Case Law Details
Global Health Private Limited Vs DCIT (ITAT Delhi)
A plain reading of section 45(2) makes it amply clear that it is the prerogative of the assessee to covert the capital asset to stock. Further, the term ‘Business carried on by him’ necessarily means that the capital asset so converted must form part of stockin-trade of the business carried on by the assessee. In the present case, the assessee company is in the healthcare business and not in business related to real estate and as such it cannot be said that assessee, by entering into the Joint Development Agreement, has converted the land into its stock-in-trade. Therefore, we have no hesitation in holding that there is no scope of applicability of section 45(2) of the Act to the facts of the present case. Therefore, we are unable to find any justification in the action of the Ld. CIT (A) in invoking provisions of section 45(2) of the Act. The upshot of this discussion is that once we have denounced the application of Section 45(2), there remains no basis for restricting the indexation to AY 2008-09 particularly when the taxable event arose in AY 2011-12 when the construction got complete and the assessee opted to part with 5 acres of land for a consideration of Rs. 33 crores. Accordingly, in view of our reaching this considered opinion, the assessing officer is directed to allow the benefit of indexation of cost of acquisition till AY 2011-12 i.e. the year of assessment of capital gain.
FULL TEXT OF THE ORDER OF ITAT DELHI
These cross appeals filed by the assessee and the revenue are against the order passed by the Ld. Commissioner of Income Tax (Appeals)-4, New Delhi {CIT (A)} vide order dated 22/05/2017 and are relating to Assessment Year (AY) 2011-12. The issue involved in these appeals is related to computation of long term capital gain arising from transaction of sale of rights as per Joint Development Agreement (JDA).
2.0 Brief facts of the case are that the assessee was the owner of 43 acres of land situated in sector 38, Gurgaon, Haryana allotted by HUDA. The assessee entered into a Joint Development Agreement dated 02/08/2007 with M/s. SAS Infoetech P. Ltd. for development of 5 acres of land of the aforesaid 43 acres of land. The said development was to be carried out wholly by M/s. SAS Infoetech P. Ltd from its own resources on or before the completion date of 1st September, 2010. It was further agreed in the agreement that upon the completion of the said development, the assessee will have the right to either take possession of 30,000 sq. ft. of built up super areas or release the same in favour of the builder M/s. SAS Infoetech P. Ltd. for a consideration of Rs. 33 crores. As recorded by the Ld. CIT (A), the underlying land was given on lease for a period of 90 years. In the assessment year under reference, the project got completed and the assessee chose the option to take Rs. 33 crores in lieu of 30,000 sq. ft. built-up super area and offered the same as long term capital gain after adjusting the indexed cost of acquisition of proportionate cost of 5 acres of land. The Assessing Officer (AO) disallowed the claim of cost of acquisition on the ground that since the land was still appearing in the Balance sheet of the assessee, the benefit of cost cannot be given. Accordingly, addition of long term capital gain was made to the extent of Rs.12,24,33,236/-. The Ld. CIT (A) allowed the benefit of cost of acquisition. He, however, restricted the indexation till AY 2008-09 as against AY 2011-12 on the reasoning that indexation can only be allowed till the date of signing of the Joint Development Agreement. The Ld. CIT (A) further held that land was deemed to have been converted to stock-in-trade in AY 2008-09 at the market value of Rs. 33 crores as the Joint development agreement was adventure in the nature of business and, accordingly, the indexation was to be allowed only till AY 2008-09.
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