Question

Which of the following is not included in the Capital Asset under Section 2 (14) of Income Tax Act,

• A. Any stock in Trade
• B. Special Bearer Bonds 1991 issued by Central Government
• C. (a) and (b)
• D. None of the above

Hint:

The most important exclusion from the definition of "Capital Asset" to remember is stock-in-trade. This is because the profit from selling stock is business income (taxed under "Profits and Gains of Business or Profession"), while profit from selling a capital asset is "Capital Gains." This distinction is fundamental to income tax law.

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
The question asks to identify which of the items listed are explicitly excluded from the definition of a 'Capital Asset' as per Section 2(14) of the Income Tax Act, 1961.

Step 2: Detailed Explanation:
Section 2(14) of the Income Tax Act defines "capital asset" very broadly as "property of any kind held by an assessee, whether or not connected with his business or profession."
However, the section then provides a list of specific exclusions. It says, "but does not include—"
(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession;
(ii) personal effects (movable property held for personal use), with some exceptions;
(iii) agricultural land in India, not being land situated in specified urban areas;
(iv) 6.5 per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government;
(v) Special Bearer Bonds, 1991, issued by the Central Government;
(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999.
Let's analyze the options:
- (A) Any stock in Trade: This is explicitly excluded by sub-clause (i). Profit from the sale of stock-in-trade is treated as business income, not capital gains.
- (B) Special Bearer Bonds 1991 issued by Central Government: This is explicitly excluded by sub-clause (v).
Since both (A) and (B) are excluded from the definition of a capital asset, the correct option is (C), which states that both (a) and (b) are not included.

Step 3: Final Answer:
Both stock-in-trade and Special Bearer Bonds, 1991, are not included in the definition of a Capital Asset under Section 2(14) of the Income Tax Act.