Conversion of capital asset into stock-in-trade requires separate capital gains and business income computation based on the value at conversion.

On conversion of agricultural land into stock-in-trade, the relevant market value at the date of conversion must be taken for capital gains computation, with indexed cost of acquisition deducted, while the profit on eventual sale of the converted stock-in-trade is assessable separately as business income based on the difference between sale price and conversion value. The Tribunal noted that the first appellate authority's findings supported recomputation on this basis and that a simultaneous dismissal of the appeal was inconsistent with those findings. The appeal was allowed and the assessee succeeded.

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Issues: Whether the assessee's appeal deserved to be allowed where the first appellate authority had recorded findings favouring recomputation of both long-term capital gains and business income on conversion of agricultural land into stock-in-trade, but concluded by dismissing the appeal.

Analysis: The assessment involved addition of long-term capital gains and initiation of penalty proceedings. The appellate authority held that the market value of the agricultural land as on conversion into stock-in-trade had to be taken as the relevant value for capital gains computation, with deduction for indexed cost of acquisition, and further held that on eventual sale of the converted stock-in-trade only the profit attributable to the difference between sale price and the value on the date of conversion could be assessed as business income. The Tribunal found that these findings supported the assessee's case and that the dismissal portion of the appellate order was inconsistent with those findings.

Conclusion: The appeal was allowed and the assessee succeeded.

Final Conclusion: The decision recognises that, on conversion of a capital asset into stock-in-trade, the relevant computations must be made on the basis of the value at conversion, with separate treatment of capital gains and business income as applicable.

Ratio Decidendi: Where the appellate findings themselves require recomputation of tax liability on a correct legal basis, a contradictory dismissal cannot stand, and the assessment must reflect the value of the asset at conversion with separate consideration of capital gains and business income.

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