Treatment of capital asset

[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, os long he continue as is dealer in such item. 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.

[Rama Krishana]

The manner in which is treating the assets in books of account and use in the business is a question of fact. This issue is, in my view, is purely a question of fact and no general rule can be framed.

AI Summary

Capital asset classification depends on business purpose and accounting treatment, with classification decided on factual evidence. Whether an asset is a capital asset or stock-in-trade depends on the taxpayer's ordinary business purpose, trading intention, and factual treatment in books of account; a property is prima facie a capital asset unless converted into inventory by the owner's dealing in that class of asset, and the ultimate classification is a question of fact determined from use and accounting treatment.