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TMI Blog2014 (2) TMI 837X X X X Extracts X X X X X X X X Extracts X X X X ..... se of earning dividend and some shares as stock in trade for the purpose of doing business of buying and selling - when shares were sold by the assessee, they were converted into capital asset – the gain arising there from on sale would be assessable as capital gain - where the property-in-question is held by the assessee as stock in trade for the purpose of its business and the same had been converted by the assessee into investment, the period for which the said property was held as stock in trade cannot be reckoned for ascertaining as to whether it was a 'Long Term Capital Asset' or a 'Short Term Capital Asset' within the meaning given in Section 2(29A) and 2(42A) of the Act. The period for which the shares were held as stock in trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 2007. The assessee had borrowed funds from M/s. S M Associates for purchase of shares. During the AY.2007-08, the assessee purchased shares of Shriram Transport and Finance Co. Ltd., to the tune of Rs.2,73,64,742/- and held the same as investment. In the AY. 2008-09, the assessee converted the entire shares held as investment to stock in trade. The assessee further purchased shares to the tune of Rs.13,87,729/-. Therefore, as on 31-03-2008, the closing stock of shares was Rs.2,87,52,471/-. The assessee claimed interest on borrowed capital and thus declared business loss of Rs.63,74,720/- in its return of income for the AY.2008-09. In the AY. 2009-10, the assessee continued to hold the shares as stock in trade. During the AY.2009- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer on this issue and dismissed this ground of appeal of the assessee. The assessee has come in second appeal before the Tribunal assailing the order of the CIT(Appeals). 3. Shri R. Sivaraman, Advocate appearing on behalf of the assessee submitted that in the AY.2007-08 after the incorporation of the assessee-company, the shares were held by the assessee as investments. Subsequently, in the AY.2008-09, the investments were converted into stock in trade. However. The desired results were not achieved by the assessee. Therefore, the Board of Directors vide resolution dated 01-04-2009 again converted the shares held as stock in trade to investment. The shares were sold in the month of November 2009 i.e., more than seven months from the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to sell shares, the same were converted from stock in trade to investment to evade tax liability. As long as the assessee had to pay huge interest on the borrowings, the assessee treated the shares as stock in trade and claimed the interest as expenditure. When the assessee anticipated huge profit from sale of shares, the stock in trade was converted into investments. The ld. DR contended that even if the shares are held to be investment and profit on sale is considered as capital gains, the holding period of the shares as investments is less than twelve months. Therefore, the assessee is not entitled to claim benefit of Long Term Capital Gains. In order to support his contentions, the DR relied on the order of the Delhi Bench of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of capital asset. However, the provisions of section 45 does not provide for the treatment of assets if converted from stock in trade to investment. Section 2(47) defines transfer in relation to the capital asset. Sub-clause (iv) states that in case where the asset is converted by the owner thereof into, or is treated by him as stock in trade of a business carried on by him, such conversion or treatment shall be treated as transfer in relation to the capital asset. Section 2(47) also does not provide for the vice-versa situation where the stock in trade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. 8. It is not in dispute that when shares were sold by the assessee, they were converted into capital asset. Thus, the gain arising there from on sale would be assessable as capital gain. Now, what is to be ascertained is whether the shares at the time of sale were 'Short Term Capital Asset' or a 'Long Term Capital Asset' for which period of holding the shares has to be determined. The Delhi Bench of the Tribunal in the case of Splendor Constructions P. Ltd., Vs. ITO (supra) while dealing with a similar issue has held that where the property-in-question is held by the assessee as stock in trade for the purpose of its business and the same had been converted by the assessee into investment, the period for which the said property was held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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