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Capital
Gains
Effective
date of transfer in certain cases
Circular
No. 704, dated 28th April, 1995, F. No. 225/86/95-ITA.II]
Subject
: Transactions in Securities --Determination of the 'Date of Transfer'
and Holding period for the purpose of Capital Gains --Instructions
regarding.
Under
the provisions of sub section (42A) of section 2 of the Income-tax
Act, 1961, the shares held in a company or any other security listed
in a recognised stock exchange in India or units of the Unit Trust
of India or units of a mutual fund specified under section 10(23D)
shall be regarded as short-term capital assets if they are held
by an assessee for not more than 12 months immediately preceding
the date of its transfer. Clarifications have been sought as to
which date should be regarded as the date of transfer and also about
the date from which the holding period of the securities should
be reckoned. Clarifications have also been sought as to how the
holding periods will be computed for the purposes of capital gains
when the securities, purchased in several lots at different points
of time and which are taken delivery of in one lot, are subsequently
sold in parts and no correlation of the dates of purchase and sale
is available.
2.
When the securities are transacted through stock exchanges, it is
the established procedure that the brokers first enter into contracts
for purchase/sale of securities and thereafter, follow it up with
delivery of shares, accompanied by transfer deeds duly signed by
the registered holders. The seller is entitled to receive the consideration
agreed to as on the date of contract. The Board are of the opinion
that 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. In case
the transactions take place directly between the parties and not
through stock exchanges, the date of contract of sale as declared
by the parties shall be treated as the date of transfer provided
it is followed up by actual delivery of shares and the transfer
deeds.
3.
As regards the second issue, where securities are acquired in several
lots at different points of time, the First-in-first-out (FIFO)
method shall be adopted to reckon the period of the holding of the
security, in cases where the dates of purchase and sale could not
be correlated through specific numbers of the scrips. In other words,
the assets acquired last will be taken to be remaining with the
assessee while assets acquired first will be treated as sold. Indexation,
wherever applicable, for long-term assets will be regulated on the
basis of the holding period determined in this manner.
4.
These instructions may be brought to the notice of all Assessing
Officers in your region.
Under
Secretary (ITA-II),
Central
Board of Direct Taxes.
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