THE DCIT. CIRCLE 1, Kakinada V. Sri Dwarapudi Mohan Rama Chandra Reddy, Kakinada

ITA 344/VIZ/2013

• Counselvise Citation: [2016] 130 COUNSELVISE.COM (IT) 9678 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 17-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P SRINIVASA MURTHY
• Assessee Lawyers: P PRABHAKARA MURTHY
• Keywords: Capital asset; Gift; Cost of acquisition
• Section: 143(3)

Judgement Text

ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NO.344/VIZAG/2013 ( / ASSESSMENT YEAR: 2007-08) DCIT, CIRCLE - 1, KAKINADA VS. SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA [PAN: ABHPD2075J ] ( % / APPELLANT) ( &'% / RESPONDENT) C.O. NO.98/VIZAG/2013 (ARISING OUT OF I.T.A.NO.344/VIZAG/2013) ( / ASSESSMENT YEAR: 2007-08) SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA VS. DCIT, CIRCLE - 1, KAKINADA ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SRI P. SRINIVASA MURTHY, DR / RESPONDENT BY : SRI P. PRABHAKARA MURTHY, AR / DATE OF HEARING : 23.11.2016 / DATE OF PRONOUNCEMENT : 09.12.2016 ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 2 / O R D E R PER G. MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTI ON FILED BY THE ASSESSEE ARE DIRECTED AGAINST ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS), VISAKHAPATNAM DATED 13-03-2013 AND IT PE RTAINS TO THE ASST. YEAR 2007-08. SINCE, THE FACTS ARE IDENTICAL AND IS SUES ARE COMMON, THEY ARE HEARD TOGETHER AND DISPOSED OFF, BY THIS C OMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED HIS RETURN OF INCOME, DECLARING TOTAL INCOME OF RS. 1,36,71,710/- , WHICH INCLUDES INCOME FROM BUSINESS, INCOME FROM HOUSE PROPERTY, I NCOME FROM CAPITAL GAINS AND INCOME FROM OTHER SOURCES AND ALSO INCLUD ED INCOME OF MINOR SON WHICH WAS CLUBBED AS PER THE PROVISIONS OF SECT ION 64 OF THE INCOME TAX ACT, 1961. THE CASE WAS SELECTED FOR SCRUTINY A ND ACCORDINGLY, ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT, DET ERMINING TOTAL INCOME OF RS. 1,88,08,772/-. IN THE ASSESSMENT PROC EEDINGS, INCOME OF MINOR SON OFFERED UNDER THE HEAD CAPITAL GAINS HAS BEEN CONSIDERED UNDER THE HEAD INCOME FROM BUSINESS. THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE CIT(A), FOR THE REASONS RECORDED IN HIS APPELLATE ORDER, HELD THAT INCOME OF MINOR SON ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 3 FROM SALE OF SHARES ACQUIRED BY WILL FROM HIS GRAND FATHER IS ASSESSABLE UNDER THE HEAD CAPITAL GAINS. THE CIT(A) FURTHER OB SERVED THAT AS REGARDS PERIOD OF HOLDING AND ASSESSMENT OF SHORT T ERM OR LONG TERM CAPITAL GAIN, THE PERIOD OF HOLDING SHOULD BE COMPU TED FROM THE DATE THE ASSESSEE GOT RIGHT OVER THE ASSETS, I.E. 5-1-2006, BUT NOT FROM THE DATE OF ASSET HELD BY THE PREVIOUS OWNER. AGGRIEVED BY T HE CIT(A) ORDER, THE REVENUE IS IN APPEAL BEFORE US. 3. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM REVENUE APPEAL IS WHETHER ON FACTS AND CIRCUMSTANCES, THE S HARES RECEIVED BY MINOR SON OF THE ASSESSEE FROM HIS FRATERNAL GRANDF ATHER BY VIRTUE OF A WILL ARE CAPITAL ASSETS OR STOCK IN TRADE, CONSEQ UENTLY INCOME FROM SALE OF SHARES ASSESSABLE UNDER THE HEAD INCOME FRO M BUSINESS OR CAPITAL GAIN. THE FACTS WHICH LEAD TO THE DISPUTE A RE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. OBSERVED THAT THE ASSESSEE HAS CLUBBED INCOME OF HIS MINOR SON BEING INCOME FR OM CAPITAL GAIN. THE A.O. FURTHER OBSERVED THAT INCOME FROM SALE OF SHARES INHERITED FROM HIS GRANDFATHER WAS COMPUTED UNDER THE HEAD SH ORT TERM/LONG TERM CAPITAL GAIN DEPENDING UPON THE PERIOD OF HOLD ING OF SHARES. THE ASSESSEE HAS CLAIMED EXEMPTION FOR LONG TERM CAPITA L GAIN U/S 10(38) AND OFFERED SHORT TERM CAPITAL GAIN TO TAX AS PER T HE PROVISIONS OF SECTION 111A OF THE ACT. TO ASCERTAIN THE CORRECTNE SS OF CLAIM OF THE ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 4 ASSESSEE, THE A.O. ISSUED A SHOW NOTICE AND ASKED T O JUSTIFY INCOME FROM CAPITAL GAIN OF HIS MINOR SON WITH NECESSARY E VIDENCES. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED THAT H IS MINOR SON HAS GOT RIGHT OVER THE SHARES FROM HIS DECEASED FATHER LATE D. KRISHNA REDDY BY VIRTUE OF A WILL AND THE SAID SHARES HAVE BEEN SOLD AND COMPUTED LONG TERM CAPITAL GAIN AS PER THE LAW. THE ASSESSEE FURT HER SUBMITTED THAT, HIS FATHER LATE. D.KRISHNA REDDY WAS IN THE BUSINES S OF TRADING IN SHARES AND HELD CERTAIN SHARES OF LISTED COMPANIES AS STOC K IN TRADE. THE SAID SHARES WERE TRANSFERRED TO HIS GRANDSON D.V.V.N.S. ANIL KRISHNA REDDY ON HIS DEMISE ON 4-1-2006. SINCE, THE BENEFICIARY O F WILL IS A MINOR, AS PER THE TESTIMONIALS OF WILL, HE HAS SOLD THE SHARE S THROUGH HIS DEMAT ACCOUNT. THE ASSESSEE FURTHER SUBMITTED THAT HIS SO N ON RECEIPT OF SHARES FROM HIS GRANDFATHER CLASSIFIED SAID SHARES AS HIS INVESTMENTS IN THE BOOKS OF ACCOUNTS. HE FURTHER SUBMITTED THAT, H IS SON NEITHER CONTINUED THE BUSINESS OF HIS GRANDFATHER NOR INDUL GED IN BUYING AND SELLING SHARES, EXCEPT SELLING SHARES INHERITED FRO M HIS GRANDFATHER. THEREFORE, PROFIT/LOSS ON SALE OF SHARES HAS BEEN R IGHTLY COMPUTED UNDER THE HEAD INCOME FROM CAPITAL GAINS. 4. THE A.O., AFTER CONSIDERING SUBMISSIONS OF THE A SSESSEE, HELD THAT GAINS ARISING FROM LIQUIDATION OF STOCK IN TRADE OF PROPRIETARY BUSINESS, OF LATE D. KRISHNA REDDY ON CLOSURE OF BUSINESS IS ASS ESSABLE UNDER THE ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 5 HEAD INCOME FROM BUSINESS, BUT NOT INCOME FROM CAPI TAL GAIN AS CLAIMED BY THE ASSESSEE. THE A.O. FURTHER HELD THAT THE MIN OR SON OF THE ASSESSEE HAS GOT RIGHT OVER THE ENTIRE ASSETS OF HI S GRANDFATHER LATE D.KRISHNA REDDY INCLUDING INTEREST IN PROPRIETARY A ND PARTNERSHIP BUSINESS. THE IMPUGNED SHARES WERE HELD AS STOCK IN TRADE OF PROPRIETARY BUSINESS OF HIS LATE GRANDFATHER. THE G RANDFATHER HAD TRANSFERRED ALL HIS ASSETS INCLUDING BUSINESS INTER EST IN THE FIRMS AND HENCE, TRANSFERS OF ANY ASSETS AND BUSINESS INTERES TS FROM GRANDFATHER TO GRANDSON DOES NOT CHANGE THE CHARACTERISTIC OF A SSETS. THE QUESTION OF TREATMENT OF ASSETS IN THE BOOKS OF ACCOUNTS OR ENTRY IN THE BOOKS DOES NOT CHANGE THE CHARACTERISTIC OF ASSETS. SINCE , THE SHARES WERE HELD AS STOCK IN TRADE IN THE PROPRIETARY BUSINESS OF HI S GRANDFATHER AND ALSO FACT THAT SHARES WERE SOLD BY HIS FATHER WHO IS ALS O INVOLVED IN THE BUSINESS OF BUYING AND SELLING SHARES, INCOME FROM SUCH SALE SHOULD BE ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS. IN THIS REGARD, HE HAD REFERRED THE DECISION OF SUPREME COURT, IN THE CASE OF KEDARNATH JUTE MANUFACTURING CO.LTD VS. CIT 82 ITR 363 AND G. VENK ATASWAMY NAIDU & CO. 35 ITR 594. 5. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE A.O. IN TREATING INCOME FROM SALE OF SHARE BEING STOCK IN TRADE UNDER THE HEAD INCOME FROM BUSINESS. THE D .R. FURTHER ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 6 SUBMITTED THAT THE FACTS CLEARLY INDICATES THAT THE MINOR SON OF THE ASSESSEE HAS GOT RIGHT OVER THE BUSINESS ASSETS OF HIS DECEASED GRANDFATHER INCLUDING SHARES IN THE NATURE OF STOCK IN TRADE AND HENCE, LIQUIDATION OF SUCH SHARES DEFINITELY A BUSINESS TR ANSACTION, BUT NOT INVESTMENTS ACTIVITY. THE A.R. REFERRING TO CERTAIN JUDICIAL PRONOUNCEMENT ARGUED THAT EVEN A SINGLE TRANSACTION CAN CONSTITUTE ADVENTURE IN THE NATURE OF TRADE OR COMMERCE AND IT IS NOT NECESSARY TO DO REPEATED TRANSACTION. HE FURTHER SUBMITTED THAT IT IS THE SUBSTANCE, BUT NOT THE FORM TO DECIDE WHETHER A PARTICULAR TRA NSACTION IS A INVESTMENT ACTIVITY OR BUSINESS TRANSACTION. IN THI S CASE, THE FACTS INDICATE THAT SAID TRANSACTION IS PURELY A BUSINESS TRANSACTION WHICH WAS CARRIED OUT BY THE GRANDFATHER OF MINOR SON OF THE ASSESEEE IN THE FAST. THE ASSET WAS A STOCK IN TRADE IN THE BUSINESS OF D ECEASED GRANDFATHER OF THE MINOR SON. THE FACT THAT MERELY THE SHARES W ERE SHOWN AS INVESTMENTS IN THE BOOKS WOULD NOT BE CONCLUSIVE TO DETERMINE THE TRUE CHARACTER OF THE SHARES IN THE HANDS OF MINOR SON. THE IMPUGNED SHARES WERE HELD AS STOCK IN TRADE AND THEY CONTINUED TO B E STOCK IN TRADE WHETHER THEY CONTINUED TO BE HELD BY THE PERSON WHO DOES BUSINESS OR THEY CHANGED THE HANDS FOR WHATEVER REASONS. AS LON G AS THEY ARE IN THE NATURE OF STOCK IN TRADE, THEY CONTINUED TO BE STOC K IN TRADE, UNTIL THEY ARE LIQUIDATED. ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 7 6. THE LD. A.R. FOR THE ASSESSEE STRONGLY SUPPORTED ORDER OF THE CIT(A). HE FURTHER SUBMITTED THAT THE MINOR SON GOT RIGHT OVER THE SHARES BY VIRTUE OF A WILL AND FROM THE DATE OF WIL L THE SHARES WERE HELD AS INVESTMENTS IN THE BOOKS OF ACCOUNTS. THE A .R. FURTHER SUBMITTED THAT THE MINOR SON, ON INHERITANCE, NEITH ER CONTINUED THE BUSINESS OF HIS GRANDFATHER NOR INDULGED IN BUYING AND SELLING SHARES, EXCEPT SELLING SHARES INHERITED FROM HIS GRANDFATHE R. THEREFORE, PROFIT/LOSS ON SALE OF SHARES HAS BEEN RIGHTLY COMP UTED UNDER THE HEAD INCOME FROM CAPITAL GAINS AND THE CIT(A) PROPERLY A PPRECIATING FACTS DIRECTED THE A.O. TO CONSIDER THE SAME UNDER THE HE AD INCOME FROM CAPITAL GAIN AND HIS ORDER SHOULD BE UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED MATERIAL S ON RECORD AND GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. THE RE IS NO DISPUTE WITH REGARD TO THE FACTS AND THE LOWER AUTHORITIES HAVE CLEARLY BROUGHT OUT THE FACTS IN AS MUCH THE ASSESSEE HAS GOT RIGHT OVE R THE SHARES BY INHERITANCE BY VIRTUE OF A WILL FROM HIS GRANDFATHER ON HIS DEMISE ON 4- 1-2006. IT IS ALSO UNDISPUTED FACTS THAT THE SHARES WERE HELD AS STOCK IN TRADE IN THE PROPRIETARY BUSINESS OF HIS GRANDFATHE R. THE ONLY ISSUE TO BE RESOLVED IS WHETHER THE SHARES RECEIVED BY MINOR SO N OF THE ASSESSEE FROM HIS FRATERNAL GRANDFATHER BY VIRTUE OF A WILL ARE CAPITAL ASSETS OR STOCK IN TRADE, CONSEQUENTLY INCOME FROM SALE OF SH ARES ASSESSABLE ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 8 UNDER THE HEAD INCOME FROM BUSINESS OR INCOME FROM CAPITAL GAIN. THE A.O. WAS OF THE OPINION THAT THE IMPUGNED TRANSACTI ON IS A BUSINESS ACTIVITY AND THE RESULTANT GAIN WOULD BE ASSESSABLE AS INCOME FROM BUSINESS. THE A.O. HAS MADE ELABORATE DISCUSSION AN D ALSO RELIED UPON CERTAIN JUDICIAL PRONOUNCEMENTS TO COME TO THE CONC LUSION THAT INCOME FROM SALE OF SHARES HELD AS STOCK IN TRADE BY THE G RANDFATHER OF MINOR SON IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINE SS. THE A.O. NEVER DISPUTED THE FACT THAT THE ASSET INHERITED FROM HIS GRANDFATHER BY VIRTUE OF WILL IS CLASSIFIED AS INVESTMENTS IN THE BOOKS OF ACCOUNTS OF THE MINOR SON. THE A.O. ALSO NOT DISPUTED THE FACT THAT EXCEPT SALE OF INHERITED SHARES, THE ASSESSEE NEVER INDULGED IN BU YING AND SELLING SHARES IN THE NAME OF HIS MINOR SON. THE A.O. CAME TO THE CONCLUSION MERELY BASED ON THE FACT THAT THE SAID SHARES WERE HELD AS STOCK IN TRADE IN THE PROPRIETARY BUSINESS OF THE GRANDFATHE R AND HIS GRANDSON BECAME OWNER OF ALL ASSETS INCLUDING INTEREST IN TH E BUSINESS OF PARTNERSHIP FIRM AND PROPRIETORSHIP FIRMS. 8. THERE IS NO DOUBT THAT THE MINOR SON HAS INHERI TED BUSINESS INTEREST OF HIS GRANDFATHER AND ALSO SUCCEEDED THE PROPRIETORSHIP CONCERN. BUT, WHETHER HE HAD CONTINUED THE BUSINESS OF HIS GRANDFATHER OR NOT IS THE IMPORTANT FACTOR WHICH DECIDED THE NA TURE OF TRANSACTION. ADMITTEDLY, AS PER INDIAN PARTNERSHIP ACT, 1932, A MINOR CANNOT BE A ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 9 PARTNER IN FIRM, BUT HE CAN BE ADMITTED AS PARTNER FOR THE BENEFITS OF THE FIRM. THE MINOR PARTNER IS NOT LIABLE FOR ANY ACTS OF PARTNERSHIP FIRM. HE IS NOT LIABLE FOR ANY LIABILITIES AND LOSSES OF THE FIRM. SIMILARLY, IT IS INCORRECT TO SAY THAT THE PROPRIETORSHIP FIRM OF LA TE. D. KRISHNA REDDY WAS INHERITED BY HIS GRANDSON AS A GOING CONCERN, B ECAUSE A MINOR CANNOT ENTER INTO A VALID CONTRACT. THE FACT THAT T HE ASSESSEE, THE FATHER AND GUARDIAN OF THE MINOR IS INVOLVED IN THE BUSINE SS OF SHARE TRADING IS NOT A RELEVANT FACTOR TO BE DECIDED WHETHER THE MIN OR SON CONTINUED TO DO THE BUSINESS OF SHARE TRADING. THE A.O. HAS CATE GORICALLY ADMITTED THAT MINOR SON HAS NOT CONTINUED THE BUSINESS OF BU YING AND SELLING SHARES WHICH IS EVIDENT FROM HIS ORDER, WHEREIN HE HAD EXTRACTED PROFIT AND LOSS ACCOUNT WHICH SHOWS NO FURTHER PURCHASE OF SHARES. THEREFORE, WE ARE OF THE OPINION THAT THE SHARES HELD AS STOCK IN TRADE OF THE PROPRIETARY BUSINESS IS NO LONGER REMAINED STOCK IN TRADE IN THE HANDS OF MINOR SON OF THE ASSESSEE. THE ASSESSEE CATEGORICAL LY PROVED WITH NECESSARY EVIDENCE THAT HIS MINOR SON HELD THOSE SH ARES AS INVESTMENTS IN HIS BOOKS OF ACCOUNTS AS SOON AS HE GOT RIGHT OV ER SHARES FROM HIS GRANDFATHER FROM 5-1-2006. ACCORDINGLY, ANY PROFIT OR LOSS FROM SALE OF SUCH SHARES IS ASSESSABLE UNDER THE HEAD INCOME FRO M CAPITAL GAIN, BUT NOT UNDER THE HEAD INCOME FROM BUSINESS AS HELD BY THE A.O. THE CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY HELD THAT INCOME FROM ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 10 SALE OF SHARES IS ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAIN. WE DO NOT SEE ANY REASONS TO INTERFERE WITH ORDER OF THE CIT(A). HENCE, WE INCLINED TO UPHELD THE CIT(A) ORDER AND REJECT A PPEAL FILED BY THE REVENUE. 9. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATIO N FROM ASSESSEE CROSS OBJECTION IS PERIOD OF HOLDING OF ASSET FOR T HE PURPOSE OF COMPUTATION OF CAPITAL GAIN. THE LD. A.R. FOR THE A SSESSEE SUBMITTED THAT AS PER THE PROVISIONS OF SEC. 49(1)(II), WHERE THE CAPITAL ASSET BECOME THE PROPERTY OF THE ASSESSEE UNDER A GIFT OR WILL, THEN THE COST OF ACQUISITION OF THE ASST SHALL BE DEEMED TO BE THE C OST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED IT, AS INC REASED BY THE COST OF ANY IMPROVEMENT OF THE ASSET INCURRED OR BORNE BY T HE PREVIOUS OWNER OR THE ASSESSEE, AS THE CASE MAY BE AS SUCH, THE PE RIOD FOR WHICH PREVIOUS OWNER HELD THE ASSET SHALL BE INCLUDED FOR COMPUTING CAPITAL GAIN. SINCE, THE ASSESSEE GOT RIGHT OVER THE ASSET BY VIRTUE OF A WILL, THE PERIOD OF HOLDING OF PREVIOUS OWNER SHALL BE INCLUD ED FOR DETERMINING SHORT TERM OR LONG TERM CAPITAL GAIN AS THE CASE MA Y BE. THE LD. D.R. REFERRING TO THE PROVISIONS OF SECTION 49(1), SUBMI TTED THAT THE PROVISIONS WOULD APPLY, ONLY WHEN THE ASSESSEE GOT RIGHT OVER ANY CAPITAL ASSET BY WAY OF ANY ONE OF THE MODE REFERRED TO IN SECTION 4 9(1) OF THE ACT. IN THIS CASE, WHAT IS TRANSFERRED IS A STOCK IN TRADE, WHICH DOES NOT COME ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 11 UNDER THE DEFINITION OF CAPITAL ASSET AS SUCH PROVI SIONS OF SECTION 49(1) HAS NO APPLICATION. 10. HAVING HEARD BOTH THE PARTIES AND HAVING CONSI DERED MATERIALS ON RECORD, WE FIND THAT THE PREVIOUS OWNER HELD THE IM PUGNED SHARES AS STOCK IN TRADE AND THE ASSET BECAME CAPITAL ASSET O NLY WHEN IT CHANGED HANDS FROM THE PREVIOUS OWNER TO THE PRESENT OWNER, I.E. MINOR SON. AS RIGHTLY POINTED OUT BY THE LD. D.R., THE PROVISIONS OF SECTION 49(1) APPLIES, WHERE THE CAPITAL ASSET BECOME THE PROPERT Y OF THE ASSESSEE UNDER ANY ONE OF THE MODES SPECIFIED U/S 49(1) OF T HE ACT. IN THIS CASE, THE ASSESSEE MINOR SON GOT RIGHT OVER THE ASSET BY VIRTUE OF A WILL FROM HIS GRANDFATHER ON HIS DEMISE, I.E. ON 5-1-2006. PR IOR TO TRANSFER OF SHARES TO MINOR SON, THE SHARES WERE HELD BY THE PR EVIOUS OWNER AS STOCK IN TRADE OF HIS BUSINESS AND THE PRESENT OWNE R CHANGED THE NATURE OF SHARES FROM STOCK IN TRADE TO INVESTMENT W.E.F. 5-1-2006. THEREFORE, THE PERIOD FOR WHICH THE SHARES WERE HELD AS STOCK IN TRADE CANNOT BE CONSIDERED FOR THE PURPOSE OF DETERMINATION HOLDING PERIOD OF SHARES TO COMPUTE CAPITAL GAIN. THE CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY HELD THAT FOR DETERMINATION OF CAPITAL GAIN , PERIOD OF HOLDING SHARES SHALL BE COMPUTED FROM THE DATE THE PRESENT OWNER GOT RIGHT OVER THE SHARES, I.E. FROM 5-1-2006. WE DO NOT SEE A NY ERRORS OR ITA NO.344/VIZAG/2013 & CO 98/VIZAG/2013 SRI DWARAPUDI MOHAN RAMACHANDRA REDDY, KAKINADA 12 INFIRMITY IN THE ORDER OF THE CIT(A). HENCE, WE INC LINED TO UPHELD THE CIT(A) ORDER AND DISMISSED CROSS OBJECTION FILED BY THE ASSESSEE. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND CROSS OBJECTION FILED BY THE ASSESSEE IS ALSO DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 9 TH DEC16. SD/- SD/- ( . ) ( . ) (V. DURGA RAO) (G. MANJUNATHA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER # /VISAKHAPATNAM: ' /DATED : 9.12.2016 VG/SPS )# *# /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-1, KAKINADA 2. / THE RESPONDENT SRI DWARAPUDI MOHAN RAMA CHANDR A REDDY, 16/36-8- 19, TILAK STREET, KAKINADA 3. + / THE CIT, RAJAHMUNDRY 4. + / THE PRINCIPAL CIT-2, VISAKHAPATNAM 5. + ( ) / THE CIT (A)-11, MUMBAI, CAMP AT VISAKHAPATNAM 6. # . , . , # / DR, ITAT, VISAKHAPATNAM 7 . / GUARD FILE / BY ORDER // TRUE COPY // 12 . (SR.PRIVATE SECRETARY) . , # / ITAT, VISAKHAPATNAM