ASHA KHATIWALA, MUMBAI V. ITO 2(3)(2), MUMBAI

ITA 8955/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75813 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 22-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURINDER JIT SINGH; M L PERUMAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Business income; Fair market value; Revised return
• Section: 45(2); 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO. 8944 & 8955/MUM/2010 ( / ASSESSMENT YEAR: 2006-07 & 2005-06) ASHA KHATIWALA JAYSHREE 28, J. N. ROAD, VAKOLA, SANTACRUZ (E), MUMBAI VS. ITO-2(3)(2) MUMBAI ! ' ./PAN/GIR NO. AAHPK 3853 A ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !#& / APPELLANT BY : MS. RITIKA AGARWAL $%!#'& / RESPONDENT BY : SHRI SURINDER JIT SINGH & SHRI M. L. PERUMAL ( )*'+, / DATE OF HEARING : 03.12.2013 -./'+, / DATE OF PRONOUNCEMENT : 26.02.2013 0 O R D E R PER SANJAY ARORA, A. M.: THIS IS A SET OF TWO APPEALS BY THE ASSESSEE FOR TW O CONSECUTIVE YEARS, BEING ASSESSMENT YEARS (A.YS.) 2005-06 AND 2006-07, AGITA TING THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-6, MUMBAI (CIT(A) FOR SHO RT) DATED 01.11.2010, DISPOSING THE ASSESSEES APPEALS FOR A.YS. 2002-03, 2003-04, 2005-06 AND 2006-07; THE ISSUES BEING COMMON AND ARISING FROM THE SAME SET OF FACTS . THE APPEALS WERE, ACCORDINGLY, HEARD TOGETHER, AND ARE DISPOSED OF VIDE A COMMON, CONSOLIDATED ORDER. 2 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO THE BACKGROUND FACTS 2. IT WOULD BE RELEVANT TO RECOUNT THE BACKGROUND F ACTS OF THE CASE LEADING TO THE CONTROVERSY/S ARISING FOR OUR ADJUDICATION. THE AS SESSEE, AN INDIVIDUAL, IS IN THE BUSINESS OF DEVELOPMENT OF PROPERTY (THROUGH HER PROPRIETARY CONCERN, M/S. ASHA FINANCIAL & MARKETING SERVICES), RETURNING INCOME FOR THE RELEV ANT YEARS FROM THE SAID BUSINESS (ALSO REFER PB PGS. 50 101, CONTAINING THE SAID RETURNS AND THE AUDITED FINANCIAL STATEMENTS). AS THE DISPUTE CONCERNS PRIMARILY THE INCOME FROM T HE DEVELOPMENT OF LAND AT VAKOLA, A SUBURB OF MUMBAI, THE EVENTS IN RELATION THERETO, T HOUGH UNDISPUTED, BEAR STATEMENT. THE PROPERTY WAS PURCHASED BY ONE, SHRI HIRALAL C. KHAT IWALA, THE ASSESSEES FATHER-IN-LAW, IN JANUARY, 1954. VIDE AN INDENTURE DATED 01.09.1970 (REGISTERED ON 10.06.1971), IT WAS CONVERTED INTO A PROPERTY OF HIS HINDU UNDIVIDED FA MILY (HUF), CONSISTING OF HIMSELF AS THE KARTA AND HIS THREE SONS, NAMELY, JYOTENDRA, PR AKASH (THE ASSESSEES SPOUSE) AND BHARAT KHATIWALA. SHRI HIRALAL C. KHATIWALA PASSED AWAY ON 09.01.1995. SUBSEQUENTLY, HIS HUF WAS DISSOLVED ON 11.02.2000 BY MUTUAL CONSE NT, WHEREBY A DEFINED SHARE WAS ALLOCATED TO EIGHT FAMILY MEMBERS, THAT FALLING TO THE SHARE OF PRAKASH AND BHARAT H. KHATIWALA BEING AT 17.10% EACH. THE ASSESSEE PURCHA SED THE SHARE OF HER HUSBAND ON 18.02.2000 FOR RS.17.10 LACS VIDE A REGISTERED CONV EYANCE DEED. VIDE A RELEASE DEED DATED 21.03.2000, DULY REGISTERED, ALL THE OTHER SI X FAMILY MEMBERS RELINQUISHED THEIR RIGHTS IN THE PROPERTY IN FAVOUR OF THE ASSESSEE AN D BHARAT H. KHATIWALA (HEREINAFTER COLLECTIVELY REFERRED TO AS THE OWNERS), WHO THUS CAME TO OWN THE VAKOLA PROPERTY, BEING LAND ADMEASURING 4621.40 SQ. MTRS AND STRUCTURES THEREON (CARPET AREA: 5000 SQ. FT. APPROXIMATELY), EQUALLY, I.E., AT 50% EACH. A MEMORANDUM OF UNDERSTANDING (MOU) WAS SIGNED BY A ND BETWEEN THE OWNERS AND ONE, M/S. ROMELL PROPERTIES (P.) LTD., A COMPAN Y INCORPORATED UNDER THE COMPANIES ACT, 1956, WITH ITS REGISTERED OFFICE AT MUMBAI (HE REINAFTER ALSO REFER TO AS A DEVELOPER OR AS RPPL), ON 21.11.2000 FOR DEVELOPMENT OF A PART OF THE SAID PROPERTY (29 61 SQ. MTRS ). A SUM OF RS.25 LACS WAS PAID TO EACH OF THE TWO CO-OWNERS, WHICH WAS AS PER THE MOU TO BE TREATED AS AN ADVANCE/DEPOSIT. THIS WAS F OLLOWED BY AN AGREEMENT DATED 28.08.2001 (PB PGS.11-38) , WHEREBY THE OWNERS WOULD SURRENDER 55% OF THE LAN D (27.50% 3 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO EACH) AGAINST 45% OF THE CONSTRUCTED AREA TO COME UP OVER TWO SUB-PL OTS (TITLED A AND B) ADMEASURING 2961 SQ. MTRS. BY AVAILING THE FLO OR SPACE INDEX (FSI) BENEFIT ALLOCABLE THERETO. ANOTHER SUB-PLOT X (ADMEASURING 101 SQ. MTRS.), IN THE UNAUTHORIZED OCCUPATION OF A TRESPASSER, WAS ALSO TO BE INCLUDED UNDER THE DEVELOPMENT AGREEMENT IF THE OWNERS WERE ABLE TO SECURE ITS VACANT POSITION AND GIVE IT TO THE DEVELOPER BEFORE THE COMPLETION OF THE LAST OF THE THREE PHASES OF THE C ONSTRUCTION, BEING WINGS A, B AND C, I.E., WING C, AND WHICH WOULD AGAIN BE APPORTIONED BETWEEN THE PARTIES IN THE RATIO OF 55% (DEVELOPER) AND 45% (OWNERS). THE ADVANCE AMOUN T OF RS. 50 LACS (RS.25 LACS EACH) WAS TO BE REGARDED AS CONSIDERATION FOR THE DEVELOP MENT RIGHTS. THE FOLLOWING CHART DEPICTS THE PROPOSED CONSTRUCTION (ACROSS THREE WIN GS A, B AND C) OVER THE SAID TWO SUB- PLOTS (A AND B) AND ITS ALLOCATION AMONGST THE PARTIES: (PG. 4 OF THE ASSESSMENT ORDER) FIRST PART ROMMEL PROP. TOTAL SQ. FT. WING A. P. KHATIWALA B. H. KHATIWALA AREA FLAT AREA FLAT AREA FLAT AREA FLAT A 5473.75 7 4067.000 5 11023.500 15 20564.250 28 B 4942.750 5 5224.500 5 14637.250 17 24804.500 28 C 2344.250 3 2344.250 3 5020.000 8 9708.500 15 TOTAL 12760.75 16 11635.75 14 30680.750 40 55077.250 71 IN ADDITION, THE DEVELOPER WAS ALSO TO PROVIDE 45% OF THE PARKING SPACE (OPEN AND UNDER STILT) TO THE OWNERS, RETAINING THE BALANCE 55% SPA CE FOR ITSELF. THE EXISTING STRUCTURE ON THE SAID LAND HAD TO BE DEMOLISHED IN A PHASED MANN ER, AND TOWARD WHICH ELABORATE PROVISIONS STOOD MADE AND SET OUT IN THE AGREEMENT. THOUGH THE DEVELOPMENT WORK COMMENCED AS SCHEDULED, DISPUTES AND DIFFERENCES AROSE AMONGST THE PARTIES ON DIFFERENT ASPECTS OF T HE WORK. ACCORDINGLY, CONCILIATION WAS ARRIVED AT THROUGH AN ARBITRATOR, AND A SUPPLEMENTA RY DEED EXECUTED ON 05.04.2004 (PB PGS.39-45). THE PRINCIPAL MODIFICATIONS THAT CAME A BOUT WERE AS UNDER: I. THE ASSESSEE WAS TO SURRENDER HER RIGHT TO RECEIVE NINE FLATS (AREA: 6588 SQ. FT.) FOR AN AGREED CONSIDERATION OF RS.220.50 LACS, OF WHICH RS.191.64 LACS STOOD RECEIVED IN ADVANCE, AND THE BALANCE RS.28.86 LACS WAS TO BE PAID BY 31.12.2004; AND 4 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO II. SHRI BHARAT H. KHATIWALA WAS TO SURRENDER HIS RIGHT TO RECEIVE TWO FLATS (AREA: 1771 SQ. FT.) FOR A CONSIDERATION OF RS.70 LACS, OF WHICH RS.47.50 LACS STOOD ALREADY RECEIVED, AND THE BALANCE RS.22.50 LACS WAS TO BE RECEIVED BY 31.03.2005. THE ISSUES 3. THE ISSUE/S ARISING CONCERN THE INCOME, INCLUDIN G ITS NATURE AND THE YEAR/S OF ITS TAXABILITY, ARISING TO THE ASSESSEE UNDER THE FOREG OING ARRANGEMENTS. WHILE NO INCOME WAS INITIALLY RETURNED QUA THE VAKOLA PROPERTY, I.E., VIDE HER RETURN FOR A.Y . 2005-06 ON 31.10.2005 AT RS.292.14 LACS, THE SAME WAS RETURNED PER REVISED RETURN FILED ON 08.03.2006 AT RS.507.86 LACS. FOR A.Y. 2006-07, AGA IN, THE ASSESSEE HAS RETURNED THE BUSINESS INCOME AT RS.227.80 LACS, I.E., APART THAT ON THE SALE OF TWO FLATS UNDER THE VAKOLA PROPERTY, WHICH WAS RETURNED AS LONG TERM CA PITAL GAIN (LTCG). IN FINE, THE ASSESSEE HAS RETURNED ONLY THE ACTUAL SALE OF VAKOL A FLATS DURING THE RELEVANT YEARS AS CAPITAL GAINS U/S. 45(1). THE REVENUE, ON THE OTHER HAND, PER THE ORDER OF FIRST APPELLATE AUTHORITY, WHICH IT ACCEPTS (BEING NOT IN APPEAL), CONSIDERS THE ENTIRE LAND UNDER REFERENCE AS SUBJECT TO TRANSFER, SO THAT CAPITAL GAIN WOULD ARISE QUA THE SAME, WITH THE PART THEREOF RETAINED AS BEING SUBJECT TO CONVERSION IN TERMS OF S. 45(2). WE PROCEED TO DISCUSS THE RELEVANT ISSUES AS WELL AS THE CASE OF BOTH THE PAR TIES WITH A VIEW TO HIGHLIGHT THE CONTROVERSY/S ARISING AS WELL AS THE BASIS OF OUR D ECISION: I) THE FIRST ISSUE IS WHETHER THE DEVELOPMENT ARRANGEM ENT ENTERED INTO BY THE OWNERS IS IN FURTHERANCE OF THEIR BUSINESS ACTIVITY OF REAL ESTA TE DEVELOPMENT, I.E., STOOD UNDERTAKEN AS AN ADVENTURE IN THE NATURE OF TRADE OR IN THE COURS E OF CARRYING ON THEIR TRADE, OR IS ONLY TOWARD REALIZING A CAPITAL ASSET ? 4.1 WE SHALL TAKE UP THIS ISSUE FIRST. BOTH THE AUT HORITIES BELOW HAVE CONSIDERED THE SAID ARRANGEMENT AS A PART OF THE BUSINESS ACTIVITY . THE RELEVANT FINDINGS AND DECISION BY THE LD. CIT(A) IN THIS REGARD ARE AS UNDER: 11.3 I HAVE CONSIDERED THE FACTS OF THE ISSUE AND THE S UBMISSIONS MADE BY THE AR. IT IS SEEN THAT THE APPELLANT ALONG WITH CO -OWNER SHRI BHARAT KHATIWALA HAS INDEED CARRIED OUT A SYSTEMATIC AND W ELL THOUGHT OUT ACTIVITY IN WHICH THEY HAVE SOUGHT TO EXPLOIT THE LAND BANK AVAILABLE WITH THEM IN ORDER TO REALIZE ITS FULL MARKET VALUE . THE CONTRACT WITH ROMELL PROPERTIES WAS MERELY AN OUTSOURCING OF THE ACTUAL ACTIVITY OF CONSTRUCTION AND DEVELOPMENT OF LAND PLOTS WHICH, OTHERWISE, THE CO- OWNERS WOULD HAVE HAD 5 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO TO UNDERTAKE ON THEIR OWN. INSTEAD OF PAYING THE CO NTRACTOR/DEVELOPER IN CASH FOR CONSTRUCTION ON THE VAKOLA LAND, THEY HAVE SHARED WITH ROMELL PORTION OF THE BUILT-UP AREA. IT IS TO BE NOTED THA T THE APPELLANT WAS ALREADY RESIDING IN THE OLD STRUCTURE AND DID NOT NEED ANY FURTHER CONSTRUCTION FOR HER OWN PURPOSE. THEREAFTER OUT OF THE BUILT UP ARE A RECEIVED BY HER, ONLY A PART WAS RETAINED FOR PERSONAL PURPOSES AND THE BAL ANCE UNITS WERE SOLD. THIS SUPPORTS THE A.O.S STAND THAT THE BUILT UP AR EA RECEIVED BY HER ALONG WITH THE LAND APPURTENANT THERETO WAS IN THE NATURE OF STOCK IN TRADE. IN THE BACKDROP OF THESE FACTS, IT IS FOUND THAT THE RATIO LAID DOWN IN THE CASE LAWS QUOTED BY THE AR IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 11.4 THE APPELLANTS ARGUMENT THAT THE LANDS OWNERSHIP STILL STANDS RECORDED IN THE NAMES OF THE CO-OWNER IS ALSO WITHO UT ANY MERIT. AS PER S.2(47)(V) OF THE ACT, TRANSFER INCLUDES ANY TRAN SACTION ALLOWING POSSESSION OF PROPERTY IN PART PERFORMANCE OF A CON TRACT AS MENTIONED IN S. 53A OF THE TRANSFER OF PROPERTY ACT. REQUISITE AUTH ORITY IN THIS CASE IS OBTAINED FROM THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CHATURBHUJ KAPADIA AS REPORTED IN 260 ITR 491 (BOM) . HENCE, FOR INCOME TAX PURPOSES, THERE IS DEEMED TRANSFER U/S.2(47); A LTHOUGH IN LEGAL RECORDS; THE APPELLANT CONTINUES TO BE THE OWNER. THEREFORE, IT IS HELD THAT PURSUANT TO THE TRANSFE R OF LAND TO M/S. ROMELL PROPERTIES, THE BUILT-UP AREA OBTAINED IS IN THE NATURE OF STOCK IN TRADE AND THE LAND APPURTENANT ALSO GETS CONVERTED INTO STOCK IN TRADE. 11.5 IN THIS REGARD, UPON MY DIRECTION, THE AR HAS FILE D COMPUTATION OF INCOME FOR A.YS. 2005-06 AND 2006-07 ON THE TWIN BA SES THAT THE ENTIRE TRANSACTION WITH ROMELL IS TO BE TAXED IN A.Y. 2005 -06 AND THAT THE REMAINING LAND AND BUILT UP UNITS ARE HELD AS STO CK IN TRADE; WITHOUT PREJUDICE TO HER GROUND OF APPEAL THAT THERE IS NO CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE. THE SAME IS TAKEN ON REC ORD AND IS ATTACHED HEREWITH AS AN ANNEXURE TO THIS ORDER. THUS THE THI RD GROUND OF APPEAL IS DISMISSED SUBJECT TO THE RE-COMPUTATION OF INCOME F OR A.Y. 2003-04 AFTER REDUCING THE INCOME OFFERED BY THE APPELLANT IN THE REVISED COMPUTATION FOR A.Y. 2005-06 AS AFORESAID SO AS TO AVOID DOUBLE ADD ITION. [EMPHASIS, BY UNDERLIN ING, OURS] 4.2 THE ASSESSEE AS WELL AS SHRI BHARAT H. KHATIWAL A, THE OTHER CO-OWNER, ARE ADMITTEDLY IN THE BUSINESS OF REAL ESTATE DEVELOPME NT; THE ASSESSEE HAVING IN FACT SOLD PROPERTIES DEVELOPED BY HER DURING THE RELEVANT YEA RS. IN FACT, THE SEQUENCE OF EVENTS LEADING TO THE ANCESTRAL PROPERTY BECOMING THE INDI VIDUAL PROPERTY OF THE SAID TWO MEMBERS OF THE FAMILY, WHO ARE IN THE BUSINESS OF D EVELOPMENT OF PROPERTY, IS ITSELF 6 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO INTERESTING AND WORTH NOTING. THE INDIVIDUAL PROPER TY OF SHRI HIRALAL C. KHATIWALA IS CONVERTED INTO A FAMILY PROPERTY IN 1970, TO BE HEL D AS HIS HUF PROPERTY, I.E., JOINTLY BY THE MEMBERS OF THE FAMILY. THE SAME IS FIRSTLY CONV ERTED INTO THEIR INDIVIDUAL PROPERTY IN DEFINED SHARES, DISSOLVING THE HUF. IMMEDIATELY AFT ER THE FAMILY DISSOLUTION, THE ASSESSEE PURCHASES HER HUSBANDS SHARE, BECOMING AN AT PAR O WNER OF THE PROPERTY WITH HER BROTHER-IN-LAW, SHRI BHARAT H. KHATIWALA. SOON THER EAFTER, ALL THE BENEFICIARY FAMILY MEMBERS, SAVE THESE TWO, TRANSFER THEIR RESPECTIVE SHARES IN THE PROPERTY A PRIZED CAPITAL ASSET (INCLUDING BY THE YOUNGER MEMBERS OF THE FAMILY), RESULTING IN THE FAMILY PROPERTY BEING CONVERTED INTO A JOINT PROPERTY, IN EQUAL SHARES ALBEIT UNDIVIDED - OF THE TWO MEMBERS THEREOF WHO ARE IN THE BUSINESS OF REAL ESTATE DEVELOPMENT. THE SAID ACQUISITION IS FOLLOWED BY A MOU WITH A DE VELOPER ON 21/11/2000. THE PROPOSED DEVELOPMENT, IT MAY BE EMPHASIZED, IS NOT IN TERMS OF DEVELOPMENT OF SITE, I.E., TO ENABLE BETTER REALIZATION OF THE LAND VALUE, BUT BY WAY OF FULL SCALE CONSTRUCTION THEREON OF AS MANY AS 71 RESIDENTIAL UNITS (FLATS) (OF WHICH 31 ARE TO BE RETAINED BY THE TWO CO- OWNERS) OVER THREE WINGS BY UTILIZING THE FULL FSI ALLOCABLE TO THE LAND UNDER REFERENCE, BESIDES PARKING SPACE. IN FACT, THAT NEGOTIATIONS F OR THE MOU WERE ON FOR SOME TIME, IS, APART FROM FOLLOWING AS A NATURAL LOGICAL INFERENCE INASMUCH AS SUCH AN ARRANGEMENT COULD NOT POSSIBLY BE ARRIVED AT OVERNIGHT, BUT ONL Y AS A RESULT OF DELIBERATIONS, INCLUDING ASSESSMENT OF THE LAND POTENTIAL AS WELL AS OF THE APPLICABLE FSI, IS ALSO APPARENT FROM THE FACT THAT THE ADVANCE PAYMENTS COMMENCED THREE MONT HS PRIOR THERETO, SO THAT NEGOTIATIONS FOR THE UNDERSTANDING HAD, IN FACT, CO MMENCED FROM AN EVEN EARLIER DATE. THE SAME, ACCORDINGLY, CRYSTALLIZED INTO AN AGREEME NT IN AUGUST, 2001. IT IS TO BE FURTHER NOTED THAT APART FROM A NOMINAL SUM IN CASH, THE ENTIRE CONSIDERATION FOR THE TRANSFER OF LAND IS AGREED TO BE PASSED IN KIND, I.E., BY WAY OF CONSTRUCTION, IN THE RATIO IN WHICH PARITY IS STRUC K BETWEEN THE TWO, I.E., THE VALUE OF LAND AND THE VALUE OF CONSTRUCTION THEREON, BEING 55% OF THE FORMER AGAINST 45% OF THE LATTER (WHICH THOUGH IS IN TERMS OF SQUARE FEET, A DIFFERE NT (LOWER) MEASURE AND, BESIDES, IN MULTIPLE DUE TO VERTICAL CONSTRUCTION AS WOULD BE A PPARENT FROM THE FACT THAT 2961 SQ. MTRS. YIELDS OVER 55000 SQ. FT. OF CONSTRUCTED AREA ). FURTHER, THE TWO OWNERS, EVEN 7 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO ASSUMING (THOUGH NO CONTENTION OR CLAIM IN ITS RESP ECT STANDS MADE) THAT A PART OF THE SAID CONSTRUCTION IS TO BE UTILIZED BY THEM FOR THEIR OW N RESIDENCE, ARE TO GET BETWEEN THEMSELVES AS MANY AS 31 RESIDENTIAL FLATS . THAT A FAIR PROPORTION OF THEM (11) ARE SUBSEQUENTLY SURRENDERED FOR CASH (BRINGING DOWN TH E SAID NUMBER TO 20), WOULD NOT ALTER THE SCHEME OR THE INTENTION OF THE PARTIES. FURTHER , THE TRANSFER BY WAY OF CONVERSION INTO STOCK-IN-TRADE WOULD IN ANY CASE BE LIMITED TO THE LAND APPURTENANT TO THE FLATS RETAINED UNDER THE AGREEMENT (20). 4.3 THE AGREEMENT, THUS, IS A PART OF AN ORCHESTRAT ED, PLANNED SCHEME FOR DEVELOPMENT OF THEIR PROPERTY BY THE OWNERS, EVEN A S STATED BY THE LD. CIT(A). THAT THE PROPERTY UNDER REFERENCE WAS A FAMILY PROPERTY, WHI CH THOUGH STOOD DIVIDED AS JOINT PROPERTY OF THE INDIVIDUAL FAMILY MEMBERS, AND FINA LLY CONVEYED TO TWO MEMBERS AS THEIR INDIVIDUAL PROPERTY, WOULD NOT MAKE IT ANY LESS AN EXERCISE TOWARD DEVELOPMENT OF PROPERTY BY UNDERTAKING FULL SCALE CONSTRUCTION THE REON. FURTHER, AGAIN, AND EVEN AS NOTED BY THE LD. CIT(A), THE FACT THAT THE SERVICES OF A REPUTED DEVELOPER WERE SOUGHT, I.E., INSTEAD OF UNDERTAKING THE SAME THEMSELVES, WOULD A GAIN BE OF LITTLE CONSEQUENCE. THERE COULD BE SEVERAL CONSTRAINTS, MANAGERIAL, FINANCIAL , LOGISTICAL, ETC., LEADING TO A DECISION TO OUTSOURCE THE PROJECT, THOUGH WOULD NOT MAKE THE OW NERS ANY LESS PARTNERS, ALBEIT PASSIVE, THEREIN. IN FACT, THE OWNERS ALSO RETAIN C ONTROL OVER THE PROJECT EXECUTION; THE AGREEMENT PROVIDING FOR CERTIFICATION OF THE SATISF ACTORY PROGRESS OF THE WORK AS A CONDITION FOR THE CONTINUATION OF THE AGREEMENT (RE FER CLAUSE 25). WHAT, HOWEVER, IS TO BE APPRECIATED AND REALIZED IS THAT THE ADVENTURE IN THE NATURE OF TRADE, AND THE CONSEQUENTIAL CONVERSION OF THE C APITAL ASSET INTO STOCK-IN-TRADE BY THE OWNERS IS ONLY IN RESPECT OF 45% OF THE LAND SOUGHT TO BE DEVELOPED, I.E., WHICH WOULD CONTINUE TO BE IN THEIR CONTROL AND POSSESSION IN T HE FORM OF CONSTRUCTED AND DEVELOPED LAND . THE BALANCE 55% HAS BEEN CONVEYED TO THE DEVELOPE R FOR A CONSIDERATION IN THE FORM OF 45% OF THE CONSTRUCTED SPACE, SO THAT IT IS TO THAT EXTENT - ONLY A REALIZATION OF THEIR CAPITAL ASSET (LAND) BY THE OWNERS, LIABLE TO CAPITAL GAINS. THAT THE CONSIDERATION IS 8 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO NOT IN CASH BUT IN KIND, AND MAY INVOLVE THE ISSUE AS TO ITS VALUATION, WOULD BE OF NO MOMENT. THIS IN FACT WE ALSO UNDERSTAND TO BE THE F INDING OF THE REVENUE AUTHORITIES. CONTINUING FURTHER, THE AGREEMENT DATED 28.08.2001 STOOD MODIFIED BY THE CONCILIATION DEED DATED 05.04.2004 . THE SAME, WITHOUT DOUBT, AND EVEN AS OBSERVED BY THE LD. CIT(A), WOULD HAVE A MATERIAL IMPACT ON THE INCOME ARISING TO THE ASSESSEE, INCLUDING ITS NATURE AND THE YEAR/S OF TAXABILITY. FOR ONE, IT CLEARLY SHOWS THAT DESPITE COMMENCEMENT OF WORK ON THE PROJECT, EVENTS WERE IN A STATE OF FLUX, AND CRYSTALLIZED ONLY UPON ARRIVING AT CONCILIATION THROUGH AN ARBIT RATOR. THIS IS OF CRUCIAL SIGNIFICANCE AS INCOME BY WAY OF CAPITAL GAINS WOULD ARISE, IRRESPE CTIVE OF ITS RECEIPT, I.E., ON THE ACCRUAL OF THE RIGHT TO RECEIVE, SO THAT A DELAY IN THE EXE CUTION OF THE PROJECT AND, CONSEQUENTLY, POSSESSION OF THE PROPERTY IN CONSIDERATION WOULD N OT - IN THE NORMAL COURSE - DEFER THE ACCRUAL OF THE CAPITAL GAIN AND, THEREFORE, ITS ASS ESSABILITY. HOWEVER, WHERE THE RECEIPT ITSELF IS IN JEOPARDY, AND THE EXECUTION EMBROILED IN DIFFERENCES, THE UNCERTAINTY WOULD EXCLUDE ACCRUAL, DESPITE THE FACT THAT IT (THE UNCE RTAINTY) MAY HAVE ARISEN SUBSEQUENT TO THE AGREEMENT IN AUGUST, 2011, SO THAT THERE WAS NO UNCERTAINTY ON THE DATE THE AGREEMENT WAS ENTERED INTO (AS IN THAT CASE IT WOUL D NOT HAVE BEEN ENTERED INTO); THE RELEVANT DATE FOR THE PURPOSE BEING THE YEAR-END. F URTHER, AGAIN, THOUGH IT IS APPARENT THAT THE CONCILIATION WAS ARRIVED AT, AND THE UNCERTAINT Y THUS RESOLVED, PRIOR TO 05.04.2004, WITH BOTH THE OWNERS HAVING RECEIVED A SUBSTANTIAL PART OF THE ENHANCED CASH COMPENSATION AS AGREED TO THEREBY, BEFORE THAT DA TE, THE SAME, FOR WANT OF CLARITY ON THE SAID DATE/S, IS TO BE REGARDED AS THE DATE OF THE E XECUTION OF THE CONCILIATION DEED, I.E., 05.04.2004. IN FACT, WE OBSERVE NO DISPUTE WITH REGARD TO THIS ASPECT OF THE MATTER . THE OTHER IMPACT OF THE SAID MODIFICATION IS OF TH E SUBSTANTIAL INCREASE IN THE CASH COMPONENT OF THE CONSIDERATION (ALONG WITH CONCOMIT ANT AND CORRESPONDING DECLINE IN THE CONSIDERATION IN KIND, I.E., THE CONSTRUCTED AREA). THE SAME WOULD ALTER THE RATIO OF THE INCOME ARISING BY WAY OF CAPITAL GAINS DIRECTLY (SE CTION 45(1)) VIS--VIS THAT ARISING U/S. 45(2), I.E., ON CONVERSION OF THE CAPITAL ASSET INT O STOCK-IN-TRADE OF HER BUSINESS BY THE ASSESSEE. 9 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO 4.4 THE ASSESSEE STATES THAT THERE HAS BEEN NO CONV ERSION OF THE LAND RETAINED INTO STOCK-IN-TRADE BY HER, AND THAT, IN ITS ABSENCE, TH E DEPARTMENT COULD NOT PRESUME SO. SECTION 45(2), HOWEVER, GETS ATTRACTED NOT MERELY B Y CONVERSION, FOR WHICH THOUGH NO FORMAL (OR OTHERWISE) PROCEDURE IS TO BE ADOPTED, B UT ALSO WHERE IT (A CAPITAL ASSET OR PART THEREOF) IS TREATED AS ONE, I.E., BECOMES THE STOCK -IN-TRADE OF THE ASSESSEES BUSINESS. THE SAME IS A MATTER OF FACT AND, AS SUCH, ALSO SUBJECT TO INFERENTIAL FINDINGS. WE HAVE, EVEN AS HAVE THE AUTHORITIES BELOW, FOUND IT TO BE ON TH E BASIS OF CONDUCT, BESIDES TAKING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES INTO ACCOUN T. IN FACT, THOUGH WE HAVE FOUND IT AS A PART OF THE ASSESSEES EXISTING BUSINESS; SHE HAVIN G IN FACT ADMITTEDLY CONVERTED HER ASHOK NAGAR, JUHU PLOT OF LAND IN PART INTO STOCK-I N-TRADE, THE INFERENCE AS TO A TRADING ACTIVITY IS POSSIBLE TO BE DRAWN EVEN IF THERE IS A SINGLE, INDEPENDENT ACTIVITY. THAT IS, EVEN THOUGH VOLUME, REGULARITY AND CONTINUITY ARE R ELEVANT CONSIDERATIONS, THE SAME ARE SO ONLY FOR THE PURPOSE OF AND TOWARD DETERMINING T HE NATURE AND CHARACTER OF THE TRANSACTION/S, WHICH ALONE IS OF ESSENCE, SO THAT I T IS ESSENTIALLY THE NATURE AND CHARACTER OF THE TRANSACTION/S THAT IS BEING SOUGHT TO BE DETERM INED. WE HAVE ALREADY STATED OUR REASONS FOR SO CONSIDERING AND, ACCORDINGLY, FIND N O INFIRMITY EITHER ON FACTS OR IN LAW IN THE REVENUE APPLYING THE LAW ON THE BASIS OF THE FA CTS AS FOUND. MERELY DENYING THE SAME WOULD NOT SUFFICE WHEN THE FACTS SPEAK OTHERWISE . FURTHER, THOUGH THE VALUE OF LAND AND THE CONSTRUCTED SPACE MAY BE ARRIVED AT SEPARATELY, THOUGH BASED ONLY ON THE CONSIDERATION ARISING FROM RPPL, OR THE FAIR MARKET VALUE OF LAND OR CONSTRUCTION AS REFERABLE THERETO, ONCE A RESIDENTIAL FLAT IS DELIV ERED TO THE ASSESSEE, IT BECOMES A ONE, COMPOSITE ASSET, DIFFERENT AND APART FROM ITS CONST ITUENTS, I.E., THE LAND AND THE STRUCTURE THEREON. WHY, THE SAME WOULD ONLY BE PURCHASED AND SOLD IN THE MARKET AS SUCH, I.E., A RESIDENTIAL FLAT, SO THAT WE ARE UNABLE TO APPRECIA TE THE ASSESSEES GROUND NO. 4 QUA THE CHANGE IN THE NATURE OF THE CAPITAL ASSET, WHICH AR ISES AS THE NATURAL CONSEQUENCE OF THE FINDING OF THE LAND, TO THE EXTENT FINALLY RETAINED , AS FORMING PART OF THE STOCK-IN-TRADE OF THE ASSESSEES BUSINESS OF DEVELOPMENT AND, IN ANY CASE, AN ADVENTURE IN THE NATURE OF TRADE (OF DEVELOPMENT OF PROPERTY). IN FACT, IT WOU LD STILL BE SO EVEN WHERE THE LAND AND THE STRUCTURE ARE TREATED AS CAPITAL ASSETS IN THE ASSESSEES HANDS, AS WHAT RESULTS BY WAY 10 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO OF OUTPUT FROM THE EXECUTION OF THE DEVELOPMENT AGR EEMENT IS CLEARLY RESIDENTIAL UNITS (FLATS). THE SCOPE AND PURPORT OF THE SAID GROUND B EING NOT CLEAR, WITH NO SPECIFIC ARGUMENTS BEING RAISED DURING HEARING IN RELATION T HERETO, THE MATTER WAS POSTED FOR SEEKING CLARIFICATION IN THE MATTER. THE LD. AR WOU LD REITERATE THE ASSESSEES STAND, I.E., OF THE LAND, AS WELL AS THE CASH AND CONSTRUCTED AREA (IN THE FORM OF RESIDENTIAL FLATS) RECEIVED IN LIEU THEREOF, BEING ONLY HER CAPITAL AS SETS, SO THAT THERE IS NO CHANGE IN THEIR NATURE, I.E., AS CAPITAL ASSETS. WE HAVE IN FACT ON THE CONTRARY FOUND THAT THE LAND, A FAMILY PROPERTY, STOOD ACQUIRED BY THE ASSESSEE ONLY FOR T HE PURPOSE OF ITS DEVELOPMENT, SO THAT THE SAME ASSUMES THE NATURE OF A TRADING ASSET, I.E ., AN ASSET OF THE TRADE, IN HER HANDS. HOWEVER, INASMUCH AS THE SAME (LAND), FORM A PART O F THE FAMILYS CAPITAL ASSET, WITH THERE BEING NO FORMAL THROWING IN OF THE SAME IN T HE BUSINESS (OF DEVELOPMENT), WHICH IS UNDERTAKEN THROUGH AN OUTSIDE FIRM, NO CONVERSION I S PREDICATED, AND IS TAKEN ONLY ON THE BASIS OF THE FORMAL AGREEMENTS. THE ASSESSEE CLAIMS CONSTRUCTION OF BUILDING TO BE A MERELY A MANNER OF REALIZING THE FULL POTENTIAL OF LAND. THE SAME IS T ANTAMOUNT OR IS AKIN TO SAYING THAT A RAW MATERIAL IS SUBJECT TO PROCESSING ONLY TO REALIZE I TS VALUE. THOUGH ECONOMICALLY NOT INCORRECT, IT DOES NOT IN ANY MANNER DETRACT FROM T HE ECONOMIC SIGNIFICANCE OF PROCESSING AS A SEPARATE OR INDEPENDENT ECONOMIC ACTIVITY. MAN UFACTURE IS ONLY A SERIES OF PROCESSES, SO THAT THE ARGUMENT COULD BE TAKEN FORWARD, AND AN Y CONVERSION OF RAW MATERIAL INTO FINISHED GOODS (WHICH IN FACT MAY BE EVEN OVER ONE OR MORE BUSINESSES) COULD, GOING BY THE SAID ARGUMENT, BE SAID TO BE ONLY TOWARD REALIZ ING THE VALUE OF THE RAW MATERIAL, SO THAT BY IMPLICATION IT IS ONLY A FORM OF TRADING AC TIVITY. IN A SINGLE SWEEPING STATEMENT, THE ASSESSEE HAS RELEGATED THE CONSTRUCTION ACTIVIT Y, WHICH, AND PARTICULARLY FOR HOUSING, STANDS ACCORDED A PRIORITY INDUSTRY STATUS, TO A FO RM OF A TRADING ACTIVITY. EACH BUSINESS IS ESSENTIALLY TOWARD ADDING VALUE, IN SATISFACTION OF A DEFINED HUMAN WANT. THE ARGUMENT ONLY NEEDS TO BE STATED TO BE REJECTED. IN FACT, IT NEEDS TO BE APPRECIATED THAT LAND IS BY ITSELF OF LITTLE ECONOMIC VALUE UNLESS THE SAME IS CONVERTED INTO SOME PRODUCTIVE ASSET, I.E., TOWARD SOME USEFUL PURPOSES, VIZ. HOUSING, OR IS ITSELF WORKED UPON TO SOME 11 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO ADVANTAGE, AS FOR EXAMPLE AGRICULTURE OR MINING, AN D WHICH WOULD ONLY BE SEPARATE ECONOMIC ACTIVITIES BY THEMSELVES. 5.1 IT WOULD ALSO BE RELEVANT AND PERTINENT TO DISCUSS THE MANNER IN WHICH THE SAID ALTERATION (PER THE CONCILIATION DEED) IS TO BE ARR IVED AT. THIS, IN FACT, REPRESENTS THE SECOND (II) ISSUE ARISING FOR OUR CONSIDERATION . THIS IS AS, AS STATED EARLIER, THE MODIFICATION IN THE TERMS OF THE AGREEMENT PER THE CONCILIATION DEED HAS A MATERIAL IMPACT ON THE QUANTUM OF THE CAPITAL GAINS, I.E., A PART FROM THE YEAR/S OF ITS TAXABILITY. NOT ONLY THE ASSESSEE REVISED HER RETURN FOR A.Y. 2005- 06 SUBSEQUENT TO THE SURVEY U/S.133A ON 02.02.2006 AT HER BUSINESS PREMISES, SUBSTANTIAL LY INCREASING HER INCOME, FURTHER COMPUTATIONS OF INCOME WERE ALSO FILED FOR BOTH THE YEARS AT THE INSTANCE OF THE LD. CIT(A) IN VIEW OF HIS ENDORSING THE CONVERSION OF A PART OF THE CAPITAL ASSET INTO STOCK-IN- TRADE. WE HAVE THOUGH FOUND THIS AS VALID, YET CONF IRMED IT TO BE SO ONLY IN RESPECT OF THE LAND WHICH CONTINUES TO BE IN THE OWNERSHIP OF THE ASSESSEE, ENVISAGED AT 45% OF HER SHARE PER AGREEMENT DATED 28.08.2001, AND SCALED DO WN, AS WE SHALL PRESENTLY SEE, TO 21.77% SUBSEQUENTLY PER THE DEED DATED 05.04.2004. THIS R EVISION IS SUBSTANTIAL AND BESIDES, HAS A MATERIAL IMPACT ON THE INCOME DETERM INABLE BOTH UNDER THE HEAD CAPITAL GAINS AND BUSINESS INCOME FOR THE CURRENT YEAR /S AS WELL AS THE SUBSEQUENT YEARS, I.E., AS AND WHEN THE STOCK-IN-TRADE WOULD BE SOLD. THE L D. CIT(A) OUGHT TO HAVE, RATHER THAN MERELY REQUIRING THE A.O. TO VERIFY THE SAME, SOUGH T HIS DETAILED COMMENTS THEREON, SO THAT THE DIFFERENCES, IF ANY, COULD BE RESOLVED. TH IS IS PARTICULARLY SO AS THE ASSESSEE HAS NOT FURNISHED ANY BREAK-UP OF THE VALUE OF RS.220.5 0 LACS, I.E., AS TO HOW THE SAID FIGURE HAS BEEN ARRIVED AT WITH REFERENCE TO THE DEVELOPED AREA FOREGONE (6588 SQ. FT.). THE FIRST THING IN THIS REGARD THAT WE OBSERVE IS THAT THE DIFFERENCE IN THE PER UNIT SALE PRICE, I.E., BETWEEN THE RATES AT WHICH IT IS EFFECTED IN RESPECT OF THE ASSESSEE (AT RS. 3347 PER SQ. FT.) AND HER CO-BROTHER, SH. BHARAT KH ATIWALA (AT RS. 3952 PER SQ. FT.), EVEN THOUGH THE CONSIDERATION FOR THE AREA FOREGONE FOR BOTH IS QUA THE SAME PROPERTY AND FROM THE SAME PERSON (DEVELOPER), BEING IN FACT QUA THE SAME AGREEMENT. HOWEVER, AS THE SAME, I.E., THE AREA FOREGONE FOR CASH CONSIDERATIO N, IS ONLY TOWARD DIRECT TRANSFER U/S. 12 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO 45(1); THE AREA, STIPULATED AS CONSIDERATION FOR TR ANSFER OF LAND BEING SINCE SUBSTITUTED FOR CASH, THE CONSIDERATION AS STIPULATED, I.E., WITHOU T REFERENCE TO A DIFFERENT (OR HIGHER) RATE FOR THE OTHER WOULD BE ADOPTED. IN OTHER WORDS, THE DIFFERENT RATE WOULD NOT HAVE ANY BEARING ON THE COMPUTATION OF CAPITAL GAINS, WHICH IN EITHER CASE WOULD BE PER THE RESPECTIVE RATES. THIS IS ALSO SO AS THE REVENUE HA S NOT DOUBTED THE GENUINENESS OF THE ARRANGEMENT, AND NEITHER INVOKED S.50C. OUR SECOND OBSERVATION IS THAT THE ASSESSEE HAS WO RKED OUT THE AREA FINALLY RETAINED (6172.75 SQ. FT.), AND WHICH WOULD THEREFO RE BE SUBJECT TO CAPITAL GAINS U/S. 45(2), AT 11% , QUA WHICH THERE IS THOUGH NO ADJUDICATION. BESIDES, HO W AND IN WHAT MANNER, IN CASE OF ANY DIFFERENCE BETWEEN THE PARTI ES, WOULD THE ISSUE GET RESOLVED. THE LD. CIT(A) HAS ALSO HIMSELF NOT GIVEN FINDING OF TH E ENTIRE CAPITAL GAINS AS HAVING BEEN COMPUTED BY THE ASSESSEE IN TERMS OF HIS FINDINGS. WE HAVE ALREADY STATED THAT WE CONSIDER THIS ASPECT AS INTEGRAL TO THE INCOME DETE RMINATION ( QUA THE RELEVANT AGREEMENT). ACCORDINGLY, WHILE PRESENTING OUR OBSERVATIONS IN T HE MATTER (WHICH MAY NOT BE CONSIDERED AS FINAL FINDINGS, BUT ONLY AS REPRESENT ING OUR UNDERSTANDING), WE REMIT THIS ASPECT BACK TO THE FILE OF THE FIRST APPELLATE AUTH ORITY, SO THAT THE DUE PROCESS OF ADJUDICATION IS OBSERVED AND NO PREJUDICE CAUSED TO EITHER SIDE; THERE BEING NO ARGUMENT ON THIS ASPECT OF THE MATTER BEFORE US. WE SHALL, N EVERTHELESS, CLEARLY STATE THE BASIS ON WHICH OUR CALCULATION IS PREMISED TO ENABLE ITS APP RECIATION. 5.2 WE SHALL, FOR THE SAKE OF CONVENIENCE, ASSUME T RANSFER OF 55% OF LAND AGAINST 45% OF THE CONSTRUCTED SPACE, I.E., EVEN THOUGH THE ASS ESSEES SHARE IS 50% THEREIN. THIS IS AS IT WOULD MATTER LITTLE IF THE SAID RATIOS ARE TAKEN , I.E., INSTEAD OF 27.5% AND 22.5% (OF THE TOTAL LAND AREA) RESPECTIVELY, AS WE ARE DEALING IN TERMS OF RATIOS. IN ANY CASE, AND FURTHER, ALL THAT WOULD BE REQUIRED, IF THE CALCULATIONS ARE BASED ON THE TOTAL LAND AREA, IS TO DIVIDE IT BY TWO (2) OR MULTIPLY BY ONE-HALF (). THE ASSE SSEE RELINQUISHED 6588 SQ. FT. OUT OF HER ALLOCABLE AREA OF 12760.75 SQ. FT. (OR 51.63%, I.E. , WORKING UP TO TWO DECIMAL PLACES), RETAINING THE BALANCE 48.37%. IN SO DOING, SHE ALSO TRANSFERS 51.63% OF HER 45% LAND, I.E., ANOTHER 23.23%. THE LAND AREA IN PERCENTAGE T ERMS TRANSFERRED BY THE ASSESSEE IS THUS 13 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO 78.23% (55% + 23.23%). THIS IS AGAINST A TOTAL CONS IDERATION OF RS.245.50 LACS (25 LACS + 220.50 LACS) IN CASH AND CONSTRUCTED SPACE OVER 6 172.75 SQ. FT. (12760.75 6588) IN KIND. THE % AGE AREA OF THE LAND RETAINED IS THUS 2 1.77% (OR 100 78.23), QUA WHICH THERE IS A TRANSFER U/S. 45(2) ON ACCOUNT OF CONVER SION INTO STOCK-IN-TRADE. THE COST OF CONSTRUCTION (OF 6172.75 SQ. FT.), AS P ER THE READY RECKONER RATES (FOR THE RELEVANT CLASS OF CONSTRUCTION AND FOR THE RELE VANT YEAR, BEING THE PREVIOUS YEAR RELEVANT TO A.Y. 2005-06), COULD BE ADDED TO THE CA SH CONSIDERATION OF RS.245.50 LACS, SO THAT THE TOTAL REPRESENTS THE VALUE OF THE LAND (78 .23%), WHICH COULD THEN BE APPLIED TO THE LAND TRANSFERRED BY WAY OF CONVERSION U/S.45(2) (I. E., THE BALANCE 21.77%). WHAT IS IMPORTANT IS THAT INTERNAL CONSISTENCY IS MAINTAINE D INASMUCH AS IT IS ONLY THE TRANSFER CONSIDERATION AS AGREED TO AND ARRIVED AT BETWEEN T HE PARTIES THAT FORMS THE BASIS OF THE DETERMINATION OF THE LAND AND THE CONSTRUCTION COMP ONENT OF THE ASSETS UNDER REFERENCE, WITH THE REVENUE HAVING NOT APPLIED S.50C. WE HAVE ALREADY CLARIFIED AS TO WHY THIS SHOULD BE THE ONLY REASONABLE BASIS. IT MAY WELL BE ARGUED THAT THE CONSTRUCTION IS NOT IN A DELIVERABLE STATE, SO THAT THE ADOPTING READY RECKO NER VALUE, WHICH IS FOR READY CONSTRUCTION, MAY NOT BE APPROPRIATE. THE OBJECTION HAS SOME MERIT, SO THAT THE METHOD SUGGESTED, CAN BE SAID TO BE DEFICIENT TO THAT EXTE NT. EACH METHOD WOULD HAVE ITS PLUSES AND MINUSES, BEING ESSENTIALLY AN ESTIMATION EXERCI SE, SO THAT WHAT IS PARAMOUNT IS THAT INTERNAL CONSISTENCY, OR THE INTEGRITY OF THE COMPU TATION, IS MAINTAINED. BESIDES, THE READY RECKONER VALUE CAN BE SUITABLY DISCOUNTED TO MEET T HE STATED OBJECTION, WHICH THOUGH WOULD RESULT IN THE DISCOUNT AMOUNT BEING BROUGHT T O TAX IN ANOTHER YEAR AS BUSINESS INCOME (IN VIEW OF THE CONSTRUCTION FORMING PART OF THE STOCK-IN-TRADE, WHICH WOULD STAND UNDER-STATED TO THAT EXTENT), OR INCOME FROM OTHER SOURCES, I.E., GENERICALLY SPEAKING. THE AFORE-STATED WORKING ALSO ASSUMES TRANSFER OF P ARKING SPACE IN THE SAME RATIO, I.E., IN PROPORTION TO THE CONSTRUCTED AREA FOREGON E. THIS IS, AS IT APPEARS FROM THE TENOR OF THE AGREEMENT, THAT THE SAME (PARKING SPACE) IS ALL OTTED IN THE SAME RATIO AND, FURTHER, AS AN ADJUNCT AND INCIDENTAL TO THE ORIGINAL AREA (FLA TS). IF, HOWEVER, THERE IS NO CORRESPONDING REDUCTION IN THE PARKING SPACE (TO BE RETAINED BY THE PARTIES IN THE RATIO OF 45% AND 55%), THE SAME INVOLVING APART FROM CONSTRU CTION ALSO LAND VALUE, WOULD HAVE 14 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO ALSO TO BE SUITABLY FACTORED. IT IS THOUGH FOR THE ASSESSEE TO ALLOCATE THE VALUE OF OR ASCRIBED TO THE CONSTRUCTED SPACE BETWEEN THE CONST RUCTION OF THE RESIDENTIAL UNITS AND THE PARKING SPACE. THIS WOULD THOUGH BECOME RELEVANT ON LY WHERE THE PARKING SOLD IS NOT COMMENSURATE OR IN PROPORTION TO THE AREA SOLD. 6.1 ANOTHER ARGUMENT RAISED BY THE LD. AR DURING HE ARING WAS THAT WHAT THE ASSESSEE HAS RECEIVED AS CONSIDERATION IS THE RIGHT TO RECEI VE THE CONSTRUCTED SPACE, SO THAT IT CANNOT BE EQUATED WITH THE ACTUAL AVAILABLE CONSTRU CTION. TRUE, BUT WHAT NEEDS TO BE APPRECIATED IS THAT THIS IS PRECISELY WHAT THE ASSE SSEE HAS FOREGONE, I.E., THE RIGHT TO RECEIVE A SPECIFIED CONSTRUCTED AREA, AGAINST A DEF INED CONSIDERATION (RS. 220.50 LACS). AS SUCH, THERE IS PARITY BETWEEN WHAT IS BEING SOLD AN D WHAT IS BEING VALUED. WE ARE CONSCIOUS THAT THE AREA BEING RETAINED BY TH E OWNERS, EVEN GOING BY THE ORIGINAL AGREEMENT, MAY NOT BE EXACTLY 45% OF THE T OTAL AREA (2961 SQ. MTRS.). THIS IS AS A PART THEREOF (101 SQ. MTRS.) IS SUBJECT TO DEVELOPM ENT ONLY ON THE CONDITION OF ITS POSSESSION BEING DELIVERED TO THE DEVELOPER AND, FU RTHER, A PART (PORTION OF SUB-PLOT A) OF THE TOTAL AREA IS RESERVED FOR PUBLIC HOUSING FO R BEING GIVEN TO BMC. THIS IS WHY OUR WORKING IS MADE IN PERCENTAGE TERMS, RATHER THAN AD OPTING A PARTICULAR LAND AREA. THE SAME, HOWEVER, WOULD DEFINITELY IMPACT THE LAND ARE A BEING TRANSFERRED AND CONVERTED, AS ALSO, CONSEQUENTLY, THE CONSIDERATION PER UNIT OF L AND (SQ. MTRS.) WE MAY FURTHER ADD THAT IN THE COMPUTATION OF THE C APITAL GAINS IT IS THE ASSESSEES OPTION TO ALLOCATE /SPECIFY THE LAND COST QUA A PARTICULAR TRANCHE. THIS IS AS WHILE A PART OF THE LAND (17.10% OF THE TOTAL LAND) STANDS PURCHASE D IN FEBRUARY, 2000, THE BALANCE (32.90%) COMES TO HER THROUGH A FAMILY ARRANGEMENT, AND BEING ACQUIRED PRIOR TO 1981, ITS FAIR MARKET VALUE AS ON THAT DATE WOULD AT HER OPTION SUBSTITUTE ITS ACTUAL COST. 6.2 THE ASSESSEE HAS, APART FROM THE PAPER-BOOK, AL SO FILED A COMPILATION OF THE CASE LAWS. THE SAME THOUGH NOT ADVERTED TO DURING HEARIN G, HAVE YET BEEN GONE THROUGH. THE SAME ARE TOWARD THE TRANSACTIONS CONSIDERED AS ON C APITAL ACCOUNT, SO THAT IT WOULD LEAD TO CAPITAL GAINS. IN EACH CASE, THE MATTER STANDS DECI DED ON THE BASIS OF THE OBTAINING FACTS AND CIRCUMSTANCES, I.E., ON AN APPRECIATION THEREOF . THIS IS IN FACT APPARENT FROM A MERE 15 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO READING OF THE RECITAL/HELD PORTION OF THE VARIOUS DECISIONS CITED THEMSELVES; THE HONBLE COURTS, BASING THEIR DECISIONS ON THE BASIS OF THE FINDINGS OF FACTS AS ISSUED AND CONFIRMED BY THE AUTHORITIES BELOW; THE GENERAL PRINCIPLES IN VOLVED BEING WELL SETTLED, VIZ. CIT VS. MLM MAHALINGAM CHETTIAR [1976] 107 ITR 236 (MAD); CIT VS. B. K. BHAUMIK [2001] 116 TAXMANN 189 (DEL); AND CIT VS. SUSHILA DEVI JAIN [2003] 259 ITR 671 (P & H). RATHER, AS EXPLAINED IN THE CASE OF CIT VS. KAMAL CHEMICAL INDUSTRIES [2005] 277 ITR 150 (P & H) ) , WHERE THE GENERAL PRINCIPLES TO BE APPLIED IN DET ERMINING THE QUESTION ARE WELL SETTLED, AND THE ONLY ISSUE RELATES TO THE APP LICATION OF THOSE PRINCIPLES TO THE PARTICULAR FACTS OF THE CASE, NO SUBSTANTIAL QUESTI ON OF LAW CAN BE SAID TO ARISE. WE MAY STILL HOWEVER, AND ONLY WITH A VIEW TO EMPHASIZE TH E TRUTH OF WHAT IS BEING SAID AND HIGHLIGHT THOSE DIFFERENCES (IN FACTS), DISCUSS SOM E DECISIONS BY THE HONBLE COURTS. IN SUSHILA DEVI JAIN (SUPRA), THE ASSESSEE ACQUIRED AGRICULTURE LAND THR OUGH INHERITANCE AND SOLD THE SAME IN PARCELS BECAUSE OF HUGE AREA. IT W AS UNDER THESE CIRCUMSTANCES THAT IT WAS HELD THAT THE SAME DID NOT CONSTITUTE BUSINESS. AGAIN, IN CIT VS. N.S.S. INVESTMENTS (P.) LTD. [2005] 277 ITR 149 (MAD), THE QUESTION WAS WITH RE GARD TO THE INVESTMENT IN SHARES HELD FOR THE PURPOSE OF EARNING DIVIDEND INC OME AS BEING CAPITAL ASSETS AND NOT STOCK-IN-TRADE, WHICH PORTFOLIO SEPARATELY EARMARKE D BY THE ASSESSEE. IN THE INSTANT CASE, ON THE OTHER HAND, WE HAVE FOUND THE ASSESSEE, HERS ELF A BUILDER AND DEVELOPER, TO HAVE ACQUIRED THE LAND UNDER REFERENCE THROUGH A SERIES OF PRECONCEIVED AND PREMEDITATED STEPS AND, FURTHER, THE TRANSFER AS NOT A CASE OF A N OUTRIGHT SALE BUT PER A DEVELOPMENT AGREEMENT, OVER WHICH THE ASSESSEE RETAINS CONTROL. IT IS NOT, AS CLARIFIED, A CASE OF DEVELOPMENT OF LAND AS A BUILDING SITE, WITH A VIEW TO REALIZE A BETTER PRICE. WE HAVE, SO HOWEVER, CONFINED THE FINDING OF THE SAME BEING IN PURSUANCE TO TRADE ONLY IN RESPECT OF LAND FINALLY RETAINED BY THE ASSESSEE, SO THAT THER E HAS BEEN A CONVERSION IN ITS RESPECT AS CONTEMPLATED U/S.45(2) (REFER PARAS 4.2 TO 4.4 SUPR A). THE DECISION IN MCORP GLOBAL (P.) LTD. VS. CIT [2009] 309 ITR 434 (SC) THE APEX COURT FOLLOWING ITS DECISION IN THE CASE OF HUKUMCHAND MILLS LTD. VS. CIT [1967] 63 ITR 232 (SC) HELD THAT THE TRIBUNAL COULD NOT ENHANCE AN ASSESSM ENT BY WITHDRAWING THE BENEFIT GRANTED BY THE A.O. HOW WE WONDER THE SAID DECISIONS WOULD APPLY IN THE INSTANT 16 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO CASE. THE MATTER IS PRIMARILY FACTUAL, I.E., WHETHE R THE ARRANGEMENT UNDER REFERENCE IS IN WHOLE OR IN PART AN EXERCISE BY THE ASSESSEE OF A T RADE OR TOWARD THE SAME OR OTHERWISE TRANSACTION IN THE NATURE OF TRADE, AND HAS BEEN, A CCORDINGLY, DECIDED BY US IN THE FACTS AND CIRCUMSTANCES OF THE CASE BY ISSUING DEFINITE F INDINGS OF FACT, EVEN AS BY THE AUTHORITIES BELOW, CONSIDERING A PART OF THE STRUCT URE AS FORMING PART OF THE STOCK-IN-TRADE, I.E., ON THE LAND FINALLY RETAINED BY THE ASSESSEE, OF THE ASSESSEES TRADE, WHILE THE BALANCE IS DEFINITELY A TRANSFER OF HER CAPITAL ASSETS BY H ER. THE CITED DECISIONS WOULD UNDER THE CIRCUMSTANCES BE OF LITTLE ASSISTANCE TO THE ASSESS EE. 7. FINDINGS WE MAY CAPSULE OUR FINDINGS FOR THE SAKE OF CLARITY : A) NO CAPITAL GAINS ARISES TO THE ASSESSEE PRIOR TO A. Y. 2005-06, WHEREAT THE ENTIRE CAPITAL GAIN UNDER THE AGREEMENT DATED 28.08 .2001, AS MODIFIED BY THE CONCILIATION DEED DATED 05.04.2004, INURES. B) TO THE EXTENT, THE SAME IS AGAINST CASH CONSIDERATI ON, THE CAPITAL GAIN IS ASSESSABLE U/S.45(1), WHILE TO THE EXTENT IT IS AGA INST THE CONSIDERATION IN KIND, I.E., THE CONSTRUCTED SPACE, THE SAME IS ASSE SSABLE U/S.45(2) AND, THUS, LIABLE TO TAX IN THE YEAR OF SALE OF THE CORRESPOND ING STOCK-IN-TRADE. C) THE VALUE OF THE CAPITAL ASSET (LAND) TREATED AS STOCK-IN-TRADE AND THE CONSTRUCTION THEREON, AS RECKONED FOR COMPUTING THE CAPITAL GAINS, SHALL BECOME THE COST THEREOF FOR THE PURPOSE OF COMPUTIN G THE BUSINESS INCOME ON ITS SALE/TRANSFER. THE CAPITAL GAIN, THOUGH ARIS ING IN THE YEAR OF CONVERSION/TREATMENT AS STOCK-IN-TRADE, SO THAT THE SAME IS TO BE COMPUTED APPLYING THE FAIR MARKET VALUE ON THE DATE OF CONVE RSION/TREATMENT, I.E., 05.04.2004 IN THE INSTANT CASE, THE CHARGE TO TAX I S DEFERRED TO THE YEAR OF ACTUAL SALE OR TRANSFER OF THE ASSET. CLEARLY, THE DIFFERENCE BETWEEN THE FINAL SALE (TRANSFER) CONSIDERATION AND THE COST, SO ARRI VED AT, WOULD BE CHARGEABLE U/S.28 AS BUSINESS INCOME; THE ASSESSEE SELLING ONE FLAT AND TWO FLATS IN THE PREVIOUS YEARS RELEVANT TO A.YS. 2005-06 AND 2006-0 7 RESPECTIVELY. 8. DECISION IN VIEW OF THE FOREGOING, WE REMIT THE MATTER BACK TO THE FILE OF THE LD. CIT(A) TO COMPUTE THE CAPITAL GAINS AS WELL AS THE BUSINESS I NCOME ARISING TO THE ASSESSEE FOR BOTH THE YEARS UNDER REFERENCE IN TERMS OF OUR FINDINGS, AND HAVING REGARD TO THE OBSERVATIONS 17 ITA NOS. 8944 & 8955/M/10 (A.YS. 06-07 & 05-06) ASHA KHATIWALA VS. ITO MADE HEREIN, AFTER HEARING BOTH THE PARTIES BEFORE HIM, PER A SPEAKING ORDER. WE DECIDE ACCORDINGLY. 9. IN THE RESULT, THE ASSESSEES APPEALS ARE ALLOWE D FOR STATISTICAL PURPOSES. 1/+23451+' 67' 89:;) < +'+= ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 26, 2014 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER ( >* MUMBAI; ? DATED : 26.02.2014 )3 ROSHANI , SR. PS ! ' #$%& ' &$ COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( @+ A B / THE CIT(A) 4. ( @+ / CIT - CONCERNED 5. C)DE$3+3F4 ,F4/ ( >* / DR, ITAT, MUMBAI 6. E5G* GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ( >* / ITAT, MUMBAI