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DATE: October 31, 2018 (Date of pronouncement)
DATE: November 24, 2018 (Date of publication)
AY: 2007-08
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Gains on exercise of ESOP: ESOP options provide valuable right to the assessee to exercise and have allotment of shares. They are thus 'capital asset' held by the assessee from the date of grant. If the assessee transfers the option itself, the capital gains will have to be assessed as long-term capital gains if the options have been held for more than three years (All relevant judgements considered and followed/ distinguished)

It is not in dispute that ESOP options provided valuable right to the assessee to exercise and have allotment of shares. They were thus ‘capital asset’ held by the assessee from the date of grant i.e., 28.02.2003 and 02.02.2004 for which a consideration was paid to the assessee under the option Transfer Agreement. The contention that the assessee cannot exercise option in the absence of vesting is not relevant as the options were transferred without any exercise in the case on hand

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DATE: August 14, 2018 (Date of pronouncement)
DATE: August 15, 2018 (Date of publication)
AY: 2012-13
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S. 2(42A)/45: The law laid down in Suraj Lamps & Industries 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 (Rasiklal M. Parikh vs. ACIT 393 ITR 536 (Bom) distinguished)

The definition as contained in Section 2 (42A) of the Act, though uses the words, “a capital asset held an assessee for not more than thirty-six months immediately preceding the date of its transfer”, for the purpose of holding an asset, it is not necessary that, he should be the owner of the asset, with a registered deed of conveyance conferring title on him. In the light of the expanded definition as contained in Section 2(47), even when a sale, exchange, or relinquishment or extinguishment of any right, under a transaction the assessee is put in possession of an immovable property or he retained the same in part performance of the contract under Section 53-A of the Transfer of Property Act, it amounts to transfer

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DATE: April 18, 2017 (Date of pronouncement)
DATE: April 21, 2017 (Date of publication)
AY: 1991-92
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CITATION:
S. 45/ 50(2): If an undertaking is sold as a running business with all assets and liabilities for a slump price, no part of the consideration can be attributed to depreciable assets and assessed as a short-term capital gain u/s 50(2). If the undertaking is held for more than three years, it constitutes a "long-term capital asset" and the gains are assessable as a long-term capital gain

In our considered opinion, the case of the respondent (assessee) does not fall within the four corners of Section 50 (2) of the Act. Section 50 (2) applies to a case where any block of assets are transferred by the assessee but where the entire running business with assets and liabilities is sold by the assessee in one go, such sale, in our view, cannot be considered as “short-term capital assets”. In other words, the provisions of Section 50 (2) of the Act would apply to a case where the assessee transfers one or more block of assets, which he was using in running of his business. Such is not the case here because in this case, the assessee sold the entire business as a running concern

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DATE: February 13, 2017 (Date of pronouncement)
DATE: March 6, 2017 (Date of publication)
AY: 2011-12
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CITATION:
Capital gains: While s. 2(42A) uses the term "held", the other provisions use the terms "acquired", "purchased" and "owner". Accordingly, for considering whether an asset is a "long-term capital asset", the period of holding must be computed on a de facto basis. The letter of allottment, even though not "ownership", must be taken as the date of holding the asset

Perusal of the definition of the term “short-term capital asset” in section 2(42A) shows that the legislature has used the expression ‘held’. It is further noted by us that in various other allied or similar sections, the legislature has preferred to use the expression ‘acquired’ or ‘purchased’ e.g. in section 54 / 54F. Thus, it shows that the legislature was conscious while making use of this expression. The expressions like ‘owned’ has not been used for the purpose of determining the nature of asset as short term capital asset or long term capital asset. Thus, the intention of the legislature is clear that for the purpose of determining the nature of capital gain, the legislature was concerned with the period during which the asset was held by the assessee for all practical purposes on de facto basis. The legislature was apparently not concerned with absolute legal ownership of the asset for determining the holding period. Thus, we have to ascertain the point of time from which it can be said that assessee started holding the asset on de facto basis

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DATE: January 25, 2017 (Date of pronouncement)
DATE: January 28, 2017 (Date of publication)
AY: 2010-11, 2011-12
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CITATION:
Entire law explained on whether gains from sale of shares held in a Portfolio Management Scheme (PMS) should be assessed as "capital gains" or as "business profits" in the context of CBDT Circular No. 4/7 dated 15.06.2007 and Circular No. 6 of 2016 dated 29.02.2016

While drafting the provisions the legislature did not make any water tight rule for determination of nature of income arising from purchase and sale of shares to be assessed under the head of capital gains or business income. It has been left upon the wisdom of the assessee and facts and circumstances of the case. Under these circumstances, if assessee has chosen a particular course after deciding all the pros and cons of both the options available to it and if the choice has been exercised in a bonafide manner, the Board has advised as discussed above that the AO does not have liberty under the law to thrust his opinion upon the assessee, so long as the assessee follows his choice on consistent basis

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DATE: June 29, 2016 (Date of pronouncement)
DATE: July 12, 2016 (Date of publication)
AY: 1989-90
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CITATION:
S. 2(42A)/ 45: An agreement to purchase property merely creates a right to seek specific performance. The asset cannot be considered to be "held" from the date of the agreement so as to constitute long-term capital gains

Consequent to the vendor not honouring the agreement dated 18th May, 1980, all that the appellant had was a right to seek specific performance which he sought to enforce by filing the suit. The appellant did not have possession of the said land. It is only on the Consent Terms being filed in Court that the appellant got ownership and possession

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DATE: April 27, 2016 (Date of pronouncement)
DATE: June 13, 2016 (Date of publication)
AY: 2005-06
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CITATION:
S. 10(38)/ 68: Long-term capital gains on sale of "penny" stocks cannot be treated as bogus & unexplained cash credit if the documentation is in order & there is no allegation of manipulation by SEBI or the BSE. Denial of right of cross-examination is a fatal flaw which renders the assessment order a nullity

There is no evidence on record to show that any action or enquiry was carried out either by the SEBI or BSE in respect of the alleged manipulation or propping up of the price rate movement of the ‘said shares’ of Shukun Constructions Ltd., as has been assessed by the AO. The shares of Shukun Constructions Ltd. is listed on BSE and that the sale transaction of the ‘said shares’ by the assessee is at the rate quoted on the date of sale has been confirmed both by BSE and the concerned stock broker M/s. Khambatta Securities Ltd. It is strange that the AO has made the addition under section 68 of the Act treating the entire sale proceeds of the ‘said shares’ received by the assessee through regular banking channels from stock broker registered with SEBI, M/s. Khambatta Securities Ltd., which facts have been confirmed by the said stock broker. In our considered view, the assessee has discharged the onus required under section 68 of the Act as she has established the identity of the payer, source of funds received on sale of the same shares and the genuineness of the transaction

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DATE: September 24, 2015 (Date of pronouncement)
DATE: October 8, 2015 (Date of publication)
AY: 1994-95
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CITATION:
Entire law on whether leasehold rights constitute a "capital asset" u/s 2(14), whether there is a "transfer" u/s 2(47) of such rights and whether "capital gains" u/s 45 can arise explained in detail

The Court is unable to agree with the above approach of the ITAT to interpreting what appear to be plain and unambiguous provisions of the Act. It is useful to recall that this entire discussion is in the backdrop of what constitutes “transfer” in relation to a capital asset. Further, the entire exercise is for ultimately determining if there has been any capital gains arising from the transaction. Under Section 45(1) ‘capital gains’ are any profits or gains arising from the transfer of a capital asset effected in the previous year. When the word “transfer” itself has been defined under Section 2(47) (vi) and by virtue of Explanation 1 “shall” have the same meaning as Section 269UA(d) then it is not possible to ‘restrict’ Explanation 1 to only those transactions described in Chapter XXC. Explanation 1 is a deeming fiction and incorporates by way of reference the provisions of Section 269 UA (d) in order to understand the meaning of the word ‘transfer’ for the purposes of Section 2 (47) (vi). Therefore, that entire scheme has to be given effect to. In other words, it is not possible to omit the reference to Section 269UA(d) (i) which in turn brings in Section 269UA(f) (i). The ITAT has therefore erred in conveniently choosing to not apply the Explanation 1 to Section 2 (47) in order to arrive at the conclusion there was indeed a ‘transfer’ of a capital asset brought about by the lease agreement in question

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DATE: September 14, 2015 (Date of pronouncement)
DATE: September 28, 2015 (Date of publication)
AY: 2006-07
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CITATION:
S. 2(14)(iii)(b): To determine whether the “agricultural land” is situated within 8 km of the municipal limits so as to constitute a “capital asset”, the distance has to be measured in terms of the approach road and not by the straight line distance on horizontal plane or as per crow's flight

The Court is of the view that for the purposes of Section 2 (14) (iii) (b) of the Income-tax Act, the distance had to be measured from the agricultural land in question to the outer limit of the municipality by road and not by the straight line or the aerial route. The distance has to be measured from the land in question itself and not from the village in which the land is situated

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DATE: June 10, 2015 (Date of pronouncement)
DATE: June 19, 2015 (Date of publication)
AY: 2007-08
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CITATION:
S. 10(38), 70(3): Though the LTCG on sale of equity shares (subject to STT) is exempt from tax u/s 10(38), the long-term capital loss on sale of such shares can be set-off against the taxable LTCG on sale of another asset

Section 10(38) excludes in expressed terms only the income arising from transfer of Long term capital asset being equity share or equity fund which is chargeable to STT and not entire source of income from capital gains arising from transfer of shares. It does not lead to exclusion of computation of capital gain of Long term capital asset or Short term capital asset being shares. Accordingly, Long term capital loss on sale of shares would be allowed to be set off against Long term capital gain on sale of land in accordance with section 70(3)

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