TMI Blog2010 (10) TMI 687X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the assessee and the shares so purchased were credited to the said demat account and were lying there till the same were transferred to the demat account of the assessee after a period of more than one year - Only on such verification, would it be possible to establish the link between sale of shares with the corresponding purchases as envisaged in the Central Board of Direct Taxes Circular No. 768 dated June 24, 1998 and once such link is established the date of transfer of shares to the assessee and the period of holding of the said shares by him could be determined by applying Board Circular No. 704 - Appeal is allowed for statistical purpose - I. T. A. No. 3803/Mum/2008, - - - Dated:- 20-10-2010 - P. M. Jagtap, Vijay Pal Rao, JJ. Jitendra Yadev for the Appellant Dharmesh Shah for the Respondent ORDER P. M. Jagtap, Accountant Member:- This appeal is preferred by the Revenue against the order of the learned Commissioner of Income-tax (Appeals)-18, Mumbai, dated March 17, 2008 whereby he directed the Assessing Officer to treat the capital gain arising on sale of shares of M/s. Artill Biotec Ltd. and M/s. Shakun Construction Ltd. as long-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io Innovation Ltd. were purchased on July 16, 2003, July 21, 2003 and July 24, 2003, and were transferred to the demat account of the Cosmos Co-operative Bank Ltd. between November 16, 2004 to January 11, 2005. The payment for the same was made between August 5, 2003 to August 9, 2003 in cash of total Rs. 2,00,000 and the balance amount of Rs. 2,09,860 was paid on August 8, 2003 vide cheque No. 00812495 drawn on State Bank of India, Shivaji Park branch. The amount of Rs. 28,160 paid on January 22, 2005 was towards the interest charged by the broker for the delayed payment and not the payment towards the purchase. Moreover, for the determination of the date of transfer of shares listed in a recognised stock exchange in India and also the holding period to be reckoned under section 2(42A), the Board (vide Circular No. 704 dated April 28, 1995 ([1995] 213 ITR (St.) 7) have clarified that in respect of purchase of shares the holding period shall be reckoned from the date of the broker's note for purchase on behalf of the purchaser and not by actual transfer of shares in the demat account. As such the assessee is entitled to the claim of long-term capital gain." "The shares of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003 and the same were lying in the demat account of the broker, the same should have been transferred to the demat account of the assessee in one lot and there was no reason to make the said transfer in different lots on different dates. He therefore held that all the purchase and sale of both the scrips had actually been carried out by the assessee within a span of two months and the profit arising from the said transfer was assessable to tax as short-term capital gain in accordance with the provisions of section 111A. He therefore brought to tax the amount of Rs. 1,57,07,424 in the hands of the assessee as short-term capital gain in the assessment completed under section 143(3) vide an order dated December 7, 2007. Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the learned Commissioner of Income-tax (Appeals) challenging the action of the Assessing Officer in treating the amount of Rs. 1,57,07,424 as short-term capital gain chargeable to tax in his hands. During the course of appellate proceedings before the learned Commissioner of Income-tax (Appeals), it was contended on behalf of the assessee that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determines the actual date of purchase since the shares in question have remained in pool account for considerable time and this time cannot be excluded for the consideration of determination of the holding period of shares in question. The Assessing Officer has also ignored the mandate on Circular No. 768 dated June 24, 1998 as per which the date of transfer and the period of holding does not change even when the securities are held in the demat form. I also agree with the plea of the authorised representative that the Assessing Officer has incorrectly interpreted Circular No. 704 dated April 28, 1995 wherein it has been provided that the date of contract could be the date of transfer provided it is followed by the actual delivery of shares and transfer deeds. The Assessing Officer has nowhere given the finding that the delivery has not been effected or the delivery has been effected in pursuant to the above referred contract." For the reasons given above and relying mainly on Circular No. 704, dated April 20, 1995 read with Circular No. 768 dated June 24, 1998, he directed the Assessing Officer to treat the capital gain of Rs. 1,57,07,424 arising to the assessee from sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e during the course of appellate proceedings before the learned Commissioner of Income-tax (Appeals). He submitted that the relevant shares were purchased by the assessee through his broker in the month of July, 2003 itself and this period of acquisition was duly supported by the contract notes issued by the concerned broker. He submitted that merely because the said shares were lying in the demat account of the broker for want of settlement of full payment by the assessee, it cannot be said that the shares were not purchased by the assessee in the month of July, 2003. He contended that it is well settled that actual delivery of shares does not mean delivery given to the assessee only and delivery taken by the broker being an agent on behalf of the assessee is also passive delivery to the assessee. He relied on the decision of a co-ordinate Bench of this Tribunal in the case of Suresh K. Jajoo and Vimla S. Jajoo v. Asst. CIT [2010] 39 SOT 514 (Mumbai) wherein it was held that where it would suit to an assessee to claim the date of broker's notes as the date of sale, he can do so and the relevant Board Circular can help him to support such plea being beneficial to such assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minate problems which are normally associated with settlement through physical certificates, like tearing/mutilation of share certificates due to careless handling, loss of certificates by postal authorities or registrars or investors, problems of bad delivery, forgery of certificates, etc. The new system is devised to ensure faster and hassle free settlement of trade with shorter settlement cycles. 2. Under the new system, the movement of the scrips physically from one person to another is totally done away with by introducing certain intermediaries, chief among them being a depository and a participant. In order to implement the system of holding and transferring securities through the electronic media, firstly the Depositories Act, 1996, has been enacted. The object of this Act is to regulate the working of the depositories in securities and matters incidental thereto. A depository is an organisation where the securities of a shareholder are held in the electronic form on the request of the shareholder, through the medium of a depository participant. The depository is comparable to a bank where an investor who desires to utilise its services can open an account with it throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of application of the FIFO system for the determination of the date of transfer and the period of holding." The Board has also considered the effect of the above change on the issues involved in income-tax proceedings relating to determination of cost of acquisition and the period of holding in paragraphs 4 and 5 of the said circular which are extracted below (page 7 of 232 ITR (St.)):- "4. The primary issue under the Income-tax Act in the case of securities whether held in physical form or in the dematerialised form remains the determination of cost of acquisition and the period of holding. The Board had earlier issued Circular No. 704, dated April 28, 1995, which explains the manner in which the 'date of transfer' and 'period of holding' may be determined. This primary position as regards the 'date of transfer' and 'period of holding' does not change even when the securities are held in the dematerialised form. The only problem when securities are held in dematerialised form is that the distinct trail linking every share to a certificate and its unique distinctive number linking it with its subsequent sale is not available. 5. Section 45(2A) stipulates that in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecember, 2004, the same were actually purchased in the month of July, 2003 and the shares so purchased in July, 2003 were duly transferred to the demat account of his broker. The claim of the assessee regarding "date of transfer" and "period of holding" of the shares sold thus was made on the basis of purchase of shares claimed to be made through broker in the month of July, 2003 which were stated to be transferred to the so called pool demat account maintained by the broker. It is therefore necessary to trace the corresponding purchases of shares from the said demat account maintained by the broker in order to verify whether such purchases of respective shares were actually made by the said broker on behalf of the assessee and the shares so purchased were credited to the said demat account and were lying there till the same were transferred to the demat account of the assessee after a period of more than one year. Only on such verification, would it be possible to establish the link between sale of shares with the corresponding purchases as envisaged in the Central Board of Direct Taxes Circular No. 768 dated June 24, 1998 and once such link is established the date of transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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