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TMI Blog1990 (8) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... he brief facts relating to the controversy are that the assessee acquired 11,533 shares of Zenith Steel in the year 1961. These sham were retained as " investment " till 1972 when the shares were converted into stock-in-trade. Between the years 1975 and 1979 the assessee was further allotted 14,430 bonus shares of Zenith Steel. The total shareholding of the above Company was again converted to investment on 9th September, 1982. All the shares were sold in August 1984. The assessee earned a profit of Rs. 6,18,141 on sale of shares and claimed the same, to be long term capital gain. 3. From and out of the capital gain shown, the assessee claimed deduction under section 80T as also the benefit of section 54E of the Act for having invested th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to the CIT(A), section 2(42A) does not require that the assets should be held as " capital assets " for more than 36 months. Although the shares were held for part of 36 months as stock-in-trade that did not alter materially the position of holding of the assets. As per the decision of the Gujarat High Court referred to and mentioned by the CIT(A), the capital assets must exist as identifiable assets during the period of 36 months. As the shares were held by the assessee since the year 1961, they were " long-term capital assets " in the hands of the assessee when sold in August 1984. The CIT(A) accordingly directed the ITO to allow exemption under section 54E and deduction under section 80T of the Act on the capital gain as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal asset which becomes the property of the assessee in the circumstances mentioned in sub-section (1) of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section ; (c) in the case of a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, there shall be included the period for which the share or shares in the amalgamating company were held by the assessee. (ii) In respect of capital assets other than those mentioned in clause (i), the period for which any capital asset is held by the assessee shall be determined subject to any rules which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e word " capital " in it. The distinction and the dividing line between " long-term capital asset " and " short-term capital asset " is period of 36 months. The scale of time is to be applied to a " capital asset " and not to an ordinary " asset ". The word " asset " is not defined and " short-term capital asset " is defined only for computing income under Chapter ' E ' relating to capital gains. The capital gain arises on the transfer of a capital asset and, therefore, holding as an asset is not relevant for purposes of Chapter E. The clear scheme the Income-tax Act is to move backward in time from the date of the transfer of " capital asset " to determine whether gain or loss arising is long-term or short term. If capital asset is held fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee claimed that it was entitled to deduct as " cost of acquisition of capital asset ", the market value of the land as on 23-1-63 when it became capital asset. Their Lordships of the Gujarat High Court held : " On the facts, at the time of sale the lands were not agricultural lands within the meaning of section 2(14) of the Act. Therefore, profits from the sales were chargeable as capital gains. The cost of acquisition of the lands was their cost when they were first acquired by the assessee and since the lands had been acquired prior to 1st January 1954, the assessee had the option under section 55(2) to substitute the fair market value of the lands as on 1st January 1954." The above decision of the Gujarat High Court has been fol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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