INCOME TAX ACT, 1961

Section 14

Head of income - Sale of land in stock-in trade after conversion into capital asset - Capital gain or Business income -

Assessee purchased a land on 3-12-2005 and the same was held as capital asset during the financial year 2005-06, 2006-07 and 2007-08 i.e. from the period 3-12-2005 to 31-3-2008. The said land was converted into stock-in-trade on 1-4-2008 and remained as stock in trade up to 31-3-2010. Further, the land was re-converted into capital asset on 1-4-2010 and thereafter, it was sold on 16-9-2010 and the surplus yield on sale of such land was shown as long-term capital gain. However, AO treated it as business income instead of long-term capital gain and thereby did not allow indexation cost and set off of brought forward long-term capital loss. Held: It was found that assessee converted his stock-in trade into capital asset and sold out the said asset after its conversion, the gain arising therefrom was therefore, required to be taxed as long-term capital gain and not as business income as held by AO. Further, there is no bar in law for re-conversion of business assets into capital asset and vice versa. Further, the land in question sold was considered as capital asset in the books of account, which were the evidence on record in form of book entries to substantiate the facts unless proved otherwise. Therefore, the said land was to be treated as long-term capital asset for the purpose of computation of long-term capital gain and was required to be taxed and assessed as long-term capital gain. Consequently, the assessee would be entitled to set-off of brought forward long-term capital loss and further, the AO was directed to allow deduction on account of indexation after verification of records.

REFERRED : Shri A. Suresh Rao v. The ITO (2013) 157 TTJ 753 (Bang) : 2013 TaxPub(DT) 2659 (Bang-Trib) Asstt. CIT v. Bright Star Investment (P) Ltd. (2008) 24 SOT 288 (Mumbai) : 2009 TaxPub(DT) 0616 (Mum-Trib)

FAVOUR : In assessee's favour

A.Y. :

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