Holding Period of Shares from Donor is Included for LTCG Eligibility: ITAT

Holding Period of Shares from Donor is Included for LTCG Eligibility: ITAT

The Income Tax Appellate Tribunal (ITAT), Delhi, recently ruled that the assessee’s holding period of shares, including the donor’s period, qualifies for long-term capital gains, allowing the exemption under section 54F.

The assessee, Sh. Archit Aggarwal was gifted shares by Sh. Viney Prakash Aggarwal, who received 9,23,826 shares from his relative Sudesh Kumari for inadequate consideration. As the holding period is calculated from when the donor acquired the shares, the appellant held them for those shares for more than 24 months, which makes them long-term capital assets under section 2(29AA) of the Income Tax Act. However, the Assessing officer treated the shares as short-term capital assets and rejected the claim of exemption under section 54F of the Income Tax Act.

The assessee initially filed an appeal before the CIT(A), which ruled in favour of the assessee, holding that the profit made by the assessee from selling those shares qualifies as long-term capital gains and the assessee is eligible to claim the exemption under section 54F of the Act. Thus, the CIT(A) directed the AO to treat the gains as LTCG and allow the exemption under section 54F claimed by the assessee. Aggrieved by this order, the Revenue filed an appeal before the Income Tax Appellate Tribunal (ITAT), Delhi.

The main issue before the tribunal was whether the assessee’s holding period of the shares would qualify as a long-term capital asset under section 2(29AA).

The revenue argued that the holding period of the shares cannot be treated as long-term capital gains, as they are not derived from the sale or transfer of a long-term capital asset.

The Tribunal cited section 49(1)(ii), which clarifies that the cost of acquisition for the person receiving the asset is considered to be the cost for which the previous owner originally acquired it. Further, the ITAT also cited section 2(29AA) read with section 2(42A) Explanation 1(i), which says that the holding period of the previous owner under section 49(1) is also included. Based on this, the Tribunal concluded that the gains from the sale of these shares were long-term capital gains, and the assessee is eligible to claim the exemption under section 54F. The Revenue’s appeal was rejected.