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TMI Blog2008 (4) TMI 539X X X X Extracts X X X X X X X X Extracts X X X X ..... of account on 1-4-2000 and the revenue has not brought anything on record to dispute these facts. The revenue has denied the claim of the assessee on the ground that conversion of investment in stock in trade was done when the assessee was not in business of sales-purchase in share and securities. From a careful perusal of the relevant provisions of section 45(2) of the Act, we find that there should be the conversion of investment or capital asset by the owner as stock in trade of a business carried on by him. The words business carried on by the assessee does not mean that before conversion of investment or capital asset in stock in trade the business must be in existence. Moreover, in the instant case, the assessee was already in the business of manufacture and sale of furniture and section 45(2) does not state that the investment can only be converted in a stock in trade of the business of trading in shares. The assessee can undertake multiple business activities under his proprietary concern. Besides, the manufacturing and sale of furniture, the assessee can also deal in trading in shares in the name of same proprietary concern keeping the stock in trade of shares separat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt-term capital gains treated by the Assessing Officer. ( ii )Ignoring that as per section 45(2) of the Income-tax Act the conversion of investment into stock-in-trade is allowable only if such business is carried on by the assessee before the conversion of investment into stock-in-trade and that the assessee was not engaged in the trading of shares before 1-4-2000. ( iii )Ignoring that the conversion entries in the books of account of the assessee have not been passed as on 1-4-2000. ( iv )Failing to appreciate the Assessing Officer s finding that the assessee s treatment of short-term capital loss as business loss is a tax avoidance plan and nothing else." 3. Since the order passed by the CIT(A) in the case of Firoz T. Nagree has been followed in the case of Mr. Jehangir T. Nagree by the CIT(A) while adjudicating the identical issue, we deal with the facts of the case and the issue raised in the case of Firoz T. Nagree as under . 4. The facts with regard to the impugned issue borne out from the record are that the Assessing Officer has rejected the assessee s claim of business loss and holding the same to be short-term capital loss having observed that in as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of a business carried on by him and since as on the date of conversion the assessee had no business of share transaction the conversion was not valid. The Assessing Officer accordingly held that by this arrangement, the assessee had gained immensely by setting of income in various other heads against the business loss which benefit would not have been available had this loss has been treated as short-term capital loss. He accordingly disallowed the claim of the assessee. 6. The assessee preferred an appeal before the CIT(A) with a submission that the assessee is an individual having proprietary concern in the name of The Maple Leaf and through this proprietary concern, the assessee carries on business of manufacture and sale of furniture. Besides above, during the assessment year under consideration, the assessee was engaged in the business of dealing in shares which has resulted in a net loss of Rs. 16,38,738. In view of this conversion and as per the provisions of section 45 of the Act, the assessee showed the short term capital gain on account of sale of shares and securities which was converted from investment into stock in trade of share business at Rs. 10,93,752. At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions done by the appellant giving further credence to his claim of business activity. 6. As regards the words of a business carried on by him in section 45(2). the authorized representative submitted that reading the section as a whole, it was clear that on conversion of capital asset into stock in trade, the same would be treated as a stock in trade of a business carried on by the appellant. The authorized representative submitted that the words of a business carried on by him were of a prospective meaning to say that it is the future business that would be carried on by the assessee and not that the assessee ought to have been carrying on the said business before the conversion. Emphasis has been laid on the wording of the section to the effect that the section nowhere states that the business should have been carried on before the date of conversion or prior to the date of conversion. He has in fact laid emphasis on the very words to say that on conversion the stock in trade, the profit or loss would be treated as that relating to the business of shares and securities carried on by him. He has further argued that post conversion the income which is generated is to be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han justified and ought to be allowed. I have perused the above arguments and submissions of the appellant and I am of the opinion that the conversion by the appellant of capital assets being investments into stock in trade as on 1-4-2000 which is duly supported by an affidavit of the same date is justified. The appellant has made out a clear case of his intention to carry on business in shares and has even paid tax on the deemed short-term capital gain as per provisions of section 45(2) of the Income-tax Act on a sum of Rs. 10,93,752. The term business carried on by him in section 45(2) need not necessarily mean that the business ought to have been carried on before the date of conversion as the section does not use such terminology. In fact how can a person carry on business unless and until he is holding a stock in trade and therefore it would be appropriate. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in give the meaning of the above phrase a prospective application and it would suffice to the appellant had carried on business of shares and securities in the said accounting year in which the conversion had taken place. The words in sections 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other hand, besides placing heavy reliance on the order of the CIT(A), has emphatically argued that the claim of the assessee cannot be disallowed only for a simple reason that in the immediately preceding year loss suffered on sale of shares was offered to short-term capital loss. It is a sweet will of the assessee to decide when he wants to convert the investment in share and securities into stock in trade. There is no bar under the law that once the assessee holds the investment in shares and securities he cannot convert it into the stock in trade. So far as the other stand of the revenue that the business should have been carried on before conversion of investment in stock in trade is concerned, the learned counsel for the assessee has submitted that the assessee had been carrying on business through his proprietary concern M/s. Maple Leaf and engaged in the manufacture and sale of furniture. It is not necessary that the assessee had been in the business of sale and purchase of shares and securities. At any point of time, the investment in share and securities can be converted into stock in trade and the assessee can make the sales and purchase in shares and securities and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht of the use of the words in other sections of the Act like section 28( i ). Moreover, in the instant case, the assessee was already in the business of manufacture and sale of furniture and section 45(2) does not state that the investment can only be converted in a stock in trade of the business of trading in shares. The assessee can undertake multiple business activities under his proprietary concern. Besides, the manufacturing and sale of furniture, the assessee can also deal in trading in shares in the name of same proprietary concern keeping the stock in trade of shares separate. From any angle, if the facts of the case are viewed, we would find that the conversion of investment in shares and securities in stock in trade is valid and the assessee is entitled to benefit of section 45(2) of the Act in the light of huge volume of transactions in shares. We accordingly do not find any infirmity in the order of the CIT(A) as he has dealt with each and every aspect raised by the parties. We accordingly confirm the same. 10. In the case of Mr. Jehangir T. Nagree, the CIT(A) has decided the issue following his order in the case of Firoz T. Nagree which has been approved by us ..... X X X X Extracts X X X X X X X X Extracts X X X X
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