Capital gains or business inome

As per my knowledge,

Company converted its capital asset into stock in trade. In this case both capital gain as well as business income will arise. Capital gain and business income wil be taxable in the year of sale of land...

Rectify me if I am wrong

Regards,

Siddharth Bumb

sidbumbhelp @ gmail.com

WWW.SIDDHARTHBUMB.BLOGSPOT.COM

Pls explain how can it will be taxable under both heads

Example :

Mr A purchased land (capital asset) for Rs 1000000 in f.y. 1990-91.

Later on in f.y. 2000-01 he converted his capital asset into stock in trade and its FMV as on date was 1500000.

finally, in f.y. 2011-12 he sold his land for Rs 2000000.

In this business income will be 2000000-1500000 = 500000

and capital gain will be :

Sale consideration                                                                         1500000

Less : COA                1000000

                                  ----------------- x  406                                    2230769

                                        182                                             =================

Long tern term Capital Loss                                                          ( 730769)

Though property is converted in f.y. 2000-01 it will be taxable in the year of sale of stock...

Regards,

Siddharth Bumb

sidbumbhelp @ gmail.com

WWW.SIDDHARTHBUMB.BLOGSPOT.COM

In Simple Words

FMV on the date of transfer will be treated as Deemed Sale Consideration

Cost of Acquisiton or Indexation value will be calculated as before

base year = in which asset was acquired

current year = year of transfer

LTCG/STCG income = in the year of sale of that asset (stock)

 remember Capital Gain will arise only at the time of sale of that asset which was converted