Jafferali K. Rattonsey v DCIT [IT APPEAL NO. 5068 (MUM.) OF 2009 dated 25.1.2012] (Mumbai ITAT)

Background:

The assessee had claimed exemption for Long Term Capital Gain of Rs. 4,94,51,910/- on account of sale of shares u/s.10(38) of the I.T. Act. During the course of assessment, the assessee furnished demat account, brokers’ note and bank account statements to substantiate his claim u/s 10(38).

AO noted that shares are dematerialized immediately before the date of sale i.e. either on the same date of sale or 2 to 3 days before the sale of shares. The AO contended that the date of purchase can be considered only as date of dematerialization in the Demat Account with Techno Shares and Stocks Ltd. Price of the shares on the date of dematerialization would then become the purchase price of the assessee. The sale was held to be short term capital gains. CIT(A) upheld the decision of AO in this context

Assessee’s contentions

• As per the CBDT Circular No. 704 dt. 28.4.95, it is the date of broker’s note that should be treated as the date of transfer in cases of sale transactions of securities provided such transactions are followed up by delivery of shares and also the transfer deeds. Similarly, in respect of the purchasers of the securities, the holding period shall be reckoned from the date of the broker’s note for purchase on behalf of the investors.
• Circular No. 768 dt. 24.06.1998 issued by CBDT was issued to clarify determination of the date of transfer and the period of holding of securities held in dematerialised form.
• In view of the above two circulars issued by CBDT, in case of securities the “date of purchase” is conclusively to be taken from the broker’s note/contract note and the period of holding is also to be reckoned from the date of purchase and not from the date of dematerialisation
• Demating of the shares is a lengthy process which takes about 6 to 8 months or even more than that. 

HELD:

• The CBDT Circular No. 768 dtd. 24.6.1998 was issued to clarify the determination of date of transfer and the period of holding of securities held in demat form. It has been stated there in that earlier Circular No. 704 issued by the CBDT relating to the “date of transfer” and “period of holding” does not change even when securities are held in the dematerialized form.
• Therefore in view of the above two circulars of CBDT, the “date of purchase” has to be taken from the broker’s note/contract note and the period of holding is also to be reckoned from the “date of purchase” and not from the “date of dematerialization”.