Capital asset treated as stock-in-trade only on clear business conversion; separate accounts kept sale proceeds outside business income.

Property received on partition of a Hindu joint family remains capital in the hands of the allottee and becomes stock-in-trade only if facts show it was brought into the business and treated as such. Separate accounting for the properties, entry of related transactions in that account, absence of fresh purchases, and mere intermingling of funds were insufficient to alter their character. The sale proceeds were therefore not assessable as business income, and the question was answered in favour of the assessee.

---

---

Issues: Whether the properties allotted at partition and subsequently dealt with by the firm had been converted from capital into stock-in-trade of the money-lending business so that the profit on sale was taxable as business income.

Analysis: Property received on partition of a Hindu joint family is capital in the hands of the allottee. It may acquire the character of stock-in-trade only if the facts show that it was brought into the business and treated as such. The properties here were maintained in a separate account, the transactions relating to them were entered in that account, there were no fresh purchases, and mere intermingling of funds was insufficient to change the character of the capital asset.

Conclusion: The properties did not become stock-in-trade of the money-lending business, and the sale proceeds were not assessable as business income; the answer was in favour of the assessee.

---