Conversion of capital asset into stock beyond the objective

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Manu.R

student FINAL

106 Points Joined May 2009

Case : X company carrying the business of cotton converted a plot of land which was held as capital asset into stock in trade and sold it in smaller plots (layout) .These transactions were completed two years ago.such sale resulted in capital gain. company has not filled its return of income since these transactions took place. what could be the tax consequences.does the conversion result in real estate business. if yes whether it could mean that company has carried business which is not mentioned object clause of MOA. Does this transaction mean entering into ultra virus transactions beyond the capacity of company.if it is beyond the capacity of company, the transaction is invalid , if the sale is invalid naturally there should not be any capital gain. this case was illustrated form a real case. please suggest a way out

Replies (3)

CA Goutam Sharma

Chartered Accountant in Practice

468 Points Joined June 2011

In this specific case , it would not be correct to take shelter of doctrine of ultra vires, specifically when both parties have executed their part of obligation. Further, Capital Gains provisions are governed by Income Tax Act. and as apparent from the case, the capital gain has accrued to the company. The company should have filed retuns and shown the Capital gains ( if any). Consequently , should have fulfilled its tax liability.

As nothing have been disclosed till now, the consequence may be,

271(1)(c)

Concealment of the particulars of income, or furnishing inaccurate particulars thereof.

Tax sought to be evaded

100 % to 300 % of tax sought to be evaded