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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-13, Chennai, dated 28.01.2016 and pertains to assessment year 2008-09.
The only issue arises for consideration is determination of fair market value as on the date of conversion of capital asset into stock-in-trade.
Shri K. Ulaganaathan Shankar, the Ld. representative for the assessee, submitted that the assessee’s brother purchased a property on 20.09.1990. By way of settlement deed dated 25.03.1996, the property was settled in favour of the assessee. The assessee converted the land into stock-in-trade on 22.04.2005. The plot was sold in the subsequent year, more particularly on 16.07.2007, 22.10.2007 and 29.10.2007. Referring to Section 45(2) of the Income-tax Act, 1961 (in short 'the Act'), the Ld. representative submitted that when the capita asset was converted into stock-in-trade, the gain arising out of such transfer becomes chargeable to tax in the year in which the property was ultimately sold in the course of business activity. The fair market value of the asset on the date of conversion shall be deemed to be full value of consideration received or acquiring as a result of capital gain. The Assessing Officer has taken the guideline value prescribed by the State registration authority, as fair market value as on the date of conversion.
Referring to the memorandum explaining Section 50C of the Act, the Ld. representative for the assessee submitted that when the capital asset was converted into stock-in-trade, no registration is required. It is only a conversion of the asset in the books of account, therefore, the provision of Section 50C of the Act is not applicable at all. The assessing authority has to adopt the fair market value as on the date of valuation. Therefore, according to the Ld. representative, the valuation adopted by both the authorities below on the basis of guideline value is not justified.
On the contrary, Shri Shiva Srinivas, the Ld. Departmental Representative, submitted that for the purpose of computing capital gain, the value determined by the State registration authorities for registration of document has to be taken as consideration received by the assessee. In the case before us, according to the Ld. D.R., the assessee converted the capital asset into stock-in-trade, therefore, the Assessing Officer by applying provisions of Section 50C of the Act, has taken the guideline value as fair market value as on the date of conversion. According to the Ld. D.R., the guideline value determined by the State registration authorities for the purpose of registration of document assumes significance in the absence of any other material available on record. Therefore, according to the Ld. D.R., the CIT(Appeals) has rightly confirmed the order of the Assessing Officer.
We have considered the rival submissions on either side and perused the relevant material available on record. The only issue arises for consideration is determination of fair market value as on 22.04.2005, being the date of conversion of land into stock-in-trade.
The Assessing Officer by applying the provisions of Section 50C of the Act adopted guideline value prescribed by the State registration authority. The assessee now contends before this Tribunal that for conversion of capital asset into stock-in-trade, registration of document is not required, therefore, the provisions of Section 50C of the Act is not applicable at all.
We have carefully gone through the provisions of Section 45(2) of the Act. For the purpose of determining the capital gain, the fair market value of the asset as on the date of conversion, shall be deemed to be the full value of consideration received or acquiring as a result of transfer of capital asset. Therefore, fair market value has to be determined as on 22.04.2005. The Assessing Officer has simply adopted the guideline value prescribed by Sub-Registrar. It is a well settled principle of law that guideline value prescribed by the State Government is only to guide the Sub-Registrar to determine the fair market value on the date of registration of the document. Fair market value is not a constant figure. It may fluctuate depending upon various factors. This Tribunal is of the considered opinion that the fair market value of the property would depend upon the location of property, availability of infrastructure facilities around the property, future potential for development, etc. Guideline value is also one of the factors to be taken into consideration while determining the fair market value.
The guideline value of the registration authorities always would not represent the fair market value. In the case before us, the Assessing Officer has taken the guideline value of the property as fair market value as on 22.04.2005. The comparative sale instance in the same locality has not been taken into consideration by both the authorities below. Therefore, this Tribunal is of the considered opinion that the matter needs to be reconsidered by the Assessing Officer by taking into consideration the factors referred above while determining the fair market value. Accordingly, the orders of the authorities below are set aside and the issue of determining the fair market value as on 22.04.2005 being the date of conversion of capital asset into stock-in-trade, is remitted back to the file of the Assessing Officer. The Assessing Officer shall reconsider the issue afresh and determine the fair market value after considering all the factors referred above and thereafter decide the fair market value in accordance with law, after giving a reasonable opportunity to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on 23rd November, 2016 at Chennai.