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2017 (5) TMI 630 - AT - Income TaxDate of reckoning of acquisition of the property for the purpose of computation of capital gains - LTCG or STCG - What would be the period of holding of the asset-whether it would relate back to the date when (personal) capital asset was converted in to business asset a few years back or the date of conversion now from business asset back to capital asset? - Held that - In the instant case, the appellant has acquired the property in 1988-89 and 1991-92, the property remained in the hands of the assessee company as stock in trade and the property was transferred as investment in the books of accounts during the FY 1994-95 and sold in 1996-97. The Assessing Officer also observed that the assessee was dealing in real estate and all the expenses have been claimed regularly as business expenses and have been allowed too. During the A.Y 1997-98 also the assessee has also paid MMDA plan submission charges of Rs,15300/- and claimed as deduction. The above finding of the AO shows that though the assessee claimed to have converted the asset in to investment in books of accounts, it continued to claim the maintenance expenses as business expenditure. Even otherwise also from the date of conversion of the asset it was held as capital asset in the hands of the assessee for less than 36 months. CIT (A) rightly held the asset as short term capital asset and the gains should be taxed as short term capital gains since the holding period was less than 36 months from the date of conversion of stock in trade in to the capital asset. Accordingly, we uphold the order of the Ld. CIT (A) and dismiss the assessee s appeal.
Issues Involved:
1. Date of reckoning of acquisition of the property for the purpose of computation of capital gains. 2. Characterization of the property as stock in trade or investment. 3. Determination of the period of holding for capital gains computation. 4. Applicability of indexation benefits. Detailed Analysis: 1. Date of Reckoning of Acquisition of the Property for the Purpose of Computation of Capital Gains: The core issue is the determination of the date of acquisition for computing capital gains. The assessee argued that the property, initially acquired for the real estate business and later converted into investment, should have its holding period calculated from the original acquisition date. The Tribunal examined the relevant provisions of the Income Tax Act, specifically Sections 2(14), 2(29A), 2(42A), and 45(2), to determine the appropriate date for reckoning the holding period. 2. Characterization of the Property as Stock in Trade or Investment: The assessee initially held the property as stock in trade for the real estate business. Due to a shift in business to textiles in FY 1994-95, the property was converted into an investment. The Assessing Officer (AO) contended that despite the book entries, the property continued to be stock in trade as the assessee paid MMD plan submission charges during AY 1995-96, indicating ongoing real estate business activities. Consequently, the AO assessed the income as business income rather than long-term capital gains. 3. Determination of the Period of Holding for Capital Gains Computation: The Tribunal needed to decide whether the holding period should be calculated from the original acquisition date or from the date of conversion from stock in trade to investment. The Tribunal referred to the case of Splendor Constructions (P.) Ltd. v. ITO, where it was held that the period for which the asset was held as a capital asset alone should be considered. Thus, the Tribunal concluded that the holding period should be reckoned from the date of conversion into a capital asset, not from the original acquisition date. 4. Applicability of Indexation Benefits: The assessee claimed indexation benefits from the original acquisition date, arguing that the character of the property did not change despite the conversion. However, the Tribunal referred to the decision in Lohia Metals (P.) Ltd. v. Asstt. CIT, where it was held that the holding period should be calculated from the date the asset became a capital asset. The Tribunal also noted that the assessee continued to claim maintenance expenses as business expenditures even after the conversion, supporting the AO's view that the property remained stock in trade until FY 1996-97. Conclusion: The Tribunal upheld the CIT (A)'s decision, concluding that the property should be treated as a short-term capital asset since the holding period was less than 36 months from the date of conversion. The Tribunal dismissed the assessee's appeal, affirming that the gains should be taxed as short-term capital gains. Judgment: The appeal of the assessee is dismissed.
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