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Capital gains

Armaan Anwar (Article Assistant) (47 Points)

10 September 2014

If I have a stock in trade, converted into capital asset and subsequently such a capital asset is sold by me. What will be my period of holding for computing capital gains arising on transfer of such a capital asset ? For what period shall the indexation apply ?

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5 Replies

CA Deepesh Ruhela (Keen to Learn) (3271 Points)
Replied 11 September 2014

Period of holding from Date of conversion of such stock in trade into Capital asset to the date of sale of such converted asset. and consider period of indexation accordingly.

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Armaan Anwar (Article Assistant) (47 Points)
Replied 11 September 2014

To compute capital gains on the date of transfer under section 48, i need cost of acquisition of the said asset sold. What will be the cost of acquisition ? Will it be the cost of stock in trade originally acquired ? Will it be the cost recorded in books of accounts when stock got converted into capital asset ? Will it be the FMV of the stock converted into capital asset as on the date of transfer ?

CA Deepesh Ruhela (Keen to Learn) (3271 Points)
Replied 11 September 2014

It will be the cost of stock in trade originally acquired.
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Armaan Anwar (Article Assistant) (47 Points)
Replied 11 September 2014

Came to know from tax professionals that this is a very litigative situation. Second proviso to Sec 48 states that indexation on long term capital asset shall be provided in reference to Cost Inflation Index (CII) of the year in which the asset was purchased. Now here the term 'asset' is used loosely and it can have wide interpretations. Assessee will interpret asset as stock, thereby wanting to claim more benefit of indexation. However, dept will interpret asset being capital asset so as to deny the assessee more benefit of indexation. Many cases at the tribunal level support dept's contention whereas the case of Kalyani Exports and Investments Ltd(Pune Tribunal) held that assessee is eligible to claim indexation from the period of holding the stock. With regards to the cost of acquisition, the COA of such a capital asset transferred shall be the FMV as on the date of conversion.

Prerana (Student) (111 Points)
Replied 11 September 2014

Holding period of capital asset commences from date of acquisition of stock in trade, and not from date of conversion . Ref: Growmore Exports P Ltd. 78 ITD 95(Pune)