Page 340 - DCOM301_INCOME_TAX_LAWS_I

Unit 12: Income under the Head Capital Gains

Notes
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Caution The following points should be noted:
The fact that a transfer becomes void under Section 281 of the Act does not in any way
preclude levy of capital gains tax. In the case of transfer of shares held as capital asset, the
date of transfer is the date of delivery of the share certificates to the transferee and not the
date of registration of the shares in the name of the transferee in the register of company.
This apart, it is essential that on the date of transfer the asset should have been held as
capital asset in order to attract Section 45 of the Act. Further the notional profit arising
from transfer by way of conversion of capital asset into stock-in-trade will be chargeable
to tax in the year in which stock-in-trade is sold.
For the purpose of computing the capital gain in such cases, the fair market value of the
capital asset on the date on which it was converted or treated as stock-in-trade will be
deemed to be the full value of consideration receiving or accruing as a result of the
transfer of the capital asset.

Self Assessment

Fill in the blanks:
9. Capital gain arises on ………………………..of capital asset.
10. The word transfer under income tax act is defined under…………………………….
11. If there is any other way where an asset is given to other such as by way of
………………………. it will not be termed as transfer.
12. The fact that a transfer becomes void under …………………….. of the Act does not in any
way preclude levy of capital gains tax.

12.4 Short-term and Long-term Capital Gains

Let us now discuss the concept of capital gains and capital assets in detail.
Any capital gain arising as a result of transfer of a short-term capital asset is known as short-term
capital gain. According to Section 2(42A) of the Income-tax Act:
“Short term” capital asset means a capital asset held by an assessee for not more than thirty-six
months immediately preceding the date of its transfer. In the case of capital assets (being equity
or preference share in a company) held by an assessee for not more than 12 months immediately
prior to its transfer.
In determining the period for which a capital asset is held by an assessee, the following must be
noted:

1. In the case of shares held in a company in liquidation, the period subsequent to the date on
which the company goes into liquidation shall be excluded.
2. In case the asset becomes the property of the assessee under the circumstances the period
for which the asset was held by the previous owner shall be included.
3. In the case of the shares in an Indian Company which become the property of the assessee
in a scheme of amalgamation, the period for which the shares in the amalgamating
company were held by the assessee shall be included.

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