INCOME TAX ACT, 1961

Section 45(2) read with Section 49(1)

Capital gains - Long-term capital gains - Property received on partial partition of HUF was capital asset -

Assessee-individual was engaged in the real estate business. The lands received by assessee under the family arrangement were treated as stock-in-trade in his books and were sold in previous year. AO held that once family partition took place, the asset which came in the share of the assessee partake the character of the assets in the hands of assessee as capital gains and therefore, conversion of capital assets into stock-in-trade and capital gains attract the provisions of section 45(2). AO determined the total income after making an addition on account of long-term capital gains under section 45(2) on sales of lands and other assets. The entire arrangement made by assessee was designed to evade the tax liability. Held: From perusal of clause (iii) of memorandum of family arrangement, it was axiomatic that assets, which were taken over were forming part of stock-in-trade of real estate business and continued to be in nature of stock-in-trade in the hands of the assessee. There was no iota of material on record to show that the assets obtained by assessee were capital assets. The character of assets received on partition did not change and there was no provision in the Act to indicate that assets received on partition were capital assets, as no deeming provisions had been enacted by the Legislature. Section 45(2) was not applicable in the fact situation of the case as the asset received was stock-in-trade. Alternatively, there was nothing on record to indicate that any capital asset had been converted to stock-in-trade and provisions of section 49(1) were not applicable to stock-in-trade. The definition of 'capital asset' in section 2(14) expressly excludes stock-in-trade. In the instant case, it was pertinent to note that no factual foundation had been made in the pleading with regard to the findings of fact arrived at by the Tribunal and no material had been placed on record to demonstrate that the findings of fact recorded by the tribunal were perverse. Therefore, the substantial questions of law framed by a Bench of this court, in fact, did not arise for consideration in this appeal as the matter was concluded by findings of fact.

Relied:Sudarshan Silks & Sarees v. CIT (2008) 300 ITR 211 (SC) : 2008 TaxPub(DT) 1908 (SC); Santosh Hazari v. Puroshottam Tiwari (2001) 3 SCC 179 : 2001 TaxPub(DT) 1102 (SC); Kalooram Govindram v. CIT (1965) 57 ITR 335 (SC) : 1965 TaxPub(DT) 0305 (SC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2006-07

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