The DCIT, Circle-10,, Ahmedabad v. Kum.Aditi J.Vyas, Ahmedabad

ITA 3115/AHD/2009 | 2006-2007
Pronouncement Date: 29-07-2011 | Result: Dismissed

Appeal Details

RSA Number 311520514 RSA 2009
Assessee PAN ABIPV3964F
Bench Ahmedabad
Appeal Number ITA 3115/AHD/2009
Duration Of Justice 1 year(s) 8 month(s) 8 day(s)
Appellant The DCIT, Circle-10,, Ahmedabad
Respondent Kum.Aditi J.Vyas, Ahmedabad
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 29-07-2011
Date Of Final Hearing 19-07-2011
Next Hearing Date 19-07-2011
Assessment Year 2006-2007
Appeal Filed On 20-11-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER AND SHRI A.K. GARODIA ACCOUNTANT MEMBER DATE OF HEARING : 19/07/2011 DRAFTED ON: 20/07/2011 ITA NO.3115/AHD/2009 ASSESSMENT YEAR : 2006-07 DY.CIT CIRCLE-10 AHMEDABAD VS. KUM.ADITI J.VYAS B-1/A RAJHANS SOCIETY ST.XAVIERS COLLEGE CORNER ELLISBRIDGE AHMEDABAD PAN/GIR NO. : ABIPV 3964 F ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI S.K. MEENA SR.D.R. RESPONDENT BY: SHRI TUSHAR HEMANI A.R. O R D E R PER SHRI MUKUL KR. SHRAWAT JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-XVI AHMEDABAD DATED 04/09/2009 PASSED FOR ASSESSMENT YEAR 2006-07 AND THE SUBSTANTIAL GROUNDS ARE REPRODUCED BELOW. (1) THE LD. CIT(A) HAS ERRED IN FACTS AND ON LAW IN TRE ATING THE SALE OF SHARES AS LONG TERM CAPITAL GAIN INSTEAD OF SHORT T ERM CAPITAL GAIN. (2) LD. CIT(A) HAS WRONGLY RELIED ON BOARDS CIRCULAR NO.704 DATED 28/04/1995 AND SEBI GUIDELINES WITHOUT VERIFYING ACTUAL DATE OF ALLOTMENT AND WRONGLY TAKEN THE DATE OF APPROVAL OF BOARD OF DIRECTORS FOR ALLOTMENT OF SHARES AS THE DATE OF AL LOTMENT OF SHARES. ITA NO.3115/AHD /2009 DY.CIT VS. KUM.ADITI J.VYAS ASST.YEAR 2006-07 - 2 - 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT 1961 DATED 26/ 12/2008 WERE THAT THE ASSESSEE INDIVIDUAL HAS SHOWN LONG-TERM CAPITAL GAI N AT RS.76 56 954/- ON SALE OF SHARES OF NAGARJUNA CONSTRUCTION COMPANY LTD. (IN SHORT NCL). AS PER THE DEMAT STATEMENT THE SHARES OF N CL WERE CREDITED ON 05/02/2005. THOSE SHARES WERE LATER ON SPLITTED IN TO THE RATIO 1:5 HENCE SOLD 41750 SHARES ON 8/12/2005. THE CAPITAL GAIN W AS CLAIMED EXEMPT U/S.10(38) OF THE I.T.ACT BY TREATING AS LONG-TERM CAPITAL GAIN. THE MAIN OBJECTION OF THE ASSESSING OFFICER WAS THAT THE SHA RES WERE CREDITED IN DEMAT ACCOUNT ON 05/02/2005 AND THOSE WERE SOLD ON 8/12/2005 THEREFORE THE PERIOD OF HOLDING WAS LESS THAN 12 M ONTHS HENCE NOT ENTITLED FOR EXEMPTION AS PRESCRIBED U/S.10(38) OF THE I.T.ACT. IT WAS HELD THAT THE GAIN WAS NOT THE LONG-TERM CAPITAL G AIN. IN COMPLIANCE THE ASSESSEE HAS GIVEN THE BASIC FACTS ABOUT THE ACQUI SITION OF SHARES AND THE DATES OF SALE OF SHARES AS PER THE FOLLOWING REPLY. AS REGARDS CAPITAL GAIN ON SALE OF SHARES OF NAGAR JUNA CONSTRUCTION CO.LTD. I OFFER MY EXPLANATION AS FOL LOWS: I HAD INVESTED A SUM OF RS.69 50 000/- IN THE EQUIT Y SHARE OF NAGARJUNA CONSTRUCTION CO.LTD. ON 1/12/2004. I WAS ALLOTTED 25000 EQUITY SHARES OF RS.10/- EACH AT A PREMIUM OF RS.268/-. THUS MY COST OF ACQUISITION WAS RS.69 50 000/- (25 000 X 278/-) AND THE DATE OF ACQUISITION WAS 1/12/2004. THEREAFTER NAGARJUNA CONSTRUCTION CO.LTD. SPLIT TH E EQUITY SHARES OF RS.10/- EACH INTO EQUITY SHARES OF RS.2/- EACH. THUS FOR EVERY ONE EQUITY SHARE OF RS.10/- EACH 5 EQUITY SHARES OF RS.2/- EACH WERE ALLOTTED BY THE COMPANY TO ALL THE SHARE HOLDE RS ON ITA NO.3115/AHD /2009 DY.CIT VS. KUM.ADITI J.VYAS ASST.YEAR 2006-07 - 3 - 29/10/2005. ACCORDINGLY MY HOLDING OF 25000 EQUIT Y SHARES OF RS.10/- EACH WAS CONVERTED TO 125000 SHARES OF RS.2 /- EACH. OUT OF THIS I SOLD 41750 SHARES AT RS.99 78 254/- THUS EARNING LONG TERM CAPITAL GAIN OF RS.76 56 954/-. THE DATE OF SALE WAS 08/12/2005. THE DATE OF MY COST OF ACQUISITION WAS 01/12/2004 A ND THE DATE OF SALE WAS 08/12/2005 THIS IS A TRANSACTION OF PERIO D EXCEEDING 12 MONTHS AND THEREFORE LONG TERM CAPITAL GAIN HAS AR ISEN. 3. ON ONE HAND THE ASSESSEE HAS CLAIMED THAT THE S HARES WERE ACQUIRED ON 01/12/2004 HOWEVER ON THE OTHER HAND THE ASSESSING OFFICER HAS HELD THAT THE SHARES WERE RECEIVED WHEN CREDITED IN DEMAT ACCOUNT ON 05/02/2005. THE OBJECTION OF THE ASSES SING OFFICER WAS THAT THE ASSESSEE WAS IN A POSITION TO HOLD THE SHARES O NLY WHEN THEY WERE CREDITED IN THE DMAT ACCOUNT ON 05/02/2005. AS PE R ASSESSING OFFICER SINCE THE SHARES WERE HELD FOR A PERIOD OF LESS THAN 12 MONTHS THEREFORE THE SHARES WERE THE SHORT-TERM CAPITAL ASSET AND NOT THE LONG-TERM CAPITAL ASSET WITHIN THE MEANING OF SEC TION 2 (29A) OF THE I.T.ACT. FOR THIS PROPOSITION THE ASSESSING OFFIC ER HAS PLACED RELIANCE ON CIT VS. CHUNILAL KHUSHALDAS (1974) 93 ITR 369 (G UJ). THE ENTIRE AMOUNT WAS TAXED WHICH WAS CONTESTED BEFORE THE FI RST APPELLATE AUTHORITY. 4. WHEN THE MATTER WAS ARGUED BEFORE THE LEARNED CI T(APPEALS) AFTER NARRATING THE FACTS OF THE ACQUISITION; A CBD T CIRCULAR NO.704 DATED 28/04/1995 WAS CITED AND ON THE BASIS OF SAID CIRCULAR THE LEARNED CIT(APPEALS) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AS FOLLOWS:- ITA NO.3115/AHD /2009 DY.CIT VS. KUM.ADITI J.VYAS ASST.YEAR 2006-07 - 4 - 5. THE ABOVE MENTIONED CIRCULAR CLEARLY SHOWS THA T IT IS NOT THE DATE OF DELIVERY OF SHARES IN THE DMAT A/C BUT THE DATE OF CONTRACT OF PURCHASE / SALE OF SHARES. WHAT IS MORE IMPORTANT IS WHEN THE APPELLANT ACQUIRED THE RIGHTS IN THE SHARES. IN MY OPINION HE ACQUIRES THE RIGHTS ON THE DAY WHEN EITHER THE BROKER CONFIRMS HIM THAT HE HAS TRANSACTED SHARES ON HIS BEHALF OR THE COMPANY ISSUING FRESH S HARES / PREFERENTIAL / BONUS SHARES ETC. SENDS INFORMATION TO THE APPELLAN T THAT THE COMPANY HAS ALLOTTED SHARES TO HIM. BECAUSE THE SHAREHOLDE R GETS THE RIGHT IN THE PROPERTY (I.E. THE SHARES) ON THE DATE OF ALLOTMENT . IT IS POSSIBLE THAT FOR SOME REASONS THE DELIVERY WAS DELAYED. THEREFORE F OR THE PURPOSE OF TRANSFER THE DATE OF BROKERS NOTE OR THE DATE OF ALLOTMENT LETTER OF THE COMPANY IS RELEVANT AND NOT THE DATE OF ACTUAL DELI VERY OF SHARES. IN THIS CASE THE COMPANY M/S.NAGARJUNA CONSTRUCTION C OMPANY ALLOTTED PREFERENTIAL SHARES TO THE APPELLANT ON 1-12-2004. THESE SHARES ARE SUBJECT TO LOCK-IN-PERIOD OF ONE YEAR UPTO 30-11-20 05 AS PER SEBI GUIDELINES. COMPANIES ISSUING PREFERENTIAL SHARES ALSO SEND INTIMATIONS TO THE RESPECTIVE STOCK EXCHANGE REGARD ING THE FACT OF ALLOTMENT OF SHARES. AS THE SHARES ARE SUBJECT TO LOCK IN PERIOD OF ONE YEAR THE SAME COULD NOT HAVE BEEN SOLD BY THE APPE LLANT WITHIN ONE YEAR FROM THE DATE OF ITS ALLOTMENT. THE FACT THAT THE APPELLANT COULD SELL THESE SHARES IN THE STOCK EXCHANGE CLEARLY SHOWS TH AT THE APPELLANT HELD THE SHARES FOR MORE THAN ONE YEAR. I THEREFORE H AVE NO HESITATION IN HOLDING THAT IN THIS CASE DATE OF ALLOTMENT IS TO B E TAKEN AS THE DATE OF ACQUISITION OF 25000 PREFERENTIAL SHARE OF NAGARJUN A CONSTRUCTION COMPANY LTD AND NOT THE DATE OF CREDIT OF DMAT ACCO UNT OF THE ASSESSEE. THE ASSESSING OFFICER IS THEREFORE DIREC TED TO TREAT THE CAPITAL GAIN AS LONG TERM CAPITAL GAIN AND NOT SHORT TERM C APITAL GAIN. 5. FROM THE SIDE OF THE REVENUE LEARNED DEPARTMENT AL REPRESENTATIVE MR.S.K.MEENA HAS PLACED STRONG RELI ANCE ON THE ORDER OF THE ASSESSING OFFICER AND ARGUED THAT AN INVESTOR C AN DEAL IN SHARES ONLY AFTER THE SHARES ARE TRANSFERRED TO DEMAT ACCOUNT. WHEN THE SHARES WERE TRANSFERRED TO DEMAT ACCOUNT THEN ONLY THEY WERE HELD BY THE ASSESSEE. THE HOLDING PERIOD OF SHARES THEREFORE STARTS FROM THE DAY WHEN THE SHARES WERE DEMATED. THE DATE OF ALLOTMENT COULD N OT BE THE DATE OF ACQUISITION BECAUSE THE SHARES CAN ONLY BE ACQUIRED WHEN THE SHARES ARE ITA NO.3115/AHD /2009 DY.CIT VS. KUM.ADITI J.VYAS ASST.YEAR 2006-07 - 5 - PHYSICALLY DELIVERED. SINCE THE PERIOD OF HOLDING WAS LESS THAN 12 MONTHS THEREFORE THE GAIN WAS CORRECTLY ASSESSED AS SHORT-TERM CAPITAL GAIN. 6. ON THE OTHER HAND LEARNED AUTHORISED REPRESENTA TIVE MR.TUSHAR HEMANI HAS SUPPORTED THE ORDER OF THE LEARNED CIT(A PPEALS) AND ALSO PLACED RELIANCE ON THE CBDT CIRCULAR CITED-SUPRA. 7. WE HAVE HEARD BOTH THE SIDES. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. UNDISPUTED FACT I S THAT THE ASSESSEE HAD MADE AN INVESTMENT OF RS.69 50 000/- IN THE EQUITY SHARES OF NCL ON 01/12/2004. THE ASSESSEE WAS ALLOTTED 25000 EQUITY SHARES OF RS.10/- EACH AT A PREMIUM OF RS.6 268/-. THE ASSESSEE HAS THEREFORE EXPLAINED THE COST OF ACQUISITION I.E. 25000 X RS.278/- WHIC H COMES TO RS.69 50 000/-. FACTS HAVE FURTHER REVEALED THAT ON 29/10/2005 THERE WAS SPLIT OF THE EQUITY SHARES IN THE RATIO OF 1:5 ACCORDINGLY ON EVERY EQUITY SHARE OF RS.10/- ASSESSEE GOT 5 EQUITY SHARE S OF RS.2/- EACH. THEREFORE DUE TO THE SAID SPLIT THE HOLDING OF 250 00 EQUITY SHARES HAD GONE UP AND CONVERTED INTO IT 125000 SHARES. OUT OF THE SAID HOLDING ASSESSEE HAS SOLD ON 08/12/2005 41750 SHARES AT RS. 99 78 254/- AND EARNED CAPITAL GAIN OF RS.76 56 954/-. AS PER THE DEFINITION OF SHORT- TERM CAPITAL ASSET AS DEFINED IN SECTION 2 (42A) O F THE I.T.ACT MEANS A CAPITAL ASSET HELD BY AN ASSESSEE FOR NOT MORE THAN 36 MONTHS(AS PER FIRST PROVISO;12 MONTHS FOR LISTED SHARES OR SECURITIES) IMMEDIATELY PRECEDING THE DATE OF ITS TRANSFER. THE IMPORTANT TERM USED IS HELD WHICH MEANS THAT THE PERIOD DURING WHICH A PROPERTY IS OWNED BY THE ASSESSEE. SUB- ITA NO.3115/AHD /2009 DY.CIT VS. KUM.ADITI J.VYAS ASST.YEAR 2006-07 - 6 - CLAUSE(D) OF SUB-SECTION 2 (42A) OF THE I.T.ACT SAY S THAT IN CASE OF A CAPITAL ASSET BEING A SHARE SUBSCRIBED TO BY THE A SSESSEE ON THE BASIS OF HIS RIGHT TO SUBSCRIBE TO SUCH SHARES THE PERIOD SHALL BE RECKONED FROM THE DATE OF ALLOTMENT OF SHARES. IT HAS FURTHER BEEN CLARIFIED BY A CIRCULAR OF CBDT NO.704 DATED 28/04/1995 WHEN A QU ESTION WAS RAISED AS REGARDS TO THE DATE OF TRANSFER AND ABOUT THE DA Y FROM WHICH THE HOLDING PERIOD OF THE SECURITIES SHOULD RECKONED. THE BOARD HAS GIVEN THE INSTRUCTION AS FOLLOWS ONLY RELEVANT PORTION; REPRODUCED. .. 2. WHEN THE SECURITIES ARE TRANSACTED THROUGH STOCK EXCHANGES; IT IS THE ESTABLISHED PROCEDURE THAT THE BROKERS FIRST ENTER INTO CONTRACTS FOR PURCHASE/SALE OF SECURITIE S AND THEREAFTER FOLLOW IT UP WITH DELIVERY OF SHARES ACCOMPANIED B Y TRANSFER DEEDS DULY SIGNED BY THE REGISTERED HOLDERS. THE SELLER IS ENTITLED TO RECEIVE THE CONSIDERATION AGREED TO AS ON THE DATE OF CONTRACT. THE BOARD ARE OF THE OPINION THAT IT IS THE DATE OF BROKERS NOTE THAT SHOULD BE TREATED AS THE DATE OF TRANSFER IN CASES OF SALE TRANSACTIONS OF SECURITIES PROVIDED SUCH TRANSACTIO NS ARE FOLLOWED UP BY DELIVERY OF SHARES AND ALSO THE TRANSFER DEED S. SIMILARLY IN RESPECT OF THE PURCHASERS OF THE SECURITIES THE HOLDING PERIOD SHALL BE RECKONED FROM THE DATE OF THE BROKERS NOT E FOR PURCHASE ON BEHALF OF THE INVESTORS. IN CASE THE TRANSACTIONS TAKE PLACE DIRECTLY BETWEEN THE PARTIES AND NOT THROUGH STOCK EXCHANGES THE DATE OF CONTRACT OF SALE AS DECLARED BY THE PARTIES SHALL BE TREATED AS THE DATE OF TRANSFER PROVIDED IT IS FOLLOWED UP BY ACTUAL DELIVERY OF SHARES AND THE TRANSFER DEEDS. 7.1 FROM THE ABOVE IT IS THUS CLEAR THAT DATE OF CONTRACT IS THE DATE OF PURCHASE. IT IS NOT THE DATE ON WHICH SHARES WERE DEMATED BECAUSE THAT CAN BE SAID TO BE THE DATE OF DELIVERY OF SHARES. T HE RELEVANT CONSIDERATION IS THE DATE OF ACQUISITION OF RIGHT S ON THE SHARES. WHEN THE SHARES ARE ALLOTTED TO AN INVESTOR THEN THE SA ID INVESTOR HAS RIGHT TO ITA NO.3115/AHD /2009 DY.CIT VS. KUM.ADITI J.VYAS ASST.YEAR 2006-07 - 7 - EXERCISE HIS DOMAIN OVER THE SHARES SO ALLOTTED. I N THE PRESENT CASE INVESTMENT WAS MADE ON 01/12/2004 AND THE ASSESSEE WAS ALLOTTED EQUITY SHARES. SALES WAS EXECUTED ON 8/12/2005 THEREFORE AS PER SECTION 10(36) OF THE I.T.ACT ANY INCOME ARISING FROM THE TRANSFER OF A LONG-TERM CAPITAL ASSET BEING AN ELIGIBLE EQUITY SHARES IN A COMPANY AND HELD FOR A PERIOD OF 12 MONTHS OR MORE. THERE IS AN ANOTHER SECTION WHICH HAS ALSO BEEN REFERRED TO ELABORATE THE SAID POINT THAT AS PER SE CTION 10(38) OF THE I.T.ACT ANY INCOME ARISING FROM THE TRANSFER OF LON G-TERM CAPITAL ASSET BEING AN EQUITY SHARE IN A COMPANY WHERE THE TRANSA CTION OF SALE OF SUCH EQUITY SHARE COME INTO FORCE AND SUCH TRANSACTION I S CHARGEABLE TO SECURITIES TRANSACTION TAX. ALL THESE PROVISIONS T HUS DEMONSTRATE THAT THE PERIOD OF HOLDING SHOULD BE RECKONED FORM THE DATE OF ALLOTMENT OF SUCH ASSET. WE THEREFORE CONCLUDE THAT THE DATE OF ALLOTMENT IS THE DATE OF ACQUISITION AND NOT THE DATE ON WHICH CREDITED T O DEMAT ACCOUNT. THE VIEW TAKEN BY THE LEARNED CIT(APPEALS) IS HEREB Y UPHELD AND GROUNDS OF THE REVENUE ARE DISMISSED. EVEN THE DECISION AS QUOTED BY THE ASSESSING OFFICE R OF CIT VS. CHNILAL KHUSHALDAS REPORTED AT (1974) 93 ITR 369 (G UJ) OF NO HELP BECAUSE THERE THE ISSUE WAS IN RESPECT OF BONUS SHA RES AND HELD THAT BONUS SHARES COME INTO EXISTENCE WHEN A RESOLUTION IS PASSED BY COMPANY AT A GENERAL MEETING FOR CAPITALIZING AS FU LLY PAID UP AND BOARD OF DIRECTORS ALLOTTED FULLY PAID UP BONUS SHARES TO THE SHARE-HOLDERS IN THE PROPORTION OF THEIR RESPECTIVE HOLDINGS. TILL THEN IT COULD NOT BE SAID THAT THE BONUS SHARES CAME IN EXISTENCE. AN IMPORTANT O BSERVATION WAS MADE BY THE HON'BLE COURT THAT THE BONUS SHARES COULD NO T BE SAID TO BE ITA NO.3115/AHD /2009 DY.CIT VS. KUM.ADITI J.VYAS ASST.YEAR 2006-07 - 8 - ACQUIRED BY A SHAREHOLDER BEFORE THEY COME INTO EX ISTENCE BY ALLOTMENT. MEANING THEREBY THE ALLOTMENT OF A SHARE IS A DAY WHEN AN INVESTOR ACQUIRED THE DOMAIN OVER THE SHARES AND THE DATE OF ALLOTMENT IS THEREFORE IS THE DATE OF ACQUISITION. THEREFORE IN TOTALITY T HIS JUDGMENT ALSO SUPPORTS THE VIEW EXPRESSED HEREINABOVE WITH THE R ESULT THIS GROUND OF THE REVENUE STANDS DISMISSED. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 29 TH JULY 2011. SD/- SD/- ( A.K. GARODIA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEM BER AHMEDABAD; DATED 29 / 07 /2011 T.C. NAIR SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XVI AHMEDABAD 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD 1. DATE OF DICTATION..19/07/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 20/07/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S29/07/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 29/07/11