TMI Blog2020 (6) TMI 433X X X X Extracts X X X X X X X X Extracts X X X X ..... effect from 01.04.2019, the income arising on sale of shares held as capital asset after their conversion from stock in trade was treated as capital gains as has been held by various high courts viz., in the cases of EXPRESS SECURITIES PVT. LTD. [2013 (10) TMI 1182 - DELHI HIGH COURT] , DEEPLOK FINANCIAL SERVICES LTD. [2013 (10) TMI 1182 - DELHI HIGH COURT ] and ADITYA MEDI SALES LTD. [ 2016 (8) TMI 565 - GUJARAT HIGH COURT] and JANNHAVI INVESTMENT PVT. LTD. [2008 (1) TMI 314 - BOMBAY HIGH COURT ]. We agree with the view taken by various high courts on this issue. Tribunal erred in treating the income arising on sale of shares held as capital asset after conversion from stock in trade as business income. The substantial question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o management scheme and to convert the stock in trade worth ₹ 1,30,98,529/- into investment on 01.04.2004. The financial statements were adopted and signed by the Board of Directors and the statutory auditors for Assessment year 2005-06. The assessee filed its return of income for Assessment year 2005-06 on 26.10.2005 declaring total income of ₹ 38,03,595/-. The case of the appellant was selected for scrutiny and notice under Section 143(2) of the Act was issued. The assessee furnished the details asked for by the assessing officer. An order of assessment was passed on 31.12.2007 and it was inter alia held that mere interchange of heads in books of accounts as investment or stock in trade does not alter the nature of transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from an existing source and not from a potential source. In the result, the appeal preferred by the assessee was dismissed. Being aggrieved, the assessee is in appeal before us. 4. Learned counsel for the assessee submitted that the assessee converted stock in trade to shares and sold the same and therefore, the profits arising therefrom have to be assessed as capital gain and not as business profit in the absence of any provision in the Act at the relevant time. It is further submitted that the tribunal ought to have appreciated that the surplus did not arise due to conversion. It is also submitted that Section 2(14) of the Act, which defines the expression 'capital asset' excludes stock in trade. Attention of this court has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquisition must be taken as cost of acquisition. In support of aforesaid submissions, reliance has been placed on decisions in 'CIT VS. DHANUKA SONS', (1980) 124 ITR 24 (CAL), 'SIR KIKABHAI PREMCHAND VS. CIT', (1953) 24 ITR 506 (SC), 'KEMFIN SERVICES PVT. LTD. VS. ACIT', ITA NOS.1450 1451(B)/2015, 'CIT VS. BANGALORE DEVELOPERS PVT. LTD.,', (2017) 392 ITR 379 (KAR), 'PR.CIT VS. PAVITRA COMMERCIAL LTD.', (2018) 402 ITR 66 (DEL), 'CIT VS. YATISH TRADING CO. PVT LTD.,', 2013-TIOL-117-HC-MUM- IT, 'CIT VS. EXPRESS SECURITIES PVT. LTD.,', 2013-TIOL-862-HC-DEL-IT, 'DEEPLOK FINANCIAL SERVICES LTD VS. CIT', (2017) 393 ITR 395 (CAL), 'ADITYA MEDISALES LTD. VS. DCIT', (2016) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord. Admittedly, in the instant case, the assessee had converted stock in trade into investments. The Supreme Court in case of SIR KIKABHAI PREMCHAND supra has held that it is wholly unreal and artificial to separate the business from its owner and treat them as they were separate entities trading with each other and then by means of a fictional sale introduce a fictional profit which include and in fact, is non existent. It has further been held that a person cannot be supposed to sell some thing to himself and making a profit out of the transaction, which on the face of it is not only absurd but against all canons of mercantile and income tax law. The aforesaid decision has been followed by various high courts till the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f - 9. Thus, it is evident prior to introduction of Finance Bill, 2018 by which provisions of the Act have been amended to provide for taxability of in cases where stock in trade is converted into capital asset, there was no provision to tax the same. In the absence of any provision in the Act, the transaction in question could not have been subjected to tax. Prior to amendment of the Act, which came into force with effect from 01.04.2019, the income arising on sale of shares held as capital asset after their conversion from stock in trade was treated as capital gains as has been held by various high courts viz., in the cases of PAVITRA COMMERICAL LTD., YATISH CO. PVT. LTD., EXPRESS SECURITIES PVT. LTD., DEEPLOK FINANCIAL SERVICES LT ..... X X X X Extracts X X X X X X X X Extracts X X X X
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