2002 (9) TMI 23 - HC - Income Tax

Legal Title Acquired Upon Receiving Share Certificates: Date of Acquisition Key for Capital Gains

Sm. Zubin George Versus Commissioner of Income-Tax.

Sm. Zubin George Versus Commissioner of Income-Tax. - [2004] 265 ITR 683, 183 CTR 179, 130 TAXMANN 778 Issues:1. Determination of the nature of capital gains - short-term or long-term - arising from the transfer of shares by the appellant during the assessment year 1990-91.Analysis:The case involved a dispute regarding the nature of capital gains arising from the transfer of shares by the appellant during the relevant assessment year. The appellant, a partner in a firm engaged in steel business, had acquired shares following the transfer of deposits from the firm's account to the partners' share deposit accounts on March 31, 1988. The appellant contended that the shares should be considered as acquired on March 31, 1988, making the capital gains long-term. However, the assessing authority treated the gains as short-term, as the share certificates were issued to the appellant on May 31, 1988.The Deputy Commissioner of Income-tax (Appeals) initially ruled in favor of the appellant, considering the shares as having been acquired on March 31, 1988. Subsequently, the Income-tax Appellate Tribunal overturned this decision and upheld the assessing authority's view that the shares were acquired only when the share certificates were issued on May 31, 1988. The Tribunal emphasized the importance of legal title to the shares, stating that the mere transfer of funds to a share deposit account does not constitute share allotment.The Tribunal's decision was based on the lack of evidence demonstrating the existence of the shares before May 31, 1988, and the absence of a resolution by the company to allot shares prior to that date. The court concurred with the Tribunal's findings, affirming that the appellant acquired the shares on May 31, 1988, when the share certificates were issued. Consequently, the capital gains from the share transfer were deemed to be short-term, leading to the dismissal of the appellant's appeal.In conclusion, the judgment clarified that the date of acquisition of shares is crucial in determining the nature of capital gains for taxation purposes. The court upheld the Tribunal's decision that the appellant acquired legal title to the shares only upon receiving the share certificates on May 31, 1988, resulting in the capital gains being treated as short-term.