Recognised stock exchange transfer and listed-status test determine exemption and concessional tax treatment for share gains.

Share transfers under a public issue were held not to be effected through a recognised stock exchange where the shares were credited to allottees' demat accounts before trading began, because beneficial ownership had already passed and the seller retained no control. On that basis, exemption under section 10(38) was unavailable. The later credit of sale proceeds did not change the completed transfer. The capital gains were also held taxable at the normal rate, because the shares were not listed on the relevant date and therefore did not qualify for the concessional rate applicable to listed securities; later listing and trading did not alter that status.

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Issues: (i) Whether the transfer of shares under the public issue was entered into in a recognised stock exchange so as to attract exemption under section 10(38) of the Income-tax Act, 1961. (ii) Whether the capital gains in the present case were taxable at the normal rate or at the concessional rate applicable to listed securities.

Issue (i): Whether the transfer of shares under the public issue was entered into in a recognised stock exchange so as to attract exemption under section 10(38) of the Income-tax Act, 1961.

Analysis: The shares were transferred out of the seller's demat account before the commencement of trading on the stock exchange, were allotted to the applicants, and were credited to their demat accounts before trading actually began. Under the Depositories Act, the beneficial owner is the person whose name is recorded with the depository, and under the Sale of Goods Act the property in specific goods passes when the parties so intend or when the goods are in a deliverable state. Once the shares stood credited to the allottees' demat accounts and listing and trading approvals had been granted, the allottees became the beneficial owners and the seller had no dominion or control over the shares. The actual credit of sale proceeds later did not postpone the transfer of ownership, and the transaction was not one effected through the stock exchange trading system.

Conclusion: The transaction was not entered into in a recognised stock exchange and the assessee was not entitled to exemption under section 10(38) of the Income-tax Act, 1961.

Issue (ii): Whether the capital gains in the present case were taxable at the normal rate or at the concessional rate applicable to listed securities.

Analysis: The concessional rate was available only for listed securities. On the relevant date, the shares had been transferred to the allottees before they were actually listed on the stock exchanges, and therefore they did not answer the description of listed securities at the time of transfer. The later commencement of trading did not alter their status on the relevant date.

Conclusion: The capital gains were chargeable at the normal rate and not at the concessional rate of 10%.

Final Conclusion: No substantial question of law arose for interference, and the assessee's challenge failed in full.

Ratio Decidendi: For exemption or concessional taxation of share transfers to apply, the transfer must be effected through the recognised stock exchange mechanism and the shares must already have the relevant listed status at the time of transfer; later credit of sale proceeds or subsequent trading does not alter the completed transfer of ownership.

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