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Tax Publishers
Capital gains on conversion of capital asset into
stock-in-trade and then claiming reinvestment benefit under section 54F
Facts:
Assessee was in possession of gifted property by his
father. He converted the same into stock-in-trade in the FY 2012-13 by converting
into plots and sold 4 of the plots during FY 2015-16. Separately he also sold 2
more plots which were acquired by him. He returned capital gains for the 4 sold
plotted property taking the fair value of the converted stock-in-trade as
at FY 2012-13 (its pro-rata effect of 4 plots) minus the indexed cost of
acquisition + also offered the capital gains on the other two plots which was
held as a capital asset.The proceeds of the sold 2 capital asset amounts were
deposited in the capital gains scheme. The difference between the actual sale
consideration of the 4 plots and the fair value of the converted stock-in-trade
value as of FY 2012-13 was offered as business income. Subsequently he claimed
benefit of Section 54F towards reinvestment (by withdrawing the capital gains
scheme amount partly and partly from the sale proceeds of the plotted 4
property) in residential property arising out of both the capital gains
offered. Case of the revenue was assessee was into plotting and selling of
property so the entire income was to be treated as business income and thus no
reinvestment benefit under section 54F would be possible on the capital gains
of the plotted 4 unit portion. This was reversed by the CIT(A) who upheld the
stand of the assessee which squarely fell in the ambit of Section 45(2). On
higher appeal by the revenue -
Held against the revenue that the computation of the
assessee was correct and he cannot be denied benefit of Section 54F. For the
limited purpose of re-verification of the capital gains computation on the
conversion of stock-in-trade portion alone the case was directed to the AO to
confirm the same and thereafter if found correct to allow the stand of the
assessee.
Ed. Note: The case
explains a detailed application of Section 45(2).
Case: Asstt. CIT
v. Venkataramana Reddy 2023 TaxPub(DT) 5137 (Hyd-Trib)
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