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May 2012

Capital asset v. Stock-in-trade: Section 50C of Income-tax Act, 1961: A.Y. 2006-07: Section 50C does not apply to land & building held as stock-in-trade.

By K. B. Bhujle, Advocate
Reading Time 2 mins
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[CIT v. M/s. Kan Construction and Colonizers (P) Ltd. (All.), ITA No. 1 of 2012 dated 9-4-2012.]

In the A.Y. 2006-07, the assessee had sold a plot of land which was held by it as stock-in-trade. The Assessing Officer held that the land was a capital asset and computed the capital gain by applying the provisions of section 50C of the Income-tax Act, 1961. The Tribunal accepted the assessee’s claim that the land was a stock-in-trade and that the provisions of section 50C are not applicable.

The Allahabad High Court dismissed the appeal filed by the Revenue and held as under: “

(i) For applicability of section 50C, one of the essential requirements is that an asset should be a ‘capital asset’. Whether sale of land is sale of capital asset or stock-in-trade is essentially a question of fact. The assessee is a builder and the investment in purchase and sale of plots was ancillary and incidental to its business. The assessee had treated the land as stock-in-trade in the balance sheet.

(ii) The Tribunal has rightly held that the provisions of section 50C are not applicable with respect to the sale of land which was not a capital asset.”

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