2013 (4) TMI 178 - AT - Income Tax

Gain arising from the sale of shares - long term capital gains (LTCG) v/s short term capital gain (LTCG) - whether for the purpose of computing LTCG, the date of acquisition of shares (assets) is to be taken or the date of conversion of shares (assets) from SIT to investment for computing the period of twelve months? - Held that - This issue was first impugned in the case of Keshavji Karsondas vs. CIT reported in (1993 (9) TMI 83 - BOMBAY HIGH COURT) wherein held that cost of acquisition, is to be taken, i.e. the date of acquisition also followed by in the case of Kalyani Exports & Investments vs. DCIT (2001 (1) TMI 240 - ITAT PUNE). The ratio has now been followed in the case of Jannhvi Investments Pvt. Ltd. (2008 (1) TMI 314 - BOMBAY HIGH COURT) and very recently in Bright Star (2008 (7) TMI 442 - ITAT BOMBAY-H) wherein held that section 45(2) talks about conversion of investment to SIT but does not involve the reverse situation, i.e. where SIT is converted into investment. The coordinate Bench at Mumbai then held that date of conversion cannot be taken to compute LTCG. Since the case of the assessee is identical on facts, respectfully, therefore, following the above decisions no reason to deviate from the decision taken by the CIT(A) that only the date of first holding, i.e. date of acquisition of the shares as SIT, and not the subsequent period of holding as capital asset is accepted - in favour of assessee.

Summary

Issues:
Whether the gain from the sale of shares should be classified as long term capital gains (LTCG) or short term capital gains (STCG).

Analysis:
The appeal was filed by the department against the order of CIT (A) X, Mumbai, regarding the classification of the gain arising from the sale of shares as LTCG or STCG. The assessee sold 7,20,992 equity shares of Lupin Limited, with part of the stock held as stock in trade and the rest as investment. The AO denied LTCG status on shares converted to investment due to the holding period being less than 12 months. The CIT(A) relied on previous court decisions and concluded that the date of first holding as stock in trade should be considered for computing LTCG.

The CIT(A) referenced the decision in the case of CIT vs. Jannhavi Investments Ltd. and ACIT vs. Bright Star Investment (P) Ltd., emphasizing that the cost of acquisition is crucial for determining capital gains tax. It was clarified that the date of acquisition of shares as stock in trade should be accepted for computing LTCG. The jurisdictional High Court's decision in Keshavji Karsondas vs. CIT was also highlighted to support this interpretation.

During the hearing, the department reiterated the AO's arguments, while the AR supported the CIT(A) order. The ITAT considered whether the date of acquisition or the date of conversion of shares from stock in trade to investment should be used to compute the holding period for LTCG. Citing previous court decisions, including Keshavji Karsondas vs. CIT and Jannhvi Investments Pvt. Ltd., it was concluded that the date of acquisition should be considered for determining LTCG. The ITAT upheld the CIT(A) decision, rejecting the department's appeal as all grounds were linked to the issue of LTCG classification, which was decided in favor of the assessee.

In conclusion, the appeal filed by the department was dismissed, and the decision of the CIT(A) regarding the classification of gain from the sale of shares as LTCG was upheld by the ITAT.