1990 (8) TMI 187 - AT - Income Tax

Bonus Shares, Long-term Capital Assets, Market Value, Profit On Sale, Short-term Capital Gains

Summary

Issues:
Computation of capital gain arising from the sale of shares of M/s. Zenith Steel Pipes & Industries Ltd.; Claiming deduction under section 80T and benefit of section 54E of the Act; Determining whether the shares were held as long-term capital assets at the time of sale in August 1984; Whether the market value of shares at the date of conversion into investment should be deducted from the sale proceeds for computing capital gain.

Analysis:
The appeal and cross objection before the Appellate Tribunal ITAT CALCUTTA-B revolved around the computation of capital gain from the sale of shares of M/s. Zenith Steel Pipes & Industries Ltd. The dispute arose as the assessee claimed the profit from the sale of shares as long-term capital gain, while the Revenue treated it as short-term capital gain, denying benefits under section 80T and section 54E of the Act. The assessee had initially acquired shares in 1961, which were later converted into stock-in-trade and then back into investment before being sold in August 1984.

The main contention was whether the shares were held as long-term capital assets at the time of sale in August 1984. The CIT(A) ruled in favor of the assessee, considering the shares as long-term capital assets based on the period of holding since 1961, despite a period where they were stock-in-trade. The Tribunal analyzed the definitions of "capital asset" and "short-term capital asset" under sections 2(14) and 2(42A) of the Act. The Tribunal held that the shares were held for less than 36 months, classifying them as short-term capital assets, thereby modifying the CIT(A)'s order.

Regarding the cross objection by the assessee, claiming deduction of the market value of shares at the date of conversion into investment from the sale proceeds, the Tribunal rejected this claim. Citing precedents from various High Courts, the Tribunal emphasized that only the "cost of acquisition" should be deducted for determining capital gains, not the market value at the date of conversion. Consequently, the cross objection was dismissed.

In conclusion, the Appellate Tribunal allowed the appeal by the Revenue and dismissed the cross objection by the assessee, affirming that the shares were short-term capital assets and rejecting the deduction of market value at the date of conversion for computing capital gains.