Holding period of gifted shares counts as donor's holding, making shares long-term capital assets; gain eligible u/s54F

Whether holding period of gifted shares qualifies them as long-term capital assets under s.2(29AA) read with s.49(1)(ii): Tribunal held that s.49(1)(ii) deems the cost of acquisition and, by necessary implication via s.2(29AA)/s.2(42A) and Explanation 1(i), imports the previous owner's period of holding for computing capital gains; therefore the shares received by gift trace their acquisition date to the donor's original acquisition. Outcome: the shares were long-term capital assets and the resulting gain qualified for deduction under s.54F; decision against Revenue.

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Issues: Whether the shares received by the assessee as gift are to be treated as long-term capital assets for the purposes of capital gains taxation (and thereby entitled to exemption under section 54F), having regard to section 49(1), section 2(29AA) and related provisions of the Income-tax Act, 1961.

Analysis: The Tribunal examined the factual matrix that the assessee received 6,51,000 equity shares as a gift from Viney Prakash Agarwal, who in turn had received 9,23,826 shares from Sudesh Kumari. Section 49(1) deems the cost of acquisition of a gifted asset in the hands of the donee to be the cost to the donor; Explanation 1(b) to section 2(42A) and section 2(29AA) govern reckoning of holding period from the date of the donor's acquisition. The appellate facts showed documentary material (share movement extracts, gift deed, affidavit and company confirmation) establishing that the donor's acquisition pre-dated the relevant threshold for long-term status. The Tribunal accepted the reasoned findings of the lower authority (CIT(A)) that the donor's earlier acquisition and the documentary record qualified the transferred shares as long-term assets in the hands of the assessee, and that the conditions for exemption under section 54F were satisfied. The Tribunal also relied on applicable precedent for applying section 49 deeming provisions to gifts where the donor's acquisition gives the donee the requisite holding period.

Conclusion: The shares are long-term capital assets in the hands of the assessee and the long-term capital gains arising on their sale are eligible for exemption under section 54F; the Revenue's appeal is dismissed (decision in favour of the assessee).

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