Section 45(2) read with Section 10(38)

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Sanjay Aggarwal (Querist)
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30 June 2010 Long -term capital gains arising u/s 45(2)[Conversion of Capital Asset into stock-in-trade]at the time of actual sale of shares. STT has been paid at the time of actual sale of shares.

Whether benefit of Section 10(38) will be available on such long term capital gains.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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30 June 2010 NO benefit u/s 10(38) not available as at the time of conversion no STT has been paid.

Sanjay Aggarwal

Sanjay Aggarwal (Querist)
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30 June 2010 Dear Mr. Maheshwari,

Thanks for your quick response.
The contention of the assesee is that the Long term capital gain arises only if the shares are actually sold.

No tax arises until the shares are sold.

LTCG will be assessed on the date of actual sale of shares. hence, it is the transaction of actual sale of shares, which is the incidence of tax in the hands of the assess.

The provisions applicable to taxation of LTCG in the year of actual sales of shares will be applicable to the assess.

AS STT has been paid at the actual sale of shares, the LTCG should be exempt in the hands of the assess.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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30 June 2010 So you intend to say that u want two benefits of STT paid one for long term capital gain though the same was not paid at the time of conversion (though taxability in the current year) and the other to claim STT as an expense on the sale of shares as now STT is an allowable expenses. So two deductions for one thing? It is possible?

Also STT has been paid on sale of shares and not on conversion of from investment into stock in trade. SO how Section 10(38) will apply to the same?

Sanjay Aggarwal

Sanjay Aggarwal (Querist)
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30 June 2010 The issue relates to A.Y. 2006-2007. The assessee has not claimed the benefit of section 88E.

The contention of the assess is that the actual sale and transfer of shares to a third party is the transaction, which brings in the hand of the assessee the taxable income.

Section 45(2) is meant only to bi-furcate the income on the transfer into capital gain/loss and business profit/loss and determine the quantum thereof.

As STT has been paid on the actual transfer of the shares, LTCG should be exempt.

Aditya Maheshwari

Aditya Maheshwari (Expert)
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30 June 2010 Third time i am repeating the taxable event for LTCG is the date of conversion though tax is payable in the year in which the stock is actually sold. No STT has been paid on that date. SO the LTCG cannot be exempt u/s 10(38).

STT has been paid on sale when the share are held as stock in trade not at the time it was a capital asset.