Date of Share Transfer Determines “Holding Period”, Not Allotment Date: ITAT allows LTCG Exemption [Read Order]

The Mumbai Bench, Income Tax Appellate Tribunal (ITAT) held that for the purpose of determining the “holding period” of shares concerning eligibility for long-term capital gains (LTCG) exemption, the decisive date is the date of transfer of shares to the assessee and not the date on which the shares were originally allotted to the previous holder.

Chintan Harshad Kanakia, the assessee, filed his return of income for Assessment Year 2015-16, claiming exemption on LTCG under Section 10(38) of the Income Tax Act, 1961, arising from the sale of shares of Parag Shilpa Investments Limited. During assessment proceedings, the claim was disallowed, alleging that the purchase of shares was on a date before their allotment to the seller.

According to the Assessing Officer (AO), this discrepancy established that the assessee had failed to prove a valid holding period exceeding twelve months. The Commissioner of Income Tax (Appeals) [CIT(A)] sided with this opinion, holding that the assessee was not entitled to the exemption.

Also Read:Admission of Additional Evidence Sans Rule 46A(3) Compliance Invalid: ITAT Revives ₹1.77 Cr Unexplained Purchase Addition [Read Order]

The appellant, through Riddhisha Jain, Chartered Accountant, contended that the authorities had erred in treating the allotment date of shares in the hands of the previous holder as the relevant date for computing the holding period. It was argued that the shares were acquired through an off-market transfer and that ownership passed to the assessee on the date of transfer recorded on the share certificates and in the register of members.

Further, submitted that the Income Tax Act, 1961, does not mandate that the holding period must be reckoned from the date of allotment to the seller, and that the documentary evidence on record clearly demonstrated that the shares were held by the assessee for more than twelve months prior to their sale.

The Revenue argued that the mismatch between the date of allotment of shares to the seller and the claimed date of purchase by the assessee created doubt regarding the genuineness of the holding period. It was contended that in the absence of clear proof establishing acquisition after allotment, the benefit of long-term capital gains exemption could not be granted.

Also Read:Section 11 Exemption Cannot Be Denied for Belated Form 10B Once Delay is Condoned: ITAT [Read Order]

The Bench comprising Pawan Singh, Judicial Member and Renu Jauhri, Accountant Member held that the approach adopted by the lower authorities was legally unsustainable. The Tribunal observed that for determining the holding period under the Income Tax Act, 1961, what is material is the date on which the assessee acquired ownership of the shares.

The Bench noted that the share certificates clearly recorded the date of transfer of shares in favour of the assessee, and this date could not be disregarded merely because the shares were allotted to the previous holder on a later date. Therefore, once the transfer date established that the shares were held for more than twelve months, the statutory condition for long-term capital gains stood satisfied. Consequently, the denial of exemption under Section 10(38) of the Income Tax Act, 1961, was set aside.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates