2020 (12) TMI 214 - ITAT SURAT - Income Tax

Head Note / Extract:
Capital gain - whether or not Land (asset) held as stock-in-trade in the partnership firm is a capital asset and would attract the provisions of section 45(3)? - HELD THAT:- We note that sub-section (2) of section 45 deals with the situation where capital asset is converted into stock-in-trade. Where the owner of a capital asset converts the capital asset into or treats it as, stock-in trade of his business, there is no transfer and no gain under the general law, for a man cannot transfer his property to himself or to make gain out of himself. Section 2(47) (iv)[ as amended by the Taxation Laws (Amendment) Act, 1984 with effect from April 1, 1985], deems such conversion as transfer and section 45(2) [inserted by the same Act with effect from the same date], brings to tax in a singularly ill-suited language, stating that, ‘the profits or gains arising from such ‘transfer’ in the accounting year in which the stock-in-trade is sold or otherwise transferred. We note that as per provisions of sub-section (2) of section 45, where capital asset is converted into stock-in-trade, till that point of time, there is no charge of capital gain. The charge of capital gain arises when such stock-in- trade is sold by the assessee. Sub-section (2) of section 45 carves out an exception to the above and deals with the situation where capital asset is converted into stock-in-trade, that is, there is exception in sub-section (2) of section 45 - The exception is that the Capital gain shall be computed on the assumption that the capital asset is transferred in assessment year 2013-14. By virtue of sub-section (2) of section 45 such capital gain will be taxable in the subsequent assessment year in which such stock-intrade is sold. In the assessee`s case, the stock-in-trade is not sold in the assessment year 2013-14 therefore, there is no any liability on the assessee to pay tax in the assessment year 2013-14, the liability to pay tax will arise in subsequent year in which such stock-in-trade would be sold. Considering the legal position as explained by us in the relevant provisions of subsection (2) of Section 45, sub-section (3) of section 45 and sub-section (14) of section 2 of the Income Tax Act 1961 and taking into account the facts of the assessee`s case, we hold that Land (asset) held as stock-in-trade in the partnership firm is not a capital asset and would not attract the provisions of section 45(3) - Decided in favour of assessee.