TaxTMI 
TaxTMI 
2008 (7) TMI 442
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....the return of income had shown long-term capital gain on sale of shares of Rs. 4,85,30,780 for which statement of working of long-term capital gain was attached with the return of income. The said statement included capital gains on sale of shares at Rs. 5,90,15,240, which were converted into investment from stock-in-trade on 1st April, 1998 (relevant for the asst. yr. 1999-2000). During the course of assessment proceedings, the AO asked the assessee to furnish details in respect of said shares and also to clarify whether any of these converted shares were sold during the year under consideration. In reply thereto, it was stated through letter dt. 12th March, 2003 that there are only long-term capital gain arising on sale of said shares and not the business income. The entire details are furnished before the AO 2.2 Being not convinced with the explanation of the assessee, the AO held that in view of principles as laid down under s. 45(2) of the Act, the income of the assessee would be computed separately as business income till the date of conversion of the shares from the stock to investment and thereafter as long-term capital gain. Accordingly, he has taken the highest market ....
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....sessee company converted following scrips of stock-in-trade of shares as on 1st April. 1998 into investment at its book value by passing necessary board resolution and entries in the books of account, since the same were intended to be hold for longer period and in the balance sheet it has been shown under investment account being capital asset of the company. ------------------------------------------------------------- Sl. Name of the company No. of Shares Value as on No. 1-4-1998 ------------------------------------------------------------- 1. Birla 3M 1,06,600 1,83,82,255.00 ------------------------------------------------------------- 2. Infosys Tech (Bonu....
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....sp; - 5,77,62,440 5,77,62,440 ---------------------------------------------------------- Nestle India 350 1,23,079 1,54,682 31,603 ---------------------------------------------------------- Novartis India Ltd. 150 52,837 1,73,620 1,20,783 ---------------------------------------------------------- Wyeth Lederle Ltd. 9991 42,27,692 29,66,828 12,60,864 ---------------------------------------------------------- International Best Food 41950 46,79,191 70,40,468 23,61,277 ---------------------------------------------------------- 90,82,799 6,80,98,038&nb....
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....p; as on 1-4-1998 1-4-1998 ---------------------------------------------------------- Infosys Tech. March, 6,000 NIL 1,16,10,000 Ltd. 2000 ---------------------------------------------------------- Nestle India April, 350 1,23,079 1,59,775 1999 ---------------------------------------------------------- Novarties Sept., 150 52,837 ....
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....n the said section in appellant's case and recomputed the income in the above manner." 3. The CIT(A) re-examined the issue in the light of relevant provisions of the Act and various judgments referred to by him and has observed that assessee has converted some scrips from stock-in-trade to investment as on 1st April, 1998 at its book value. Thereafter, some of the scrips were sold out of the above (nearly after 23 months) and the gain was declared by the assessee as a long-term capital gain and tax was paid accordingly. With regard to applicability of s. 45(2), the CIT(A) has observed that this section has a specific provision for computation of income when a person converts investment into stock-in-trade and subsequently sells such stock-in-trade. Whereas, the assessee's case is other way round i.e., it has converted its stock-in-trade to investment and as such, apparently s. 45(2) of the Act does not have any applicability in the instant case. After having examined various judgments in the case Sir Kikabhai Pre me hand vs. CIT (l953) 24 ITR 506 (SC) and CIT vs. Dhanuka & Sons (l980) 124 ITR 24 (Cal) the CIT(A) has observed that the action of the AO to segregate the long-term c....
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.... assessment order. 5. The learned counsel for the assessee on the other hand has submitted that undisputedly there is no provision in the Act which deals with the determination of business income or capital gain on conversion of the stock-in-trade into investments, which is later on sold. The learned counsel for the assessee further invited our attention to the judgment in the cases of Sir Kikabhai Premchand and Dhanuka & Sons, which were relied on by the CIT(A) while granting relief to the assessee. He has also invited our attention to the commentary from the book of Law of Income-tax, 10th Edn., authored by Sam path Iyengar with regard to the conversion of capital assets to the stock-in-trade. The learned counsel for the assessee contended that where there is no provision to deal with the present situation, the AO has no right or authority to draw his own formula to determine the business income and the capital gain. The assessee itself has taken the book value of the shares as cost of its acquisition on the date of conversion and reduced it after indexation from the sale price of the shares in order to determine the long-term capital gain. In the present circumstances, the me....