Cap. gains on conversion to stock,when payable?
This query is : Open
23 January 2014
Dear Sirs,
Assessee who has started construction business is owner of a piece of land which he received in his family partition. Now he is building a multi stoyeied apartment on his own land and he intends to sell the flats to prospective buyers.My question is-
1)Is the assesse converting his capital asset to his stock in trade in the whole process?
2)If yes then is the assesse liable to pay capital gain tax and when?
3) At the time of starting construction or at the time of selling the individual flats?
PLEASE REPLY SOON
THANKS
Assessee who has started construction business is owner of a piece of land which he received in his family partition. Now he is building a multi stoyeied apartment on his own land and he intends to sell the flats to prospective buyers.My question is-
1)Is the assesse converting his capital asset to his stock in trade in the whole process?
2)If yes then is the assesse liable to pay capital gain tax and when?
3) At the time of starting construction or at the time of selling the individual flats?
PLEASE REPLY SOON
THANKS
23 January 2014
Hi Anant,
The above transaction is of conversion of capital asset into stock in trade.
Capital gain on the above transaction is payable in the respective AY in which the above flats get sold.
There will be both capital gain and business income on sale of the above flats.
The above transaction is of conversion of capital asset into stock in trade.
Capital gain on the above transaction is payable in the respective AY in which the above flats get sold.
There will be both capital gain and business income on sale of the above flats.
23 January 2014
Dear Sir,
Are there provisions in IT laws by which the capital gains arising from conversion of capital asset to stock in trade can be exempted at the time of sale of stock(Flat in the case given in my query or even if land is sold alone in other cases)? Similar to section 54 and 54 f in case of capital asset?
Also if other capital assets like land or residential flat or commercial space are purchased by utilizing the business income in the year of sale will it be allowed as a business deduction?
THANKS IN ADVANCE
Are there provisions in IT laws by which the capital gains arising from conversion of capital asset to stock in trade can be exempted at the time of sale of stock(Flat in the case given in my query or even if land is sold alone in other cases)? Similar to section 54 and 54 f in case of capital asset?
Also if other capital assets like land or residential flat or commercial space are purchased by utilizing the business income in the year of sale will it be allowed as a business deduction?
THANKS IN ADVANCE
24 January 2014
No! There are no such provisions in Income Tax Law in India.
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24 January 2014
Dear Mohit Sir,
One last question. If in the example given in my query the sole proprietor dies and his sons inherit the said stock in trade(flats with proportionate land area)and there is partition amongst them as per hindu succession laws will then the nature of flats(with land area) change in the hands on the sons to capital asset or will it remain as stock in trade in their hands also? And how then it will be taxed if sold in future by the sons?
Thanks in advance
One last question. If in the example given in my query the sole proprietor dies and his sons inherit the said stock in trade(flats with proportionate land area)and there is partition amongst them as per hindu succession laws will then the nature of flats(with land area) change in the hands on the sons to capital asset or will it remain as stock in trade in their hands also? And how then it will be taxed if sold in future by the sons?
Thanks in advance
24 January 2014
It will be inherited as Capital asset only. And rest of the tax implications would be same as mentioned above.
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24 January 2014
Dear Mohit Sir,
One clarification only. You wrote that rest of the tax implication at the time of sale of Flats(now capital asset in the hands of sons) by the sons would be the same as mentioned by you above. Sir please clarify as to how when the flats have become capital asset in the hand of sons the tax implications will be the same as it were in the hands of father as stock in trade? Because father was paying both proportional capital gains u/s 45(2)per flat at the time of selling them+ business income as determined by the accounting method adopted by him/his CA.
Are the sons liable to pay only the proportional capital gains u/s 45(2) per flat at the time of sale of flats by them ?
What about the constructed part? What will be the date and cost of acquisition of the flat sold by them? Because u/s 47 it will be the same as the cost of acquision of his father who actually constructed the flats as a builder himself.
THANKS IN ADVANCE
One clarification only. You wrote that rest of the tax implication at the time of sale of Flats(now capital asset in the hands of sons) by the sons would be the same as mentioned by you above. Sir please clarify as to how when the flats have become capital asset in the hand of sons the tax implications will be the same as it were in the hands of father as stock in trade? Because father was paying both proportional capital gains u/s 45(2)per flat at the time of selling them+ business income as determined by the accounting method adopted by him/his CA.
Are the sons liable to pay only the proportional capital gains u/s 45(2) per flat at the time of sale of flats by them ?
What about the constructed part? What will be the date and cost of acquisition of the flat sold by them? Because u/s 47 it will be the same as the cost of acquision of his father who actually constructed the flats as a builder himself.
THANKS IN ADVANCE
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