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Long term capital gain on stock in trade

08 June 2016

long term capital gain arising on conversion of capital asset in to stock in trade wether exemption u/sec 54F can be claimed

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4 Replies

SUPRIYA (PRACTICE) (853 Points)
Replied 08 June 2016

With regard to your query Sir,

In my opinion excemption u/s 54F can be claimed for long term capital gain arising on conversion of capital asset in stock in trade subject to fulfilment of all the conditions of sec 54F as:

in sec 2(47) Transfer includes the 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.

CA Harshal Totla (Chartered Accountant) (2229 Points)
Replied 08 June 2016

You can claim exemption u/s 54F if there is a Capital gain arising from transfer of any long-term capital asset, not being a residential house.
Hence,if capital asset that you have converted into stock in trade is a residential house property then u cannot claim exemption under this section. In other cases, u can claim exemption under this section if satisfies condition as stipulated.

CA MANISH BINDAL (CHARTERED ACCOUNTANT ) (535 Points)
Replied 08 June 2016

Respected Sir,

As per section 45(2) if any capital assets is converted into stock in trade of the business carried on by him same is regarded as transfer and liable to tax as capital gain in the year in which such stock in trade is sold.

Here Other section 54F states that condition to be fulfilled by Individual and Huf that is
"There Must Be a Transfer of Long term capital asset not being a residential House". It does not specificaly show that conversion of capital asset in to stock in trade is not liable to exemption u/s 54F. So, as per both of the section quoted above you can claim exemption of Section 54F with other necessary condition prescribed in section 54F being satisfied.

Soham (Learning ) (534 Points)
Replied 08 June 2016

ASSUMPTION : Assessee is Individual / HUF

1. Whether CG is there on above transaction ?

Sec 2(47) Transfer includes the 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.

2. Provision of Sec 54F and its applicability on above transfer :

Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.30

54F. (1) 31[Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu undivided family], the capital gain arises from the transfer of any long-term capital asset, not being a residential house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year before or 32[two years] after the date on which the transfer took place purchased, or has within a period of three years after that date 32a[constructed, a residential house] (hereafter in this section referred to as the new asset), the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,—

(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of such capital gain shall not be charged under section 45 ;

(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the net consideration, shall not be charged under section 45:

Hence , you can claim exepmtion u/s 54F subject to fulfillement of above provsion .