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 Wing        A. P. Khatiwala    B. H. Khatiwala
              Area Flat Area Flat Area Flat Area Flat
  A          5473.75    7 ½ 4067.000 5 ½               11023.500      15     20564.250      28
  B         4942.750 5 ½ 5224.500 5 ½                  14637.250      17     24804.500      28
  C         2344.250 3 ½ 2344.250 3 ½                   5020.000       8      9708.500      15
 Total      12760.75 16 ½ 11635.75 14 ½                30680.750      40     55077.250      71

i. The assessee was to surrender her right to receive nine flats (area: 6588 sq. ft.) for an agreed consideration of Rs.220.50 lacs, of which Rs.191.64 lacs stood received in advance, and the balance Rs.28.86 lacs was to be paid by 31.12.2004; and ITA Nos. 8944 & 8955/M/10 (A.Ys. 06-07 & 05-06) Asha Khatiwala vs. ITO ii. Shri Bharat H. Khatiwala was to surrender his right to receive two flats (area:

ITA Nos. 8944 & 8955/M/10 (A.Ys. 06-07 & 05-06) Asha Khatiwala vs. ITO 4.4 The assessee states that there has been no conversion of the land retained into stock-in-trade by her, and that, in its absence, the Department could not presume so. Section 45(2), however, gets attracted not merely by conversion, for which though no formal (or otherwise) procedure is to be adopted, but also where it (a capital asset or part thereof) is treated as one, i.e., becomes the stock-in-trade of the assessee's business. The same is a matter of fact and, as such, also subject to inferential findings. We have, even as have the authorities below, found it to be on the basis of conduct, besides taking the totality of the facts and circumstances into account. In fact, though we have found it as a part of the assessee's existing business; she having in fact admittedly converted her Ashok Nagar, Juhu plot of land in part into stock-in-trade, the inference as to a trading activity is possible to be drawn even if there is a single, independent activity. That is, even though volume, regularity and continuity are relevant considerations, the same are so only for the purpose of and toward determining the nature and character of the transaction/s, which alone is of essence, so that it is essentially the nature and character of the transaction/s that is being sought to be determined. We have already stated our reasons for so considering and, accordingly, find no infirmity either on facts or in law in the Revenue applying the law on the basis of the facts as found. Merely denying the same would not suffice when the facts speak otherwise. Further, though the value of land and the constructed space may be arrived at separately, though based only on the consideration arising from RPPL, or the fair market value of land or construction as referable thereto, once a residential flat is delivered to the assessee, it becomes a one, composite asset, different and apart from its constituents, i.e., the land and the structure thereon. Why, the same would only be purchased and sold in the market as such, i.e., a residential flat, so that we are unable to appreciate the assessee's ground no. 4 qua the change in the nature of the capital asset, which arises as the natural consequence of the finding of the land, to the extent finally retained, as forming part of the stock-in-trade of the assessee's business of development and, in any case, an adventure in the nature of trade (of development of property). In fact, it would still be so even where the land and the structure are treated as capital assets in the assessee's hands, as what results by way ITA Nos. 8944 & 8955/M/10 (A.Ys. 06-07 & 05-06) Asha Khatiwala vs. ITO of output from the execution of the development agreement is clearly residential units (flats). The scope and purport of the said ground being not clear, with no specific arguments being raised during hearing in relation thereto, the matter was posted for seeking clarification in the matter. The ld. AR would reiterate the assessee's stand, i.e., of the land, as well as the cash and constructed area (in the form of residential flats) received in lieu thereof, being only her capital assets, so that there is no change in their nature, i.e., as capital assets. We have in fact on the contrary found that the land, a family property, stood acquired by the assessee only for the purpose of its development, so that the same assumes the nature of a trading asset, i.e., an asset of the trade, in her hands. However, inasmuch as the same (land), form a part of the family's capital asset, with there being no formal throwing in of the same in the business (of development), which is undertaken through an outside firm, no conversion is predicated, and is taken only on the basis of the formal agreements.

The afore-stated working also assumes transfer of parking space in the same ratio, i.e., in proportion to the constructed area foregone. This is, as it appears from the tenor of the Agreement, that the same (parking space) is allotted in the same ratio and, further, as an adjunct and incidental to the original area (flats). If, however, there is no corresponding reduction in the parking space (to be retained by the parties in the ratio of 45% and 55%), the same involving apart from construction also land value, would have ITA Nos. 8944 & 8955/M/10 (A.Ys. 06-07 & 05-06) Asha Khatiwala vs. ITO also to be suitably factored. It is though for the assessee to allocate the value of or ascribed to the constructed space between the construction of the residential units and the parking space. This would though become relevant only where the parking sold is not commensurate or in proportion to the area sold.