Is there arising any tax liability on this transfer ?

First of all, Silver & Silver utensils are covered under the definition of Asset(For purpose of Capital gains)

Secondly, from AY 1985-86, the definition of transfer for the purpose of Capital gains was enlarged. And from said AY, where a capital asset is converted by the owner into Stock-in-trade of busines crried on by him, such converion of the capital asset shall be regarded as transfer, so liable for Capital gains.

For calculation purpose, the full consideration is to be determined on notional basis (Fair market value on the date of conversion). But it is taxable in the year in which the the silver/silver utensils are sold.

As from the available information in question, period of holding the Silver is not clear, I cannot determine the said period. Taxability will be diffrent for Long term & short term Gains. If period of holding is 36 months or above, it is Long term Capital gain/loss , otherwise Short term.

In definition of transfer it includes {sec 2 (47) (iv)} in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment 

So it will attract capital gains as the asset is included in definition of capital asset in sec 2(14)

Tax liability will be as follows

The liability arises in the prev yr when the asset is sold or transferred by the proprietor..The difference bw fair market as on the date of such conversion and cost of acquisition will be charged as capital gains(long term or short term depending upon the period its held which is nt clear here)...And the difference bw the same fair market value as above and sale price will be charged under profits and gains of biz..

I have a different view.  Under section 2(47), conversion of a capital asset into stock in trade is regarded as transfer.  It is necessary that what is converted into stock in trade should be a capital asset before its conversion.

In the present case, it can be argued that the silver utensils were personal effects of the assessee and hence not a capital asset.  Consequently, there is no conversion of a capital asset into stock in trade and hence no tax liability

I agree Mr. Chetan, but only those Silver Utensils are treated as Personal effects which can actually proved to be used either in kitchen or on Dining table. Almost every dicided case available relates to some king or royal family who can prove the actual use of utensils. Assuming these are held as investment by the assesee, I gave that answer. Moreover, he used words "Silver & Silver utensils" which forces to believe that these are held as investment, not for using in kitchen.

Chetan sir,

                       I agree silver utensils which are intimately and commonly used by the assessee are included within the expression personal effects CIT vs Benarashilal Kataruka 185 ITR 493 (Cal)...

If the same satisfy its nt transfer..But what about silver sir??It has silver and silver utensils