TaxTMI 
TaxTMI 
2021 (9) TMI 866
X X X X Extracts X X X X
X X X X Extracts X X X X
....e have heard Mr.M.Swaminathan, learned Senior Standing Counsel assisted by Ms.V.Pushpa, learned Standing Counsel for the appellant-Revenue and Mr.B.Ramanakumar, learned counsel appearing for the respondent-assessee. 4.The assessee is an exporter of agricultural commodities and also dealing in iron ore. The assessee filed their return of income for the assessment year 2007-08 on 31.10.2007, declaring total income of Rs. 7,93,48,354/-. The return was duly processed under Section 143(1) of the Act. Subsequently, the case was selected for scrutiny, the assessee was called upon to furnish details and the case was discussed with the Authorized Representative of the assessee. 5.On going through the books of accounts and other documents produced by the assessee, the Assessing Officer pointed out various issues and ultimately, the assessment was completed under Section 143(3) of the Act by order dated 30.12.2009. The Commissioner of Income Tax-II, Tiruchirappalli (for brevity "the CIT") exercised his power under Section 263 of the Act on the ground that the Assessing Officer failed to find out how many shares were acquired by the assessee from a hotel, which is a company registered under ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t" as defined under Section 2(42A), the amendment brought out by Finance Act, 1994 with effect from 01.04.1995, the relevant extracts of the explanatory notes on the provision of the Finance Act and the definition of the term "securities" as defined in Section 2(h) of the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as "the Securities Contracts Act"), held that the intention of the Legislature while introducing the amendment to the Act was very much clear not to include shares in the term "security" and therefore, concluded that there is no distinction between unlisted and listed shares for classifying them as short term capital asset under the Act. Thus, the only issue involved in the instant case is whether the shares held by the assessee in a company, which is not a listed company when sold, can be brought under the definition of "short-term capital asset" as defined under Section 2(42A) of the Act or whether it should be treated as a "long term capital asset". 6.The explanatory notes on the provisions of the Finance Act, 1994 would make the situation lucid and clear, which read as follows:- "There are many financial instruments, other than company sha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction 10 (or a zero coupon bond), the provisions of this clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted. Explanation (1). - ........" 10.In terms of the above definition, short term capital asset would mean a capital asset held by an assessee for not more than 36 months immediately preceding the transfer. The interplay of the provision in Section 2(42A) would be relevant for the case on hand, which states that in case of a share held in a company or any other security listed in a recognized stock exchange in India or a unit of the Unit Trust of India or a unit of a Mutual Fund or a zero coupon bond, the provisions of the clause shall have effect as if for the words "thirty-six months", the words "twelve months" had been substituted. 11.What is important to note is to use the word "or" in between each of the categories of items mentioned in the proviso. The first of which being shares held in company. The provision dose not make a distinction between a public company, a private company, a listed company or an unlisted company. The second category is "other securities" and a condition has been imposed under the sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to be construed as thirty six months only and therefore, the shares cannot be treated as short term capital gain and accordingly, taxed. Aggrieved by the same, the assessee approached the High Court of Karnataka. While answering the question, the Court took into consideration the definition of "short-term capital asset" as defined under Section 2(42A), the circular issued by the Central Board of Direct Taxes (CBDT) bearing Circular No.684 dated 10.06.1994 and pointed out that the shares held in a company, which may be a private limited company, a public limited company or a listed company or any other security other than those shares listed in a recognized stock exchange in India, if it is held for a period of twelve months, then it ceased to be a short term capital asset and it becomes a long term capital asset. Therefore, the Court pointed out that the authorities have not kept this distinction in mind and they have misread the section and accordingly, the appeal filed by the assessee was allowed. The above decision would apply with full force to the case on hand warranting answering of the substantial question of law in favour of the respondent-assessee. 14.Identical issue came....