Cost of acquisition in the case of conversion of stock-in-trade into capital asset [Sec. 49]
Section 49 has been amended (with effect from the assessment year 2019-20) to provide that if stock- in-trade is converted into capital asset, cost of acquisition of such capital asset shall be deemed to be the fair market value which has been taken into account for the purpose of section 28(via) [i.e., fair market value on the date of conversion of stock-in-trade into capital asset].
The following points are noted from the records of X —
1. On May 14, 2017, X purchases 10,000 equity shares in XYZ Ltd. at the rate of Rs. 20 per share as his stock-in-trade [securities transaction tax (STT) paid @ 0.1 % .
2. This stock-in-trade is not sold till March 31,2018. Quoted value of XYZ Ltd.’s share on March 31,2018 is Rs. 22.
3. The above inventory of 10,000 equity shares is converted into capital asset on July 10,2018. Quoted value of XYZ Ltd.’s share on July 10, 2018 is Rs. 26.
4. X transfers 2,000 shares in XYZ Ltd. on March 25,2019 at the rate of Rs. 29 per share (STT paid @ 0.1 percent).
5. X transfers 8,000 shares in XYZ Ltd. on August 14,2019 at the rate of Rs. 45 per share (STT paid @ 0.1%).
Find out tax consequences of these transactions (assume that X has not undertaken any other transaction during the previous years 2017-18 and 2018-19).