Mere change of ownership of business doesn't transform stock-in-trade into a capital asset

In the instant case, the properties, which were hitherto being held as stock-in-trade by the HUF, were allotted to the assessee on its partition. The HUF was in the business of real estate which was continued by assessee after the partition and hence these properties remained stock-in-trade even after partition. The tribunal held that the properties were stock-in-trade of real estate business when HUF owned it and remained stock-in-trade when assessee became its owner on partition. In these circumstances, there was no conversion of capital assets to stock-in-trade either by the assessee or the joint family. Therefore, the provision of section 45(2) of the Act is not applicable in the instant case. As Sec 49(1) doesn't apply to stock-in-trade, cost of acquisition of these properties to assessee is taken at FMV and not the cost to their pervious owner-HUF - C. RAMAIAH REDDY v. DCIT [2012] 21 taxmann.com 516 (Bangalore - Trib.)