My solution on DT (old) May 2010

So on the above mentioned answer, can anyone judge my marks?????????????

Dear ,rohit, Barun Kumar Ghosh , Ashish

If you read the question then you will come to know the following,

1.First transaction in which assesse has transfered capital asset to Mr Ram.

2.Mr Ram Held it as stock in trade.

3.Legal ownership is not tranfered but possession and Power of Attorney has been transfered to mr.Ram

4.First you try to answer sec.2(47) is applicable between the transaction between assessee and ram?

5.Ram's holding as capital asset in to stock in trade is amount to transfer or sec.2(47)?

               When you analyse these separately you will come to know that transaction between assessee and Ram is Transfer ,since Ram holding Possession and Right to use to property it is enough to tax the same.Hence it is transfer and taxable in the AY-2010-11.

Further in the hands of ram also it is transfer since he converted capital assest in to stock in trade by virtue of sec.2(47) ,when the stock is sold it is taxable in the hands of Ram.

                               For your answer in respect to sec.56(2)(vii) it is inclusive definition,You might be wondering when you read "D Anand Basappa Vs CIT (2009) (Karnataka High court's decision (Note this case is not related to this question) honourable court has cleared that Rules of Interpretations are always bearing on the Acts,Capital Gains tax exemptions are available u/s 54 for residenatial property purchased after the date of transfer  within three years for construction,two years for purchase before the date of transfer one year.Legislatora are not clear about one residential property or more than one.

Court has said that whenver the word sigular is used plural can be used as per sec.37 of General clauses act 1957. AO has lost the case

On the same ground if use Rules of Interpretations anf General clauses Act the Plain meaning availble for Motor car is moveable henc eit is taxable.

But if you look at the sec.2(14) it is not a capital asset since it is falls under persoanl effect,this for sec.45 not for Sec.56

Therfore it is taxble on after 1.10.2009 in the hands of Assessee.

@ Ravi

Good analysis. if your points are correct then i will get good marks coz i too have mentioned same point.

Extract from ICAI study material -

7.4 TRANSFER: WHAT IT MEANS [SECTION 2(47)]

(vii) Lastly, there are certain types of transactions which have the effect of transferring or enabling the enjoyment of an immovable property. For example, a person may become a member of a co-operative society, company or other association of persons which may be building houses/flats. When he pays an agreed amount, the society etc. hands over possession of the house to the person concerned. No conveyance is registered. For the purpose of income-tax, the above transaction is a transfer. Even power of attorney transactions are covered.

7.5 SCOPE AND YEAR OF CHARGEABILITY [SECTION 45]

(iii) Conversion or treatment of a capital asset as stock-in-trade [Section 45(2)]

A person who is the owner of a capital asset may convert the same or treat it as stock-intrade of the business carried on by him. As noted above, the above transaction is a transfer. As per section 45(2), the profits or gains arising from the above conversion or treatment will be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him. In order to compute the capital gains, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received as a result of the transfer of the capital asset.

Illustration 2

X converts his capital asset (acquired on June 10, 1988 for Rs.60,000) into stock-in-trade in March 10, 2008. The fair market value on the date of the above conversion was Rs.2,20,000. He subsequently sells the stock-in-trade so converted for Rs.2,50,000 on June 10, 2009. Discuss the tax implication.

Solution

Since the capital asset is converted into stock-in-trade during the previous year relevant to the A.Y. 2008-09, it will be a transfer under section 2(47) during the P.Y.2007-08. However, the profits or gains arising from the above conversion will be chargeable to tax during the A.Y. 2010-11, since the stock-in-trade has been sold only on June 10, 2009. For this purpose, the fair market value on the date of such conversion (i.e. 10th March, 2008) will be the full value of consideration.

The capital gains will be computed after deducting the indexed cost of acquisition from the full value of consideration. The cost inflation index for 1988-89 i.e., the year of acquisition is 161 and the index for the year of transfer i.e., 2007-08 is 551. The indexed cost of acquisition is 60,000 × 551/161 = Rs.2,05,342. Hence, Rs.14,658 (i.e. Rs.2,20,000 – Rs.2,05,342) will be treated as long-term capital gains chargeable to tax during the A.Y.2010-11. During the same assessment year,  Rs.30,000 (Rs.2,50,000 - Rs.2,20,000) will be chargeable to tax as business profits.

Year of chargeability - Capital gains are chargeable as the income of the previous year in which the sale or transfer takes place. In other words, for determining the year of chargeability, the relevant date of transfer is not the date of the agreement to sell, but the actual date of sale i.e., the date on which the effect of transfer of title to the property as contemplated by the parties has taken place [Alapati Venkatramiah v. CIT [1965] 57 ITR 185 (SC)]. Thus, in the case of any immovable property of the value exceeding Rs. 100, the title to the property cannot pass from the transferor to the transferee until and unless a deed of conveyance is executed and registered. Mere delivery of possession of the immovable property could not itself be treated as equivalent to conveyance of the immovable property. 

However, as already noted, Income-tax Act has recognised certain transactions as transfer in spite of the fact that conveyance deed might not have been executed and registered. Power of Attorney sales as explained above or co-operative society transactions for acquisition of house are examples in this regard.

@ Ghanshyam Joshi

Great boss. From where u do sumch analysis. I cant write so long in exam. But as per yours view also Power of attoreny will be treated as transfer and so will be chargebale in AY 10-11.

Q.6 (a) - Case law =>

6. Whether the Assessing Officer has jurisdiction to issue notice under section 148 to reopen the same assessment order on the same grounds for which the notice under section 263 has been issued?

Inductotherm (India) P. Ltd. v. James Kurian, ACIT (2007) 294 ITR 341 (Guj)

Relevant Section: 148 & 263

The assessment under section 143(3) was completed on March 10, 2004. For reopening of this assessment, notice under section 148 was issued by the Assessing Officer to the assessee and notice under section 263 was issued by the Commissioner of Income-tax for revision of the assessment order passed by the Assessing Officer dated March 10, 2004.

There is no bar under the provisions of the Income-tax Act, 1961, for parallel proceedings in consequence of notice under section 148 and notice under section 263. After issuance of notice under section 148, the Assessing Officer himself can pass a fresh assessment order and under section 263 if the original assessment order of the Assessing Officer is erroneous and prejudicial to the interests of the Revenue, the CIT can revise that order. Both the authorities are empowered under different provisions of the Act, though both have to see that the income escaped in the original assessment should be taxed.

Hence, the High Court held that the Assessing Officer had found that there were errors in the computation of allowances. The reassessment proceedings were valid. Further, it was also held that notice under section 263 had been issued, and those proceedings were stayed, but the proceedings initiated after the issuance of notice under section 148 were not stayed. Therefore, the Assessing Officer was at liberty to proceed with the proceedings and make final assessment. The court directed that since the reassessment order had already been passed, the notice under section 263 was to stand discharged subject to the outcome of the reassessment proceedings.

Originally posted by : shashank kumar
	@ Ghanshyam Joshi Great boss. From where u do sumch analysis. I cant write so long in exam. But as per yours view also Power of attoreny will be treated as transfer and so will be chargebale in AY 10-11.

 Shashank,

I could not write this much pritty answer in exam. This is extract from the study material and case studies.

In indocutherm case, notice under 148 was first issued and then CIT (A) has issued notice u/s 263. So section 263 was to stand discharged. But in question firstly 263 was issued and then department want to issue u/s 148. So i think not good to issue u/s 148. Any suggestions?????

The question from the question paper was as under -

Examine critically in the context of provisions of the Act "can the A.O. issue notice u/s 148 to reopen the same assessment order on the same grounds for which the CIT had issued notice u/s 263 of the Act"?

Whether the Assessing Officer has jurisdiction to issue notice under section 148 to reopen the same assessment order on the same grounds for which the notice under section 263 has been issued?

So whats your reply that whether he has urisdiction to issue notice under section 148 or not?

No, AO do not have Power to issue notice on issue on which Sec 263 (CIT) has issued notice. Refering Doctorine of Partial Merger in case of Sec 263.

As per this Doctorine, When Subordinate (AO) issue notice on any matter and after that any seniour issue notice to same assessee for same AY and onsame matter. Then in this Case, the matter of Subordinate gets Marged with Senior and subordinate has no right on such matter.

I think very few people are interested in giving their view............so less number of final students???????

To Ravi Kumar and Ghanyashyam,

The question no.4(c) nowhere states that before giving power of attorney and possession of the land Ram converted the land into stock-in-trade. It is simply stated that possession of vacant land was given in respect of a vacant land (held as stock-in-trade). Therefore, if any student writes the answer by applying the provision of section 45(2), I am afraid that such answer will not fetch marks.

In respect of question no.5(a) I will suggest to make reference to clause (d) of the Explanation to section 56(2) which defines the word "property" in exhaustive manner and not in inclusive manner. The defnition of "property " starts with the word "means" and not "includes".Therefore, section 56(2) is not applicable.

Question No.3.(d)

The assessee is in the business of real estate. Sale of scrap  materials arising from demolishing the old building is brought to tax under the head "profits and gains of business and professions". This is correct as income from sale of scrap materials arises in normal course of real estate business. But interest payable to the vendor for unpaid purchase is an expenditure wholly and exclusively for the purpose of the said business. There is no reason for denying deduction under section 37(1) for such interest. Interest payable to the seller of the old building is an expense which has direct nexus to the business carried on by the assessee. Therefore, the action of the AO is not correct.

Question No.6(a)

The answer given by Mr.Ganshyam Joshi is absolutely correct. There is no bar nunder the Income-tax Act for parallel proceedings under section 147 and section 263. Both AO and CIT are empowered under different provisions of the Income-tax Act, although the objective of both the authorities is to that there is no escapement of income from being taxed. However, if the order of the CIT is passed first, then the proceeding under section 147 intiated by the AO becomes infructuous and is to be dropped.