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CONVERSION OF STOCK IN TRADE TO INVESTMENTS

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Priyadhaarshan

STUDENT

35 Points Posted on 29 June 2010

Hi friends.....

This is regarding a "SHARE BROKING COMPANY".... The company had converted its stock in trade ( shares& securities ) into Investments during the Beginning of the F.Y.2009-10 and those shares converted as investments were sold within 4 months of its conversion. The original date of acquistion of shares in the status of stock was around 3 years back... So for calculation of Capital gains will it be considered as SHORT TERM CAPITAL GAIN or LONG TERM CAPITAL GAIN. Whether the date of Initial acquistion or date of conversion should be considered??

I think it should be LONG TERM CAPITAL GAIN.... am i r8??

Replies (1)

Sanket Damodar Karve

Business

179 Points Posted on 29 June 2010

Dear Vidya,

Sec 45(2) applies to Conversion of Capital Asset to Stock in trade but there is no provision for trf of Stock in trade to Capital Asset.

Capital Asset should be held fro more than 12months to be a long term capital asset for shares. In your case it should be Short term capital gain as capital asset had come to existance the moment you trf stock in trade in to Capital asset until that it was not at all capital asset. Moreover there is no provision of considereing period of holding of stock in trade wile calculating actual period of holding for the purpose of short term or long term.

Therefore in your case it should be SHORT TERM CAPITAL GAIN.

Regards