Method of determination of period of holding of capital assets in certain cases [Notification No. 18/2016, dated 17-03-2016]

Section 2(42A) provides for the meaning of the term “short-term capital asset” as a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer. Clause (i) of Explanation 1 to section 2(42A) provides for inclusion/ exclusion of certain periods in respect of specified transactions listed there under for the purpose of determination of the period of holding of asset. Clause (ii) of Explanation 1 to section 2(42A) provides that in respect of capital assets, other than those mentioned in clause (i), the period for which the capital asset is held by the assessee shall be determined subject to rules made in this behalf by the CBDT.

Accordingly, the CBDT has inserted new Rule 8AA in the Income-tax Rules, 1962 to provide for method of determination of period of holding of capital assets, other than the capital assets mentioned in clause (i) of the Explanation 1 to section 2(42A). Specifically,
in the case of a capital asset, being a share or debenture of a company, which becomes the property of the assessee in the circumstances mentioned in section 47(x), there shall be included the period for which the bond, debenture, debenture-stock or deposit certificate, as the case may be, was held by the assessee prior to the conversion. The said rule shall come into force with effect from 01-04-2016.

Note: Section 47(x) provides that any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company shall not be regarded as transfer for the purposes of levy of capital gains tax.