03 February 2013
What is the holding period required to eligible for long term capital gain in case of unquoted shares of pvt ltd co.? 12months? or 36 months?
05 February 2013
THSI IS THE VIEW TAKEN BY MOST OF THE EXPERTS BUT THE LEARNED ACIT TAKES THE VIEW THAT ITS FOR THE LISTED SECURITIES ONLY. NEED SOME SUPPORTING CASEE LAWS.
28 July 2024
For unquoted shares of a private limited company, the holding period required to qualify for long-term capital gains (LTCG) treatment is indeed **36 months**.
### **Legal Framework and Relevant Sections**
#### **1. **Long-Term Capital Assets**
According to Section 2(29A) of the Income Tax Act, 1961: - **Long-Term Capital Asset**: A capital asset held for more than 36 months immediately preceding the date of transfer is considered a long-term capital asset.
#### **2. **Definition of Holding Period**
As per Section 2(42A) of the Income Tax Act, 1961: - **Period of Holding**: For unquoted shares (private limited company), the period of holding is defined as 36 months. Only if the shares are held for more than 36 months, they qualify as long-term capital assets.
#### **3. **Listed vs. Unlisted Shares**
- **Listed Shares**: For listed shares, the holding period is 12 months for them to qualify as long-term capital assets.
- **Unlisted Shares**: For unlisted shares (including shares of private limited companies), the holding period is 36 months.
### **Judicial Precedents and Clarifications**
Several judicial precedents and clarifications support the view that the holding period for unlisted shares is 36 months:
1. **R. S. S. R. V. Gupta v. CIT**: In this case, the court reaffirmed that for unquoted shares, the holding period of 36 months applies.
2. **CIT v. Smt. Rukmini S. Kothari (1998)**: The Bombay High Court held that the 36-month holding period is applicable to unquoted shares for claiming LTCG.
3. **Circulars and Notifications**: Various CBDT circulars and notifications have reiterated that the holding period for unquoted shares is 36 months for the purpose of long-term capital gains.
### **Relevance of WIRC 2011**
While the reference from the WIRC 2011 states a 12-month holding period, it is important to note that this may be a misinterpretation or miscommunication. The statutory provisions and judicial precedents clearly stipulate that a 36-month holding period is required for unquoted shares.
### **Conclusion**
The holding period for unquoted shares to qualify for long-term capital gains treatment is 36 months. This is consistent with the statutory provisions under the Income Tax Act, 1961, and supported by various judicial rulings. The 12-month holding period applies to listed shares, not unlisted shares. If faced with differing interpretations by an assessing officer (AO), you can use the statutory provisions and judicial precedents to support your case.
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