4. CIT(A)-CENTRAL-II, KOLKATA. 5. THE CIT(DR), KOLKATA BENCHES, KOLKATA -4 ,/ TRUE COPY, '3%0/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES