2015 (10) TMI 1073 - AT - Income Tax

Shares held for 12 months - long term capital gain or short term capital gain - entitlement to exemption u/s. 10(36) - Held that - We find that by Finance Act, 2003 a new clause (36) has been inserted in section 10 of the Act w.e.f. 01.04.2004 so as to provide that any income arising from the transfer of long term capital asset, being an eligible equity share in a company purchased on or after 01.03.2003 but before 01.03.2004 and held for a period of twelve months or more shall be exempt from tax for and from AY 2004-05. It means that this circular and the clause (36) as inserted in section 10 by Finance Act, 2003 clearly mentioned the holding period of shares as twelve months or more for claiming exemption in respect of long term capital gains in relation to shares. There is no dispute that the assessee has held the shares for twelve months, as noted in the assessment order by revenue, there is no scope for any other interpretation other than that the shares held by the assessee are long term capital asset eligible for exemption under clause (36) of section 10 of the Act. Hence, we confirm the order of CIT(A) and allow the claim of the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Whether shares held for 12 months are eligible for long term capital gain or short term capital gain.

Analysis:
1. The judgment involves cross-appeals by the revenue and the assessee arising from the order of CIT(A)-1, Kolkata. The assessment under consideration was framed by DCIT, Circle-3, Kolkata for Assessment Years 2004-05. The primary issue in the revenue's appeal was the treatment of the asset (shares) held by the assessee for 12 months as long term or short term capital gain.

2. The assessee, engaged in NBFC activities, had initially declared capital gains as long term but the AO assessed it as short term capital gain based on section 2(42A) of the Income-tax Act, 1961. The AO's contention was that the holding period should not exceed 12 months for shares to be considered short term capital assets. The CIT(A) ruled in favor of the assessee, stating that the shares were held for twelve months and qualified for long term capital gain under section 2(42A) and section 10(36) of the Act.

3. The ITAT, after considering the facts and relevant provisions, upheld the CIT(A)'s decision. The ITAT noted that the Finance Act, 2003, inserted clause (36) in section 10 of the Act, specifying a holding period of twelve months or more for claiming exemption on long term capital gains related to shares. As the assessee had held the shares for twelve months, the ITAT confirmed the eligibility for exemption under clause (36) of section 10.

4. Additionally, the assessee's appeal raised a jurisdictional point, which was dismissed due to lack of substantial argument. Ultimately, both the revenue and assessee's appeals were dismissed by the ITAT, upholding the CIT(A)'s decision regarding the treatment of the shares for taxation purposes.

Judgment:
The ITAT Kolkata, in its judgment dated 07th May, 2014, confirmed that shares held for twelve months are eligible for long term capital gain as per the provisions of section 10(36) of the Income-tax Act, 1961. The decision favored the assessee, dismissing the appeals of both the revenue and the assessee.