As per the existing provisions, period of holding
distinguishes one capital asset from the other. The holding period refers to
the time between an asset’s purchase and its sale. An asset that is held for
more than 36 months. (However, from 2017-18, the holding period has been
reduced to 24 months in the case of immovable property), it is categorized as a
long-term capital asset. All capital assets other than long-term capital assets
are termed as short-term capital assets.
Normally period of holding is
calculated from the date of acquisition of capital asset to the date of
transfer. Specific rules are provided by the Income Tax Act to determine period
of holding of a capital asset in few cases. However, in certain cases period of
holding is:—
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S. No.
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Particulars of
asset
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Date of Acquisition/Holding
for the purpose
of computation
of capital gain
tax
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1.
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SECTION 49(1) : PREVIOUS OWNER
If the capital asset is acquired by the
assessee through any of the ways/ modes specified under section
49(1) such as
(a) Property
acquired by way of Gift, will, succession, or inheritance or
(b) Property
acquired on partition of HUF (family) or
(c) Under a
revocable or irrevocable trust or
(d) Property
acquired by the amal-gamated company of the amal-gamating company.
(e) Property acquired by the resulting company from
the demerged company in demerger.
(f) On a transfer in a business re-organization of a
capital asset by the predecessor co-operative bank to the successor
co-operative bank.
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The period for which the previous
owner held the asset should also be
included for computing the period of holding of the assessee/ person who sold it (i.e. the words ‘held by assessee’ means held by the assessee and by the previous owner).
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2.
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When the assessee is owner of an asset received under a mode specified
under section 49(1) and thereafter the asset is converted by the assessee
into a new asset.
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The period of holding would commence from the date of conversion.
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3.
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Transactions in shares and securities -Date of purchase of shares
and securities (through stock
exchange and through share brokers).
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Date of broker’s note provided such transactions are followed up by
delivery of shares and also the transfer deeds.
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4.
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Transactions in shares and securities-Date of transfer (through stock
exchange) of shares & securities.
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Date of purchase
by broker on behalf of investor.
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5.
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Transactions in shares and securities Date of purchase/transfer of
shares and securities. (Transactions taken place directly between parties and
not through stock exchanges).
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Date of contract of sale as declared by parties provided it is followed
up by actual delivery of shares and the transfer deeds.
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6.
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Shares acquired in different lots at different points of time but
delivery taken subsequently and sold in parts.
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First-In-Find-Out Method shall be adopted to reckon the period of the
holding of the security, in cases where the dates of purchase and sale cannot
be correlated through specific number of scrips.
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7.
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CONVERSION
Conversion of
preference share into equity shares
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With effect from assessment year 2018-19, the period of holding shall be
considered from the date of acquisition of preference share.
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8.
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Financial instruments like bonds and debentures (i.e. in the case of a
capital asset, being a share or debenture of a company which becomes the
property of the assessee.
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There shall be included the period for which the period for which the
bonds, debenture, debenture-stock or deposit certificate was held by the
assessee prior to the conversion. The capital gains shall be computed from
the period of acquisition of the financial asset.
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9.
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Shares held in
depository system (taxable in hands of beneficial owner)
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First-In-Find-Out
Method.
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10.
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Transfer of a
security by a depository (i.e. demat account)
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The period of holding shall be determined on the basis of the First In
First-Out method.
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11.
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Right shares
offered to existing share-holders and subscribed by him
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The period of holding shall be counted from the date of allotment of
right shares.
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12.
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Right shares
acquired by a person by way of renouncement
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Date of
allotment.
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13.
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Right entitlement
(Renouncement of right shares in favour of another person)
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The period of holding will be considered from the date of offer of such
right to share to the date when such right entitlement is renounced by the
person (always Short-Term Capital Gain).
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14.
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Financial asset
acquired without any payment/
consideration
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Date of allotment of such financial assets.
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15.
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Bonus share
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The period of holding shall be
counted from the date of allotment of
bonus shares.
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16.
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Where the
assessee gets preference share in lieu of equity shares
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Where the assessee gets preference shares in lieu of equity shares,
there is an exchange. When he sells the converted preference shares within a
year, there is liability for short-term capital gains. [CIT v. Santosh L.
Chowgule (1998) 234 ITR 787 (Bom.)]
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17.
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Asset acquired by
a partner on
dissolution of
firm
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Where the assessee sold building
which he got on dissolution of firm, it was
held that the period of such asset shall be considered from the date of dissolution of firm and it cannot be recknoned from the date when he was a co-owner of the building in capacity of partner of
firm. [P.P. Menon v. CIT (2009) 183
Taxman 246 (Ker)]
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18.
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LIQUIDATION:
SHARES HELD IN A COMPANY IN LIQUIDATION
In case the company in which shares
are held by the assessee gets liquidated.
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While computing the period of
holding of such shares, the period of
holding subsequent to the date of
liquidation shall not be taken
into account (i.e. excluded). In other words, the period subsequent to the date on which the company goes into liquidation shall be excluded.
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19.
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AMALGAMATION:
ALLOTMENT OF SHARES IN AMALGAMATED INDIAN COMPANY IN LIEU OF SHARES HELD IN AMALGAMATING COMPANY
In the case of a shareholder who
receives the shares in the amalgamated
company in exchange of shares held
in amalgamating company
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In computing the period of
holding of shares of
amalgamated company, the period
of holding of the amalgamating shares
shall also be included. In other words, the period of holding shall be counted from the date of acquisition of shares in the amalgamating company.
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20.
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DEMERGER:
ISSUE OF SHARES BY THE RESULTING
COMPANY IN A SCHEME OF DEMERGER TO
THE SHAREHOLDERS OF THE DEMERGED COMPANY
In the case of a
shareholder who received the shares in
the resulting company in exchange of
the shares held in the demerged
company.
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In computing the period of holding of shares in resulting company, the period of holding of the
demerged company shares shall also be included [i.e. the period of holding
shall be computed from the date of acquisition of shares in the demerged
company].
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21.
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Specified
Security/Sweat equity shares
allotted by
employer
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The period of holding for any
specified security or sweat equity shares allotted or transferred by
the employer free of cost or at concessional
rate to his employees shall be reckoned from the date of allotment or transfer of such specified security or sweat equity shares
(applicable from assessment year 2008-09).
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22.
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Exchange of stock exchange member-ship card with shares issued by stock
exchange in the process of corporatization of stock exchange.
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The period of holding of such
shares shall be calculated from the date of acquisition of membership card.
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23.
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Where shares are acquired by the assessee from a company and the payment
is made to the company even after allotment of shares as and when the call is
made by the company (i.e. call money is paid after allotment).
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The period of holding of such shares shall be considered from the date
of allotment of shares.
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24.
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Where an assessee constructs a building on a land purchased much earlier.
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The period of holding has to be
reckoned separately for the land and
the building. [CIT v. Vimal Chand
Golecha (1993) 201 ITR 442 (Raj); [CIT v. Lakshmi B. Menon (2003) 264 ITR 76 Ker); CIT v. C.R. Subramanian (2000) 242 ITR 342 (Karn)]
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25.
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Lease-cum-Sale Agreement (common In State Housing Board – The
lessee shall make instalment
payments called lease payments over a
stipulated period, at the end of
which, the house is conveyed through a
registered conveyance deed to the
allottee)
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The period of holding will be
considered from the date that
the superior right comes into
existence and not from the date
that the earlier inferior right was
acquired. [CIT v. V.V. Mody (1996)
218 ITR 1 (Karn)]
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26.
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Where property
originally allotted as leasehold property but later on converted into freehold property
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Conversion of rights of lessee in property from lease hold right into
freehold only results in improvement of his/her rights over property and it
would not have any effect on taxability of gain from such property, which is
related to the period over which property is held.
The assessee purchased a property
on leasehold basis in year 1984. She converted the property into freehold
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property in year 2004 and thereupon sold it within three months. The
capital gain arising from sale of said property was declared as long-term
capital gain. The Assessing Officer treated the capital gain as short-term
since the property was acquired by converting
the leasehold right into freehold and was sold within three months. On an
appeal before the CIT)(A), it was held
that the conversion of leasehold into freehold property was nothing but an
improvement of the title over the property, as the fact remained that the
assessee was the owner even prior to conversion. He, thus, concluded that
capital gain arising from the sale of property was to be taxed as long-term.
The Tribunal upheld the order of the CIT(A). On an appeal by the Department,
the High Court, upholding the order of the Tribunal, held that the difference
between shortterm and long-term
capital assets is the period over which the property has been held by the
assessee and not the nature of title over the property. The lessee of the
property has rights as owner of the property subject to covenants of the
lease, for all purposes. The conversion of the rights of the lessee in the
property from having leasehold right into freehold is only by way of
improvement of his rights over the property and it would not have any effect
on the taxability of gain from such property, which is related to the period
over which the property is held. (Assessment Year 2004-05) CIT v. Smt. Rama
Rani Kalia (2014) 221 Taxman 72 (All.)]
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27.
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Deep Discount
Bond
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The period of holding has to
commence from the date of
allotment of the Deep Discount Bond and not from the date of its listing on the National Stock
Exchange. [Kulgan Holdings (P) Ltd. v.
ACIT 2013 TIOL 802 ITAT AHD]
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28.
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Shares in a company acquired by the
non-resident assessee on redemption
of Global Depository Receipts referred
to in section 115 AC(1)(b) held by such assessee.
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The period of holding of such
shares shall be reckoned from
the date on which a request for
such redemption was made. (applicable
from the assessment year 2016-17).
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29.
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Unit of a business trust [allotted
pursuant to transfer of shares as
referred to in section 47(xvii)]
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The period of holding shall
include the period for which
shares were held by the
assessee (applicable from the
assessment year 2015-16).
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30.
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Units allotted to an assessee pursuant
to consolidation of two or more schemes of a mutual fund as referred to in section 47(xviii) i.e. Unit which become the property of the assessee in consideration of transfer referred to in section 47(xviii).
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The period of holding of such
units shall include the period
for which the unit or units in
the consolidating scheme of the
mutual fund were held by the assessee
(applicable from the assessment year
2017-18).
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31.
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Membership right held by a member of
recognised stock exchange
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In case of shares as well as
trading/clearing rights, the
period of holding shall be
considered from the date of
becoming member of stock exchange. In other words, the period for which the person was a member of the stock exchange immediately prior to such
demutualization/ corporatization shall
be included.
FOR EXAMPLE : Mr. “X” is a member
of DEL Stock Exchange. The membership ticket was purchased by him on
27.06.1998. The Stock Exchange is converted into a Company on 01.11.2017.
Consequently, on 01.11. 2017, Mr. “X” is allotted 10,000 shares in DEL Stock
Exchange Ltd. If Mr. “X” transfers shares in (or ticket to trade in) DEL
Stock Exchange Ltd., then period of holding shall be determined from
2.06.1998.
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32.
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In the case of
allotment of a flat/plot by a Housing Board (like DDA, HUDA)
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The period of holding will be
determined from the date of allotment (not from the date when
possession is given or when conveyance deed is signed) [Madhu Kaul v. CIT
(2014) 225 Taxman 86 (P&H)]
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33.
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Flat in a
co-operative society
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The period of holding shall be
reckoned from the date of allotment of flat in the society.
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34
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Flat allotted in
the housing scheme
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Period of holding of a flat which has been allotted in the housing
scheme shall be considered from the date of allotment and not from the date
of possession. The date of allotment of flat should be considered for the
calculation of period of holding and not the date of payment of last
instalment. [Jagdish Chander Malhotra v ITO (1998) 64 ITD 251 (ITAT Delhi)]
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35.
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Share in the co-operative housing
society
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While computing the capital gain tax in case of transfer of his shares
by a person who is a member of co-operative housing society, the relevant
date would be date on which the member
acquires the shares in the co-operative housing society and the date on which
the member had sold his shares
therein.
The assessee acquired shares in the co-operative housing society and was
allotted the flat on 15.11.1979, and she transferred those shares on
04.12.1982. Thus, the assessee had held the shares and allotment of the flat
in the said co-operative housing society for a period of more than 36 months.
Accordingly, the capital gain in question was rightly held by the Tribunal to
be a long-term capital gain. [CIT v. Anilaben Upendra Shah (2003) 262 ITR 657
: 184 CTR 129 (Guj)]
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36
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A land which was
allotted in lieu of
cancellation of
the earlier allotment
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Where original site was allotted to assessee prior to 36 months after payment of full value,
merely because said allotment was
cancelled, and a new site was
allotted, in law, would make no difference, admittedly when original
consideration paid was treated as consideration for subsequent allotment.
Hence capital gains arising on sale of new property would be long-term
capital gain. [CIT v. A. Suresh Rao
(2014) 223 Taxman 228 (Kar) (Mag)]
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37.
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In the case of a
capital asset, declared under the Income Declaration Scheme, 2016
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With effect from 01.06.2016— Period of holding in the case of asset,
declared under the Income Declaration Scheme, 2016. As per Rule 8AA(3)(i)
being an immoveable property, the period for which such property is held
shall be reckoned from the date on which such property is acquired if the
date of acquisition is evidenced by a deed registered with any authority of a
State Government, and (ii) in any other case, the period for which such asset
is held shall be reckoned from 01.06.2016.
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38.
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Employees’ stock
option
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Period of holding of shares made available under stock option scheme can
be reckoned only from the date of allotment of such shares and not from the
date on which right to purchase shares got vested in the employee. [Girdhar
Krishna M. v. ACIT (2008) 307 ITR (AT) 68 (Bangalore)]
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39.
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Where stock in
trade has been converted into a capital asset
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Where assessee builder changed its business and converted its
stock-in-trade, i.e., property, into investment, holding period to be counted
from date of conversion and not from date of acquisition. [Deensons Trading
Co. (Pvt.) Ltd. v. ITO (2017) 81 taxmann.com 71 Tribunal-Chennai)]
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KEY NOTE:
(i) Splitting of shares is not a transfer.
(ii) Debentures and Bonds are not entitled for benefit
of Indexation under section 48.
Date of transfer should be excluded
For calculating period of
holding of capital asset, both date on which asset is acquired & date on
which said asset is sold or transferred are not to be excluded. - [Bharti Gupta Ramola v. CIT (2012) 20 taxmann.com
762 (Delhi)]
FOR EXAMPLE :
If the date of sale of an asset is 01.12.2016, the
period of holding shall be calculated till 30.11.2016.
Holding Period as Asset to be
considered [Holding need not be as capital asset]
It was the decision of the Bombay
High Court that we have to consider the whole period of holding of an asset
only not holding it as capital asset.
The entire period of holding i.e.
from the date of initial acquisition upto the date of transfer has to be taken
into account in order to decide whether it is a long-term capital asset,
although it may not have held as capital asset initially.—[Keshavji
Karsondas v. CIT (1994) 207 ITR 737(Bom)]
FOR EXAMPLE:
The assessee might have held the car
as his personal effects for some time and afterwards he might have converted
into capital asset and in that case we have to consider the whole holding
period only for the purpose of deciding whether it is short or long-term
capital asset.
Calculation of period of holding
For computing holding period of asset
both date on which asset is acquired & date on which said asset is sold or
transferred are not to be excluded
The date of transfer or sale is
treated as a cut-off point to apply the test of period of holdings [Section
10(38), 54EC, General Clauses Act, 1897, Section 3(35)] The issue for
consideration was whether the asset must be held for a period of more than 36 months
or 12 months plus one day i.e. the date when transfer is made. The date on
which the transfer is made has to be excluded. The contention of Revenue was
based on the language of section 2(42A) and the words “more than” used therein
along with the expression “immediately preceding the date of transfer”. The
court held that the term “month” has not been defined in the Act, therefore one
has to rely upon the words “calendar month” as defined in the General Clauses
Act, 1897. Section 3(35) of the said Act defines a “month” to be month reckoned
according to the British calendar. Thus if an assessee acquires an asset on 2nd
January in a preceding year, the period of 12 months would be complete on 1st
January, next year and not on 2nd January. If it is sold on 2nd January and if
the proviso to section 2(42A) applies, it would be treated as a long-term
capital gains. Accordingly, the appeal of the assessee is allowed. (Related Assessment
year 2006-07) - [Bharti Gupta Ramola v. CIT (2012) 251 CTR 139 : 207 Taxman
178 (Del)]
Previous owner means
the last previous owner
Previous
owner means the last previous owner of the capital asset, who acquired it
through a mode of acquisition other than that referred to in section 49(1). In
other words, previous owner means the previous owner who actually paid for the
asset.
KEY NOTE:
For the purpose of computing capital
gain, the period of holding shall be considered from date of acquiring the
asset and not the date when it became capital asset.
Allotment letter- Period of holdings
- The law laid down in CIT v. Suraj Lamps & Industries (P) Ltd (2012)
340 ITR 1 (SC) that transfer of immovable property is effective only on
registration of conveyance deed is not applicable for computing the holding period
of property. Holding period should be computed from the date of issue of the
allotment letter and not from the date of the conveyance deed, ratio in Rasiklal
M. Parikh v. ACIT (2017) 393 ITR 536 (Bom.) is explained.
Allowing the appeal of the assessee,
the Tribunal held that , the law laid down in Suraj Lamps & Industries
(2012) 340 ITR 1 (SC) that transfer of immovable property is effective only
on registration of conveyance deed is not applicable for computing the holding
period of property. Holding period should be computed from the date of issue of
the allotment letter and not from the date of the conveyance deed, ratio in Rasiklal
M. Parikh v. ACIT (2017 )393 ITR 536 (Bom.) is explained . (Related
Assessment year 2012-13) —[Sanjaykumar Footermal Jain v. ITO (ITA
No.4853/Mum/2016, dated 14.08.2018) (ITAT Mumbai)]
Period of holding of Conversion of
Stock-in-Trade into Capital Asset shall be reckoned from the date of conversion
or treatment
With effct from assessment year
2019-20, Clause (42A) of section 2, by inserting clause (ba) in Explanation 1
clause (i), provides that the period of holding of Conversion of Stock-in-Trade
into Capital Asset shall be reckoned from the date of conversion or treatment.
Period of holding of property
received under family arrangement is computed from date of such arrangement
Where assessee received immovable
property belonging to his grandmother who died intestate by way of family
settlement, in order to determine nature of capital gain arising from sale of
said property, period of holding would commence from date when he became owner
of property in question by virtue of family arrangement and not from date when
his grandmother expired.—[Nitul B. Shah v. ITO (2016) 68 taxmann.com 90,
ITAT Mumbai bench, dated 05.11.2015, in favour of Revenue]
Holding by the Firm and Partner
If a capital asset is held by the
firm for certain period and afterwards by the partner or vice versa,
then total period of holding by the firm as well as by the partner is to be
considered. This is due to the fact that the partners are always owners of
properties of the firm.—[CIT v. Vijayalakshmi (2002) 122 Taxman 949 (Mad.)]
Holding
period for computation of LTCG to be reckoned from the date of allotment of
flat not from the sate of execution of agreement
Conclusion: Where
allotment as well as execution of the agreement did not vest two different
capital assets in the hands of the assessee which got exchanged with each other
upon execution of the agreement rather the event of allotment as well as execution
of agreement was part & parcel of the same transaction and only an
improvement in ownership rights held by assessee in the flat, therefore,period
of holding had to be taken from the date of allotment and the resultant gains
earned by assessee would be LTCG only.
Held: It was undisputed fact that assessee
acquired the right in specific Flat by way of allotment letter
dated 22.10.2008, as placed on record. The sale consideration was already paid
by the assessee on 29.09.2008 i.e. much before issuance of allotment letter.
The agreement for allocation of flat was executed vide agreement dated
15.12.2011 which was registered on 13.04.2012. This agreement was in respect of
the same flat which was allotted to assessee vide allotment letter dated
22.10.2008 and the agreement also contained reference of the allotment letter.
The perusal of these facts reveal that the property proposed to be acquired by
assessee was specific & a unique property which was clearly identified in
the allotment letter dated 22.10.2008 for which the agreement was executed on
15.12.2011 which was in furtherance of the stated allotment only. Assessing
Officer got misled by the fact that right in the flat got vested in the
assessee upon allotment and the same got exchanged with actual flat upon
execution of the agreement and therefore, the holding period should have been
counted from the date of the agreement. However, it was noted that allotment as
well as execution of the agreement did not vest two different capital assets in
the hands of the assessee which got exchanged with each other upon execution of
the agreement rather the event of allotment as well as execution of agreement
was part & parcel of the same transaction and only an improvement in
ownership rights held by assessee in the flat. Therefore, no infirmity could be
found in the impugned order and the resultant gains earned by assessee would
be LTCG only and assessee was eligibile to claim deduction
under section 54F. (Related Assessment Year : 2013-14) - [ACIT v. Ms. Shradha Sudhir
Valia Date of Judgement : 05.02.2019 (ITAT Mumbai)]
Allotment letter- Period of holdings- The law laid down in
CIT v Suraj Lamps & Industries Pvt Ltd ( 2012 ) 340 ITR 1 (SC) that
transfer of immovable property is effective only on registration of conveyance
deed is not applicable for computing the holding period of property. Holding
period should be computed from the date of issue of the allotment letter and
not from the date of the conveyance deed, ratio in Rasiklal M. Parikh v. ACIT
(2017 ) 393 ITR 536 (Bom)(HC) is explained
Allowing the appeal of the assessee
the Tribunal held that , The law laid down in Suraj Lamps & Industries (2012)
340 ITR 1 (SC) that transfer of immovable property is effective only on
registration of conveyance deed is not applicable for computing the holding
period of property. Holding period should be computed from the date of issue of
the allotment letter and not from the date of the conveyance deed, ratio in
Rasiklal M. Parikh v. ACIT (2017 )393 ITR 536 (Bom) is
explained . (Related Assessment Year 2012-13) - [Sanjaykumar
Footermal Jain v. ITO – Date of Judgement : 14.08.2018 (ITAT Mumbai)]
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