Tribunal held that , advance received equivalent to share cannot be taxed in the year of receipt .As per the development agreement right to collect said amount would crystallize on day when tenements or portion of land would be sold/handed over by developers to prospective buyers in subsequent year. Developer had recognized completion and sale of developed portion in subsequent assessment year 2011-12, business profits arising would be taxable in assessment year 2011-12.Capital gains arising on conversion of capital asset into stock-in-trade would also be taxed in in subsequent assessment year 2011-12 in which business profits were to be taxed. On conversion of capital asset into stock-in-trade, capital gains had to be worked out on basis of fair market value of property as on date of conversion and not on basis of existing market value of property .( AY.2009-10)
ITO v.Vilas Babanrao Rukari (HUF) (2018) 171 ITD 532/ 194 TTJ 954/ 167 DTR 353 (Pune) (Trib.)
S.28(i): Business income- Capital gains-Conversion in to stock in trade-Development agreement-Project completion method-Advance received equivalent to share cannot be taxed in the year of receipt –As per the agreement ,right to collect said amount would crystallize on day when tenements or portion of land would be sold/handed over by developers to prospective buyers in subsequent year- Taxable in subsequent year- Capital gains arising on conversion of land into stock-in-trade prior to development agreement would also be taxed in subsequent year in which the right to collect the amount is crystallized- Conversion of capital asset into stock-in-trade, capital gains had to be worked out on basis of fair market value of property as on date of conversion and not on basis of existing market value of property . [ S. 4, 5,45, 145 ]