Demat trail and transmission evidence supported long-term capital gains treatment, with section 10(38) exemption allowed.

Contemporaneous transmission certificates and demat-account reconciliation showed that the equity shares sold had been received earlier from the parents and were reflected as opening balances or family transfers in the demat records. On that basis, the holding period was treated as having run for the requisite statutory period, so the gains were assessed as long-term capital gains rather than short-term capital gains. Exemption under section 10(38) of the Income-tax Act, 1961 was allowed, and the addition made by treating the receipts as short-term capital gains was deleted.

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Issues: Whether the gains arising from sale of equity shares were to be assessed as short-term capital gains or long-term capital gains, and whether exemption under section 10(38) of the Income-tax Act, 1961 was .

Analysis: The assessee produced the transmission certificate and demat-account reconciliation showing that the shares sold during the relevant year had been received earlier from parents and were reflected in the demat records as opening balances or transfers from family demat accounts. On this material, the sale transactions were found to relate to shares held for the requisite period, and the contrary view taken in the assessment was not sustainable.

Conclusion: The gains were held to be long-term capital gains, exemption under section 10(38) of the Income-tax Act, 1961 was allowable, and the addition made by treating the receipts as short-term capital gains was deleted.

Ratio Decidendi: Where the contemporaneous demat trail and transmission evidence establish prior holding of the shares beyond the statutory period, the resultant gains are to be assessed as long-term capital gains and cannot be taxed as short-term capital gains.

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