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Monthly Archives: January 2016

Taxability of Conversion of Stock in trade to Investment

In case of a business of trading in shares assessee may transfer some of his stock in trade into his capital asset by deciding to hold it as an investment or on discontinue of delivery based trading of shares, convert the stock of shares into investments and sell the same at a later stage and pay tax on the profit as capital gain instead of business profit. It is here to be noted that long term capital gain from equity shares sold in stock exchange and on which Security Transaction Tax has been paid, is exempt u/s 10(38) of Income Tax Act. Thus in case of conversion of shares held as stock in trade into capital asset, the benefit of exemption u/s 10(38) will be available if such converted capital asset is sold later and long term capital gain arises from it. There will not be any capital gain at the time of conversion.

Powers of the A.O. are not plenary or unbridled

Recently, I had an occasion to deal with a case, where no notice under section 143(2) of the Income‑Tax Act, 1961 (the Act), was served on the assessee, within the stipulated period. But after the expiry of the aforesaid period, the Assessing Officer (AO) issued a notice under section 148 read with section 147 of the Act. We requested the AO to supply us the reasons recorded under section 148, which the AO did. From the reasons recorded under section 148, it was evident that the AO had no fresh information or material in his possession so as to initiate action under section 148. The AO simply stated in the reasons that the two items of expenditure claimed as deduction under section 37(1), were prima facie of capital nature. The details in respect of the aforesaid two items of expenditure had been furnished by the assessee, in the covering letter enclosed with the return of income. In such a case, the correct course of action on the part of the AO was to issue notice under section 143(2), within the stipulated period of twelve months. Once having opted not to issue notice under section 143(2), the AO cannot initiate action under section 147, to achieve the same objective. The proceedings initiated under section 147, were, therefore, challenged by furnishing detailed reasons against such action.

Whether MAT applicable to share of a company in income of a joint venture business

1. Introduction
We have been witnessing a new and different trend in relation to the real estate development. Earlier, a builder would go for outright purchase of a piece of land from the landlord and develop the same at his own cost and risk. The scenario in this regard is undergoing a change. Now the landlord also desires to have a share in the profit of the project being undertaken by the builder and developer. On his part the builder and developer desire(s) to share his risk in the development of the project. This change in the trend in relation to real estate development is giving rise to a new concept of joint venture between the landlord and the builder / developer for the purpose of development of immovable properties.

Planning the Pay – Package of a Senior Executive

As is well known income-tax is deducted at source in respect of income from ‘Salaries’. As the income of salaried tax-payers is fixed, they are more susceptible to inflationary pressures. Therefore, there have been progressive attempts on the part of the Legislature to grant more and more relief to salaried tax-payers. In order to subserve the aforesaid objective, a number of exemptions and deductions in respect of various allowances and other receipts, have been provided in the Income-Tax Act 1961, over a period of time.

Profit on Sale of Share immediately after conversion from Stock in Trade to Investment is Business Income

lndo Stosec (P.) Ltd. vs. lncome-Tax Officer (ITAT Mumbai), Appeal No. I.T.A.No.3472/Mum/2010, Date of Pronouncement : 20.8.2014, Assessment Year: 2006-07
The assessee is engaged in the business of manufacture of Gas mantle and stove. Besides the assessee was also engaged in trading of shares and it has show the shares on hand as its “stock in trade” in the earlier years. As on the beginning of the current year, i.e., on 1.4.2005, the assessee transferred the Shares from “Stock in trade” to “Investment” account. Immediately thereafter, the assessee sold shares, the details of which are furnished at page 83 of the paper book.

No Legal Bar on conversion of Stock in Trade to Investment

ACIT vs. M/s. Superior Financial Consultancy Services (ITAT Mumbai), Appeal No. ITA No. 4208/Mum/2007, Date of Pronouncement : 06.03.2013, Assessment Year: 2004-05
Briefly stated, the assessee, a private limited company, engaged in the business of borrowing and lending funds reflected stock-in-trade of Rs.8,30,95,223.15 in its P&L account as on 31.03.2002 and converted its stock-in­ trade of shares to investment with effect from 1.4.2002. Accordingly, the assessee reflected its stock of shares in its balance sheet as ‘investment’ as on 31.03.2003.

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