Conversion of capital asset into stock in trade

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binal salot (Querist)
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10 February 2013 hii all,
i would like to state a following case where the land is owned by father for resi. purpose bt later on same is developed by his son with some commercial shops and residential flats and same is sold by the father commercially other facts are all the exp. of development is incurred by the son having loans and advances from father
My queries are:
1.How can i account for the money received to son from his father where it can term as advances for development of land and later on at the time of sales by sale deed son will account for his commission income.
2. whether the commission income paid to son is allowable to father or not?
3. The same is case of conversion of capital asset into stock in trade ? so father will be taxed in both ways as capital gain and business income but whether he would get deduction of whatever he pays to his son for development from his business income.??
Reply soon with details
thanks
for any further clarification pls ask for the same.

Ankit

Ankit (Expert)
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10 February 2013 Dear Binal,

1. since the land is owned by the father and also subsequently sold by the father. except for the fact that it is developed by the son.

So, the money received by the son may be shown as fees paid by father to the son for construction of the land.....

since, commission would be correct if the land were to be sold by the son

2. The answer to this depends upon the treatment you take under point 3. i.e. if you take it as conversion into stock in trade, it will be allowable as business expense and if not, then Cost of Improvement under Capital Gains

But the same will be chargeable in the hands of the son as business income

3. Now this may be a debatable point...

according to me, it would not be conversion into Stock in Trade...since the land is once and for all constructed and sold off...and the father is not into regular construction business, it may not be taken as stock in trade....

hence, according to me, it should be taxed under capital gains only and not under B&P.

however, as i said, whatever treatment you take here, would affect your decision under point 2..

If you have any further doubt, or want clarification, you can reply back..

- Ankit