Conversion of capital assets into stock-in-trade requires clear evidence of appropriation to business use; mere joint bookkeeping is insufficient.

Where immovable properties were allotted to an assessee on family partition as capital, they remain capital assets unless there is clear and unmistakable evidence that the recipient treated and converted them into stock-in-trade; mere recording in a single set of books or using income from those properties for business purposes does not demonstrate conversion. The legal test requires affirmative acts or accounting treatment showing appropriation to business use (for example, sale, mortgage, or explicit entries treating the asset as business stock). Applying this principle, the Tribunal lacked sufficient material to treat the sale proceeds as business income.

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Issues: Whether the Tribunal had materials to sustain its finding that the profits from the sale of certain immoveable properties allotted to the assessee at partition were income assessable as stock-in-trade of the assessee's money-lending business.

Analysis: The question required examination of whether the properties allotted at partition, which had been acquired by the larger family in the course of its money-lending business, became stock-in-trade in the hands of the assessee-subfamily that received them on partition. The relevant legal framework distinguishes capital assets allotted at partition from stock-in-trade acquired in the ordinary course of a business; assets allotted as capital at partition remain capital unless there is clear and unmistakable evidence that they were treated and absorbed into the successor's business as stock-in-trade. Relevant evidential indicators include treatment in the books of account showing conversion or deliberate appropriation of the assets to business use (for example, sale or mortgage of the asset to raise funds for the business, or specific entries treating the asset as business stock). Mere entry of both property items and business transactions in a single set of cash books, or utilisation of income from capital properties for business purposes, without further clear acts demonstrating conversion, is insufficient to convert capital assets into stock-in-trade. The Tribunal's conclusion relied solely on the fact of a single set of books and the mingling of income, while ignoring that the properties were recorded as capital in the accounts and that no evidence of acts effecting conversion of the capital items into business stock was shown.

Conclusion: The Tribunal did not have sufficient material to sustain the finding that the properties allotted at partition had become stock-in-trade; the profits from the sale of those 34 items are not assessable as business income of the money-lending business and the question is answered in the negative in favour of the assessee.

Ratio Decidendi: Property allotted as capital at partition remains a capital asset in the hands of the recipient unless there is clear and unmistakable evidence that the recipient treated and converted it into stock-in-trade of a business; mere joint bookkeeping or utilisation of income from such property for business purposes is insufficient to establish such conversion.

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