Shares held as Capital Asset converted into Stock In Trade, no Exemption u/s 10(38) for STT paid for sale of share in market [Alka Agarwal V/s ADIT, Delhi ITAT]

Facts of the Case:

-Assessee is Non resident individual

-Converted Shares held as personal Investment in Stock In Trade w.e.f 01.04.05
-Entire Shares sold in F.Y.05-06 after holding shares for total peiod of more than ONE Year
- Sale of Shares were made into market and therefore suffered STT
-Assessee claimed the gain as exempted u/s 10(38)
-AO disallowed such exemption
-CIT (A) upheld the order of AO

Tribunal Decision:


Relevant extracts of the said descision is as under

16. A cumulative reading of the aforesaid provisions, in our mind, makes it clear that as far as the benefit of Section 10(38) is concerned, the assessee shall not be eligible for this benefit at the first stage of chargeability of capital gains because the deemed sale is the point of conversion into stock-in-trade which had not suffered STT. Further, with regards to the second part of the transaction, the assessee is not eligible for benefit under Section 10(38) because the second part of the transaction is purely a business transaction and provisions of Section 10(38) are applicable only in terms of long term capital assets. In our view, these provisions should be read in this manner and there can be no confusion or two opinions about the scheme of the provisions of conversion of capital asset into stock-in-trade as also the liability towards the capital gains tax on sale of shares held as capital asset which has suffered STT. Nowhere on the date of actual sale, the assessee was holding the impugned securities as a part of capital asset. They have already become the stock-in-trade of the business. So, we do not agree with the assessee as regards the total exemption from capital gains tax in respect of the capital assets which were converted into stock-in-trade as on 1st April, 2005 merely because on the date of sale such stock-in-trade the assessee was required to pay STT on them. We agree with the departmental stand in respect of this issue as we do not find any merit in such contentions of the assessee.

Indexation to be allowed from the date of ALLOTMENT irrespective of date of PAYMENT for the property acquired: Praveen Gupta V/s ACIT [TTJ 307] ITAT New Delhi

Facts of the case:

Assessee booked flat in 1995-96

Full payment for the flat booked was made in F.Y.2001-02

Sold Flat in F.Y.2006-07 for Rs.90 Lacs

Assessee computed Indexation from 1995-96 

AO denied indexation from 1995-96 instead allowed Indexation from 2001-02

CIT (A) upheld the order of AO

Judgement :

Relevant extracts of the judgement- 

26. Now, coming to the second question, which relates to the date from which the indexed cost of acquisition is to be computed. Here, it has been the case of the assessee that on the date of allotment of flat, the property was identified. The assessee got the right over the said property and from that date the indexation benefit has to be given to the assessee. Explanation (iii) to s. 48 reads as under which makes entitle the assessee to the indexation benefit:-

“(iii) ‘indexed cost of acquisition’ means an amount which bears to the cost of acquisition the same proportion as cost inflation index for the year in which the asset is transferred bears to the cost inflation index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 1981, whichever is later.”

29. According to the aforementioned definition, capital asset means property of any kind held by an assessee whether or not connected with the business or profession and it excludes certain items which while considering the facts of the present case are not relevant. Therefore, it has to be seen that whether by entering into an agreement vide which the assessee was allotted a particular flat by allotment letter whether the assessee has held any asset or not. By entering into an agreement to allot a flat, the assessee has identified a particular property which he intended to buy from the builder and the builder is also bound to provide the applicant with that property by accepting certain advance amount and making agreement for balance payment as scheduled in the agreement. Thus, going into the provisions, it is not necessary that to constitute a capital asset the assessee must be the owner by way of a conveyance deed in respect of that asset for the purpose of computing capital gain. The assessee had acquired a right to get a particular flat from the builder and that right of the assessee itself is a capital asset. The word ‘held’ used in s. 2(14) as well as Explanation to s. 48 clearly depicts that assessee must have some right in the capital asset which is subject to transfer. By making the payment to the builder and having received allotment letter in lieu thereof, the assessee will be holding capital asset and, therefore, the benefit of indexation has to be granted to the assessee on the basis of payments made by him for acquiring the said asset and the assessee has rightly claimed the indexation benefit from the dates when he has made the payments to the builder. Therefore, we see force in the claim of the assessee. The AO is directed to provide the benefit of indexation to the assessee in the manner in which the assessee has claimed.