Chargeability of Capital gains on shares allotted to partner in complaince with the Seciton 47 (xii) of the Inocme tax Act,1961.

[Venkateswararao Sunkara]

Date on which period of holding and year of indexation should be computed in respect of Sale of shares by the partner (presently share holder) allotted for compliance ofsection 47(xiii) of the Income Tax Act, 1961. if sale takes place in 2010 by considering the following example. 1. Constitution of Partnership firm - 1972 2. Converted into company in the year-1998 and all the partners became the share holders of the Company. 3. Sale of shares one of the Partner (allotted u/s 47(xiii) in the year - 2010 Kindly explain the Capital gain implications in the hands of the Share Holder(Partner) as well as the company if any.

[CAGOPALJI AGRAWAL]

The date of allotment of shares and the value for which these shares have been alloted would be considered. The indexation would be done from 1998. As such there is no capital gain in the hands of the company.

[DEV KUMAR KOTHARI]

The date of allotment and consideration for such allotment will be considered, as righhtly pointed out by Shri Gopalji Agarwal. Take care of conditions as to lock-in-period in sub-clasue (d)of clause (xiii) of S. 47 before transferring any shares.

AI Summary

Capital gains on allotted shares: shareholder taxed on sale with indexation from allotment; company not taxed. Taxation of capital gains on shares allotted to partners after conversion depends on the allotment date and the allotment consideration, which establish the cost of acquisition and the base for indexation; the conversion does not create capital gain for the company, and the shareholder computes gains on sale using indexation from the allotment date while complying with any lock in transfer restrictions.