Period of holding for the purposes of computation of capital gains tax


As per the existing provisions, period of holding distinguishes one capital asset from the other. The holding period refers to the time between an asset’s purchase and its sale. An asset that is held for more than 36 months. (However, from 2017-18, the holding period has been reduced to 24 months in the case of immovable property), it is categorized as a long-term capital asset. All capital assets other than long-term capital assets are termed as short-term capital assets.
Normally period of holding is calculated from the date of acquisition of capital asset to the date of transfer. Specific rules are provided by the Income Tax Act to determine period of holding of a capital asset in few cases. However, in certain cases period of holding is:—

S. No.
Particulars of asset
Date of Acquisition/Holding
for the purpose of  computation
of capital gain tax
1.
SECTION 49(1) : PREVIOUS OWNER
If the capital asset is acquired by the  assessee through any of the ways/ modes specified under section 49(1)  such as
(a) Property acquired by way of Gift, will, succession, or inheritance or
(b)  Property acquired on partition of HUF (family) or
(c) Under a revocable or irrevocable trust or
(d) Property acquired by the amal-gamated company of the amal-gamating company.
(e) Property acquired by the resulting company from the demerged company in demerger.
(f)  On a transfer in a business re-organization of a capital asset by the predecessor co-operative bank to the successor co-operative bank.
The period for which the  previous owner held the  asset should also be included  for computing the period of  holding of the assessee/  person who sold it (i.e. the  words ‘held by assessee’  means held by the assessee  and by the previous owner).
2.
When the assessee is owner of an asset received under a mode specified under section 49(1) and thereafter the asset is converted by the assessee into a new asset.
The period of holding would commence from the date of conversion.
3.
Transactions in shares and securities -Date of purchase of shares and  securities (through stock exchange  and through share brokers).
Date of broker’s note provided such transactions are followed up by delivery of shares and also the transfer deeds.
4.
Transactions in shares and securities-Date of transfer (through stock exchange) of shares & securities.
Date of purchase by broker on behalf of investor.
5.
Transactions in shares and securities Date of purchase/transfer of shares and securities. (Transactions taken place directly between parties and not through stock exchanges).
Date of contract of sale as declared by parties provided it is followed up by actual delivery of shares and the transfer deeds.
6.
Shares acquired in different lots at different points of time but delivery taken subsequently and sold in parts.
First-In-Find-Out Method shall be adopted to reckon the period of the holding of the security, in cases where the dates of purchase and sale cannot be correlated through specific number of scrips.
7.
CONVERSION
Conversion of preference share into  equity shares
With effect from assessment year 2018-19, the period of holding shall be considered from the date of acquisition of preference share.
8.
Financial instruments like bonds and debentures (i.e. in the case of a capital asset, being a share or debenture of a company which becomes the property of the assessee.
There shall be included the period for which the period for which the bonds, debenture, debenture-stock or deposit certificate was held by the assessee prior to the conversion. The capital gains shall be computed from the period of acquisition of the financial asset.
9.
Shares held in depository system (taxable in hands of beneficial owner)
First-In-Find-Out Method.
10.
Transfer of a security by a depository (i.e. demat account)
The period of holding shall be determined on the basis of the First In First-Out method.
11.
Right shares offered to existing share-holders and subscribed by him
The period of holding shall be counted from the date of allotment of right shares.
12.
Right shares acquired by a person by way of renouncement
Date of allotment.
13.
Right entitlement (Renouncement of right shares in favour of another person)
The period of holding will be considered from the date of offer of such right to share to the date when such right entitlement is renounced by the person (always Short-Term Capital Gain).
14.
Financial asset acquired without any  payment/ consideration
Date of allotment of such financial assets.
15.
Bonus share
The period of holding shall  be counted from the date of  allotment of bonus shares.
16.
Where the assessee gets preference share in lieu of equity shares
Where the assessee gets preference shares in lieu of equity shares, there is an exchange. When he sells the converted preference shares within a year, there is liability for short-term capital gains. [CIT v. Santosh L. Chowgule (1998) 234 ITR 787 (Bom.)]
17.
Asset acquired by a partner on
dissolution of firm
Where the assessee sold  building which he got on dissolution of firm, it was  held that the period of such asset shall be considered  from the date of dissolution  of firm and it cannot be  recknoned from the date  when he was a co-owner of  the building in capacity of partner of firm. [P.P. Menon v. CIT (2009) 183  Taxman 246 (Ker)]

18.
LIQUIDATION:
SHARES HELD IN A COMPANY IN LIQUIDATION 
In case the company in which shares  are held by the assessee gets liquidated.
While computing the period  of holding of such shares, the  period of holding subsequent  to the date of liquidation  shall not be taken into  account (i.e. excluded).  In other words, the period  subsequent to the date on  which the company goes into  liquidation shall be excluded.
19.
AMALGAMATION:
ALLOTMENT OF SHARES IN AMALGAMATED INDIAN  COMPANY IN LIEU OF SHARES  HELD IN AMALGAMATING  COMPANY 
In the case of a shareholder  who receives the shares in  the amalgamated company  in exchange of shares held in  amalgamating company
In computing the period of  holding of shares of  amalgamated company, the  period of holding of the  amalgamating shares shall  also be included. In other  words, the period of holding  shall be counted from the  date of acquisition of shares  in the amalgamating  company.
20.
DEMERGER:
ISSUE OF SHARES BY THE  RESULTING COMPANY IN A  SCHEME OF DEMERGER TO THE  SHAREHOLDERS OF THE  DEMERGED COMPANY
In the case of a shareholder who  received the shares in the resulting  company in exchange of the shares  held in the demerged company.
In computing the period of holding of shares in resulting  company, the period of holding of the demerged company shares shall also be included [i.e. the period of holding shall be computed from the date of acquisition of shares in the demerged company].
21.
Specified Security/Sweat equity shares
allotted by employer
The period of holding for any  specified security or sweat equity shares allotted or transferred by the employer free of cost or at concessional  rate to his employees shall be reckoned from the date of  allotment or transfer of such  specified security or sweat equity shares (applicable from assessment year 2008-09).
22.
Exchange of stock exchange member-ship card with shares issued by stock exchange in the process of corporatization of stock exchange.
The period of holding of such  shares shall be calculated from the date of acquisition  of membership card.
23.
Where shares are acquired by the assessee from a company and the payment is made to the company even after allotment of shares as and when the call is made by the company (i.e. call money is paid after allotment).
The period of holding of such shares shall be considered from the date of allotment of shares.
24.
Where an assessee constructs a building on a land purchased  much earlier.
The period of holding has to  be reckoned separately for  the land and the building. [CIT v. Vimal  Chand Golecha  (1993) 201 ITR 442 (Raj);  [CIT v. Lakshmi B. Menon  (2003) 264 ITR 76 Ker);  CIT v. C.R. Subramanian  (2000) 242 ITR 342 (Karn)]
25.
Lease-cum-Sale Agreement (common In State Housing Board – The lessee  shall make instalment payments  called lease payments over a stipulated  period, at the end of which, the house  is conveyed through a registered  conveyance deed to the allottee)
The period of holding will be  considered from the date that  the superior right comes into  existence and not from the  date that the earlier inferior  right was acquired.  [CIT v. V.V. Mody (1996) 218  ITR 1 (Karn)]
26.
Where property originally allotted as leasehold property but later on  converted into freehold property
Conversion of rights of lessee in property from lease hold right into freehold only results in improvement of his/her rights over property and it would not have any effect on taxability of gain from such property, which is related to the period over which property is held.
The assessee purchased a  property on leasehold basis in year 1984. She converted the property into freehold


property in year 2004 and thereupon sold it within three months. The capital gain arising from sale of said property was declared as long-term capital gain. The Assessing Officer treated the capital gain as short-term since the property was  acquired by converting the leasehold right into freehold and was sold within three months. On an appeal before  the CIT)(A), it was held that the conversion of leasehold into freehold property was nothing but an improvement of the title over the property, as the fact remained that the assessee was the owner even prior to conversion. He, thus, concluded that capital gain arising from the sale of property was to be taxed as long-term. The Tribunal upheld the order of the CIT(A). On an appeal by the Department, the High Court, upholding the order of the Tribunal, held that the difference between shortterm  and long-term capital assets is the period over which the property has been held by the assessee and not the nature of title over the property. The lessee of the property has rights as owner of the property subject to covenants of the lease, for all purposes. The conversion of the rights of the lessee in the property from having leasehold right into freehold is only by way of improvement of his rights over the property and it would not have any effect on the taxability of gain from such property, which is related to the period over which the property is held. (Assessment Year 2004-05) CIT v. Smt. Rama Rani Kalia (2014) 221 Taxman 72 (All.)]
27.
Deep Discount Bond
The period of holding has to  commence from the date of  allotment of the Deep Discount Bond and not from  the date of its listing on the National Stock Exchange. [Kulgan Holdings (P) Ltd. v.  ACIT 2013 TIOL 802 ITAT  AHD]











28.
Shares in a company acquired by the  non-resident assessee on redemption  of Global Depository Receipts referred  to in section 115 AC(1)(b) held by such  assessee.
The period of holding of such  shares shall be reckoned from  the date on which a request  for such redemption was  made. (applicable from the  assessment year 2016-17).
29.
Unit of a business trust [allotted  pursuant to transfer of shares as  referred to in section 47(xvii)]
The period of holding shall  include the period for which  shares were held by the  assessee (applicable from the  assessment year 2015-16).
30.
Units allotted to an assessee pursuant  to consolidation of two or more schemes  of a mutual fund as referred to in  section 47(xviii) i.e. Unit which  become the property of the assessee  in consideration of transfer referred  to in section 47(xviii).
The period of holding of such  units shall include the period  for which the unit or units in  the consolidating scheme of  the mutual fund were held  by the assessee (applicable  from the assessment year 2017-18).
31.
Membership right held by a member of  recognised stock exchange
In case of shares as well as  trading/clearing rights, the  period of holding shall be  considered from the date of  becoming member of stock exchange. In other words,  the period for which the  person was a member of the  stock exchange immediately prior to such demutualization/  corporatization shall be included.
 FOR EXAMPLE : Mr. “X” is a member of DEL Stock Exchange. The membership ticket was purchased by him on 27.06.1998. The Stock Exchange is converted into a Company on 01.11.2017. Consequently, on 01.11. 2017, Mr. “X” is allotted 10,000 shares in DEL Stock Exchange Ltd. If Mr. “X” transfers shares in (or ticket to trade in) DEL Stock Exchange Ltd., then period of holding shall be determined from 2.06.1998.

32.
In the case of allotment of a flat/plot by a Housing Board (like DDA, HUDA)
The period of holding will be  determined from the date of allotment (not from the date when possession is given or when conveyance deed is signed) [Madhu Kaul v. CIT (2014) 225 Taxman 86 (P&H)]
33.
Flat in a co-operative society
The period of holding shall be  reckoned from the date of allotment of flat in the society.
34
Flat allotted in the housing scheme
Period of holding of a flat which has been allotted in the housing scheme shall be considered from the date of allotment and not from the date of possession. The date of allotment of flat should be considered for the calculation of period of holding and not the date of payment of last instalment. [Jagdish Chander Malhotra v ITO (1998) 64 ITD 251 (ITAT Delhi)]
35.
Share in the co-operative housing  society
While computing the capital gain tax in case of transfer of his shares by a person who is a member of co-operative housing society, the relevant date would be date on which  the member acquires the shares in the co-operative housing society and the date on which the member had  sold his shares therein.
The assessee acquired shares in the co-operative housing society and was allotted the flat on 15.11.1979, and she transferred those shares on 04.12.1982. Thus, the assessee had held the shares and allotment of the flat in the said co-operative housing society for a period of more than 36 months. Accordingly, the capital gain in question was rightly held by the Tribunal to be a long-term capital gain. [CIT v. Anilaben Upendra Shah (2003) 262 ITR 657 : 184 CTR 129 (Guj)]
36
A land which was allotted in lieu of
cancellation of the earlier allotment
Where original site was allotted to assessee prior  to 36 months after payment of full value, merely because  said allotment was cancelled,  and a new site was allotted,  in law, would make no  difference, admittedly when original consideration paid was treated as consideration for subsequent allotment. Hence capital gains arising on sale of new property would be long-term capital gain.  [CIT v. A. Suresh Rao (2014)  223 Taxman 228 (Kar) (Mag)]
37.
In the case of a capital asset, declared under the Income Declaration Scheme, 2016
With effect from 01.06.2016— Period of holding in the case of asset, declared under the Income Declaration Scheme, 2016. As per Rule 8AA(3)(i) being an immoveable property, the period for which such property is held shall be reckoned from the date on which such property is acquired if the date of acquisition is evidenced by a deed registered with any authority of a State Government, and (ii) in any other case, the period for which such asset is held shall be reckoned from 01.06.2016.
38.
Employees’ stock option
Period of holding of shares made available under stock option scheme can be reckoned only from the date of allotment of such shares and not from the date on which right to purchase shares got vested in the employee. [Girdhar Krishna M. v. ACIT (2008) 307 ITR (AT) 68 (Bangalore)]
39.
Where stock in trade has been converted into a capital asset
Where assessee builder changed its business and converted its stock-in-trade, i.e., property, into investment, holding period to be counted from date of conversion and not from date of acquisition. [Deensons Trading Co. (Pvt.) Ltd. v. ITO (2017) 81 taxmann.com 71 Tribunal-Chennai)]
KEY NOTE:
(i) Splitting of shares is not a transfer.
(ii) Debentures and Bonds are not entitled for benefit of Indexation under section 48.


Date of transfer should be excluded
For calculating period of holding of capital asset, both date on which asset is acquired & date on which said asset is sold or transferred are not to be excluded. - [Bharti Gupta Ramola v. CIT (2012) 20 taxmann.com 762 (Delhi)]

FOR EXAMPLE :
If the date of sale of an asset is 01.12.2016, the period of holding shall be calculated till 30.11.2016.

Holding Period as Asset to be considered [Holding need not be as capital asset]
It was the decision of the Bombay High Court that we have to consider the whole period of holding of an asset only not holding it as capital asset.
The entire period of holding i.e. from the date of initial acquisition upto the date of transfer has to be taken into account in order to decide whether it is a long-term capital asset, although it may not have held as capital asset initially.—[Keshavji Karsondas v. CIT (1994) 207 ITR 737(Bom)]
FOR EXAMPLE:
The assessee might have held the car as his personal effects for some time and afterwards he might have converted into capital asset and in that case we have to consider the whole holding period only for the purpose of deciding whether it is short or long-term capital asset.
Calculation of period of holding
For computing holding period of asset both date on which asset is acquired & date on which said asset is sold or transferred are not to be excluded
The date of transfer or sale is treated as a cut-off point to apply the test of period of holdings [Section 10(38), 54EC, General Clauses Act, 1897, Section 3(35)] The issue for consideration was whether the asset must be held for a period of more than 36 months or 12 months plus one day i.e. the date when transfer is made. The date on which the transfer is made has to be excluded. The contention of Revenue was based on the language of section 2(42A) and the words “more than” used therein along with the expression “immediately preceding the date of transfer”. The court held that the term “month” has not been defined in the Act, therefore one has to rely upon the words “calendar month” as defined in the General Clauses Act, 1897. Section 3(35) of the said Act defines a “month” to be month reckoned according to the British calendar. Thus if an assessee acquires an asset on 2nd January in a preceding year, the period of 12 months would be complete on 1st January, next year and not on 2nd January. If it is sold on 2nd January and if the proviso to section 2(42A) applies, it would be treated as a long-term capital gains. Accordingly, the appeal of the assessee is allowed. (Related Assessment year 2006-07) - [Bharti Gupta Ramola v. CIT (2012) 251 CTR 139 : 207 Taxman 178 (Del)]

Previous owner means the last previous owner
Previous owner means the last previous owner of the capital asset, who acquired it through a mode of acquisition other than that referred to in section 49(1). In other words, previous owner means the previous owner who actually paid for the asset.
KEY NOTE:
For the purpose of computing capital gain, the period of holding shall be considered from date of acquiring the asset and not the date when it became capital asset.
Allotment letter- Period of holdings - The law laid down in CIT v. Suraj Lamps & Industries (P) Ltd (2012) 340 ITR 1 (SC) that transfer of immovable property is effective only on registration of conveyance deed is not applicable for computing the holding period of property. Holding period should be computed from the date of issue of the allotment letter and not from the date of the conveyance deed, ratio in Rasiklal M. Parikh v. ACIT (2017) 393 ITR 536 (Bom.) is explained.
Allowing the appeal of the assessee, the Tribunal held that , the law laid down in Suraj Lamps & Industries (2012) 340 ITR 1 (SC) that transfer of immovable property is effective only on registration of conveyance deed is not applicable for computing the holding period of property. Holding period should be computed from the date of issue of the allotment letter and not from the date of the conveyance deed, ratio in Rasiklal M. Parikh v. ACIT (2017 )393 ITR 536 (Bom.) is explained . (Related Assessment year 2012-13) —[Sanjaykumar Footermal Jain v. ITO (ITA No.4853/Mum/2016, dated 14.08.2018) (ITAT Mumbai)]
Period of holding of Conversion of Stock-in-Trade into Capital Asset shall be reckoned from the date of conversion or treatment
With effct from assessment year 2019-20, Clause (42A) of section 2, by inserting clause (ba) in Explanation 1 clause (i), provides that the period of holding of Conversion of Stock-in-Trade into Capital Asset shall be reckoned from the date of conversion or treatment.
Period of holding of property received under family arrangement is computed from date of such arrangement
Where assessee received immovable property belonging to his grandmother who died intestate by way of family settlement, in order to determine nature of capital gain arising from sale of said property, period of holding would commence from date when he became owner of property in question by virtue of family arrangement and not from date when his grandmother expired.—[Nitul B. Shah v. ITO (2016) 68 taxmann.com 90, ITAT Mumbai bench, dated 05.11.2015, in favour of Revenue]
Holding by the Firm and Partner
If a capital asset is held by the firm for certain period and afterwards by the partner or vice versa, then total period of holding by the firm as well as by the partner is to be considered. This is due to the fact that the partners are always owners of properties of the firm.—[CIT v. Vijayalakshmi (2002) 122 Taxman 949 (Mad.)]

Holding period for computation of LTCG to be reckoned from the date of allotment of flat not from the sate of execution of agreement
Conclusion: Where allotment as well as execution of the agreement did not vest two different capital assets in the hands of the assessee which got exchanged with each other upon execution of the agreement rather the event of allotment as well as execution of agreement was part & parcel of the same transaction and only an improvement in ownership rights held by assessee in the flat, therefore,period of holding had to be taken from the date of allotment and the resultant gains earned by assessee would be LTCG only.
Held: It was undisputed fact that assessee acquired the right in specific Flat by way of allotment letter dated 22.10.2008, as placed on record. The sale consideration was already paid by the assessee on 29.09.2008 i.e. much before issuance of allotment letter. The agreement for allocation of flat was executed vide agreement dated 15.12.2011 which was registered on 13.04.2012. This agreement was in respect of the same flat which was allotted to assessee vide allotment letter dated 22.10.2008 and the agreement also contained reference of the allotment letter. The perusal of these facts reveal that the property proposed to be acquired by assessee was specific & a unique property which was clearly identified in the allotment letter dated 22.10.2008 for which the agreement was executed on 15.12.2011 which was in furtherance of the stated allotment only. Assessing Officer got misled by the fact that right in the flat got vested in the assessee upon allotment and the same got exchanged with actual flat upon execution of the agreement and therefore, the holding period should have been counted from the date of the agreement. However, it was noted that allotment as well as execution of the agreement did not vest two different capital assets in the hands of the assessee which got exchanged with each other upon execution of the agreement rather the event of allotment as well as execution of agreement was part & parcel of the same transaction and only an improvement in ownership rights held by assessee in the flat. Therefore, no infirmity could be found in the impugned order and the resultant gains earned by assessee would be LTCG only and assessee was eligibile to claim deduction under section 54F. (Related Assessment Year : 2013-14) - [ACIT v. Ms. Shradha Sudhir Valia Date of Judgement : 05.02.2019 (ITAT Mumbai)]

Allotment letter- Period of holdings- The law laid down in CIT v Suraj Lamps & Industries Pvt Ltd ( 2012 ) 340 ITR 1 (SC) that transfer of immovable property is effective only on registration of conveyance deed is not applicable for computing the holding period of property. Holding period should be computed from the date of issue of the allotment letter and not from the date of the conveyance deed, ratio in Rasiklal M. Parikh v. ACIT (2017 ) 393 ITR 536 (Bom)(HC) is explained
Allowing the appeal of the assessee the Tribunal held that , The law laid down in Suraj Lamps & Industries (2012) 340 ITR 1 (SC) that transfer of immovable property is effective only on registration of conveyance deed is not applicable for computing the holding period of property. Holding period should be computed from the date of issue of the allotment letter and not from the date of the conveyance deed, ratio in  Rasiklal M. Parikh v. ACIT (2017 )393 ITR 536 (Bom) is  explained . (Related Assessment Year 2012-13) - [Sanjaykumar Footermal Jain v. ITO – Date of Judgement : 14.08.2018 (ITAT Mumbai)]

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