Conversion of capital asset into stock trade

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Khushboo Surjan

44 Points Posted on 24 February 2011

There is a plot of land which is jointly owned bu the entire family i.e father, mother and their two sons. this property is transferred to an AOP of the same members. At this point, thus, the capital asset is converted to stock in trade. Sale of flats was undertaken in many years and the capital gains were taxed proportionately in these years for all the 4 members. However, during the previous year, the two sons decided to leave the AOP. The question thus arises that whether the capital gain for the year will be taxed in the hands of all the four assessees or whether the same is taxable in the hands of the two assessee?

Replies (2)

Pankaj Arora

Learner

3134 Points Posted on 24 February 2011

Please see your house property documents whose name is in registery if all members are name their than are liable for this capital gain or proportionately basis.

sahana Murthy

Student

123 Points Posted on 24 February 2011

The taxation is in the hands of the BOI (since the parties are individuals it is BOI and not AOP). Where 2 members quit they need to be compensated (you can allot their share of unsold houses). In future they will be taxed individually when they sell those respective portions. The other two must change the MOU and constitute a new BOI.

Note that all such documents may be required as part of assessment by AO, the AO need not necesasarily demand it. It is better to be prepared.

Regards

Sahana Murthy