Capital gain on shares & securities
- Business income or capital gain -distinction is a mixed question of law & facts
- Intention & manner of holding, entries in book of a/c, party conduct, ratio between purchase & sale are guiding factors
- Motive is to earn profit or dividend
- Instruction no. 1827, dated 31.08.1989 and circular no. 4/2007 lay down certain tests.
Period of holding : Shares held in company for not more than 12 months will be short term capital asset
- for transfer in scheme of amalgamation, period of holding in amalgamating Co. will be included for calculating holding period (Sec. 47(vi)
- conversion of stock in trade to capital asset - date of acquisition of stock or date of conversion of same (Kalyani Exports & Investment Pvt. Ltd. 78 ITD-95 (Pune), 2008-SOT-288 (Mumbai) consider date of acquisition
- holding period for shares in a Pvt. Company is same as listed company
- Bonus / right share- date of allotment of bonds/right share
- Indexation benefit available to LTCG. Option to assessee to pay tax @ 10% without indexation on such sale without STT.
- Indexation with reference to individual scripttt.
- Exemption U/s 54F/54EC is available on taxable LTCG
Conversion of shares into stock in trade
- is transfer U/s 2 (47)
- capital gain taxable in the year in which converted stock sold/transferred- Sec. 45(2)
- capital gain – FMV of stock on conversion less cost
- business income – consideration on sale less FMV on conversion
Conversion of share held as stock into capital asset
- such conversion is possible
- whether difference between cost of purchase and FMV will be subject to tax :
- No specific provision for same in the Act.
- No sale of stock in trade & therefore no profit
- 24 ITR-506(SC) Sir Kika Bhai Premchand V/s CIT and ACIT V/s Bright Star Investment Pvt. Ltd.(2008 24 –SOT-288 (Mumbai),
124 –ITR-24 (Cal.)