|BP was holding certain shares since 2010 as stock-in–trade. On October 30, 2013, he converted certain shares of public listed companies into capital asset, by passing a journal entry at the book value of Rs. 5 lakhs. He intends to sell the same through stock exchange. He wants to know how his tax liability will be computed?
|Unlike section 45(2), there is no provision under the Income-tax Act, when the stock-in-trade is converted into capital asset. However in the extant case, BP was holding shares of listed companies as stock-in-trade and he had converted the same into capital asset as on October 30, 2013, which he wants to sell through stock exchange. In this case, it is important to decide the period of holding. The Mumbai Tribunal in CIT v. Bright Star Investments Pvt. Ltd. [24 SOT 288] has held that the date of holding is to be considered in the hands of the assessee from the date on which he purchased the shares while the Delhi Tribunal in Splender Constructions (P.) Ltd. v. ITO [27 SOT 39] has held that the date of holding in such case should be from the date of conversion to capital asset. Hence, to avoid any controversy it is advisable that BP should sell the shares after twelve months from the date of conversion.
|CA. H. N. Motiwalla
|capital gains, Exchange of capital asset, stock-in-trade
Opinion Of Eminent Legal Luminaries On Controversial Issues
Whether Conversion Of Stock-in-trade Into Investment Is Liable To Tax?
Credit: Several of the queries and answers are reproduced with permission from the AIFTP Journal. We thank AIFTP for generously allowing us to host their research material.
Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org