Section 2(42B): Meaning of Short-term capital gain

By | April 13, 2016

Short-term capital gain is the gain arising out of short-term capital assets. i.e. assets which are held for less than thirty six months and in case of shares, debentures, bonds, a period less than twelve months.

Short-term capital gain Computation:

ParticularsAmount (in Rs.)
Sale Consideration


         Cost of Acquisition

         Cost of Improvement

         Cost of Transfer






Capital Gain

Less: Deduction u/s (54, 54B, 54F…)

****                             ****
Short-Term Capital Gain Chargeable to Tax****

Related Cases:

S. 2(29B), 2(42B), 2(47) & 45 of Income-tax Act, 1961—Capital Gain—Land and building belonging to partnership firm were given on lease for a period of 99 years to a private limited company, the shares of which are held by the partners of the assessee firm. The respondent assessee relied on the terms of the lease deeds and contended that the consideration received for assignment of the lease in rent received for each year for the entire period of the lease i.e. 99 years but received fully and in bulk in advance. High Court of Kerala held that transaction of lease for 99 years of the land and building by the assessee firm, to a company in which the partner of firm were shareholders is nothing but a transfer within the meaning of S. 2(47)(vi) and consideration received by the partners of the firm by way of fully paid up shares of the lessee company was assessable as long term capital gains.
Cases referred to:
A.R. Krishnamurthy vs. CIT(1989) 76 CTR (SC) 18 (1989) 176 ITR 417 (SC)
CIT vs. Panbari Tea Co. Ltd. (1965) 57 ITR 422 (SC)
Durga das Khanna vs. CIT (1969) 72 ITR 796 (SC)
Maharaja Chintamani Saran Nath Sah Deo vs. CIT (1966) 62 ITR 167 (Pat)
Mrs. G. Seetha Kamrajj vs. CIT (2006) 204 CTR (AP) 487 (2006) 284 ITR 54 (AP) and
N. Khandervali Saheb vs. N. Gudu Sahib (Decd.) & Ors. (2003) 261 ITR 1 (SC) [2011] 19 ITCD 1 (KERALA)

S. 2(42A), 2(42B), 17(2), 48, 54EA & 112 of IT Act, 1961—Capital gains—The capital gains arising out of the sale of shares acquired through ESOPs have to be assessed as long-term capital gains. Since the proceeds on sale of shares are assessable as long-term capital gain, the assessee is entitled for all consequential benefits including indexation and exemption u/s 54EA of the Act—ACIT vs. Dhurjati Gupta [2010] 127 TTJ 356 (ITAT-Hyd B)

S. 2(29B), 2(42B) & 45(1) of IT Act, 1961—Capital gains—The capital gain arising out of the sale of the leasehold interest in the land in incomplete building will have to be bifurcated into the gain arising out of a sale of lease hold interest in the land and sale of the complete building—CIT vs. Hindustan Hotels Ltd. & Anr (2011) 237 CTR 32 (Bom)

S. 2(14) 2(29A), 2(42A) & 2(42B) of the IT Act, 1961—Capital gains—S. 2(29A) and 2(42A) provides that if capital asset is held for more than 36 months immediately after preceding the date of transfer, it will be treated as long-term capital asset and the gain will be considered as long term capital gain but where from the date of conversion of business asset into investment or capital asset upto date of transfer or sale is less than 36 months as provided in S. 2(29A) and 2(42A), the same has to be treated as short term capital gain and the rate applicable in the case of short-term capital gain is leviable—Splendor Constructions Pvt. Ltd. vs. ITO (2009) 122 TTJ 34 (Del)

S. 2(42B) of the IT Act, 1961—Capital gains—The assessee purchased a plot in 1970 and executed some construction work on it and in August 1980, the assessee obtained loan for construction and thereafter in June 1982, asset having been sold. Therefore, capital gains arising out of sale of building that was created by the assessee during three years immediately preceding sale should be considered to be short-term capital gains while gains on the remaining assets, i.e., plot of land were to be considered as long-term capital gains—CIT vs. A. S. Aulakh


As Per Section 2(42B), of the Income Tax Act, 1961-

In this Act, unless the context otherwise requires,—

S. (42B) “short-term capital gain” means capital gain arising from the transfer of a short-term capital asset.

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