Section 45(2) of Income tax Act, 1961
The profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, 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 the capital asset.
Summary
✓Profit or gain arise from convertion of capital asset into stock in trade shall be chargeable under the head income from Capital gain.
✓Sales consideration = Fair market value of Capital asset on the date of convertion.
✓However the capital gain is treated as income in the year in which such Stock in trade is sold.
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