TMI Blog2013 (3) TMI 799X X X X Extracts X X X X X X X X Extracts X X X X ..... lid, ignoring the fact that the assessee company, in the present year as well as in the past, has been continuously dealing in the trading in shares, classifying the nature of business in column 8(a) of the Audit Report, in past as well as in the year under question (i.e. A.Y. 2004-05) and in the subsequent year as Trading in Shares . (1b) On facts in the circumstances of the case and in law, the Ld.CIT(A) erred in accepting the conversion in the background of booming share market, by classifying stock-in trade of ₹ 7.66 crores, as stock-in-investment and share trading income of ₹ 7.13 crores under the head LTCG, with the merger share capital of ₹ 3.13 lacs, Reserve and Surplus of ₹ 4.31 crores thus avoided the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has claimed long term capital gain on sale of such shares amounting to ₹ 7,13,29,191/-. In the assessment framed u/s 143(3) of the Income Tax Act ( Act ), the AO assessed the same as business income on the reason that the act of the assessee shifting the value of stock-in-trade to the head investment clearly indicated the colourable mind of the assessee and thus intentionally avoided the payment of tax @ 35%. 3.1 On appeal, the Ld. CIT(A) allowed the claim of the assessee holding that there was no specific ban on conversion of stock-in-trade into capital asset or vice versa and observed that the assessee had later on discontinued the activity of trading in shares and converted its stocks in investment. The Ld.CIT(A) also relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e definition of capital asset provided u/s 2(14) of the Act clearly shows that any stock-in trade is excluded from capital asset. Section 45 (2) of the Act gives legal sanctity only for the conversion of the capital asset into stock-in-trade and there is no provision in the Act which allows conversion of stock-in-trade to capital asset. In support of the proposition that stockin trade cannot be converted into capital asset as long as such stock remains in the business of the assessee, several decisions are quoted in the written submission. 5.1 On the other hand, the Ld.AR has argued that the conversion is necessitated due to shift in the business model of the assessee from share trading to financing business. The assessee in the earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elaborately discussed three main issues, namely (i) whether the assessee can legally convert its stock-in trade into investments, (ii) if yes, whether the conversion is motivated by tax avoidance and (iii) if not, whether the assessee can claim to be an investor in some shares while doing speculation in other shares. 6.1 As regards the legality of conversion of stock-in trade into investments, the Ld.CIT has correctly held that there is no specific bar for the said conversion and vice versa in view of the decision of the Hon ble Supreme Court in the case of Sir Kikabhai Premchand (24 ITR 506) (SC) wherein it has been held that such conversion is not something not known to the commercial world and there is no legal bar on the same. 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gains and not business. Since the said decision is squarely applicable in the case of the assessee in the present case, we are of the view that the Ld.CIT(A) has rightly answered this issue affirmatively. 6.4 In view of that matter, we do not find any justifiable reason to interfere with the order of the Ld.CIT(A) directing the AO to assess the profits on sale of share under the head Capital Gains and not as business income. Thus, the order of the Ld.CIT is hereby upheld. Since all the sub-grounds in this appeal are pertaining to the same issue in relation to the assessment of long term capital gains, we do not adjudicate the sub-grounds separately. 7. In the result, the appeal filed by the Revenue is dismissed. Order pron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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