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TMI Blog2010 (4) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... nts etc. The assessee claimed long-term capital gains against sale of 17,000 shares of Star lite CRE as under:- Purchase Details: Date Name of the broker Name of shares No. of shares Amount(Rs.) 10.02.04 Ballav Das Daga Star lite CRE 17,000 2,40,067 Sale Details: Date Name of the broker Name of shares No. of Shares Amount(Rs.) 22.02.05 Purushottam Kejriwal Star lite CRE 6,000 20,97,900 23.02.05 Purushottam Kejriwal Star lite CRE 6,000 20,97,900 28.02.05 Purushottam Kejriwal Star lite CRE 6,000 20,97,900 59,21,550 3.1 Resulting long-term capital gain was claimed to be exempt from taxation as per section 10(38) of the I.T.Act'61. The AO noticed form the D-mat A/c maintained by the assessee with HDFC Bank that 17,000 shares of Star lite CRE was credited to D-mat A/c No.40395498 with HDFC Bank on 22-7-04. As the impugned shares were sold on 22-02-2005, the AO asked the assessee to show-cause as to why the impugned capital gain should not be treated as short- term capital gain. The assessee explained that as per Board's Circular No.704 dated 28-4-1995, the period of holding of shares should be calculated from the date of contract of purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Ballav Dass Daga, who has been condemned by C.S.E. The AO, therefore, took the period of holding of impugned shares from the date 22-5-04 to 22-2-05 and considered the capital gain of ₹ 56,81,482/- as short-term capital gain. 4. Aggrieved the assessee filed appeal before the ld.CIT(A). 5. The submission of the assessee before the ld.CIT(A) was as under:- "It may kindly be seen from para 2 of the Board's circular no.704 dated 28.4.95 that for the determination of the date of purchase and the period of holding in respect of transaction in securities, the date of the contract note should be taken as the date of purchase provided the contract had resulted in payment and delivery of shares. It may kindly be seen that in this case full payments had been made on 12.2.04 and delivery obtained. Therefore, according to the above circular of the Board, the date of purchase should be taken as 10.2.04, the date of contract. Entry in the demat A/c is not material for this purpose. All these were placed before the ld.AO, but he failed to follow the Board's circular no.704 dated 28.4.95. Since the date of purchase was 10.2.04, these shares were long term capital assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Shiv Mangal Securities Pvt.Ltd the assessee has explained that the broker Ballabh Das Daga does not have a depository account of his own but does his transactions through Depository Participant(DP) M/s. Shiv Mangal Securities Pvt. Ltd. That is why the shares in the demat a/c of the HUF have come from this DP. This explanation of the assessee appears to be correct as it is a normal practice in the market. To substantiate the purchase of shares, the assessee has submitted the contract note of the broker Ballabh Das Daga dated 10.02.2004. The copy of bank statement showing payment of ₹ 2,40,067/- to the broker (debited in the bank a/c on 14.02.04) has also been furnished. As discussed above the delivery of the shares has been taken on 22.05.2004(though on that day by mistake it was credited to the a/c of HUF of the assessee). As per CBDT circular No.704, dated 28.04.95, if the payment for the purchased shares has been made and the delivery of the shares has been taken then the date of contract of the broker should be taken as the date of purchase. In this case all the conditions provided in the circular are satisfied therefore, the date of contract note of the broker i.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's paper book page no.5, it was contended by him that the assessee has shown the impugned shares being carried over as an opening balance as on 1-4-04. The learned authorized representative for the assessee has also relied on paper book page nos. 20-24, which pertain to the proceedings before the learned CIT(A) in support of his claim that the impugned shares were delivered to the assessee through M/s. Shiv Mongal Securities Pvt. Ltd on 12-2-04. It has been certified by the learned Authorised Representative for the assessee that the paper book pages 20-24 were not available with the AO. Relying on Board's Circular No.704 dated 28-4-95, which is available in APB Page 21, it was submitted by him that in the above facts and circumstances of the case the date of acquisition of impugned shares have to be taken as on 12-2-04, on which date the amount for purchase of impugned shares was paid to Sh.Ballav Das Daga. It was, therefore, contended that the impugned order of the learned Commissioner of Income- tax(A) be confirmed. 10. We have heard the parties and perused the record. The case of the assessee is that even though there is evidence of transfer of the impugned shares t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensure faster and hassle free settlement of trade with simpler settlement cycles. 2. Under the new system, the movement of the scripts physically from one person to another is totally done away with by introducing certain intermediaries, chief among them being a Depository and a Participant. In order to implement the system of holding and transferring securities through the electronic media, firstly the Depositories Act, 1996, has been enacted. The object of this Act is to regulate the working of the Depositories in securities and matters incidental thereto. A depository is an organization where the securities of a shareholder are held in the electronic form on the request of the shareholder, through the medium of a Depository Participant. The Depository is comparable to a bank where an investor who desires to utilise its services can open an account with it through a Depository Participant. However, a Depository is not merely a custodian but is in fact the registered owner of the security and it is the Depository whose name is entered as such in the register of the issuer. The person actually entitled to the security becomes the beneficial owner, whose name is recorded as such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier issued Circular No. 704 dated 28 t h April, 1995, which explains the manner in which the 'date of transfer' and 'period of holding' may be determined. This primary position as regards the 'date of transfer' and 'period of holding' does not change even when the securities are held in the dematerilised form. The only problem when securities are held in dematerilised form is that the distinct trail linking every share to a certificate and its unique distinctive number linking it with its subsequent sale is not available. 5. Section 45(2A) stipulates that in the case of securities held in dematerilised form, for determining 'date of transfer' and 'period of holding' the FIFO method would be applicable. FIFO method is generally used to determine the value of any item moving out of a stock account and those remaining in stock at any point of time. When applied to an account holding dematerialised stock, it implies that, out of the existing holdings, the item that first entered into the account is deemed to be the first to be sold out. However, once a sale is linked with an earlier purchase, for determination of their 'date of tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 500 shares will be treated as having been acquired in November,1985 at the relevant cost. This is the effect of the FIFO method. 10.5 Reading Circular No.704 together with Circular No.768 would show that Circular No.704 will be applicable only in case of physical share scripts and not in case of dematerialised share scripts. As the impugned shares have been transferred in assessee's D-mat A/c only in July'04 and as the same were entered in Nawal Kishore Kejriwal(HUF) D-mat A/c in May'04, we are of the considered opinion that there is no evidence on record to sustain the claim of the assessee that the same were indeed delivered to him prior to May'04. The date of acquisition of the impugned shares by the assessee should, therefore, be 22-5-04 as has been taken by the AO. Thus, we hold that Board's Circular No.704 dated 28 t h April,1995 is not applicable to dematerialised share scripts and date of acquisition of the shares would be the date only when dematerialised shares are entered in assessee's D-mat account with depository. Thus, we reverse the finding of the learned CIT(A) on this issue and restore that of the AO. 11. In the result, the appeal of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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