One of our clients in real estate buss. purchased a land as investment. They had shown this land as investment for 3 years in their financials. Also in between they had an development agreement of that land but before anything could happen the agreement was cancelled.After 3 years they sold the land. Now the question is whether the land is a capital assest or stock in trade. Whatever the ans would be i need to know are there any case study or case law to prove that the land is a capital asset or stock in trade?? Kindly help out as soon as possible..
09 January 2018
In my opinion, this land is to be treated as a capital asset. The assessee has an option to treat the property as a capital asset or as a stock in trade. If the property is intended to be used for the purposes of business, then the same must have been reflected as stock in the balance sheet. Whereas, if the property was intended to be used for investment purposes, then same must have been classified as investment and must not have been a part of the stock in trade.
Since the property was shown as investment in all the 3 years, and was not shown as stock in trade.
It is imperative to note that by virtue of S.2(14), capital asset does not include stock in trade.
You may also take advise from other experts. The status of your query has been assigned to "open"
30 September 2021
Even though the firm has construction business, but the particular land was declared as investment in their BS continuously. So, unless it is converted to stock, it remains capital asset.
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