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FB 2018 - S.28 - CONVERSION OF STOCK INTO CAPITAL ASSET - AND RELATED PROVISIONS – a provision which is not required at all – must be droppe.

FB 2018 - S.28 - CONVERSION OF STOCK INTO CAPITAL ASSET - AND RELATED PROVISIONS – a provision which is not required at all – must be droppe. - Budget - By: - CA DEV KUMAR KOTHARI - Dated:- 3-2-2018 - Amendment of S.2 (24) relating definition of income is proposed inter alia to include cases of business stock-in-trade /inventory being treated or converted into capital asset. It is proposed to include fair market value of such stock (inventory) converted into capital asset to be considered as bus .....

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capital asset as short-term capital asset or long-term capital asset. The treatment of fair market value as on date of conversion or treatment as business income is not justified because it will amount to including notional income into taxable income. An item of stock-in-trade is converted or treated as capital asset when it has lost character and quality of stock-in-trade and assumed an asset to be held as capital asset for long duration. For example, stock-in- trade of property may be converte .....

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tock-in-trade, vide S.45 (2) it is provided that such conversion or treatment will be treated as transfer and fair market value as on date of such conversion or treatment shall be considered as consideration accruing on such transfer. However, it is provided that the income chargeable to tax on actual transfer of such asset (stock-in-trade) shall be taxable under head capital gains and business only when actually such stock-in-trade is sold or transferred by assesse. That is only in case of actu .....

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to capital asset , at cost or book value, there is no accrual of any income. There is in fact no transfer of ownership. The asset remain with the owner. There is no sale or actual transfer. However, provision can be made that in case such converted capital asset is sold at the time of sale, income derived shall be computed under head business, based on cost or book value of converted stock and fair market value on date of conversion into capital assets. For computation of capital gains, provisio .....

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period shall be reckoned from the date of its conversion or treatment; . 9. Amendment of section 28 In section 28 of the Income-tax Act, with effect from the 1st day of April, 2019,- (II) after clause (vi), the following clause shall be inserted, namely:- (via) the fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset determined in the prescribed manner; . Explanatory memorandum: Clause (24) of the said section defines the expression income . .....

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