High Court Of Kerala
Sn. Zubin George vs. CIT
Sections 2(42A), 45(1)
Asst. Year 1990-91
G. Sivarajan & C.N. Ramachandran Nair, JJ.
IT Appeal No. 121 of 2000
30th September, 2002
Counsel Appeared
P. Balakrishnan, for the Appellant : P.K.R. Menon & George K. George, for the Respondent
JUDGMENT
G. Sivarajan, J. :
The matter arises under the Income-tax Act, 1961 (for short ‘the Act’). The assessee is the appellant. The assessment year concerned is 1990-91.
The brief facts which are necessary for decision of this case are as follows : The assessee was a partner in a firm by name M/s Mettallieds doing business in steel. The said firm was doing agency business for the company M/s Pennar Steels Ltd. The firm had made deposit with the company for the purpose of agency and later when the company, Pennar Steels Ltd. became a public limited company the deposit standing to the credit of the firm in the accounts of the company was transferred to the credit of the partners of the firm towards share deposit account on 31st March, 1988. The assessee was issued share certificates with distinctive numbers on 31st May, 1988. Out of the said shares the assessee had sold 5,200 shares during the previous year relevant to the asst. yr. 1990-91 and declared the gains arising from the transfer of shares as long-term capital gains in the return of income. However, the assessing authority assessed the same to capital gains treating it as a short-term capital gains, as according to him, the shares were allotted to the assessee only on 31st May, 1988. In appeal by the assessee the Dy. CIT(A), Thiruvananthapuram, allowed the appeal directing the computation of capital gains treating it as a long-term capital asset. He took the view that the shares must be deemed to have been allotted on 31st March, 1988. In appeal by the Department the Tribunal set aside the order of the first appellate authority and restored the order of the assessing authority. Sri. P. Balakrishnan, learned counsel for the assessee, submitted that since the amounts standing to the credit of the firm in the accounts of the company was transferred to the credit of the partners of the firm towards share deposit accounts on 31st March, 1988 evidenced by a certificate issued by the company, it has to be taken that the shares were issued to the appellant on 31st March, 1988. He further submitted that if the date of acquisition of the share is taken as 31st March, 1988, the sale of the shares made by the appellant during the previous year is liable to capital gains treating it as a long-term capital gains.
Sri P.K.R. Menon, learned senior Central Government standing counsel for the Revenue, submitted that the shares were issued by the company to the appellant only on 31st May, 1988, and there is no material or evidence produced by the assessee to show that the allotment of the shares were made by the company on any date prior to 31st March, 1988. The senior counsel accordingly submitted that the assessing authority as well as the Tribunal were perfectly justified in taking the view that the capital gains assessment has to be made treating the asset as a short-term capital asset.
We have perused the order of the Tribunal as well as the order of the assessing authority. We find that the Tribunal has rightly held that the assessee obtained legal title to the shares only when the share certificate was issued by the company specifying the shares with distinctive numbers. The Tribunal has found that there is no evidence to show that those shares were in existence prior to 31st May, 1988. Even if the money belonging to the appellant was appropriated to the share deposit account of the company that by itself will not amount to allotment of shares, for shares can be issued only after the company passes a resolution deciding to allot shares. The appellant could not establish that the shares were allotted to the appellant earlier than 31st May, 1988. As rightly pointed out by the Tribunal the view of the first appellate authority that the assessee should be construed as having acquired the shares on 31st March, 1988, cannot be sustained. We fully endorse the view of the Tribunal that the appellant got the shares which is the subject-matter of the capital gains tax only on 31st May, 1988, i.e., the date at which the share certificates are issued to the appellant.
In this case the share certificates were issued to the assessee on 31st May, 1988. In that view of the matter, according to us, the Tribunal was perfectly justified in holding that the capital gains have to be assessed on the transfer of the shares by the assessee treating it as a short-term capital gains. There is no merit in this appeal. It is accordingly dismissed.
[Citation : 265 ITR 683]
