CAPITAL GAINS 7 CHAPTER
Q.1 Define Transfer as per Income-tax Act, 1961.
[June 2014 New] [6 Marks]
Ans.: Transfer of a capital asset includes Sale, Exchange, or Relinquishment of the asset or compulsory acquisition by Law. Following rules are applicable in this regard for purpose of capital gain:
1. Immovable Property when documents are registered – Transfer is effective when conveyance deed is registered. OR under section 53A, when a contract is signed and advance is given, later on registered.
2. Movable Property – When property is delivered.
Q.2 Write a note on Long Term Capital Gain and Short Term Capital Gain. [Dec. 2009] [4 Marks]
Ans.: LONG TERM CAPITAL GAIN:
Long term capital gain arises when period of holding an capital asset is more than 12/24/36 months as per following categories:
CATEGORY A:
In case of following assets the period of holding must be more than 12 months (applicable with effect from July 10, 2014):
Equity/Preference Shares in a Company which are listed in a recognized stock exchange in India.
Debentures, Bonds, Government Securities, Derivatives (Listed in recognized stock exchange in India).
Units of Unit Trust of India (Listed or Not).
Zero Coupon Bonds (Listed or Not).
CATEGORY B:
In following cases the period of holding must be more than 24 months:
Equity/Preference Shares in a Company which are unlisted. (Applicable with effect from 01-04-2016).
Immovable property i.e. Land or Building or Both (applicable with effect from 01-04-2017).
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7.1
7.2
CATEGORY C:
PART I : DIRECT TAX
In case of all other assets period of holding must be more than 36 months.
SHORT TERM CAPITAL GAIN:
Short term capital gain arises when the period of holding of an assets is 12/24/36 months or less, as per detailed description given above in long term capital gain.
Q.3 Distinguish between ‘Long Term Capital Gain’ and ‘Short Term Capital Gain’. [June 2009] [2 Marks]
Ans.:
Long Term Capital Gain
1. A Capital Asset held by an assessee more than 36 months.
2. Equity or Preference Share in a Company, listed in recognized stock exchange in India, Securities listed in recognized stock exchange in India, Units of UTI (quoted or not), Units of an equity oriented mutual fund (quoted or not), Zero Coupon bonds (quoted or not), the period of holding is more than 12 months
3. In case of Land and Building transfer on or after 01-04-2017 the period of holding is more than 24 months.
Short Term Capital Gain
A Capital Asset held by an assessee up to 36 months.
Equity or Preference Share in a Company, listed in recognized stock exchange in India, Securities listed in recognized stock exchange in India, Units of UTI (quoted or not), Units of an equity oriented mutual fund (quoted or not), Zero Coupon bonds (quoted or not), the period of holding is up to 12 months
In case of Land and Building transfer on or after 01-04-2017 the period of holding is up to 24 months.
Q.4 Distinguish between Cost of Acquisition and Cost of Improvement. [June 2011] [3 Marks]
Ans.: Cost of acquisition of an asset is the value which was paid by the assessee. It includes expenses/commission paid on purchase and interest on money borrowed to purchase the asset.
Cost of improvement is capital expenditure incurred by the assessee in making additions and improvement, which enhance capital value of asset.
Q.5 Discuss the tax implications arising consequent to conversion of a capital asset into stock-in-trade of business and its subsequent sale. [June 2014 New] [7.5 Marks]
Ans.: If a capital asset is converted into stock-in-trade the following rules are applicable regarding valuation of the asset on date of conversion and its subsequent sale:
1. It is assumed that capital asset has been transferred on the date of its conversion.
2. Accordingly fair market value of the asset on the date of conversion is taken as full value of the asset converted.
TAXMANN ®
3. However, capital gain (if any) is taxable only when asset is actually sold out after conversion into stock in trade.
4. Any profit or loss after conversion will be business income or loss, as the case may be.
Q.6 Write short notes on the capital gains in case of damage or destruction of capital asset. [Dec. 2009] [5 Marks]
Ans.: If a person receives insurance claim or compensation from government in case of damage or destruction of capital asset, it is treated as full value of consideration for purpose of computation of capital gain (if any) and it is taxable. However this rule is applicable only when damage or destruction was caused by following:
1. Flood, Typhoon, Hurricane, Cyclone, Earthquake etc.
2. Riot or Civil Disturbance.
3. Accidental fire or explosion.
4. Action by enemy or in combating an enemy.
Q.7 Explain the provisions of section 54F in relation to capital gains on transfer of asset other than a residential house? [Dec. 2011] [5 Marks]
Ans.: Under section 54F Capital Gain arising on transfer of any long-term asset (except residential house property) is eligible for exemption, provided net sale proceeds were invested in acquisition of another one house within one year prior or two years hence from the date of transfer. If new one house is constructed, the period is next three years from the date of transfer. Exemption under section 54F is available, provided on the date of transfer the taxpayer owns one residential house only. Amount of exemption is as follows:
Amount of Exemption = Capital Gain × Cost of new house/Net Sales Consideration of asset sold
Q.8 Distinguish Between Exemption under Section 54G and Exemption under Section 54GA. [Dec. 2010] [5 Marks]
Ans.: Under section 54G, Capital Gain arising on transfer of assets due to shifting of an industrial undertaking from urban area to rural area is exempt. The exemption is amount of Capital gain or investment in new assets acquired, whichever is less.
Under section 54GA, Capital Gain arising on transfer of assets due to shifting of industrial undertaking from urban area to special economic zone is exempt. The exemption is amount of Capital gain or investment in new assets acquired, whichever is lower.
TAXMANN ® CH. 7
CAPITAL
7.3
:
GAINS
7.4 PART I : DIRECT TAX
Q.9 Rupesh acquired a residential house on 01-09-2001 for ` 10,00,000. He spent ` 2,50,000 on 01-07-2003 and on 15-11-2008 ` 5,00,000 on improvement of this house property. He sold the house on 30-11-2022 for ` 80,00,000. Expenses on transfer (sale) were 2% of sales consideration. Compute Capital Gain for the Assessment Year 2023-24.
Cost inflation indexes are as under: 2001-02 = 100, 2003-04 = 109, 200809 = 137, 2022-23 = 331.
[Dec. 2009] [5 Marks] Ans.:
Q.10 Vinod sells the following assets on 10th January, 2023. Equity
Based on the following indices, Compute the amount of Capital Gain of Vinod for the Assessment Year 2023-24 taking into consideration the facts that the business was set up in November 2009 and that he purchased a plot of land for ` 8,00,000 and Jewellery for ` 2,00,000 on 10th March, 2023.
Cost inflation index for various years are 2001-02 = 100, 2002-03 = 105, 2007-08 = 129, 2022-23 = 331.
Ans.:
2010] [5 Marks]
Computation of Capital Gain of Vinod for Assessment Year 2023-24
TAXMANN ®
Particulars
Net Sale Proceed of
House (
1,60,000) 78,40,000 Less:
of
1. ` 10,00,000
2. ` 2,50,000
3. ` 5,00,000 × 331/137 = ` 12,08,029 (52,78,203) Long Term Capital Gain 25,61,797
(`)
the
` 80,00,000 – `
Indexed Cost
Acquisition:
× 331/100 = ` 33,11,000
× 331/109 = ` 7,59,174
in R Ltd. (
Jewellery (`) Plot of Land (`) Goodwill of a Business (SelfGenerated) (`) Sale Consideration 6,00,000 7,50,000 25,00,000 25,00,000 Cost of Acquisition 40,000 80,000 2,50,000 NIL Transfer Expenses 4,000 25,000 Date of Acquisition 04-05-2001 04-03-2008 04-02-2003
Shares
`)
[Dec.
Particulars
(
1.
Sale Consideration 6,00,000 Less: Transfer Expenses
(4,000)
(`)
`)
Equity Shares:
(deemed on sales)
3.
Q.11 Deepak acquired 200 listed debentures of ` 100 each on 15th May, 2016. 50% value of each debenture was converted into 4 listed equity shares of the face value of ` 10 each on 20th August, 2021. Deepak, therefore, received 800 shares of face value of ` 10 each and was left with 200 debentures of ` 50 each. The shares were sold on 15th June, 2022 @ ` 100 per share through recognized stock exchange and Deepak paid ` 800 as security transaction tax.
Compute the amount of Capital Gain of Deepak for the Assessment Year 2023-24. [Dec. 2012 old] [5 Marks]
Income from Capital Gain of Deepak for Assessment Year 2023-24
Cost
Debentures Converted into Shares (200 shares × ` 50)
Q.12 Kundan sold his properties during the financial year 2022-23 as under:
(
(
i) Household TV and refrigerator, costing ` 56,000 purchased in January, 2011, sold in February, 2023 for ` 70,000.
ii) A car sold on 1st December, 2022 for ` 2,00,000 which was purchased by him in January, 2020 for ` 3,00,000 and its written down value on 1st April, 2022 was ` 1,72,000. The car is used for business purposes.
TAXMANN ® CH. 7 : CAPITAL GAINS 7.5 Particulars (`) (`) 5,96,000 Less: Indexed Cost of Acquisition (40,000
331/100) (1,32,400) 4,63,600
Jewellery: Sales Consideration 7,50,000 Less: Indexed Cost of Acquisition (80,000
331/129) (2,05,271) 5,44,729
×
2.
×
Plot of Land: Sale Consideration 25,00,000 Less: Transfer Expenses
(25,000) 24,75,000 Less:
Cost of Acquisition
16,86,905
Self-Generated Goodwill: 25,00,000 Long Term Capital Gain 51,95,234
(deemed on sales)
Indexed
(2,50,000 × 331/105) (7,88,095)
4.
Ans.: Computation
Particulars (`) Sale Proceeds of 800 Shares @100 80,000 Less: Security Transaction Tax (800) Net Sale Proceeds 79,200 Less:
(10,000) Short Term Capital Gain 69,200
of
of
7.6
PART I : DIRECT TAX
(iii) Agricultural land was sold for ` 9,50,000 on 1st February, 2023, its purchase price in 1993-94 was ` 1,00,000. He purchased new land for his own cultivation for ` 5,00,000 in May, 2022. Fair Market Value on 1-4-2001 was ` 2,80,000.
(iv) Gold ornaments acquired in July, 2018 for ` 2,00,000 were sold for ` 2,40,000 in June, 2022.
(v) Let out residential house at Indore was inherited by him in 1975. Sale price on 30th November, 2022: ` 16,00,000; fair market value on 1st April, 2001: ` 4,00,000; cost of improvement during 2008-09: ` 1,00,000; and expenses on transfer: ` 32,000. Compute his Taxable Capital Gains for the Assessment Year 2023-24. The Cost inflation indices: 100 (2001-02); 137 (2008-09); 184 (2011-12); 280 (2018-19); 301 (2020-21) and 331 (2022-23). [June 2012] [7 Marks]
Ans.: Computation of Taxable Capital Gains of Kundan for the Assessment Year 2023-24
TAXMANN ®
Particulars Details (`) (`) 1. Car used for Business Purposes: Sale proceeds 2,00,000 Less: Written down value as on April 1, 2022 (1,72,000) Short Term Capital gain (Under section 50) 28,000 2. Gold Ornaments: Sale proceeds 3,00,000 Less: Indexed cost of acquisition (2,00,000 × 331 280 ) (2,36,429) Long Term Capital gain 63,571 3. Residential House: Net Sale proceeds (` 16,00,000 – ` 32,000) 15,68,000 Less: Indexed cost of acquisition (4,00,000 × 331 100 ) (13,24,000) Less: Indexed cost of improvement (1,00,000 × 331 137 ) Long Term Capital Gain (2,41,606) 2,394 Taxable Capital Gains: (a) Long Term Capital gain (63,571 + 2,394) = ` 65,965 (b) Short Term Capital gain = ` 28,000
Q.13 From the following information, compute the Taxable Capital Gains of Sanjay:
- He sold his self-generated goodwill for ` 15,00,000 after using it for six years. He spent ` 1,50,000 for the development of the goodwill.
- The bonus shares (not listed) held by him in RK Limited were sold for ` 4,20,000 on 28th March, 2023. The face value of the shares which were allotted in May 2022 was ` 2,50,000.
- Short term capital loss from the transfer of building used for his business ` 1,00,000.
- A car purchased by him for ` 5,00,000 in 2015-16 for personal use, was sold on 1st July 2022 for ` 2,10,000. [Dec. 2012] [5 Marks]
Ans.: Computation of Capital Gains of Sanjay for Assessment Year 2023-24
Q.14 Ram purchased a house property for ` 76,000 on 30th June, 1987. The following expenses were incurred by him for making addition/alteration to the house property:
5.
house property is sold by him on 15th June, 2022 for ` 20,00,000 (expenses incurred on transfer ` 40,000) Compute the amount of Capital Gains chargeable to tax for the Assessment Year 2023-24.
Cost Inflation Indices: 2001-02 = 100, 2003-04 = 109, 2012-13 = 200, 2022-23 = 331 [June 2013] [5 Marks]
TAXMANN ® CH. 7 : CAPITAL GAINS 7.7
Particulars (`) (`) 1. Long Term Capital Gain: Sale of self-generated Goodwill 15,00,000 Less: Expenses for development of Goodwill (1,50,000) 13,50,000 2. Short Term Capital Gain: Sale of bonus shares allotted in May 2022 4,20,000 Less: Short term capital loss from transfer of a building used for his business (1,00,000) 3,20,000 Total Capital Gain 16,70,000
S. No. Particulars (`) 1. Cost of construction of first floor in 1995-96 1,10,000 2. Cost of construction of second floor in 2003-04 40,000 3. Construction of third floor in 2012-13 90,000 4. Fair market value of the property on 1st
4,00,000
April, 2001
The
7.8 PART I : DIRECT TAX
Ans.: Computation of Capital Gains Chargeable to tax of Ram for Assessment Year 2023-24 Particulars
1. Net Sale Proceeds of house (` 20,00,000 – ` 40,000)
2. Less: Indexed cost of acquisition/Additions
(i) Fair Market Value as on 01-04-2001 (` 4,00,000 × 331/100)
(ii) Construction of Second floor in 2003-04 (` 40,000 × 331/109)
(iii) Construction of third floor in 2012-13 ( ` 90,000 × 331/200)
Q.15 M & Sons., a Hindu Undivided Family (HUF), had purchased a land for ` 1,50,000 in 2006-07. In the Previous Year 2010-11, a partition took place and the coparcener, B, gets this plot valued at ` 2,00,000. In Previous Year 2011-12 he incurs expenses of ` 2,50,000 on the plot towards fencing of the plot of land. B then sells this plot at ` 15,00,000/- in Previous Year 2022-23. You are required to compute the Capital Gains for Assessment Year 2023-24.
Cost Inflation Index (CII): 2006-07 = 122, 2011-12 = 184, 2022-23 = 331. [June 2019] [4 Marks]
Ans.: Computation of Capital Gain for Assessment Year 2023-24
Q.16 Rakshit whose house property was compulsorily acquired in the year 2017 received enhanced compensation of ` 9,00,000 on 15th November, 2022 which includes ` 2,40,000 as interest on such enhanced compensation. Discuss the taxability of such compensation. [June 2011] [5 Marks]
Ans.: Enhanced Compensation granted by a court of law in respect of house property compulsory acquired in the year 2017, received on 15th November 2022 is fully taxable as Long Term Capital Gain (` 6,60,000) alongwith 50% interest (` 1,20,000 as Income from Other Sources) under section 57(iv) in the previous
TAXMANN ®
(`) (`)
19,60,000
13,24,000
1,21,468
1,48,950 (15,94,418)
3,65,582
3. Long Term Capital Gain (taxable)
Particulars (`) Full Value of Consideration 15,00,000 Less: Indexed Cost of Acquisition (` 1,50,000 × 331/122) (4,06,967) Less: Indexed Cost of Improvement (` 2,50,000 × 331/184) (4,49,728) Long Term Capital Gain 6,43,305
year 2022-23. In this case cost of acquisition will be taken as nil. However litigation expenses (if any) are deductible (if any). In case of Mr. Rakshit Amount received is taxable as mentioned above.
Q.17 On 31st December, 1996, Goverdhan purchased a Plot for ` 40,000. The Fair Market Value of the Plot on 1st April, 2001 was ` 97,800. On 15th October, 2022. Goverdhan sells the Plot for ` 14,30,000 and paid brokerage etc. @ 2% on sales consideration. He invested ` 6,87,000 in the construction of residential house which was completed before 31st May, 2023. Compute the Taxable Amount of Capital Gains for the Assessment Year 2023-24 of Goverdhan assuming that he already owns one residential house on the date of transfer of Plot.
Cost Inflation Index: Financial Year 2022-23 = 331. [June 2011] [7 Marks]
Ans.: Computation of Taxable amount of Capital Gain of Goverdhan for Assessment Year 2023-24
section 54F (Capital Gain × Cost of New House/
Q.18 Ramesh, aged 66 years, sold a residential house at Pune for ` 30,00,000 on 1st October, 2022. This house was acquired by his father on 1st January, 1991 for ` 1,00,000. On the death of his father, he inherited the house on 5th July, 2009 fair market value of the house as on 1st April, 2001 was ` 5,00,000. He paid brokerage @ 1% to the real estate agent at the time of sale. He purchased a residential house at Baramati on 7th January, 2023 for ` 8,00,000 and on 20th February, 2023 purchased bonds of ` 3,00,000 (redeemable after 5 years) of Rural Electrification Corporation Limited. His other incomes are ` 50,000. He deposited ` 10,000 in Public Provident Fund.
Compute the Taxable Income and Tax Liability of Ramesh for the Assessment Year 2023-24.
Cost Inflation Indices: 2001-02 = 100, 2009-10 = 148, 2022-23 = 331. [Dec. 2011] [5 Marks]
Ans.:
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7 : CAPITAL GAINS
CH.
7.9
Particulars (`) Net Sale Proceeds of the Plot (` 14,30,000 – 28,600) 14,01,400 Less: Indexed Cost of Acquisition (` 97,800 × 331/100) (3,23,718) Long Term Capital Gain 10,77,682 Less: Exemption under
Sales
(5,28,306) Taxable Long Term Capital Gain 5,49,376
Net
Consideration)=(10,77,682 × 6,87,000/14,01,400)
7.10
PART I : DIRECT TAX
Computation of Taxable Income and Tax Liability of Ramesh aged 66 years for Assessment Year 2023-24
Particulars (`) (`)
1. Capital Gains: Net Sale proceeds of Residential House (` 30,00,000 – ` 30,000) 29,70,000
Less: Indexed Cost of Acquisition (` 5,00,000 × 331/100) (16,55,000)
Gross Long Term Capital Gain 13,15,000
Less: Exemption u/s 54 – (Cost of another house purchased) (8,00,000)
Less: Exemption u/s 54EC – (Purchase of bonds of Rural Electrification Corporation Limited) (3,00,000) 2,15,000
2. Income From Other Sources: 50,000
3. Gross Total Income 2,65,000
4. Less: Deductions under section 80C – Public Provident Fund (10,000)
5. Total Income 2,55,000
6. Tax Liability NIL
Q.19 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. Padmajaare related to each other, the transactions are between outsiders.
[CA Nov. 2018] [6 Marks]
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.
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.
TAXMANN ®
CH. 7 : CAPITAL GAINS 7.11
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) 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.
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. 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 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 Lacs (` 53 Lacs- ` 42 Lacs) is taxable in the head Income from Other Sources.
Computation of Taxable Capital Gain in the hands of Mrs. Vimala Assessment Year 2023-24
Q.20 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.
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
7.12
PART I : DIRECT TAX
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: Financial Year 2005-2006 = 117, 2010-2011 = 167, 2022-23 = 331. [CA Nov. 2011] [8 Marks]
Ans.: Computation of Taxable Capital Gain in the hands of Mr. Selvan Assessment Year 2023-24
–
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 are 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.
Q.21 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 at ` 26 Lakhs. The expenses incurred for this transfer were ` 28,000. His Balance Sheet as on 31.3.2022 is as under:
TAXMANN ®
Particulars Amount (`) Amount (`) Gross Sale Consideration (Being Stamp Duty Value) 85,00,000
Cost
31,11,966
5,94,611 (37,06,577) Long term Capital Gain 47,93,423
House (25,00,000) Taxable Long term Capital Gain 22,93,423
Less: Indexed
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
Other information:
(
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.
[CA Nov. 2010] [5 Marks]
Ans.: Computation of Capital Gain of Unit 1 on Slump Sale Assessment Year 2023-24
Notes:
1. Indexation is not done in case of Depreciable Assets under Slump Sale.
2. Depreciation on patents is equal to 25% per annum, written down value method. Date of acquisition 01.07.2020. Book value as on 31.03.2022 = ` 50,000 × 0.75 × 0.75= ` 28,125
3. Value of bank loan = 2,00,000 × 0.70 = ` 1,40,000
4. Value of trade creditors = ` 1,50,000 × 0.25 = ` 37,500
5. Net Worth of the Akash Enterprises unit 1 is treated as cost of acquisition.
6. Net Worth
TAXMANN ® CH. 7 : CAPITAL GAINS 7.13 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
Particulars Amount Amount Gross Sale Consideration Received 26,00,000 Less: Expenses incurred for
transfer (28,000) Net Sale Consideration 25,72,000 Less: Cost of Acquisition (Working Note 6) 12,50,625 Taxable Long-term Capital Gain 13,21,375
this
7.14
PART I : DIRECT TAX
TAXMANN ®
Note 6Total assets: Building 12,00,000 Less: Revaluation reserve 3,00,000 9,00,000 Machinery 3,00,000 Patents (Note 2) 28,125 Debtors 1,00,000 Other Assets 1,50,000 Less: Patents 50,000 1,00,000 (A) Total Assets 14,28,000 Total liabilities Bank loan (Note 3) 1,40,000 Trade creditors 37,500 (B) Total Liabilities 1,77,500 1,77,500 (C) Net worth (A-B) 12,50,625
