Taxmann's Issues FAQs & Tax Planning Relating to Capital Gains by Taxmann

Circumstances where section 45(4) can be invoked

Section 45(4) and revaluation of asset

to retiring partner by remaining partners

to retiring partner by incoming partner

Section 45(4), revaluation of the asset and conversion into company

Section 45(4) and reduction in share capital

COA of the asset received by retiring partner

Section 45(4) and transfer of stock-in-trade to partner

Whether a case of dissolution or retirement

Section 45(4) and scope of the term ‘otherwise’

Section 45(4) and section 50C

Section 45(4) and transfer of unquoted shares to retiring partner

Section 45(4) and dispute before a Court

Section 45(4), retirement of a partner and goodwill

AND CHECK

CAPITAL GAINS ON RECONSTITUTION OF FIRM/ SPECIFIC ENTITY- SECTIONS 45(4) AND 9B

Conditions for invoking section 9B

Conditions for invoking section 45(4)

Constitutional validity of section 9B

Retrospective effect of section 9B

Section 9B and section 50C/43CA/56(2)(x)(b)

Section 9B v. section 48

Section 9B and transfer of stock in trade

Interplay of section 9B and section 45(4)

Mechanism of operation of section 9B and section 48(iii)

Conditions for attributing capital gains

CAPITAL GAINS ON DISTRIBUTION OF ASSETS BY COMPANIES IN LIQUIDATION - SECTION 46

46A v. Section 47(iv)

46A v. Section 10(34A)

46A, 10(34A), 115QA and 115-O

Capital gains on equity shares received by company in gift

Section 47(iii) applies to actual gift 468

Exemption u/s 54 and gift of new asset 469

Conditions for applicability of section 47(iv) 470

The law as on the date of execution of the agreement to apply 470

Transfer of warrants/shares and section 47(iv) 471 iv) 472

Transfer of shares between holding and subsidiary company 472

Section 47(v) not to apply to transfer of stock-in-trade 481 vii) not available on part transfer of shares 481

Section 47(viii) and transfer of agricultural land 482

Capital gains on conversion of bonds/debentures into shares 482

Membership of a Stock Exchange 484

Section 47(xiii) and sale of shares to company 485

Capital gains under the conditions of section 47(xiii) 485 486

Capital gains and violation of conditions u/s 47(xiii) 486

Depreciation on revalued intangible assets received by a private 487 Conditions laid down u/s 47(xiii) are mandatory

Revaluation of assets in credit into partner’s account

Section 47(xiiib) not to apply on grant of loan

Ingredients of section 47(xiiib)

gains on succession of proprietary concern by a company

WITHDRAWAL OF EXEMPTION OF CAPITAL GAINS IN CERTAIN CASES- SECTION 47A

Section 47A(3) v. section 47(xiii)

Time of allotment of shares in case of succession by a company 503

Charge of capital gains on violation of conditions u/s 47(iv)/47(v)/ 47(xiii)

MODE OF COMPUTATION OF CAPITAL GAINS - SECTION

Full value of consideration 523

Receipt by seller/payments by purchaser not part of FVC 533

Full value of consideration and section 50C 534

Year when sale consideration is to be used for computing capital gains 535

Cost of acquisition 535

Expenses not to form part of COA 544

Legal fees as part of COA 547

Capital gains on transfer of TDRs 548

Concept of wholly and exclusively 549

Expenditure to be included in computation of capital gains 551

Expenditure not be considered for computation of capital gains 556

Cost of improvement 561

Expenditure to fall or not to fall as part of COI 562 Miscellaneous 567

INDEXATION - SECOND PROVISO TO SECTION

Indexation in case of conversion of capital asset into stock-in-trade

Indexation in the case of transfer of preference shares 581

Indexation in the case of conversion of units of UTI into bonds 582 582

Indexation in case of inheritance of property 583

Indexation on cumulative sale of original/bonus shares 583

Indexation to asset in remand proceedings 584

Indexation from date of payments/allotment

Indexation on sale of shares allotted by BSE

in the case of JDAs

COST WITH REFERENCE TO CERTAIN MODES OF ACQUISITION - SECTION 49

COA to the previous owner to be the COA to the assessee 621

Determination of COA in the cases of different transferees 622

Amendment in section 49(1)(iii) is not retrospective effect 635

Capital gains on sale of right to purchase additional shares 636

Capital gains on sale of properties earmarked for the directors 636 637 638 Determination of period of holding of an asset

CAPITAL GAINS AND FAMILY SETTLEMENTSECTION 49(1)(i)

Family settlement as partition

Distribution in family settlement is not a transfer 652

Liability to capital gains in family settlement 653

Stock-in-trade received in family settlement is not capital asset 656

Transfer of shares by a company in family arrangement 656

No capital gains on provision of owelty 657 657

Section 47(i) is not applicable on money received after valuation 658

Family settlement and section 56(2)(v) 659

Family settlement and section 56(2)(vii) 660

Family settlement and section 2(22)(e)/56(2)(vi) 660

Family settlement and section 2(47)(v) 661

Family arrangement and section 54F 661

Family settlement, difference in book value and FMV, whether unaccounted transaction 662

Family settlement, buy-back of shares and expenditure

CAPITAL GAINS ON DEPRECIABLE ASSETSSECTIONS 50 AND 50A

Capital gains on depreciable assets before insertion of section 50 673

Essential conditions u/s 50 674

For invoking section 50 claim and allowing of depreciation 674

Difference between section 50(1) and 50(2) 676

Interrelationship between sections 50, 48, 49 & 55(2) 677

Estimated income and section 50 677

Section 50 and use of the asset in business 678

Section 50 and block of asset 678

Goodwill, section 50 and Rule 8AC 681

Section 50 and distribution of depreciable assets among partners 683

Section 50 and sale of undertaking 684

Section 50 and sale of both tangible and intangible assets 686

Section 50 and claim of exemptions u/s 54E/54F/ 54EC 686

Section 50 and set off of brought forward losses 687

Substitution of FMV u/s 50 688

Section 50 and taxability of compensation 689

Section

Section 50A and section 48

Section

CAPITAL GAINS IN CASE OF MARKET LINKED DEBENTURE - SECTION 50AA

Stamp duty value, Fair market value and determination of fair market value 741

Section 50C and full value of consideration 746

Section 50C and cost of acquisition 747

Scope of the word ‘assessable’ 748

Objections to stamp duty value 750

Reference to DVO and opportunity by DVO 752

Adoption of stamp duty valuation as full value of consideration 757

DVO’s report and challenge to it 765

Tolerance limit 767

Section 50C and joint development agreement 770

Section 50C and development rights 774

Section 50C and rural agricultural land 775

Section 50C and transfer by way of gift/will/merger 776

Section 50C and exemption u/s 54/54F/54EC 777

Section 50C and transfer of shares 780

Section 50C and leasehold rights, Kashtkari Rights and other rights in immovable property 781

Section 50C and section 56(2)(vii)/56(2)(x) 784

Interplay of sections 50, 50C and 43(6) 787

Section 50C and depreciable assets 788

Section 50C and year of chargeability 792

Section 50C and section 263 793

Section 50C and real income 794

Section 50C and writ 795

Section 50C and section 69B 796

Section 50C and stock in trade 796

Section 50C and section 45(3) 799

Section 50C and section 45(4)/49 800

Section 50C and mediatory 801

Section 50C and reopening of assessment 801

Section 50C and penalty for concealment 802

Section 50C and auction sale 802

Section 50C and unregistered sale 802

Section 50CA and date of its applicability

Retiring partner given unquoted equity shares and section 50CA

Incoming partner bringing unquoted equity shares and section 50CA

Date of acquisition of property 844

Investment of sale consideration of two or more houses 846

Exchange of old house with new house 846

Circumstances where exemption u/s 54 is available/not available 848

Exemption u/s 54 for transactions covered under development agreement 860

Forfeiture of exemption u/s 54 860

Reckoning the date of acquisition for indexation 860

SDV of old house is not the FVC for investment in new house 861 SUMMARY AND CHECK

FOR TAX PLANNING 861

EXEMPTION ON INVESTMENT IN AGRICULTURAL LAND - SECTION 54B

Entities to whom section 54B is applicable 868

Section 54B and short term/long term capital asset 870

Section 54B and agricultural land/income 871

Section 54B and deposit in CGAS account 871

Section 54B and investment in new agricultural land 872

Section 54B and penalty for concealment 878

Section 54B and power of Tribunal to estimate COI 879

Consequence to failure to invest in new asset 879

Section 54B and reckoning the period of two years 880

Section 54B and investment in non-agricultural land 880

Availability of exemption u/s 54B as well as u/s 54F 880

Section 54B and section 263 881

Section 54B and partition of ancestral agricultural land 881

Exemption u/s 54B to a builder 882 882

Section 54B and legal heir 883

Section 54B and purchase of new asset prior to sale of old asset 883

Section 54B, investment in new asset and DLC rates 883

SUMMARY AND CHECK POINTS FOR TAX PLANNING 884

COMPULSORY ACQUISITION AND EXEMPTION FOR INVESTING IN NEW INDUSTRIAL UNDERTAKINGSECTION 54D

Meaning of ‘industrial undertaking’ for exemption u/s 54D 890

Change of nature of asset on subsequent development 891

Claim of exemption and mentioning wrong section 892

SUMMARY AND CHECK POINTS FOR TAX PLANNING 892

EXEMPTION ON INVESTMENT IN SPECIFIED ASSET- SECTION 54E

Exemption allowed even on transfer of depreciable asset 900

Constitutional validity of Section 54(1C) 900

Transfer of property to take effect on date of registration 901

Source of funds used for investment not material 902

FVC to include amount of discharged mortgage 902

No exemption if impugned transaction not regarded as transfer 902

Manner of reckoning period of 6 months 903

Exemption u/s 54E on enhanced compensation 904

Reopening not valid if no claim made by assessee 905

Discounted value of interest on bonds chargeable in the year of receipt 905

Exemption available even if investment made in names of partners 905

Exemption only on sale of lot of shares yielding capital gains 905 906 907

Exemption only after allowing deduction u/s 48(2) from LTCG 907

SUMMARY 907

EXEMPTION ON INVESTMENT IN SPECIFIED ASSET- SECTION 54EA

Exemption u/s 54EA and joint development agreement (JDA) 911

Exemption u/s 54EA and sale of business along with goodwill 911

Exemption u/s 54EA on enhanced compensation for land 912 912

Exemption u/s 54EA on sale of shares held under stock options 913

Exemption u/s 54EA on surrender of tenancy rights 913

914

EXEMPTION ON INVESTMENT IN SPECIFIED ASSET- SECTION 54EB

Manner of reckoning of period for making investment 918

Exemption u/s 54EB when consideration received in instalments 918 SUMMARY 918 35

EXEMPTION ON INVESTMENT IN CERTAIN BONDS - SECTION 54EC

Section 54EC and sale of TDRs 927

Reckoning of period of six months for investment 928

Section 54EC and period of holding of capital asset 931 932

Reasonable cause for delay in making investment 933

Maximum limit of investment 933

Investment made jointly with assessee permissible 935

Investment in FDs not eligible for exemption 935

Exemption permissible under both sections 54EC and 54/54F 935 936

Firm to get exemption even if investment made in names of partners 936

No exemption if investment made before transfer of original asset 937

Exemption to be claimed before set off of capital loss 937

Separate exemption for land and building sold together 938

Section 54EC and section 115JB 938

Section 54EC and penalty for concealment 939

Section 54EC and section 64 939

Exemption in respect of sale of land held as capital asset 939

Restriction of exemption upto amount of investment 940

Exemption on sale of client relationships and goodwill of business 940

Section 54EC and section 45(4) 941

CAPITAL GAIN ON TRANSFER OF CERTAIN LISTED SECURITIES/UNITS - SECTION 54ED

Capital gain on transfer of certain listed securities/units- Section 54ED 944 SUMMARY 947 37

EXEMPTION ON INVESTMENT IN UNITS OF A SPECIFIED FUND - SECTION 54EE

Section 54EE deserves liberal construction 951

Scope of applicability of section 54EE 951

Investment in new asset can be from other sources/ borrowings 952

Maximum amount of exemption u/s 54EE 953

Manner of reckoning the eligibility period of 6 months 953 953

No denial of exemption if investment made jointly 954

Circumstances entailing withdrawal of exemption u/s 54EE 955 SUMMARY AND CHECK POINTS FOR TAX PLANNING 955

EXEMPTION FOR INVESTMENT IN NEW RESIDENTIAL HOUSE - SECTION 54F

Various conditions for claiming exemptions u/s 54F 965

Various long-term capital assets on whose transfer exemption u/s 54F can be claimed stock options 967 967

Sale of commercial property 968

Sale of vacant land 968

Sale of factory shed 969

Sale of Tenancy rights 969

Sale of allotment letter 970

Sale of Trademark 970

Sale of Agricultural Land 970

Interplay of section 54F and section 50C 971

Transfer of several long-term capital assets 972

Kind of asset purchased, or extent of construction carried out 973

Claim of exemption by a minor 974

Charge of capital gains on failure to purchase new asset 974

Section 54F and section 64 976

Section 54F and owning of more than one residential house 977

Section 54F and investment in house owned by father 980

Section 54F and cancellation of agreement to sell 981

Withdrawal of exemption u/s 54F(3) 981

Adjustment of long-term capital gains against long-term capital loss 983

Claim of exemption by a trust 984

Section 54F and cost of new asset 984

EXEMPTION ON INVESTMENT IN NEW RESIDENTIAL HOUSE - SECTIONS 54 AND 54F

Concept of residential house 995

Meaning and scope of expressions ‘purchase or construction’ 997

Acquiring a house under a builder-buyer agreement is a purchase 1000

Acquiring a house from DDA/Housing societies 1001

‘A residential house’ whether singular or plural 1003

New Residential House should be habitable 1004

New residential house outside India 1006

Subsequent use of the property purchased is not material 1007 1008 1012

Section 54F and land appurtenant to the building 1013

Possession v. Execution of instrument of transfer of new asset for exemption u/s 54F 1014

Residential house on commercial land 1017

Investment of net consideration/capital gains in single units or multiple units 1018

Claim of Exemption at different stages of assessment and appeal 1024

Purchase/construction of house in the name of close relatives or inserting their names 1026

Exemption even if wrong section or no section is mentioned 1032

Exemption if agreement with builder failed and money refunded 1033

Exemption if investment in new asset is staggered 1034

Reckoning date of purchase or allotment 1035

Source and Period of investment made in new asset 1037

Making investment in new asset in prescribed time 1041

Withdrawal of exemption 1045

Purchase of new asset from close relatives/joint ventures 1046 1047 Miscellaneous issues 1050 SUMMARY AND CHECK POINTS FOR TAX PLANNING 1052

EXEMPTION FROM CAPITAL GAINS TAX AND CAPITAL GAINS ACCOUNTS SCHEME

Requirement of deposit in CGAS account 1059

Making deposit of capital gains/net consideration in saving account 1061

Making deposit out of borrowed funds 1062

Purchase/construction within prescribed time 1062

Deposit within the time allowed u/s 139(4) 1065 1070

Reasonable cause in delay in making deposit 1070

EXEMPTION ON SHIFTING OF INDUSTRIAL UNDERTAKING FROM URBAN AREA - SECTION 54G

Relevant evidence to prove shifting of industrial undertaking 1080 Manner and scope of investment of capital gains in new asset u/s 54G 1081 1081

Deposit in CGAS account made within time limit available u/s 139(4)/139(5) 1082

Tax treatment of unutilized CGAS deposit in the hands of legal heirs 1083

Section 54G and purchase of land/building for business at new place 1083 1084

Essential conditions for availing exemption u/s 54G 1084 SUMMARY AND CHECK POINTS FOR

EXEMPTION ON SHIFTING OF INDUSTRIAL UNDERTAKING TO SEZ - SECTION 54GA

Essential conditions for claiming exemption u/s 54GA 1090

Preference for adjustment of exemption u/s 54GA against capital gains 1092

Circumstances leading to withdrawal of exemption u/s 54GA 1092

Tax treatment of unutilised CGAS deposit in the hands of legal heirs 1093

Common principles/ propositions applicable to section 54GA 1093

Filing of return mandatory to claim exemption 1096

SUMMARY AND CHECK POINTS FOR TAX PLANNING 1096

EXEMPTION FOR INVESTMENT IN START-UP - SECTION 54GB

Time limit for investing capital gains in eligible company 1109

Time limit for eligible company to invest in the new asset 1109

How to determine cost of the new asset 1109

Grounds for withdrawal of exemption u/s 54GB 1110

Illustration to explain how section 54GB works 1111

Common principles/propositions for exemption applicable to section 54GB 1113 SUMMARY AND CHECK POINTS FOR TAX PLANNING 1116

EXTENSION OF TIME FOR INVESTMENT IN CASES OF COMPULSORY ACQUISITION - SECTION 54H

Liability to Capital Gains when compensation received in instalments 1122

Remedial action available u/s 155(11) if capital gains charged 1122

COST OF ACQUISITION IN CERTAIN CASES - SECTION 55

Financial assets covered u/s 55(2)(aa) 1139 aa) 1140

Determination of cost of acquisition u/s 55(2)(ac) 1140

Determination of cost of acquisition u/s 55(2)(b)(iii) 1141

Determination of cost of acquisition u/s 55(2)(b)(v) 1141

Determination of cost of acquisition of any other capital asset 1142

Cost of acquisition of bonus/right shares/detachable warrants 1142

Determination of cost of acquisition of units of business trust 1146

Determination of cost of acquisition on conversion of securities 1146

Determination of cost of acquisition on amalgamation 1147

Determination of cost of acquisition in case of demerger 1147

Cost of acquisition of transactions between holding and subsidiary companies 1148

Cost of acquisition on conversion of company to LLP 1149

Treatment of advance money forfeited 1149

Cost of acquisition of immovable property covered u/s 56(2) 1149

Cost of acquisition as cost to previous owner 1150

Meaning of ‘previous owner’ 1151

Cost of acquisition in the case of a joint development agreement 1151

Cost of acquisition in case of enhanced compensation 1152

Cost of acquisition on conversion of stock-in-trade into capital asset 1152

Cost of acquisition in case of transfer of a depreciable asset 1152

Determination of cost of acquisition in case of slump sale 1153

Cost of acquisition of goodwill, trademark or brand name 1153

Cost of acquisition in case of transfer/surrender of tenancy rights 1155

Determination of cost of acquisition of know-how 1155

Determination of cost of acquisition of patent 1156

Determination of cost of acquisition of IPRs 1157

Cost of acquisition of licences etc. for setting up a plant 1157

Cost of acquisition in case of payment of non-compete fees 1158

Cost of acquisition in case of transfer of ‘jagirs’ 1158

Cost of acquisition of gold received on redemption of Gold Bonds 1159

Relevant factors in determination of cost of acquisition u/s 55(2)(a) 1159

Cost of acquisition of shares issued against surrender of BSE card 1160

Relevance of value of asset declared in wealth tax records 1161

Concept of Fair Market Value (FMV) in section 55 1162

Relevance of report of registered valuer/Departmental valuer 1162

Ground for invoking section 55(3) 1163

Salient features of exercising option u/s 55(2)(b) 1164

Cost of acquisition on conversion to non-agricultural land 1166

Relevant factors while determining cost of acquisition 1167

Salient features of cost of improvement u/s 55(1)(b) 1169

Issues related to COA of unlisted shares 1172

SUMMARY AND CHECK POINTS FOR TAX PLANNING 1173 46

REFERENCE TO VALUATION OFFICER - SECTION 55A

Scope of reference to DVO u/s 55A and section 142A 1179

Procedure to be followed by DVO and his powers u/s 55A 1182

Reference to DVO u/s 55A by investigation wing 1183

Reference to DVO by the AO u/s 55A 1184

Validity of reference to DVO if report received after assessment 1185 1185

Addition u/s 153A on the basis of DVOs report 1186

FMV determined by DVO cannot be substituted for FVC u/s 48 1186

DVO’s report as basis for action u/s 148 1187

Reference to DVO and rejection of books of account by AO 1187

Difference between reference to DVO u/ss 142A and 55A 1188

Reference to DVO valid even if declared value is more than FMV 1190

Amendment made in section 55A(a) is prospective 1191

Reference to DVO permissible for purpose of section 45(4) 1191

Validity of reference to DVO for purpose of section 50C 1192

Prior hearing to assessee not required for reference to DVO 1192

DVO’s report open to challenge by the assessee 1192 1193 1193

AO can estimate FMV if DVO fails to furnish report in time 1193

Reference to DVO only after due application of mind by AO 1194

No reference to DVO u/s 55A after completion of assessment 1194

Power to remand case on objections to DVO’s report raised in appeal 1195

Reference u/s 55A does not extend limitation 1195

SUMMARY AND CHECK POINTS FOR TAX PLANNING 1195

OFF OF CAPITAL GAINS/LOSS - SECTIONS 70, 71, 74 AND 80

Set off of loss from exempt source/head of income 1211

Intra-head set off of loss 1212

Inter-head set off of loss 1214

Set off of long-term capital loss 1215

Set off of non-genuine capital loss 1216

Set off of long-term capital loss against STCG on transfer of a depreciable asset 1217

OF SHORT-TERM/LONG-TERM CAPITAL GAINS - SECTIONS 111A, 112 AND 112A

Meaning and scope of ‘equity-oriented fund’ 1251

Section 111A does not apply to STCG 1251

(i) On transfer of preference shares 1251

(ii) On units of debt-oriented MF 1251

(iii) On transfer of unlisted shares 1252

Applicability and scope of section 111A 1252

Deductions allowed from STCG 1253

Deductions not allowed u/s 111A 1254 1254

No credit of STT available to assessee 1254

No capital gains on disgorgement of sale proceeds 1255

Section 111A applies not on trading but on investment in shares 1255

Section 111A does not apply where DTAA is attracted 1256 1257 1257

Meaning of ‘zero coupon bond’ 1257

Application of concessional rate of tax u/s 112 to non-residents 1258

Effect of proviso to section 112(1) 1262

Tax rates u/s 112 apply to private discretionary trust 1262 b)(i) 1263

Tax rate on LTCG arising on transfer of shares allotted in public issue 1263 1263

Section 112(1) attracted even if depreciable assets are sold 1264

Section 112(1) and deductions under Chapter VI-A 1264

Tax includes surcharge 1265

Interplay of sections 48 and 70 before invoking section 112 1265 c

CAPITAL GAINS TAX ON OFFSHORE FUNDS/NON-RESIDENT PERSON/ FIIs IN RESPECT OF UNITS/GDRs/SECURITIESSECTIONS 115AB, 115AC, 115ACA, 115AD

Applicability of aforesaid provisions 1295

Meaning and scope of ‘dividend’ and taxation thereof 1295

Taxation of dividend in case of non-resident shareholders 1296

Taxation of dividend from mutual funds in case of non-residents 1297

Taxation of dividend from GDRs in case of non-residents 1297

Taxation of dividend from REITs/InvITs in case of non-residents 1297

Liability to deduct withholding tax from payment of dividend 1298

Meaning and scope of GDRs 1299

Types of securities purchased by non-residents in foreign currency 1299

Difference between FCCBs and FCEBs 1300 1300

Taxation of capital gains u/s 115AC 1301

Distinction between units and securities 1301

Scope of applicability of section 115AD 1302 1303

Tax rates for LTCG on sale of shares u/ss 112 and 112A 1303

FIIs assessable on LTCG on transfer of securities only u/s 115AD 1304

Adjustment of short-term capital loss against STCG of FII 1304

FIIs not barred from trading in derivatives 1305

Income of FIIs from dealing in derivatives taxable as capital gains 1305 1306

Tax rate applicable to interest income of an FII 1306

Taxability of interest income of foreign company on FCCBs 1307

Chargeability of capital gains on conversion of debentures/bonds 1307

Section 115AD and income of FIIs from sale of portfolio investments 1308

Section 115AD and Interest earned by FII on NCDs 1308

Set off of short-term capital loss of an FII against STCG 1309

Section 48 and section 111A/115AD 1310

Exemption of interest income of FII u/s 10 1310

ALTERNATIVE TAX REGIME IN THE CASE OF NON-RESIDENT INDIANS- SECTIONS 115C, 115D, 115E, 115F, 115G, 115H AND 115-I

Section 115D v. section 88 1328

Section 115D and non-foreign exchange asset 1329

Section 115E and section 115H 1329

Section 115E and transfer of FE asset from one bank to another 1330

Section 115E and section 88 1330

Section 115E and declaration in the return 1331

Section 115E and short term capital gains 1331

Section 115E and interest income from NRO account 1332

Section 115E and LTCG on sale of house by non-resident 1333

Nature of bonus share is same as that of original share 1333

Section 10 and interest income of non-resident 1334

Transactions not regarded as transfer in the case of NRI also 1334 1335 1335

Section 115C/115H and nationalised bank deemed to be an Indian company 1336

u/s 115-I 1336

CAPITAL GAINS AND BUSINESS TRUST

CAPITAL GAINS AND INTERNATIONAL FINANCIAL SERVICES CENTRE (IFSC)

Persons permitted to deal in securities listed in IFSC 1355

Kind of securities traded through the RSEs in IFSC 1356

Transactions in IFSC not treated as ‘transfer’ u/s 47 1359

Income of units in IFSC as well as investors exempt u/s 10 1361

Capital Gains tax on transactions in IFSC charged at concessional rates 1364

AND CHECK POINTS FOR TAX PLANNING 1366

CAPITAL GAINS UNDER INTERNATIONAL TAXATION

Scope of Article 13 of DTAA relating to capital gains 1378

Capital gains under Article 13 not always charged in source country 1379

Tax treatment of transfer of shares of Indian Company by non-resident 1379

Taxability of units of mutual funds under DTAA 1382

Taxation of capital gains arising to Indian resident in a foreign country 1382

Taxability of capital gains arising to non-resident on certain transfers 1383

Factors affecting computation of capital gains in case of non-residents 1383

Cost of acquisition of shares received on redemption of GDRs/FCCBs 1384

Tax rates for charging capital gains in India 1384 v. Income-tax Act 1386

Adjustment of short-term capital loss against STCG of FII 1387

Scope of the expression ‘movable property’ used in Article 13(2) 1388

Taxation under I.T. Act in absence of DTAA 1390

Parameters for place of effective management to locate PE 1391

Transfers exempt under Income Tax Act for a non-resident 1391

Taxable capital gains arising to a non-resident 1392

Liability to deduct TDS from non-resident only if capital gains taxable 1393

Tax treatment of capital gains on transfer of immovable property 1393

Nature of income of FIIs from dealings in securities 1394

Transaction in shares/securities as business income of non-resident 1395

No capital gains on notional or hypothetical basis 1395

Carry forward of capital losses allowable to a Mauritian company 1396

Applicability of domestic capital gains provisions to non-residents 1396

Types of income covered by section 9 of Income Tax Act 1397 1399

Taxability of compensation received by a foreign national 1399

Capital gains arising to PE in India to be taxable in India 1399

Relevance of situs of capital asset for tax treatment of capital gains 1400

Capital gains arising to resident of Mauritius on transfer of CCDs 1400 1401

No liability for non-deduction if recipient paid taxes on capital gains 1401

Liability to deduct TDS on payment made to non-resident u/s 195 1401

Capital gain to Indian resident on shares of foreign company taxable 1402

Amendment in sections 40(a)(i) and 201(1) by FA, 2019 retrospective 1402

SUMMARY AND CHECK POINTS FOR TAX PLANNING 1402

OTHER APPLICABLE PROVISIONS RELATING TO CAPITAL GAINS

Taxability in the hands of recipient being individual/HUF 1405 company 1412

Taxability in the hands of recipient being unlisted company 1415

Taxability of money received in advance 1421

General provision for taxability in the hands of recipient 1421

Other provisions 1430

MISCELLANEOUS COMMON QUERIES

Claim of exemption 1435

(i) Claim of exemption u/s 54/ 54F 1435

(ii) During appellate proceedings 1436

(iii) On enhanced compensation 1436

(iv) 1437

(v) Only on sale of land attached with the house 1437

(vi) If new house is subsequently used for commercial purposes 1437

(vii) On sale of several houses and investment into one 1437

(viii) On purchase or construction of new house before sale of old house 1437

(ix) On exchange of new house for old house 1438

(x) On non-completion of construction within three years? 1438

(xi) On purchase of a house with tenancy 1438

(xii) cum residence 1439

(xiii) On making a claim under wrong section 1439

(xiv) On sale of land and building constructed thereon 1439

(xv) On getting the house from the builder beyond stipulated period 1440

(xvi) On purchasing new residential house in joint name with wife 1440

(xvii) On purchase of the new house for the purposes of hostel 1440

(xviii) Purchase of farmland after sale of old farmland through plotting 1441

(xix) On purchase of new house outside India 1441

(xx) On sale of tenancy rights 1441

(xxi) On sale of house property received in gift 1441

(xxii) On sale of freehold house which was earlier on lease 1442

(xxiii) On sale of house in the joint name but capital gains declared by husband 1442

)

(xxv) Claim by a minor 1442

(xxvi) On extension of existing house 1442

(xxvii) On investment in two units forming one residential house 1443

(xxviii) On cancellation agreement 1443

(xxix) On making payment for new asset in instalment? 1443 (

Capital Asset [Section

A. INTRODUCTION:

Section 45 of the Indian Income Tax Act is a key provision concerning the taxation of capital gains arising from the transfer of capital assets. The term ‘capital asset’ is a central concept in this context and is defined in Section 2(14) of the Act. This definition is crucial as it delineates the scope of assets that are subject to capital gains tax. The term ‘asset’ is broad and includes various items such as stock in trade, raw materials, personal effects, agricultural land, and government-specified securities or bonds. However, for the purposes of Section 45, only those assets defined as ‘capital assets’ in Section 2(14) are considered. This means that capital gains tax is applicable only on the transfer of these specified capital assets, not on the transfer of other types of assets. An important distinction is made between capital assets and business assets. While profits and gains arising from the transfer of business assets are taxed as business income under Section 28, profits and gains from the transfer of capital assets are taxed under the head of capital gains. This distinction can sometimes lead to disputes, particularly regarding whether a certain transaction should be classified under the category of business income or capital gains. Courts have established specific criteria to resolve such disputes. A critical point in the taxation of capital gains is that the asset must qualify as a capital asset at the time of its transfer, not necessarily at the time of its acquisition. This has implications for the tax treatment of any profits or gains arising from the transfer. Similarly, losses incurred on the transfer of a capital asset cannot be considered as business expenditure. Capital assets are further categorized into short-term and longterm assets, based on their period of holding. Different types of capital assets may have different criteria for determining the period of holding. There are also complexities in cases where the cost of acquisition of a capital asset is unascertainable, potentially leading to difficulties in the computation of

ASSET [SECTION 2(14)]

capital gains. Additionally, issues can arise in determining whether rights associated with a capital asset should be classified as short-term or long-term. The chapter delves into these aspects, elucidating the concept of ‘capital asset’ in the context of capital gains taxation and exploring various issues and judicial pronouncements related to it. This includes an in-depth discussion of the legal interpretations and precedents that cover the application of Section 45 and related provisions of the Income Tax Act.

B. THE PROVISION:

As per section 2(14), as amended by Finance Act, 2021, the term ‘capital asset’ is defined as under:“Capital asset” means—

(a) property of any kind held by an assessee, whether or not connected with his business or profession.

(

b) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 (15 of 1992);

(

c) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof, but does not include—

(i) any stock-in-trade other than the securities referred to in sub-clause (b), consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

(a) jewellery;

(b) archaeological collections;

(d) paintings;

(e) sculptures; or

(f) any work of art.

Explanation 1.—For the purposes of this sub-clause, “jewellery” includes—

(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals,

whether or not containing any precious or semi-precious stone, and whether or not worked or sewn into any wearing apparel;

(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.

Explanation 2.—For the purposes of this clause—

(a) the expression “Foreign Institutional Investor” shall have the meaning assigned to it in clause (a) of the Explanation to section 115AD;

(

b) the expression “securities” shall have the meaning assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

(iii) agricultural land in India, not being land situate—

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or

(

b) in any area within the distance, measured aerially,—

(i) not being more than two kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or

(ii) not being more than six kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or

(iii) not being more than eight kilometres, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

Explanation.—For the purposes of this sub-clause, “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;

(iv) 6½ per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National Defence Gold Bonds, 1980, issued by the Central Government;

(v) Special Bearer Bonds, 1991, issued by the Central Government;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 notified by the Central Government.

Explanation.—For the removal of doubts, it is hereby clarified that “property” includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever.

C. HIGHLIGHTS OF THE PROVISION:

Section 2(14) of the Income Tax Act, as amended by the Finance Act, 2021, defines the term “capital asset.” The Highlights of the provision is as under-

(i) Definition of Capital Asset:

(i) General Definition: A capital asset includes any property of any kind held by an assessee, irrespective of its connection with the assessee’s business or profession.

(ii) For Foreign Institutional Investors: Securities held by a Foreign Institutional Investor, provided these securities are invested in accordance with SEBI Act regulations, also qualify as capital assets.

(iii) Unit Linked Insurance Policies: Any unit linked insurance policy that doesn’t qualify for exemption under clause (10D) of section 10 due to specific provisions.

(ii) Exclusions from Capital Assets:

(i) Stock-in-Trade: Any stock-in-trade, other than securities mentioned under Foreign Institutional Investors, consumable stores, or raw materials held for business or professional purposes are excluded.

(ii) Personal Effects: Personal movable property, including wearing apparel and furniture, for personal use by the assessee or family, except for:

(i) Jewellery.

(ii) Archaeological collections.

(iii) Drawings, paintings, sculptures, or any other work of art.

(iii) Clarifications and Explanations:

(i) Explanation of ‘Jewellery’: This includes ornaments made of precious metals or alloys and precious or semi-precious stones, regardless of their use or integration into clothing or other items.

(ii) Foreign Institutional Investor and Securities: Definitions for these terms are as per section 115AD and the Securities Contracts (Regulation) Act, 1956, respectively.

(iv) Exclusions of Certain Lands and Bonds:

(i) Agricultural Land: Excludes agricultural land in specified urban areas or within certain distances from urban areas, based on population criteria.

(ii) Certain Government Bonds and Schemes: Gold bonds issued by the Government, Special Bearer Bonds, and bonds under Gold Deposit and Gold Monetisation schemes are excluded.

(

v) Inclusiveness of Property Rights:

The term “property” is inclusive and explicitly includes any rights in relation to an Indian company, such as management, control, or other rights.

D. AMENDMENT BY FINANCE (NO. 2) ACT, 2014:

(As explained in CIRCULAR NO. 1/2015 [F. NO. 142/13/2014-TPL], DATED 21-1-2015)

“4. Characterisation of Income in case of Foreign Institutional Investors

4.1 The provisions contained in clause (14) of section 2 of the Income-tax Act, 1961, before amendment by the Act, defined the term “capital asset” to include property of any kind held by an assessee, whether or not connected with his business or profession, but did not include any stock-in-trade or personal assets as provided in the definition. The foreign portfolio investors [notified as foreign institutional investors for the purposes of the Income-tax Act vide notification S.O. 199(E) dated 22.01.2014] faced a difficulty in characterisation of their income arising from transaction in securities as to whether it is capital gains or business income. Further, the fund manager managing the funds of such investor remained outside India under the apprehension that their presence in India may constitute permanent establishment (PE) and the income arising from transactions in securities held in India may be taxed as business income of PE. In this context, the Finance Minister, in his budget speech, had stated as under—

“Foreign Portfolio Investors (FPIs) have invested more than ` 8 lakh crore (about 130 billion US$) in India. One of their concerns is uncertainty in taxation on account of characterization of their income. Moreover, the fund managers of these foreign investors remain outside India under the apprehension that their presence in India may have adverse tax consequences. With a view to put an end or this uncertainty and to encourage these fund managers to shift to India, I propose to provide that income arising to foreign portfolio investors from transaction in securities will be treated as capital gains.”

4.2 Accordingly, clause (14) has been amended to provide that any security held by foreign institutional investor which has invested in such security in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992 shall be a capital asset and not a current asset. Therefore, any income arising from transfer of such security by a foreign institutional investor would be in the nature of “capital gains”.

4.3 Applicability:—This amendment takes effect from 1st April, 2015 and will, accordingly, apply in relation to the assessment year 2015-16 and subsequent assessment years.”

E. HIGHLIGHTS OF THE AMENDMENT:

The amendment to clause (14) of section 2 of the Income-tax Act, 1961, as introduced by the Finance (No. 2) Act, 2014, and explained in Circular No. 1/2015, dated January 21, 2015, specifically addresses the characterization of income for Foreign Institutional Investors (FIIs), now referred to as Foreign Portfolio Investors (FPIs).

Here are the key aspects of this amendment:

(i) Background and Issue:

(i) Previously, FIIs faced uncertainty regarding the classification of income from transactions in securities—whether as capital gains or business income.

(ii) Fund managers for these foreign investors usually operated from outside India due to concerns that their presence in India might lead to adverse tax implications, such as the creation of a Permanent Establishment (PE) in India and the subsequent taxation of income as business income of the PE.

(ii) Budget Speech Statement: Recognizing the significant investment by FPIs in India and their concerns over taxation uncertainty, the Finance Minister proposed a solution to encourage fund managers to operate from within India.

(iii) Amendment to Clause (14):

(i) The amendment made it clear that any security held by an FII (as per SEBI regulations) is considered a capital asset, not a current asset.

(ii) Consequently, income arising from the transfer of such securities by an FII is characterized as “capital gains”, not business income.

(iii) This distinction is critical because capital gains are usually taxed differently (and often more favorably) than business income.

(

iv) Effective Date and Applicability:

(i) This amendment came into effect on April 1, 2015.

(ii) It applies from the assessment year 2015-16 and subsequent years.

F. AMENDMENT BY FINANCE ACT, 2018:

(As explained in CIRCULAR NO. 8/2018 [F. NO. 370142/07/2018-TPL], DATED 26-12-2018)

“14. Rationalisation of provisions relating to conversion of stock-in-trade into Capital Asset

14.1 Section 45 of the Income-tax Act provides inter alia that capital gains arising from the conversion of capital asset into stock-in-trade shall be chargeable to tax. However, before amendment by the Act, the law did not provide for taxability in cases where the stock-in-trade is converted into, or treated as, capital asset.

14.2 In order to provide symmetrical treatment and discourage the practice of deferring tax payment by converting the inventory into capital asset, section 28 of the Income-tax Act has been amended to provide that any profits or gains arising from conversion of inventory into capital asset or its treatment as capital asset shall be charged to tax as income under the head “Profits and gains from business or profession”. It is also provided that the fair market value of the inventory on the date of conversion or treatment, determined in the prescribed manner, shall be deemed to be the full value of the consideration received or accruing as a result of such conversion or treatment.

14.3 Consequentially, the following amendments have been made in the provisions of the Income-tax Act—

(i) clause (24) of section 2 has been amended to include said fair market value in the definition of “income”;

(ii) clause (42A) of section 2 has been amended to provide that the period of holding of such capital asset shall be reckoned from the date of conversion or treatment;

(iii) section 43 has been amended to provide that where the converted capital asset is used for the business or profession of the assessee, the said fair market value shall deemed as its actual cost;

(iv) section 49 has been amended to provide that for the purposes of computation of capital gains arising on transfer of such capital assets, the said fair market value shall be deemed as its cost of acquisition.

14.4 Applicability: These amendments take effect from 1st April, 2019 and will, accordingly, apply in relation to the assessment year 2019-20 and subsequent assessment years.”

G. HIGHLIGHTS OF THE AMENDMENT:

The amendment introduced by the Finance Act, 2018, as detailed in Circular No. 8/2018, focused on rationalizing the provisions related to the conversion of stock-in-trade into a capital asset under the Income-tax Act. The Highlights of the Amendment is as under-

(

i) Section 45 and Pre-amendment Scenario: Originally, Section 45 of the Income-tax Act addressed the taxation of capital gains arising from the conversion of a capital asset into stock-in-trade. However, it did not cover the reverse scenario where stock-in-trade is converted into a capital asset.

(

ii) Amendment in Section 28:

(i) To provide symmetry in treatment and discourage the deferral of tax payment by converting inventory into a capital asset, Section 28 was amended.

(ii) This amendment stipulates that profits or gains arising from the conversion of inventory into a capital asset, or its treatment as such, will be taxed as income under the head “Profits and gains from business or profession.”

(iii) The fair market value of the inventory on the date of conversion or treatment, as determined in the prescribed manner, is deemed to be the full value of the consideration received or accruing due to this conversion or treatment.

(iii) Consequential Amendments:

(i) Clause (24) of Section 2: Amended to include the fair market value in the definition of “income.”

(ii) Clause (42A) of Section 2: Amended to reckon the holding period of such a capital asset from the date of its conversion or treatment.

(iii) Section 43: Amended to consider the fair market value as the actual cost of the converted capital asset when it is used for business or profession.

(iv) Section 49: Amended to treat the fair market value as the cost of acquisition for computing capital gains on the transfer of such capital assets.

(iv) Applicability:

(i) These amendments took effect from April 1, 2019.

(ii) They apply to the assessment year 2019-20 and subsequent assessment years.

H. ISSUES:

EXPRESSIONS ‘PROPERTY’, ‘PROPERTY OF ANY KIND’, ‘ASSET’, ‘CAPITAL ASSET’, ‘HELD BY AN ASSESSEE’, ‘PERSONAL EFFECTS’

1. Issue: How the expression ‘property’ as used in section 2(14) has been explained?

Solution: The expression ‘property’ has been defined by the courts as under:-

(i) Property is right, title, or interest: The definition of ‘property’ in Section 2(14) extends beyond just physical assets. It encompasses any right, title, or interest in the property. In some cases, a single property can be subject to multiple rights held by different parties, as seen in situations involving mortgages or leases. Property can be viewed as a collection of various rights. When a person owns property, they possess all associated rights. However, in scenarios where the property is mortgaged or leased, the rights are divided: the property owner retains certain rights, while the mortgagee or lessee acquires different rights. Therefore, when a mortgagee or lessee decides to transfer the property, only the rights they hold are transferred. The rights that remain with the original owner (mortgagor or lessor) are not part of this transfer1. Therefore, on transfer of his rights in the property by the mortgagee or lessee, no capital gains would arise on mortgagor or lessor2

(ii) Property as a capital asset: Clause (14) of Section 2 defines a ‘Capital Asset’ as any type of property held by an assessee, irrespective of its connection to their business or profession. This broad definition includes all forms of property, except for certain specific exclusions. The exclusions encompass items like stock-in-trade, consumable stores, or raw materials used for business or professional purposes, personal effects, agricultural land, and certain types of bonds. This definition underscores the comprehensive nature of the term ‘property’ within this context. It implies that ‘property’ encompasses every conceivable interest that a person can possess or benefit from, except for the explicitly stated exclusions.3.

(iii) Origin of acquisition of capital asset: To classify an asset as a capital asset, it’s not required to investigate the origin of its acquisition.

1. CIT v. Daksha Ramanlal [1992] 197 ITR 123/65 Taxman 83 (Guj.)

2. CIT v. Smt. Thressiamma Abraham (No. 1) [1997] 227 ITR 802 (Ker.)

3. Bafna Charitable Trust v. CIT [1998] 101 Taxman 244/230 ITR 864 (Bom.)

ASSET [SECTION 2(14)]

This means that even if a capital asset is acquired using income that is exempt from taxation, such as agricultural income, it retains its status as a capital asset. The nature of the asset doesn’t change based on how it was acquired. Consequently, when such an asset is sold or transferred, it is subject to capital gains tax. The focus is on the nature of the asset at the time of its disposal or transfer, rather than on the means by which it was originally obtained. This principle ensures that all capital assets are treated uniformly for tax purposes, regardless of their source of acquisition4

(iv) Scope of “property”: Regarding the interpretation of ‘property,’ it is widely recognized as a term with a very broad scope. Unless specified otherwise by the context, it encompasses every conceivable interest that an individual can possess or benefit from. This expansive understanding of ‘property’ was highlighted in the Supreme Court’s decision in Commissioner, Hindu Religious Endowments v. Sri Lakshmirudra Tirtha Swamiar of Sri Shirur Mutt5. In this case, the Court advocated for a liberal and expansive interpretation of the term. It suggested that ‘property’ should include various well-established types of interests that exhibit the qualities or characteristics of a property right. This perspective underscores the idea that ‘property’ is not limited to physical assets but also includes a wide range of interests and rights.

(

v) Property as a bundle of rights:

(i) A property is a bundle of rights which the owner can lawfully exercise to the exclusion of others. The owner is entitled to use and enjoy such property as he pleases, provided he does not infringe on any law of the State6

(ii) ‘Property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company including rights of management or control or any other rights whatsoever7.

(vi) Wide definition: Property is a term of widest import and is subject to any limitation which the context may require, it signifies every possible interest which a person can clearly hold and enjoy8. In this regard following authorities9 may also be referred.

(vii) Liberal definition: The word ‘property’ should be given a liberal and wide connotation and should be extended to those well-recognised

4. Atul G. Puranik v. ITO [2011] 11 taxmann.com 92 (Mum. - Trib.)

5. (1954) SCR 1005(SC)

6. CIT v. National Insurance Co. Ltd. [1978] 113 ITR 37 (Cal.)

7. Praful Chandaria v. Addl. DIT [2016] 73 taxmann.com 14 (Mum. - Trib.)

8. Ahmed G. H. Ariff v. CWT [1970] 76 ITR 471 (SC)

9. J. K. Trust v. CIT [1957] 32 ITR 535 (SC), Pandit Lakshmi Kant Jha v. CWT [1973] 90 ITR 97 (SC) and Mata Din Kasodhan v. Kazim Hussain [1981] ILR 13 All 432 (FB)

types of interests which have the insignia or characteristic of proprietary right10

(viii) Concept of property: In the concept of property, the emphasis is on holding and enjoyment and not on ownership11

2. Issue: What is the scope of expression ‘property of any kind ’?

Solution: The term ‘property of any kind’ in the definition of ‘capital asset’ within Section 2(14) is notably broad and inclusive. This phrase doesn’t contain any limiting language, thereby encompassing every conceivable interest an individual can possess and enjoy. The definition strategically uses the word ‘held’, which contrasts with terms like ‘owner’ or ‘owned’12 , implying a broader scope than just outright ownership. This wide-ranging expression includes all forms of property, with the exception of those explicitly excluded by the provision. The exclusions are specifically limited to stock-in-trade, consumables, or raw materials used for business purposes. Therefore, ‘property of any kind’ encompasses all types of proprietary interests, whether they are legal or equitable in nature. Essentially, any right that qualifies as property falls under the ambit of ‘capital asset’. This interpretation highlights that the term refers to a set of entitlements or rights concerning an object or entity, rather than the physical object or entity itself. This broad definition ensures the inclusion of a wide range of interests and rights under the category of capital assets.

capital

asset’ under section 2(14)?

Solution: Under Section 2(14), ‘capital asset’ means (i) property of any kind held by an assessee whether or not connected with his business or profession, (ii) any securities held by a Foreign Institutional Investor which has invested in such securities in accordance with the regulations made under the SEBI Act 1992, (iii) any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth provisos thereof. The Explanation below section 2(14) clarifies that ‘property’ includes and shall be deemed to have always included any rights in or in relation to an Indian company including rights of

10. Commissioner, Hindu Religious Endowments v. Sri Lakshmindra Tirtha Swamiar of Sri Shirur Mutt. [1954] 1 SCR 1005 (SC)

11. Madathil Bros. v. Dy. CIT [2008] 301 ITR 345 (Mad.)

12. Madathil Brothers v. Dy. CIT [2008] 301 ITR 345 (Mad.); CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393 (Guj.) affirmed in Addl. CIT v. Mohanbhai Pamabhai [1987] 165 ITR 166 (SC); Syndicate Bank Ltd. v. Addl. CIT [1985] 155 ITR 681/[1986] 29 Taxman 32 (Kar.)

CAPITAL ASSET [SECTION 2(14)]

management or control or any other rights whatsoever. Besides, following kinds of asset have been held to be capital assets u/s 2(14)-

(i) Land13 as well as building held by assessee14

(ii) Agricultural land situated within municipal limits15 or barren land surrounded by Rocky Mountains and not fit for agricultural operations16

(iii) Trees standing on agricultural land17, or the trees cut and removed18 along with roots.19 However, where land is agricultural and sold along with trees, such trees will not be capital asset20.

(iv) Right to obtain a conveyance of immovable property21

(v) Remainderman’s reversionary interest in a trust22.

(vi) Management rights/ Managing agency rights and rights of management of property23

Presently, managing agency rights would be covered under ‘right to carry on business or profession’ inserted in section 55(2)(a) by Finance Act 2002 w.e.f. 01-04-2003, and hence a capital asset.

(vii) Right to obtain bonus shares24

(viii) Rights to claim specific performance by conveyance in respect to an immovable property25.

13. CIT v. Vimal Chand Golecha [1993] 201 ITR 442 (Raj.)

14. Asstt. CIT v. Sekhar Gupta [2001] 79 ITD 192/114 Taxman 122 (Cal. - Trib.)

15. CIT v. Deep Chand [2002] 123 Taxman 685 (Delhi); CIT v. Gurcharan Singh & Sons [1998] 100 Taxman 245 (Punj. & Har.)

16. Suresh Kumar D. Shah v. Dy. CIT [2011] 16 taxmann.com 324 (Hyd. - Trib.)

17. Travancore Tea Estates Co. Ltd. v. CIT [1974] 93 ITR 314 (Ker.); Commissioner of Agricultural Income Tax v. Kalias Rubber Co. Ltd. [1966] 60 ITR 435 (SC); Clen Leven Estates Ltd. v. CIT [1973] 91 ITR 391 (Ker.); Beverley Estates Ltd. v. CIT [1979] 117 ITR 302 (Mad.)

18. Emerald Valley Estates Ltd. v. CIT [1996] 88 Taxman 335 (Kar.)

19. Prasad Mathew v. Dy. CIT [2010] 9 taxmann.com 138/[2011] 130 ITD 11 (Cochin - Trib.)

20. (V) Venugopala Varma Rajah v. CIT (1970) 76 ITR 460 (SC); A.K.T.K.M. Vishnudatta Antharjanam v. Commissioner of Agricultural Income Tax [1970] 78 ITR 58 (SC); CIT v. Alanickal Co. Ltd. [1986] 158 ITR 630/28 Taxman 504 (Ker); CIT v. Travancore Rubbers Ltd. [1990] 52 Taxman 441 (Ker.)

21. Oikos Apartments (P.) Ltd. v. ITO [2018] 95 taxmann.com 44 (Beng. – Trib); CIT v. Tata Services Limited [1979] 1 Taxman 427 (Bom.); CIT v Vijay Flexible Containers [1990] 48 Taxman 86 (Bom.); CIT v. Ram Gopal [2015] 55 taxmann.com 536/230 Taxman 205 (Delhi)

22. NESS N. WADIA V ITO [1995] 51 TTJ 11 (Bom. - Trib.)

23. CIT v. Asiatic Textile Co. Ltd. [1955] 27 ITR 315 (Bom.); J.B. Greaves v. CIT [1963] 49 ITR 107 (Bom.); Rameshwar Prasad Bagla v. CIT [1973] 87 ITR 421 (SC); CIT v. National Insurance Co. Ltd. [1978] 113 ITR 37 (Cal.); CIT v. New India Assurance Co. Ltd. [1979] 1 Taxman 544 (Bom.); Lakshmi Insurance Co. (P.) Ltd. v. CIT [1971] 80 ITR 575 (Delhi); Dy. CIT v. Dr. Sandeep Dave [2019] 109 taxmann.com 138 (Raipur - Trib.); CIT v. Oriental Government Security Life Insurance Co. Ltd. [1982] 10 Taxman 308 (Bom.)

24. Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC)

25. Chandrashekar Naganagouda Patil v. Dy. CIT [2020] 117 taxmann.com 520 (Bang. - Trib.)

Issues FAQs & Tax Planning Relating to Capital Gains

AUTHOR : D.C. AGRAWAL, SANJIV DUTT

PUBLISHER : TAXMANN

DATE OF PUBLICATION : SEPTEMBER 2024

EDITION : 2ND EDITION

ISBN NO : 9789356227347

NO. OF PAGES : 1520

BINDING TYPE : PAPERBACK

DESCRIPTION

Rs. 3,495

This book is a comprehensive treatise to understand the complexities of capital gains taxation under the Income-tax Act, 1961. Presented in an easy-to-follow question-and-answer format, the book addresses common queries encountered by taxpayers, professionals, and investors regarding the taxation of capital gains from various assets, such as immovable properties, equities, and mutual funds. The content spans 55 chapters, covering over 680 topics and approximately 1,200 issues, each supported by relevant case laws and practical examples. The book discusses the statutory provisions, exemptions, and intricacies of capital gains and incorporates the latest amendments from the Finance (No. 2) Act, 2024, making it a current and relevant resource.

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