CAPITAL GAINS
HOLDING PERIOD
Q1. How will you calculate the period of holding in case of the following assets ?
(1) Shares held in a company in liquidation.
(2) Bonus shares.
(3) Flat in a co-operative society.
(4) Transfer of a security by a depository (i.e. demat account). [Nov. 2010, 4 Marks]
Ans.
Case
1.Shares held in a company in liquidation
Period of holding
2.Bonus shares
3.Flat in a cooperative society
4.Transfer of a security by a depository
u The period
n from date of acquisition of shares
n to the date on which the company goes into liquidation.
u It excludes the period subsequent to liquidation.
u Date of allotment to date of transfer of shares.
u From the date of allotment of the flat by the society to date of transfer of the flat on sale. [CIT v. Jindas Panchand Gandhi [2005] 279 ITR 552 (Gujarat)].
u On the basis of FIFO method (circular 768, dated June 24, 1998), date of entry Hindi mat account to date of transfer what is the holding period, date of purchase of security is not considered.
TAXMANN ® 7.1
CONVERSION OF CAPITAL ASSET INTO STOCK IN TRADE
Q2. Discuss the tax implication arising consequent to conversion of a Capital Asset into stock of business and its Subsequent sale.
[Nov. 2010, 4 Marks]
Ans. The followings are the provisions of Conversions of a Capital Asset into Stock in Trade of business :
Particulars Relevant Provisions
(i) Section 2(47) Conversion of Capital Asset into stock in trade is governed by section 2(47)(iii). Transfer is treated as transfer in the year in which the capital asset is converted into stock in trade.
(ii) Section 45(2) The notional profit arising on transfer by way of conversion of Capital Asset into stock in trade. It is chargeable to tax in the year in which stock in trade is actually sold.
(iii) Capital Gain To Compute capital gain the fair market value of Capital Asset on the date of conversion is treated as deemed to be full value of consideration received or accrued.
(iv) Business Profit When actual sales arises then business profit will be, the difference between the actual sales and fair market value on date of conversion.
(v) Sold in Parts If assets are sold in parts in different financial years then tax is chargeable in different years [CIT v. Crest Hotels Limited [2001] 78 ITD 213 (Mumbai)]
CAPITAL ASSET GIFT
Q3. Mrs. X an individual resident woman wanted to know whether income tax is attracted in the year 2022 on sale of gold and jewellery gifted to her by her parent at the occasion of her marriage in the year 1981, which was purchased at a total cost of ` 2,00,000. Answer the following with regard to the provisions of the Income-tax Act, 1961.
[Nov. 2008, 4 Marks]
Ans. The followings are the provisions of Sale of gifted capital asset :
Particulars Relevant Provisions
(i) Section 56 The gifts at the time of marriage given by parent in any form like cash, stock, jewellery, automobile electronic item etc. are not taxable. But incomes generated from such gifts are subject to tax.
(ii) Tenure In this case Mrs. X sold the jewellery in 2021. It is long term capital gain as it is acquired by her in 1981 and by her parents prior to 1981 (date is not given in the question).
7.2 SEC. A : INCOME TAX LAW TAXMANN ®
Particulars Relevant Provisions
Hence it attracts long term capital gain in the hands of Mrs. X.
(iii) Cost of Acquisition
The cost of acquisition is the cost of Gold and Jewellery to her parents or fair market value as on 1st April 2001 whichever is higher.
(iv) Capital Gain Gross sales proceeds - brokerage - indexed cost of acquisition.
Note 1: In this question fair market value as on 1st April 2001 is not given.
ENHANCE COMPENSATION
Q4. On 10-10-2022, Mr. Govind (a bank employee) received ` 5,00,000 towards interest on enhanced compensation from State Government in respect of compulsory acquisition of his land effected during the financial year 2013-14. Out of this interest, ` 1,50,000 related to the financial year 2015-16, ` 1,65,000 to the financial year 2016-17; and ` 1,85,000 to the financial year 2017-18. He incurred ` 50,000 by way of legal expenses to receive the interest on such enhanced compensation. How much of interest on enhanced compensation would be chargeable to tax in the assessment year 2023-24?
[Nov. 2011, 4 Marks]
Ans. Computation of Taxable Income from Other Sources (Assessment Year 2023-24)
Notes:
1. The amount of interest on enhanced compensation is taxable under the head income from other sources in assessment year 2023-24.
2. As per section 57(iv) - 50% of such taxable interest is deductible and no other expenses are allowed.
3. As per section 145B which is inserted by Finance Act, 2018 and applicable with effect from assessment year 2017-18 onwards, interest received by an assessee on compensation or on enhanced compensation [section 56(2)(viii)] is deemed to be income of the Year in which it is received and taxable under the head income from other sources.
CH. 7 : CAPITAL GAINS 7.3 TAXMANN ®
Particulars Amount (`) Interest on enhanced compensation Section 56(2)(viii) 5,00,000 Less - Deduction at the rate of 50% under section 57(iv) 2,50,000 Taxable interest on enhanced compensation 2,50,000
Q5. Ms. Julie received following amounts during the Previous Year 2022-23:
(1) Received loan of ` 5,00,000 from the ABC Private Limited, a closely held company engaged in textile business. She is holding 10% of the equity share capital in the said company. The accumulated profit of the company was ` 2,00,000 on the date of the loan.
(2) Received Interest on enhanced compensation of ` 5,00,000. Out of this interest, ` 1,50,000 relates to the previous year 2019-20, ` 1,90,000 relates to previous year 2020-21 and ` 1,60,000 relates to previous year 2021-22. She paid ` 1,00,000 to her advocate for her efforts in the matter.
Discuss the tax implications, if any, arising from these transactions in her hand with reference to Assessment Year 2023-24.
[Nov. 2019, 2 + 2 Marks]
Ans.
Taxability in the hands of Ms. Julie
(i) As per section 2(22)(e), the loan is treated as dividend in the hands of shareholder, to the extent of accumulated profits.
(ii) Interest received on enhanced compensation is taxable as income from other sources as per section 57(iv) read with section 56(2)(viii). However a deduction of 50% i.e. ` 2,50,000 is allowed to cover expenses of litigation.
SECTION 50C – STAMP VALUATION AUTHORITY
Q6. Anshu transfers land and building on 02-01-2023 and furnishes the following information:
(i) Net consideration received ` 14,00,000.
(ii) Value adopted by Stamp Valuation Authority ` 23,00,000.
(iii) Value ascertained by Valuation Officer on Reference by the Assessing Officer ` 24,00,000.
(iv) This land was acquired by Anshu on 1-04-2001. Fair Market value of the land as on 01-04-2001 was ` 1,10,000.
(v) A Residential building was constructed on land by Anshu at cost of ` 3,20,000 (construction completed on 01-12-2005 during financial year 2005-06).
(vi) Short term capital loss incurred on sale of shares during financial Year 2016-17 b/f of ` 1,00,000.
7.4 SEC. A : INCOME TAX LAW TAXMANN ®
Anshu seeks your advice to the amount to be invested in NHAI Bonds so as to be exempt from capital gain tax under Income-tax Act.
Cost Inflation Indices: FY 2001-02 = 100, FY 2005-06 = 117, FY 202223 = 331 [May 2012, 8 Marks]
Computation of Long Term capital gain on sale of Land and Building (Assessment year 2023-24)
Advice: If Mrs. Anshu invests in NHAI Bonds redeemable after 5 years, the entire amount of capital gain Rupees 9,30,600 will be exempted from capital gain tax.
Notes:
1. The fair market value As on 1st April 2001 is taken as cost of acquisition. In this question actual cost of acquisition for Mrs. Anshu is not given.
2. In this question being long term capital asset indexed cost of acquisition benefit is available.
3. The value adopted by Stamp Valuation Authority is more than 110% of net consideration received rupees 14,00,000. Hence 23 lakhs is considered as full value of consideration u/s 56(2)(x).
4. As per section 50(3) - if valuation is referred by Assessing Officer to Valuation Officer and such Valuation Officer exceeds the value adopted
CH. 7 : CAPITAL GAINS 7.5 TAXMANN ®
Ans.
Particulars Amount (`) Full value of consideration (Note
23,00,000 Less:
(a) Land 331 1,10,000 100 × 3,64,100 (b) Building 331 3,20,000 117 × 9,05,300 (12,69,400) Long term capital gain 10,30,600 Computation of
chargeable
Particulars Amount (`) Long term capital gain (as calculated above) 10,30,600 Less: Set off of
Short term capital loss (1,00,000) Taxable Long term capital gain 9,30,600
3)
Indexed cost of acquisition
Income
under capital gain (Assessment year 2023-24)
brought forward
by stamp valuation authority then value of Stamp Valuation Authority is considered as full value of consideration i.e. Rupees 23 lakhs.
5. In this case section 54EC benefits are allowed if Mrs. Anshu invest in National Highway Authority of India bonds redeemable after 5 years. The entire amount of capital gain Rupees 9,30,600 should be invested for full exemption from capital gain tax.
6. Short term capital loss on sale of shares in financial year 2016-17 can be set off in the current year from long term capital gain on sale of land and building.
7. Section 50, applies then there are two conditions on transfer of land and building or both being short term or long term capital asset or all depreciable or non-depreciable assets.
8. Stamp duty value adopted by stamp valuation authority for the purpose of payment of stamp duty is deemed to be full value of consideration received or accruing on transfer if stamp duty value exceeds 110% of sale consideration received or accrued on transfer.
9. Section 54EC the assessee can avail exemption on transfer of long term capital assets by investing in National Highway Authority of India, Rural Electrification Corporation or any Bond notified by Central Government. The amount of exemption will be amount of Capital Gain or actual amount invested in a specified asset within 6 months, whichever is less.
10. Section 74 says that long term capital loss can be set off with long term capital gain. Short term capital loss can be set off with short term capital gain and long term capital gain. If Short term capital loss could not be set off then in that case it can be carried forward for eight assessment year immediately succeeding the assessment year in which the loss was first computed.
Q7. Mr. Subramani sold a house plot to Mrs. Vimala for ` 42 lakhs on 12-5-2022. The valuation determined by the stamp valuation authority was ` 53 lakhs. Discuss the tax consequences of above, in the hands of each one of them, viz., Mr. Subramani & Mrs. Vimala. Mrs. Vimala has sold this plot to Ms. Padmaja on 21-3-2023 for ` 55 lakhs. The valuation as per stamp valuation authority remains the same at ` 53 lakhs. Compute the capital gains arising on sale of the house plot by Mrs. Vimala.
Note: None of the parties viz. Mr. Subramani, Mrs. Vimala & Ms. Padmaja are related to each other; the transactions are between outsiders. [Nov. 2018, 6 Marks]
7.6 SEC. A : INCOME TAX LAW TAXMANN ®
Ans. Tax consequences in the hands of Mr. Subramani
Particulars
Relevant Provisions
Section 50C If the consideration received on transfer of capital asset being land or building or both is less than stamp duty value (as per Stamp Duty Valuation Authority), in that case the stamp duty value is treated as full value of consideration if it exceeds 110% of actual consideration.
Case Ans. In this case Mr. Subramani sold the house for ` 42 Lakhs which is less than ` 53 Lakhs (Stamp Duty Value). Hence ` 53 Lakhs is treated as full value of consideration for Mr. Subramani.
Tax consequences in the hands of Mrs. Vimala
Particulars
Relevant Provisions
clause (a) Any Property/Money received by way of Gift without consideration the aggregate value of which exceeds ` 50,000/-, the whole of the aggregate value of such sum is taxable.
Section 56(2)( x )
Section 56(2)( x )
clause (b)
u Any Immovable Property received without consideration, the stamp duty value of which exceeds ` 50,000/- then value of the property will be stamp duty value of such property.
u With effect from 31-03-2019, any Immovable Property received for consideration and the amount of such excess is more than the higher of the following amounts:
(
(
i) the amount of ` 50,000, and
ii) the amount equal to 10% of consideration then stamp duty value of such property as exceeds such consideration is value of such property.
u If any person receives any immovable property for a consideration which is less than the stamp duty value then excess amount shall be considered as gift in the hands of recipient.
Case Ans. Hence as per section 56(2)(x), in this case, Mrs. Vimala purchased the house for ` 42 Lakhs which is less than ` 53 Lakhs being stamp duty value. Therefore difference of ` 11 Lakhs (` 53 - ` 42) is taxable in the head Income from Other Sources.
Computation of Taxable Capital Gain in the hands of Mrs. Vimala Assessment Year 2023-24
CH. 7 : CAPITAL GAINS 7.7 TAXMANN ®
Particulars Amount (`) Gross Value of Consideration 55,00,000 Less: Cost of Acquisition 53,00,000 Taxable Short Term Capital Gain 2,00,000
Q8. Mr. Kumar is the owner of a residential house which was purchased in September, 2003 for ` 7,00,000. He sold the said house on 5th August, 2022 for ` 30,00,000. Valuation as per Stamp Valuation Authority was ` 44,00,000. He invested ` 8,00,000 in NHAI Bonds on 12th January, 2023. He purchased a residential house on 8th September, 2022 for ` 12,00,000. He gives other particulars as follows:
Interest on Bank Deposit ` 32,000
Investment in public provident fund ` 12,000
You are requested to calculate the taxable income for the assessment year 2023-24.
Cost inflation index for F.Ys. 2003-04 and 2022-23 are 109 and 331 respectively. [May 2009, 8 Marks]
Ans. Computation of Taxable Income (Assessment year 2023-24)
Note:
1. The Gross Sale Consideration is taken as per Stamp Valuation Authority as ` 44,00,000 which is higher than 110% of the actual sale consideration of ` 30,00,000. (30,00,000 × 110/100 = 33,00,000).
Q9. Mr. Raj Kumar sold a house to his friend Mr. Dhuruv on 1st July, 2022 for a consideration of ` 26,00,000. The Sub-Registrar refused to register the document for the said value, as according to him, stamp
7.8 SEC. A : INCOME TAX LAW TAXMANN ®
Particulars Amount (`) Amount (`) Capital Gain: Gross Sale Consideration (Note 1) 44,00,000 Less: Indexed Cost of Acquisition (7,00,000×331/109) (21,25,688) Long term Capital Gain 22,74,312 Less: Exemption under Section 54 (Purchase of New Residential House) 12,00,000 Less: Exemption under Section 54EC 8,00,000 (20,00,000) Taxable Long term Capital Gain 2,74,312 Income from Other Sources: Interest on Bank Deposit 32,000 Gross Total Income 3,06,312 Less: Deduction under Section 80C (12,000) Total Income 2,94,312
duty had to be paid on ` 45,00,000, which was the Government guideline value. Mr. Raj Kumar preferred an appeal to the Revenue Divisional Officer, who fixed the value of the house as ` 38,00,000 (` 24,00,000 for land and balance for building portion). The differential stamp duty was paid, accepting the said value determined. Assuming that the fair market value is ` 32,00,000. What are the tax implications in the hands of Mr. Raj Kumar and Mr. Dhuruv for the assessment year 2023-24? Mr. Raj Kumar had purchased the land on 1st June, 2014 for ` 5,19,000 and completed the Construction of house on 1st October, 2020 for ` 16,00,000. Cost Inflation Index for FY 2014-15 = 240; FY 2022-23 = 331. [May 2010, 6 Marks]
Ans. Computation of Taxable Capital Gain in the hands of Mr. Raj Kumar for Assessment Year 2023-24.
Notes:
1. The capital gain on Land will be Long term as it was held more than 24 months. Date of Purchase is 01-06-2014 and date of sale is 01-07-2022.
2. The capital gain on Building will be short term as it was held for less than 24 months. Date of construction completed is 01-10-2020 and date of sale is 01-07-2022.
3. The Gross Sale Consideration is taken as per appeal which is ` 38,00,000 (for land ` 24,00,000 and for Building ` 14,00,000).
4. As per section 70, Short Term Capital Loss can be set off against Long Term Capital Gain.
5. Taxable Long term Capital Gain of ` 14,84,212 is taxable @ 20%.
CH. 7 : CAPITAL GAINS 7.9 TAXMANN ®
Particulars Amount (`) Amount (`) Capital Gain: Land: Gross Sale Consideration 24,00,000 Less: Indexed Cost of Acquisition (5,19,000×331/240) 7,15,788 Long term Capital Gain 16,84,212 Building: Gross Sale Consideration 14,00,000 Less: Cost of Acquisition 16,00,000 Short term Capital Loss (2,00,000) (2,00,000) Net Taxable Long term Capital Gain 14,84,212
Taxable Income from Other Sources in the hands of Mr. Dhuruv for Assessment Year 2023-24
Notes:
1. Section 50C - Mr. Dhuruv paid inadequate consideration for the house and hence benefit of ` 14,00,000 is taxable in the hands of Mr. Dhuruv under the head Income from Other Sources.
Q10. Mr. Selvan acquired a residential house in December 2005 for ` 11,00,000 and made some improvements by way of additional construction to the house, incurring expenditure of ` 3,00,000 in October, 2010. He sold the house property in November, 2022 for ` 70,00,000. The value of property was adopted as ` 85,00,000 by the State Stamp Valuation Authority for registration purpose. He acquired a residential house in January, 2023 for ` 25.00,000. He deposited ` 20,00,000 in capital gains bonds issued by National Highways Authority of India (NHAI) in September, 2023.
Compute the capital gain chargeable to tax for the assessment year 2023-24.
What would be the tax consequence and in which assessment year it would be taxable, if the house property acquired in January, 2023 is sold for ` 40,00,000 in March, 2024?
Cost inflation index: F.Y. 2005-06 = 117, F.Y. 2010-11 =167, F.Y. 2022-23 = 331. [Nov. 2011, 8 Marks]
Ans. Computation of Taxable Capital Gain in the hands of Mr. Selvan Assessment Year 2023-24.
Sale Consideration (Being Stamp Duty Value)
Less: Indexed Cost of Acquisition (11,00,000×331/117)
Less: Indexed Cost of Acquisition – Additional Construction (3,00,000×331/167)
Less: Sec. 54 Purchase of New Residential House (25,00,000)
7.10 SEC. A : INCOME TAX LAW TAXMANN ®
Particulars Amount (`) Amount (`) Income from
Sources: Valuation as per Revenue Divisional Officer 38,00,000 Less: Consideration paid for the house 26,00,000 Net Gain (Treated as taxable income) 14,00,000 Gross Total Income 14,00,000 Total Income 14,00,000
Other
Particulars Amount (`) Amount (`) Gross
85,00,000
31,11,966
5,94,611 (37,06,577) Long term Capital Gain 47,93,423
Taxable Long term Capital Gain 22,93,423
Notes:
1. The Gross Sale Consideration is taken as per Stamp Valuation Authority of the house as ` 85,00,000 which is higher than 110% of the actual sale consideration of ` 70,00,000.
2. Section 54EC is not allowed as deduction. NHAI bonds were purchased after 6 months from the date of transfer of the house.
3. If the house property acquired in January 2023 for ` 25 Lakhs is sold for ` 40 Lakhs in March 2024 i.e. within 3 years of its acquisition, exemption already granted under section 54 for ` 25 lakhs will be taken back. Thereafter for calculating capital gain on transfer of new house in March 2024 for ` 40 lakhs (Purchased in January 2023 for ` 25 Lakhs), cost of acquisition will be calculated as original cost of acquisition minus exemption availed under section 54. In the instant case it comes to zero. Hence total sale proceeds of new house ` 40 Lakhs are taxable as Short Term Capital Gain.
Q11. Ms. Mohini transferred a house to her friend Ms. Ragini for ` 32,00,000 on 01-10-2022. The Sub-Registrar valued the land at ` 48,00,000. Ms. Mohini contested the valuation and the matter was referred to Divisional Revenue Officer, who valued the house at ` 41,00,000. Accepting the said value, differential stamp duty was also paid and the transfer was completed.
The total income of Mohini and Ragini for the assessment year 202324, before considering the transfer of said house are ` 3,80,000 and ` 4,45,000 respectively. Ms. Mohini had purchased the house on 15th May 2013 for ` 25,00,000 and registration expenses were ` 1,50,000.
You are required to explain provisions of Income-tax Act, 1961 applicable to present case and also determine the total income of both Ms. Mohini and Ms. Ragini taking into account the above said transactions. Cost inflation index: F.Y. 2013-14 =220, F.Y. 2022-23 =331.
[May 2015, 8 Marks]
Ans. Computation of Taxable Income of Ms. Mohini (Assessment year 2023-24)
Particulars Amount (`) Amount (`) Capital Gain: Gross Sale Consideration (Note 1) 41,00,000
Less: Indexed Cost of Acquisition being value as per Divisional Revenue Officer (Note 2) (26,50,000 × 331/220)
CH. 7 : CAPITAL GAINS 7.11 TAXMANN ®
(39,87,045) Long
1,12,955
term Capital Gain
Notes:
1. The Gross Sale Consideration of the house is taken as per Divisional Revenue Officer as ` 41,00,000 which is higher than 110% of the actual sale consideration of ` 32,00,000.
2. The cost of acquisition of the house is ` 26,50,000 (Purchase price ` 25,00,000 + Registration charges ` 1,50,000).
Computation of Taxable Income of Ms. Ragini (Assessment year 2022-23)
Note
3. The Inadequate consideration is paid by Ms. Ragini to Ms. Mohini. The Difference of ` 9,00,000 (` 41,00,000 – 32,00,000).
Q12. Mr. Martin sold his residential house property on 08-06-2022 for ` 70 lakhs which was purchased by him for 20 lakhs on 05-05-2006. He paid ` 2 lakhs as brokerage for the sale of said property. The stamp duty valuation assessed by sub-registrar was ` 90 lakhs. He bought another house property on 25-12-2022 for 15 lakhs. He deposited 10 lakhs on 10-01-2023 in the capital gain bond of National Highway Authority of India (NHAI).
He deposited another 10 lakhs on 10-07-2023 in the capital gain deposit scheme with SBI for construction of additional floor of house property. Compute income under the head “Capital Gains” for A.Y. 2023-24 as per Income-tax Act, 1961 and also Income tax payable on the assumption that he has no other income chargeable to tax.
Cost inflation index for Financial Years 2006-07 = 122 and 2022-23 = 331. [Nov. 2015, 8 Marks]
7.12 SEC. A : INCOME TAX LAW TAXMANN ® Particulars Amount (`) Amount (`) Income from Other Sources: Other Income 3,80,000 Gross Total Income 4,92,955 Less: Deduction under Chapter VIA NIL Total Income 4,92,955 Total Income Rounded off nearest ` 10 4,92,960
Particulars Amount (`) Amount (`) Income from Other Sources: Inadequate consideration (Note 3) 9,00,000 Other Income 4,45,000 Gross Total Income 13,45,000 Less: Deduction under Chapter VIA NIL Total Income 13,45,000
:
Ans. Computation of Taxable Income of Mr. Martin (Assessment year 2023-24)
Less: Exemption under Section 54 (Purchase of New Residential House) (15,00,000)
Less: Exemption under Section 54 (Deposited in Capital Gain Account Scheme) (10,00,000)
Less: Exemption under Section 54EC – NHAI Bonds — Not eligible (Note 3)
1. The Gross Sale Consideration is taken as per Stamp Valuation Authority of the residential house as ` 90,00,000 which is higher than 110% of the actual sale consideration of ` 70,00,000.
2. As per Section 54:
u On transfer of residential house building or land appurtenant thereto, being a long-term capital asset.
u If the amount of capital gain exceeds ` 2 Crore – then Assessee may at his option, purchase one residential house in India within one year before or 2 years after the date of transfer or construct one residential house in India within a period of three years after the date of transfer.
u If the amount of capital gain does not exceed ` 2 Crore – then Assessee may at his option, purchase two residential houses in India within one year before or 2 years after the date of transfer or construct two residential houses in India within a period of three years after the date of transfer.
CH. 7 : CAPITAL GAINS 7.13 TAXMANN ®
Amount (`) Amount (`) Capital Gain: Gross Sale Consideration (Being
Valuation Authority) 90,00,000 Less: Brokerage (2,00,000) Net Sale Consideration 88,00,000 Less: Indexed Cost of Acquisition (20,00,000×331/122) (54,26,230) Long term Capital Gain 33,73,770
Particulars
Stamp
(NIL) (25,00,000) Taxable Long term Capital Gain 8,73,770 Gross Total Income 8,73,770 Less: Deduction under Chapter VIA Nil Total Income 8,73,770 Total Income Rounded off nearest ` 10 8,73,770 Notes:
u If an assessee has exercised the option to purchase or construct two residential houses in India, he shall not be subsequently entitled to exercise the option for the same in any other assessment year.
3. In this case NHAI Bonds are purchased after six months from the date of transfer of the house, he is not entitled for Section 54EC.
Computation of Tax Liability of Mr. Martin (Assessment Year 2023-24)
Q13. Mr. Sunil entered into an agreement with Mr. Dhaval to sell his residential house located at Navi Mumbai on 16-08-2022 for Rupees 80 lacs. The sale proceeds was to be paid in the following manner:
a. 20% through account payee bank draft on the date of agreement.
b. 60% on the date of the possession of the property.
c. Balance after the completion of the registration of the title of the property.
Mr. Dhaval was handed over the possession of the property on 15-12-2022 and the registration process was completed on 14-01-2023. He paid the sale proceed as per the sale agreement.
The value determined by the stamp duty authority on 16-08-2022 was Rupees 100 lakhs. Whereas on 14-01-2023 it was ` 1,01,50,000.
Mr. Sunil had acquired the property on 01-04-2001 for ` 10 lakhs. After recovering the sale proceed from Mr. Dhaval, he purchased another residential house property for ` 35 lakhs. Compute the income under the head capital gain for the assessment year 2023–24. Also compute tax liability.
Cost inflation index for financial years 2001-02 = 100, 2002-03 = 105, 2022-23 = 331. [Nov. 2017, 5 Marks]
Ans. Computation of Taxable Capital Gain in the hands of Mr. Sunil Assessment Year 2023-24
7.14 SEC. A : INCOME TAX LAW TAXMANN ®
Particulars Amount (`) Tax on Long Term Capital Gain ` 6,23,770 (` 8,73,770 – 2,50,000) @20% 1,24,754 Add: HEC @ 4% of ` 1,24,754 4,990 Tax Liability 1,29,744 Rounded off to 1,29,740
Particulars Amount (`) Amount (`) Gross Sale Consideration (Being Stamp Duty Value) 1,00,00,000 Less: Indexed Cost of Acquisition (10,00,000×331/100) (33,10,000) Long term Capital Gain 66,90,000
1. As per Section 50C, if full value of consideration is claimed by an Assessee less than Stamp Duty Value, in that case Full value of consideration is taken to be Stamp Duty Value. In this case the Gross Sale Consideration is taken as per Stamp Valuation Authority of the house as ` 1,00,00,000 which is higher than 110% of the actual sale consideration of ` 80,00,000.
2. In this case 20% amount was given on the date of agreement through account payee bank draft hence Stamp Duty Value is taken for the date of agreement.
3. If the date of agreement and date of registration are different in that case value on the agreement shall be taken into consideration provided some advance was given otherwise than in cash on or before the agreement.
Q14. Mr. Manish owned a land located in Chennai–Bangalore highway in Tambaram Municipality Corporation, which was acquired by National Highway Authority of India in the financial year 2022-23 for ` 10 Lakhs. The land had been purchased by Mr. Manish on 02-04-2003 for ` 19,000. The fair market value of the land on 01-04-2001 was ` 10,000. Yet another piece of urban Land located in Chennai purchased in April 2011 for ` 25 lakhs was sold by him, in February 2023 for ` 32 Lakhs but the sale deed thereof, was not registered till 31-03-2023. The possession was given to the buyer on 31-01-2023 and the sale deed was finally registered on 16-04-2023. The value adopted by the stamp valuation authority was ` 42 Lakhs. Mr Manish paid 2% of the sale consideration towards brokerage. Manish deposited ` 10 lakhs in Capital Gain Deposit Account of State Bank of India on 20-11-2023 in order
CH. 7 : CAPITAL GAINS 7.15 TAXMANN ® Particulars Amount (`) Amount (`) Less: Sec. 54 Purchase of New Residential House (35,00,000) Taxable Long term Capital Gain 31,90,000 Less: Deduction under Chapter VIA Nil Total Income 31,90,000 Computation of Tax Liability of Mr. Sunil (Assessment Year 2023-24) Particulars Amount (`) Tax on Long Term Capital Gain ` 29,40,000 (31,90,000 – 2,50,000) @20% 5,88,000 Add: HEC @4% of ` 5,88,000 23,520 Tax Liability 6,11,520 Notes:
to avail exemption under section 54F of the Income-tax Act, 1961 subsequently for constructing a residential house.
Cost inflation index 2022-23 = 331, 2011-12 = 184, 2003-04 = 109.
Compute the capital gain chargeable to tax arising as a result of these transactions.
Ans.
Section Relevant Provisions
Section 2(47) If consideration has been received and possession has been given then it will be considered as transfer.
Section 50C The value of stamp valuation authority will be considered as sale consideration if the stamp value exceeds 120% of actual consideration.
Section 54F If assessee transfers, any capital asset other than Residential House and invest the amount of net sale consideration in New Residential House than proportionately he is entitled.
Note: Mr. Manish is not entitled for exemption under section 54F.
7.16 SEC. A : INCOME TAX LAW TAXMANN ®
Property 1: Particulars Amount (`) Gross Sale Consideration 10,00,000 Less: Brokerage NIL Net Sale Consideration 10,00,000 Less: Indexed COA (19,000×331/109) (57,697) Long Term Capital Gain 9,42,303 Property 2: Particulars Amount (`) Gross Sale Consideration 42,00,000 Less: Brokerage @2% of ` 32 Lakhs (64,000) Net Sale Consideration 41,36,000 Less: Indexed COA (25,00,000×331/184 = 44,97,283) (44,97,283) Long Term Capital Loss (3,61,283) Computation of Taxable Long Term Capital Gain Particulars Amount (`) Property 1 (Long Term Capital Gain) 9,42,303 Property 2 (Long Term Capital Loss) (3,61,283) Total Long Term Capital Gain 5,81,020 Less: Exemption Section 54F NIL Taxable Long Term Capital Gain 5,81,020
ADVANCE MONEY FORFEITED
Q15. State with reason whether the following receipt is taxable or not under the provision of Income-tax Act, 1961?
Mr. Suman received an advance of ` 3 lakhs on 06-06-2022 to transfer his residential house property. Since the transfer was not effected during the previous year due to failure in negotiations, he deducted the advance money forfeited from the cost of acquisition of the property. [Nov. 2016, 2 Marks]
Ans. The followings are the provisions of Sale of gifted capital asset:
Particulars Relevant Provisions
(i) Section 51 & Section 56(2)(ix)
u If advance money is forfeited during financial year 2013-14 or earlier than it is not taxable till Capital Asset is transferred in the hands of recipient. But if capital assets transferred then advance money will be deducted from the cost of acquisition of the asset.
u If advance money is forfeited in financial year 2014-15 on or after then it is taxable in the hands of recipient under Section 56(2)(ix) under the head Income from other sources. It is taxable in the year in which advance money is forfeited.
(ii) Case Ans. In this case Rupees three lakhs were forfeited in 2022-23, hence as per section 56(2)(ix) it is taxable under the head income from other sources and Mr. Suman is liable to pay tax on Rupees 3,00,000 under the head income from other sources in financial year 2022-23.
Q16. Compute the net taxable capital gains of Smt. Megha on the basis of the following information : A house was purchased on 1-05-2004 for ` 4,50,000 and was used as a residence by the owner. The owner had contracted to sell this property in June, 2011 for ` 10 lakhs and had received an advance of ` 70,000 towards sale. The intending purchaser did not proceed with the transaction and the advance was forfeited by the owner. The property was sold in April, 2022 for ` 20,00,000. The owner, from out of sale proceeds, invested ` 3 lakhs in a new residential house in January, 2023 Cost Inflation Index FY 2004-05 = 113; FY 2022-23 = 331. [Nov. 2009, 6 Marks]
CH. 7 : CAPITAL GAINS 7.17 TAXMANN ®
Ans. Computation of Net Taxable Capital Gain in the hands of Smt. Megha Assessment Year 2023-24
1. The Cost of Acquisition is reduced by ` 70,000. This was forfeited in June 2011.
2. As per Section 51, if advance money is forfeited during financial year 2013-14 or earlier than it is not taxable till Capital Asset is transferred in the hands of recipient. But if capital asset is transferred then advance money will be deducted from the cost of acquisition of the asset.
3. He has purchased new residential house within 2 years from the date of transfer of house, hence eligible for exemption under section 54.
Q17. Discuss the taxability or otherwise in the hands of the recipient as per the provisions of the Income-tax Act, 1961
Mr. A received advance of ` 50,000 on 10-09-2022 against the sale of his house. However due to non-payment of instalment in time, the contract was cancelled and the amount of ` 50,000 was forfeited.
[Nov. 2016, 2 Marks]
Ans. Taxable under the head income from other sources under Section 56 in the hands of Mr. A.
If advance money is forfeited in financial year 2014-15 or after then it is taxable in the hands of recipient under Section 56(2)(ix) under the head Income from other sources. It is taxable in the year in which advance money is forfeited.
7.18 SEC. A : INCOME TAX LAW TAXMANN ®
Particulars Amount (`) Gross Sale Consideration 20,00,000 Less: Transfer Expenses NIL Net Sale Consideration 20,00,000 Less: Indexed Cost of Acquisition (3,80,000×331/113) Note:1 (11,13,097) Long term Capital Gain 8,86,903 Less: Exemption under Section 54 (Purchase of New Residential House) (3,00,000) Taxable Long term Capital Gain 5,86,903
Notes:
SLUMP SALE
Q18. Mr. A is a proprietor of Akash Enterprises having 2 units. He transferred on 1-4-2022 his unit 1 by way of slump sale for a total consideration of ` 26 Lakhs. The expenses incurred for this transfer were ` 28,000/-. His Balance Sheet as on 31-3-2022 is as under:
(i) Revaluation reserve is created by revising upward the value of the building of unit 1.
(ii) No individual value of any asset is considered in the transfer deed.
(iii) Other assets of unit 1 include patents acquired on 1-7-2020 for ` 50,000/- on which no depreciation has been charged. Compute the capital gain for the assessment year 2023-24. [Nov. 2010, 5 Marks] Ans.
Computation of Capital Gain of Unit 1 on Slump Sale Assessment Year 2023-24
(Working Note 6)
Notes:
1. Indexation is not done in case of Depreciable Assets under Slump Sale.
CH. 7 : CAPITAL GAINS 7.19 TAXMANN ®
Liabilities Total Assets Unit 1 Unit 2 Total ` ` ` ` Own Capital 15,00,000 Building 12,00,000 2,00,000 14,00,000 Revaluation Reserve (For Building of Unit 1) 3,00,000 Machinery 3,00,000 1,00,000 4,00,000 Bank Loan (70% for Unit 1) 2,00,000 Debtors 1,00,000 40,000 1,40,000 Trade Creditors (25% for Unit 1) 1,50,000 Other Assets 1,50,000 60,000 2,10,000 Total 21,50,000 17,50,000 4,00,000 21,50,000 Other
information:
Particulars Amount ` Amount ` Gross Sale Consideration Received 26,00,000 Less: Expenses incurred for this transfer (28,000) Net Sale Consideration 25,72,000 Less: Cost of Acquisition
(12,50,625) Taxable Long-term Capital Gain 13,21,375
