Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether Conversion Of Stock-in-trade Into Investment Is Liable To Tax?

QUERY: 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?
ANSWER: 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.

Posted in Income-tax

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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.
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