These appeals are preferred by Revenue against respective orders passed by CIT(A) in case of different assessees. Since common issue is involved in both these appeals, these were heard together and are being disposed off by this consolidated order. For sake of reference, we extract grounds of appeal raised in both these appeals as under: ITA No. 7503/Mum/2004 in case of Firoz T. Nagree "On facts and in circumstances of case and in law, learned counsel for assessee CIT(A) erred in:- (i) Directing AO to treat loss on sale of shares as business loss as against short-term capital gains treated by AO. (ii) Ignoring that as per s. 45(2) of IT Act conversion of investment into stock-in-trade is allowable only if such business is carried on by assessee before conversion of investment into stock-in-trade and that assessee was not engaged in trading of shares before 1st April, 2000. (iii) Ignoring that conversion entries in books of account of assessee have not been passed as on 1st April, 2000. (iv) Failing to appreciate AO's finding that assessee's treatment of short-term capital loss as business loss is tax avoidance plan and nothing else." ITA No. 3927/MUM/2005 - in case of Mr. Jehangir T. Nagree "On facts and in circumstances of case and in law, learned counsel for assessee CIT(A) erred in:- (i) Directing AO to treat loss on sale of shares amounting to Rs. 8,57,564 as business loss as against short-term capital gains treated by AO. (ii) Ignoring that as per s. 45(2) of IT Act conversion of investment into stock-in-trade is allowable only if such business is carried on by assessee before conversion of investment into stock-in-trade and that assessee was not engaged in trading of shares before 1st April, 2000. (iii) Ignoring that conversion entries in books of account of assessee have not been passed as on 1st April, 2000. (iv) Failing to appreciate AO's finding that assessee's treatment of short-term capital loss as business loss is tax avoidance plan and nothing else." Since order passed by CIT(A) in case of Firoz T. Nagreehas been followed in case of Mr. Jehangir T. Nagree by CIT(A) while adjudicating identical issue, we deal with facts of case and issue raised in case of Firoz T. Nagree as under. facts with regard to impugned issue borne out from record are that AO has rejected assessee's claim of business loss and holding same to be short-term capital loss having observed that in asst. yr. 2000-01 assessee had entered into large number of share transactions in respect of which, he has incurred loss amounting to Rs 15,46,930, and said loss was treated by assessee as short-term loss on shares and taxed it under h e d 'Capital gain'. In asst. yr. 2001-02, year under appeal, assessee, as on 1st April, 2000 being first day of relevant year, converted investment in shares brought forward from asst. yr. 2000-01 into stock-in-trade and had done business in shares during accounting year. share transaction activity which, according to AO, was exactly of similar nature of previous assessment year, had resulted in loss of Rs. 6,38,738. assessee had also incurred loss of Rs. 66,11,154 in speculation of shares. According to AO by converting capital asset being investment into stock in trade of which scales resulted into loss, assessee was able to set off such loss against his income under head salary, income from house property, long-term capital gain and income from other sources. AO was of opinion that entire arrangement was made essentially to avoid tax and he called upon assessee to show cause why arrangement should not be rejected, and loss should be treated as short- term capital loss. assessee vide his letter dt. 13th Oct., 2003 explained to AO that on 1st April, 2000 he had converted some investment in shares of securities held as capital asset into stock-in-trade of business of shares and securities and to this effect note is given in tax audit report. assessee further contended that in view of provisions of s. 45(2) of IT Act, 1961 (hereinafter referred to as 'Act') gain on account of transfer by way of conversion of capital asset into stock in trade, was subjected to tax under head 'Capital gain' in respect of conversion of shares which were sold during year. Since loss arose on sale of shares held as stock-in-trade, said loss was claimed as loss on business account. AO did not accept explanation of assessee, and he held that consequent loss claimed as business loss is not allowable to it as provision of s. 45(2) of Act contained words 'of business carried on by him' and since as on date of conversion assessee had no business of share transaction conversion was not valid. AO accordingly held that by this arrangement, assessee had gained immensely by setting of income in various other heads against business loss which benefit would not have been available had this loss has been treated as short-term capital loss. He accordingly disallowed claim of assessee. assessee preferred appeal before CIT(A) with submission that assessee is individual having proprietary concern in name of 'the Maple Leaf and through this proprietary concern, assessee carries on business of manufacture and sale of furniture. Besides above, during assessment year under consideration, assessee was engaged in business of dealing in shares which has resulted in net loss of Rs. 16,38,738. In view of this conversion and as per provisions of s. 45 of Act, assessee showed short-term capital gain on account of sale of shares and securities which was converted from investment into stock-in-trade of share business at Rs. 10,93,752. At same time, assessee has shown resultant loss on shares in share trading business of Rs. 27,32,490. CIT(A) re-examined issue in light of assessee's contention and material available on record and is of view that conversion made by assessee available on record and is of view that conversion made by assessee was valid and not device and especially in view of fact that assessee has done large volume of transaction during year in speculation account and has also made fresh purchase of shares for share business to extent of Rs. 10,24,316. He accordingly allowed claim of loss arising on sale of share and securities as business loss. relevant observation of CIT(A) is extracted hereunder for sake of reference: "5. Summarizing arguments it is seen that appellant has explained that conversion as on 1st April, 2000 of capital assets of value of Rs. 57,25,172 were made since appellant desired to carry on business in shares and securities. This was supported by affidavit of appellant dt. 1st April, 2000 wherein at para 3 appellant has stated that investments were being converted to stock-in-trade of his personal share business. appellant has also stated that allegation of AO that said conversion was arrangement to absorb profits under other heads of income would not stand to reason since conversion was made on first day of accounting year and neither appellant nor AO would have been in position to know whether appellant would have ultimately made profit or loss in share business during assessment year especially when appellant had in fact made gains on sale of shares in immediately preceding assessment year. T h e appellant has further pointed out to fact that besides trading in shares and securities which were converted, appellant had made further purchases of shares and securities of value of Rs. 10,24,316 and during accounting year appellant had engaged himself in speculation of shares of very high volume. Authorized Representative pointed out that during accounting year appellant had by way of speculation purchased shares worth Rs. 12,90,40,857 and sold speculation transaction shares at Rs. 12,33,51,592 which had resulted in speculation loss of Rs. 65,89,265 which itself showed t h e enormous volume of transactions done by appellant giving further credence to his claim of business activity. As regards words 'of business carried on by him' in s. 45(2). Authorized Representative submitted that reading section as whole, it was clear that on conversion of capital asset into stock-in-trade, same would be treated as stock-in-trade of business carried on by appellant. Authorized Representative submitted that words of business carried on by him were of prospective meaning to say that it is future business that would be carried on by assessee and not that assessee ought to have been carrying on said business before conversion. Emphasis has been laid on wording of section to effect that section nowhere states that business should have been carried on before date of conversion or prior to date of conversion. He has in fact laid emphasis on very words to say that on conversion stock-in-trade, profit or loss would be treated as that relating to business of shares and securities carried on by him. He has further argued that post conversion income which is generated is to be taxed as business income and difference between cost and value of share as on date of conversion was to be taxed as capital gain whether short-term or long-term depending upon period of holding only when shares were sold. He further stated that amendment in s. 45(2) was brought about only to overcome decision of Supreme Court in case of CIT vs. Bai Shirinbai K. Kooka (1962) 46 ITR 86 (SC) where it was held that on conversion difference between the. book value and market value was not liable to capital gains tax. He further referred to provisions of s. 28 of IT Act wherein similar terminology is used in sub-s. (1) which reads as follows:- (i) profits and gains of business or profession which was carried on by assessee at any time during previous year. He pointed out that here use of word 'was' before words 'carried on' clearly showed intention of legislature that profits and gains of business would be chargeable to Income-tax in respect of such business or profession which was carried on by assessee at any time during previous year. He further referred to provisions of s. 176(3A) where also words 'carried on business' related to business carried on in past which had been discontinued. He therefore emphasized that interpretation of s. 45(2) in respect of words 'of business carried on by him' by AO as business carried on in past was incorrect and inappropriate and that no business could be carried on unless and until conversion had taken place and that true meaning of said phrase is that business should have been carried on by appellant in accounting year in which conversion has taken place. He has further relied upon decision of Supreme Court in Union Of India & Anr. vs. Azadi Bachao Andolan & Anr. (2003) 184 CTR (SC) 450: (2003) 263 ITR 706 (SC) to effect that conversion of investment into stock-in- trade for purpose of carrying on business in shares and securities was not device but act permissible under law and that such act which together with evidence of trading in shares, purchase of new shares and speculation to extent of more than Rs. 13 crores cannot be treated as device for tax evasion and as such it was pleaded that claim of business loss was more than justified and ought to be allowed. I have perused above arguments and submissions of appellant and I am of opinion that conversion by appellant of capital assets being investments into stock-in-trade as on 1st April, 2000 which is duly supported by affidavit of same date is justified. appellant has made out clear case of his intention to carry on business in shares and has even paid tax on deemed short-term capital gain as per provisions of s. 45(2) of IT Act on sum of Rs. 10,93,752. term 'business carried on by him in s. 45(2) need not necessarily mean that business ought to have been carried on before date of conversion as section does not use such terminology. In fact how can person carry on business unless and until he is holding stock-in-trade and therefore it would be appropriate. On facts and in circumstances of case, learned CIT(A) has erred in give meaning of above phrase prospective application and it would suffice to appellant had carried on business of shares and securities in said accounting year in which conversion had taken place. words in ss. 28(f) and 176(3 A) also are very specific since in s. 28(i) phrase is followed by words 'at any time during previous year' and in s. 176(3A) phrase is followed by words 'had such sum been received before such discontinuance'. It would, therefore, be more appropriate to interpret phrase in s. 45(2) to mean business carried on during accounting year (i.e., previous year) and as such I agree with appellant that conversion made was valid and not device and specially in view of fact that appellant has done large volumes of transactions during year on speculation account and has also made fresh purchases of shares for share business to extent of Rs. 10,24,316 claim of appellant to treat loss arising on sale of shares and securities as business loss is justified." Now, Revenue has preferred appeal before Tribunal and learned Departmental Representative has emphatically argued that in earlier years, assessee has made sale and purchases of shares and securities and whatever loss was suffered it was declared as short-term capital loss. nature of activities remained same but in this year, assessee has tried to claim short-term capital loss as business loss by showing conversion of investment in shares and securities into stock in trade on very first day of year, i.e., 1st April, 2000. learned Departmental Representative further contended that at time of conversion of investment in stock-in-trade, assessee was not carrying on any sort of business of share transactions and question of conversion of investment in stock-in-trade does not arise. He further invited our attention to provisions of s. 45(2) of Act with submission that investments in shares and securities can only be converted into stock-in- trade in running business or business carried on by assessee in earlier years. But in instant case, after converting investment in stock-in-trade, assessee made purchase and sales and claimed loss suffered therein as business loss in order to get benefit of set-off of this loss against income under different heads. Hence, assessee is not entitled for claim of set off of loss against other income and CIT(A) has wrongly allowed claim to assessee. learned counsel for assessee on other hand, besides placing heavy reliance on order of CIT(A), has emphatically argued that claim o f assessee cannot be disallowed only for simple reason that in immediately preceding year loss suffered on sale of shares was offered to short- term capital loss. It is sweet will of assessee to decide when he wants to convert investment in share and securities into stock-in-trade. There is no bar under law that once assessee holds investment in shares and bar under law that once assessee holds investment in shares and securities he cannot convert it into stock-in-trade. So far as other stand of Revenue that business should have been carried on before conversion of investment in stock-in-trade is concerned, learned counsel for assessee has submitted that assessee had been carrying on business through his proprietary concern M/s Maple Leaf and engaged in manufacture and sale of furniture. It is not necessary that assessee had been in business of sale and purchase of shares and securities. At any point of time, investment in share and securities can be converted into stock-in-trade and assessee can make sales and purchase in shares and securities and there is no legal impediment in doing so. Having heard rival submissions and from careful perusal of record, we find that undisputedly assessee has been doing sale-purchases of shares and securities in preceeding years and loss suffered on its sales was offered to be short-term capital loss but nature of activities carried in immediately preceeding year cannot be sole factor to decide nature of activities in succeeding year. assessee has converted its investment in shares and securities on 1st April, 2000 in stock-in-trade of its existing business though not dealing in shares and thereafter undertook several transactions of sale and purchase in shares and securities and suffered huge loss of Rs. 16,38,738. It is also evident from record that assessee had suffered loss of Rs. 66,11,154 in speculation of shares. Having seen volume of transactions undertaken by assessee in impugned assessment year, it is very difficult to hold that assessee still holds investment in shares and securities. It is sweet will of assessee to decide as to when he intends to convert his investment in stock-in-trade. assessee has also filed affidavit to this effect besides corresponding entries in books of account on 1st April, 2000 and Revenue has not brought anything on record to dispute these facts. Revenue has denied claim of assessee on ground that conversion of investment in stock-in-trade was done when assessee was not in business of sales-purchase in share and securities. From careful perusal of relevant provisions of s. 45(2) of Act, we find that there should be conversion of investment or capital asset by owner as stock-in- trade of business carried on by him. words 'business carried on by assessee' does not mean that before conversion of investment or capital asset in stock-in-trade business must be in existence. If assessee starts business by converting investment into stock-in-trade instead of purchasing it from market can it not be called that assessee is in business of trading in shares enabling assessee to avail benefit of s. 45(2) of Act. To our mind restrictive meaning as suggested by Revenue should not be given to words 'business carried on by him' in light of use of words in other sections of Act like s. 28(i). Moreover, in instant case, assessee was already in business of manufacture and sale of furniture and s. 45(2) does not state that investment can only be converted in stock-in- trade of business of trading in shares. assessee can undertake multiple business activities under his proprietary concern. Besides, manufacturing and sale of furniture, assessee can also deal in trading in shares in name of same proprietary concern keeping stock-in-trade of shares separate. From any angle, if facts of case are viewed, we would find that conversion of investment in shares and securities in stock-in-trade is valid and assessee is entitled to benefit of s. 45(2) of Act in light of huge volume of transactions in shares. We accordingly do not find any infirmity in order of CIT(A) as he has dealt with each and every aspect raised by parties. We accordingly confirm same. In case of Mr. Jehangir T. Nagree, CIT(A) has decided issue following his order in case of Firoz T. Nagree which has been approved by us in foregoing paras. We, therefore, following same, confirm order of CIT(A) in case of Mr. Jehangir T. Nagree. Accordingly, appeals in both cases are dismissed. In result, appeals of Revenue stand dismissed. *** ASSISTANT COMMISSIONER OF INCOME TAX v. JEHANGIR T. NAGREE