2002 (9) TMI 23 - HC - Income Tax

Capital gain tax transfer of shares - assessee obtained a legal title to the shares only when the share certificate was issued by the company specifying the shares with distinctive numbers - Even if the money belonging to the appellant was appropriated to the share deposit account of the company that by itself will not amount to allotment of shares for shares can be issued only after the company passes a resolution deciding to allot shares - view of the Tribunal is endorsed that the appellant got the shares only on May 31, 1988, i.e., the date at which the share certificates were issued to the appellant - In this case the share certificates were issued to the assessee on May 31, 1988. In that view of the matter, according to us, the Tribunal was perfectly justified in holding that the capital gains have to be assessed on the transfer of the shares by the assessee treating it as a short-term capital gains

Summary

Issues:
1. Determination of the nature of capital gains - short-term or long-term - arising from the transfer of shares by the appellant during the assessment year 1990-91.

Analysis:
The case involved a dispute regarding the nature of capital gains arising from the transfer of shares by the appellant during the relevant assessment year. The appellant, a partner in a firm engaged in steel business, had acquired shares following the transfer of deposits from the firm's account to the partners' share deposit accounts on March 31, 1988. The appellant contended that the shares should be considered as acquired on March 31, 1988, making the capital gains long-term. However, the assessing authority treated the gains as short-term, as the share certificates were issued to the appellant on May 31, 1988.

The Deputy Commissioner of Income-tax (Appeals) initially ruled in favor of the appellant, considering the shares as having been acquired on March 31, 1988. Subsequently, the Income-tax Appellate Tribunal overturned this decision and upheld the assessing authority's view that the shares were acquired only when the share certificates were issued on May 31, 1988. The Tribunal emphasized the importance of legal title to the shares, stating that the mere transfer of funds to a share deposit account does not constitute share allotment.

The Tribunal's decision was based on the lack of evidence demonstrating the existence of the shares before May 31, 1988, and the absence of a resolution by the company to allot shares prior to that date. The court concurred with the Tribunal's findings, affirming that the appellant acquired the shares on May 31, 1988, when the share certificates were issued. Consequently, the capital gains from the share transfer were deemed to be short-term, leading to the dismissal of the appellant's appeal.

In conclusion, the judgment clarified that the date of acquisition of shares is crucial in determining the nature of capital gains for taxation purposes. The court upheld the Tribunal's decision that the appellant acquired legal title to the shares only upon receiving the share certificates on May 31, 1988, resulting in the capital gains being treated as short-term.