Case summary, Income Tax

Re-designating land from stock in trade to capital asset

Case: AJB Developers Pvt. Ltd. vs DCIT, (ITAT Delhi)


Assessee company was engaged in the business building and infrastructure development. Company sold one of its land properties, held in its books as stock in trade, as a capital asset, and offered the income for taxation under long term capital gain with indexation. AO sought to tax the profit from the selling of the property as short term capital gain by stating that the period of holding the land as capital asset was less than 36 months.

Assessee Arguments:

  • Since no construction was permissible on the land in question as per the Notification of Ministry of Defence, Government of India, the character of the land remained as capital asset.
  • Since no construction had been done on the property even after the grant of stay, and since the land was acquired in FY 2006-07,  the period was more than 36 months at the time of sale of the property.

Tribunal Holdings:

  • Even though land had been categorised as a stock in trade in the books of accounts earlier, it had acquired the nature of a capital asset.
  • The asset was acquired more than 36 months back, which was also accepted by the A.O, thus it is capital asset in nature and benefit of indexation should be allowed.

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