AMRIT CORP. LTD.,GHAZIABAD vs. ADDL. CIT, GHAZIABAD

“5. We have heard the rival submissions and have perused the relevant material on record. The first issue that arises for consideration is whether the industrial land held by the assessee was converted into stock-in-trade on 1st April 2002 (as held by the Assessing Officer) or on 1st April 2006 (as contended by the assessee). In this regard, the following facts remain undisputed:-

1. 1. The assessee was holding industrial land since the year 1940-41 and it housed Ghaziabad Vanaspati unit of the assessee. Thus, the land was initially not acquired for sale but was held as a capital asset.

2. The sale of industrial land was part of the rehabilitation scheme framed by the BIFR and the sale consideration was to be used to fund the cost of rehabilitation scheme and repayment of loan.

3. Even for year ending 31.03.2004, 2005 and 2006, the land sold by the assessee was being shown under capital assets in the schedule of fixed assets.

4. The wealth tax returns filed by the assessee for assessment years 2003- 04 to 2006-07 show that the land at Ghaziabad was shown as a taxable asset and wealth tax was paid thereon.

5. The object clause of the Memorandum of Association was amended in September, 2005 to include real estate as one of the main objects.

6. In audited financial statement 2007-08, the assessee, for the first time, showed the financial results separately for real estate.

5.1 These above facts demonstrate that the industrial land was held as capital asset till assessment year 2006-07 and the industrial land was converted into stock-in-trade in the financial year 2006-07 and not 2002-03 as held by the Assessing Officer. Further, the Hon’ble Allahabad High Court in assessee’s own case in Tax Writ Nos. 47 to 50 of 2010 in the case of Amrit Corporation Ltd. vs ACIT reported in 275 CTR 174 (All) has also held in assessee’s favour by impliedly holding that the transfer for the purpose of capital gains did not take place in the year 2002-03. Although this judgment of the Hon’ble Allahabad High Court was rendered in respect of validity of reassessment proceedings, the Hon’ble High Court did hold in Para 33 and 34 of the order as under:-

5.2 This adjudication by the Hon’ble High Court goes in favour of the assessee that there was no conversion of the capital asset to stock-in-trade in financial year 2002-03 as has been contended by the department and that the provisions of section 45(2) will apply only in a situation where there is a transfer by way of conversion by the owner of the capital asset into stock-in- trade by a positive act on the part of the owner of the capital asset and that in absence of such a positive act on the part of the owner of the capital asset, the provisions of section 45(2) will not apply. The Hon’ble High Court also concluded that in the present case, it was not the case of the assessee that the owner had transferred, by way of conversion of the capital asset, converted the capital asset into stock-in-trade or had treated such capital asset as stock-in-trade of the business. Thus, the Hon’ble High Court has adjudicated that the land was a long term capital asset in the hands of the assessee during the financial years 2002-03 to 2005-06 and that there was no conversion of capital asset into stock-in-trade under the provisions of section 45(2) of the Act during such period as contemplated by the revenue.

5.4 Therefore, on count also, there can be no question of the very same land being treated as having been converted into stock-in-trade in financial year 2002-03, as contended by the department, for the purpose of computation of capital gains during the year under consideration.

5.5 Further, the Hon’ble Court has also recognized the fact that in order to attract provisions of section 45(2) of the Act, there must be some positive act on the part of the owner of the capital asset to transfer the asset by way of conversion into stock-in-trade or treating such capital asset as stock-in-trade of the business. It is amply clear that in absence of a positive act on the part of the owner of the capital asset, the provisions of section 45(2) will not apply.

5.6 It is undisputed that there was no act on the part of the assessee to convert such land into stock-in-trade during the financial years 2002-03 to 2005-06 and the land was shown as capital asset since the beginning in the books of accounts of the assessee. It was only in financial year 2000-01 that the assessee had sought permission for converting the said land from industrial to residential but this does not imply that the assessee had converted the land into stock-in-trade during the financial year 2000-01. We find merit in the contention of the assessee that the land was converted from capital asset to stock-in-trade only during the year under consideration i.e. FY 2006-07 and not any time before that, because the language of section 45(2) of the Act provides that capital asset held by the owner is converted by him into stock-in-trade or capital asset is treated as stock-in-trade by the owner and in both the situations, the emphasis is on the treatment given by the owner of the capital asset. Thus, till the time the owner himself either converts the capital asset into stock-in-trade, the provisions of section 45(2) of the Act will not be attracted. Thus, what is provided is that only positive act/conduct of the owner assessee in applying/treating a capital asset into stock-in-trade is relevant to determine the applicability of section 45(2) of the Act and nothing else and this aspect has been approved by the Hon’ble High Court in the assessee’s case referred to above.

5.6 We also agree with the assessee’s contention that since the assessee had applied for obtaining permission from the Ghaziabad Development Authority (GDA), Ghaziabad for conversion of industrial land into residential land during financial year 2002-03, the land cannot be treated as converted in the financial year 2002-03 as in terms of section 45(2) of the Act, the conversion takes place only by the voluntary act of the assessee for such conversion and a mere act of seeking permission for conversion of land use will not come within the definition of ‘transfer’.

5.7 Therefore, on an overall consideration of the facts, we hold that the industrial land was held as capital asset till assessment year 2007-08 and the same was converted into stock-in-trade only in the financial year 2006-07 and not in assessment year 2003-04 as contended by the department. Accordingly, ground nos. 1, 1.1 and 1.2 in assessee’s appeal for assessment year 2007-08 and ground nos. 1, 1.1 and 1.2 for assessment year 2008-09 stand allowed.

5.8 The second issue arising for our consideration is the determination of Fair Market Value of the land on 1st April, 1981. The assessee had claimed Fair Market Value at Rs. 190/- per sq yard. The assessee had relied on the valuation report of a registered Valuer in arriving at the Fair Market Value. However, the Assessing Officer had rejected the valuation report and had adopted the Fair Market Value of land at Rs. 20/- per sq yard as intimated by UPSIDC filed in pursuance of notice u/s section 133(6) of the Act. On appeal, the Ld. CIT (A) determined the Fair Market Value at Rs. 100/- per sq yd according to the existing circle rate and now department is contesting the valuation at Rs. 100/- per sq. Yard in place of Rs. 20/- per sq. yard whereas the assessee is challenging the valuation of Fair Market Value at Rs. 100/- per sq yd instead of Rs. 190/- as claimed by the assessee.

5.9 It is seen that the assessee wanted to adopt the Fair Market Value @Rs. 190/- per sq yd based on the fact that out of the total land measuring 77,638 sq yards, the saleable land area was only 46,232 sq yards in terms of clause (iv) of the agreement made between the assessee and the GDA vide agreement dated 3rd August 2002 wherein certain area was to be transferred from the assessee to the GDA free of cost. The relevant clause (iv) reads as under:-

“that the first party shall transfer ownership of parks, roads, pavements, drains, water supply system and public utility services, if any, and the land underneath without consideration of money in favour of the authority or as directed by the party”.

5.10 It is the assessee’s contention that since the saleable area of land was less, the Fair Market Value of the saleable portion had to be appropriately increased so as to determine the true Fair Market Value for the purpose of computation of capital gains. The assessee’s claim is duly supported by the report of the registered valuer. However, the department did not accept the assessee’s computation of Fair Market Value at an increased value so as to factor the decrease in the saleable area. The Assessing Officer adopted value of Rs. 20/- per sq yd which the Ld. CIT (A) himself has rejected on the ground that the value of Rs. 20/- per sq yd as intimated by the UPSIDC was not applicable to the assessee’s case as the assessee’s land did not fall under the UPSIDC area. We find no reason to interfere with the findings of the Ld. CIT (A) in this regard as this finding is duly supported by letter from the UPSIDC dated 17.12.2009 addressed to the ACIT, Ghaziabad which mentions that the assessee’s land did not come under the jurisdiction of the UPSIDC. Thus, the sole ground in department’s appeals in both the years stands dismissed.” Thus, the issues contested in this appeal are identical and are already decided by the ITAT in favour of the Assessee. Therefore A.Y. 2009-10 is allowed.

Order pronounced in the Open Court on 04th October, 2017.