Section 50C and stock-in-trade: land inventory in business cannot be taxed again as long-term capital gains.

Section 50C does not apply to land held as stock-in-trade in a property development business, because the deeming fiction operates only on a transfer of a capital asset. Where the record shows the land as project inventory, the transaction is supported by development documents and revenue records, and the sale proceeds have already been taxed as business income with the books not rejected, the same receipt cannot again be assessed as long-term capital gains. The article also notes that a wrong identification of the asset cannot justify capital-gain taxation when the parcel actually sold was different from the one relied on by the Assessing Officer.

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Issues: Whether section 50C of the Income-tax Act, 1961 could be invoked to tax the impugned land transaction as long-term capital gain when the land was held and reflected as stock-in-trade in the course of the assessee's land development and trading business.

Analysis: The record showed that the assessee was engaged in property dealing and land development, and the relevant land was consistently reflected as project inventory or stock-in-trade in the books. The development agreement, power of attorney and revenue records indicated that title never passed to the assessee in the manner assumed by the lower authorities. The property relied upon by the Assessing Officer to infer ownership was a different parcel of land and had no nexus with the land actually sold in the year under consideration. The addition was therefore founded on incorrect identification of the asset and an erroneous assumption that the transaction involved a capital asset. Section 50C applies only to transfers of a capital asset, and stock-in-trade falls outside the definition of capital asset under section 2(14). Since the business receipts from the sale had already been offered under the head profits and gains of business or profession and the books had not been rejected, the same receipt could not be taxed again as capital gains.

Conclusion: Section 50C was held to be inapplicable, and the addition made as long-term capital gain was directed to be deleted in favour of the assessee.

Ratio Decidendi: Section 50C cannot be applied to a transaction involving land held as stock-in-trade or business inventory, because the deeming fiction operates only where the transferred asset is a capital asset.

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