capital gain

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

21 July 2011 what is the treatment of stock of shars(earlier consider as stock in trade) converted into normal stock(as investment)...??

and at the time of selling those shares which
cost is consider as cost of acquisition?? actual cost or the cost at the time of conversion.

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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21 July 2011 As per Section 45(2), when you convert the investment or a capital asset into stock in trade, market value on the date of conversion will be taken as sales consideration of the capital asset.
Capital Gain can be computed by deducting the cost of acquisition from the sales consideration.
.
If the shares are sold at a later date or
in a later F.Y. , capital gains will be taxed in the year of sale of shares.
.
The Difference between the sales price of share and its market value on conversion date will be treated as business income.
So at the time of sale market value at the time of conversion will be considered as purchase price.
.

Querist : Anonymous

Querist : Anonymous (Querist)

26 July 2011 Sir thank you so much for your kind attention, but my doubt is still not clear,

what is the tax implication, when stock in trade is converted into capital assets??

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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26 July 2011 Stock can be converted into investment either at its book value or at its cost.
*
While deciding the business profits , stock is valued at cost or net realisable value (NRV), which ever is lower. It is possible that certain items have been taken
on the basis of NRV. In my view, while converting such stock in investment, if we take cost price then certain element of profit will emerge out. So such difference in Cost of the Stock and Net Realisable Value can be considered as business profits at the time of conversion.

*
The date of conversion of stock is treated as the date of acquisition in this case. In future whenever actual sale takes place the resulting income will be Capital Gain.

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