2014 (8) TMI 161 - AT - Income Tax

Profit on sale of shares as LTCG instead of STCG Whether the shares were received by the assessee as gift - Held that - Relying upon Nirmala Keshawlal A/P of late Parvatibai P. Dabrai vs. Controller of Excise Duty 1982 (7) TMI 81 - BOMBAY High Court - gift and donation are not mutually exclusive and donation is only a type of gift - the donation is to be construed as a form of gift - there can be no question of treating the receipt of shares by the assessee as donation independent of gift - shares of Nicholas Piramal India Ltd. were acquired by the donor in 1997 which were transferred to the assessee by means of donation in December, 2005/January, 2006 - Since the shares constitute a capital asset, it is but natural that on their transfer, the provisions of section 49(1) would be attracted - If such provisions are applied, the resultant gain would partake of the character of long- term capital gain and, exempt u/s 10(38) of the Act Decided against Revenue.

Summary

Issues:
1. Determination of profit on the sale of shares as long-term capital gain instead of short-term capital gain.

Analysis:
The appeal before the Appellate Tribunal ITAT Delhi involved a dispute regarding the characterization of profit on the sale of shares as long-term capital gain instead of short-term capital gain for the assessment year 2006-07. The assessee Trust received shares as a donation and subsequently sold a portion of these shares. The Assessing Officer (AO) treated the gain from the sale as short-term capital gain, disagreeing with the assessee's claim of long-term capital gain exempt under section 10(38) of the Income Tax Act. The AO's rationale was that the shares received as a donation did not qualify as a gift under section 49(1)(ii) for determining the cost of acquisition. However, the Commissioner of Income Tax (Appeals) overturned the AO's decision, considering the gain as arising from the transfer of a long-term capital asset and thus exempt under section 10(38).

Upon hearing the submissions and reviewing the material, the Tribunal noted that the shares were received as a corpus donation by the assessee Trust, which was not chargeable to tax. The Tribunal referenced various sections of the Income Tax Act, including 11(1)(d), 12(1), and 13(1)(d)(iii), along with the proviso to section 13(1)(d), to support its decision. The key question revolved around whether the shares were received as a gift, as this determination would impact the application of section 49(1)(ii) for calculating the cost of acquisition. The Tribunal relied on a Bombay High Court judgment to establish that donation could be construed as a form of gift, reinforcing the application of section 49(1)(ii) in this case. Since the shares were transferred by means of donation and constituted a capital asset, the gain was categorized as long-term capital gain, aligning with the exemption under section 10(38) of the Act.

Ultimately, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) and dismissed the appeal, affirming that the gain from the sale of shares should be treated as long-term capital gain exempt under section 10(38) of the Income Tax Act. The judgment was pronounced on 24th July 2014.