Capital asset- stock-in-trade

[DEV KUMAR KOTHARI]

For brain storming: Does the A.O. has jurisdiction and power to treat a 'capital asset' as stock-in-trade? In my view -no. Every property is a capital asset, except some excluded items. Whether,an item is stock-in-trade or not will depend on the basis of items for which any person is known as trader or dealer, so long he continue business as a trader, stockist, distributor or a person open to buy and sell such items he is dealer in such item and such items will be his stock-in-trade , in normal course of business. Pool of cars used to run on hire are capital asset, the same person may trade in cars, cars kept for selling are only his stock-in-trade. In cases where a person is not a trader of any item say shares , units, his holding will be capital assets, unless he has treated or converted such assets into stock-in-trade and S. 45(2) is attracted. The assesee has option u/s 45(2) to treat or convert a capital asset into stock-in-trade, but the AO has no such power or option. Sale of a 'capital asset' require computation under head' capital gains' and AO should not make it under head business. A person is engaged in business of cars, he purchases cars and is known as dealer of cars, - cars purchased by him will be his stock-in-trade in natural commercial way. He can treat some cars as his capital assets by transferring to fixed asset account. If he sells such a car (F/A)the computation will be under head 'capital gains'. If he again convert such a car (F/A) into stock-in-trade, then computation will be under head 'capital gains' and business income on application of S. 45(2). A furniture show room purchases furniture and is known as seller of furniture in market and commercial world, furniture purchased is his stock-in-trade in natural and commercial way, if he want to use some furniture for furnishing of showroom, or office he can either directly treat them as furniture (F/A)at point of purchase or can convert some of his stock in trade into furniture (F/A)

[manoj gupta]

No, the Assessing Officer has no such power to treat a capital asset as stock in trade.

AI Summary

Capital asset classification governs tax treatment; only taxpayer conversion creates stock-in-trade treatment and related tax computation. Assessing Officer lacks power to recharacterise a property as stock-in-trade where it is a capital asset; classification turns on the taxpayer's commercial character and use, and only the taxpayer may elect conversion between capital asset and stock-in-trade, triggering the statutory computation rules for capital gains or business income.