CHAPTER
Q1. Ms. Mohini transferred a house to her friend Ms. Ragini for ` 32,00,000 on 01-10-2023. 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 202425, 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 2014 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. 2014-15 =240, F.Y. 2023-24 =348. [May 2015, 8 Marks]
Ans. Computation of Taxable Income of Ms. Mohini (Assessment year 2024-25)
Particulars
Capital Gain:
Amount (`)Amount (`)
Gross Sale Consideration (Note 1) 41,00,000
Less: Indexed Cost of Acquisition being value as per Divisional Revenue Of cer (Note 2) (26,50,000 × 348/240) (38,42,500)
Long term Capital Gain 2,57,500
Income from Other Sources:
Less: Deduction under Chapter VIA NIL
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 2024-25)
Particulars
Income from Other Sources:
(`)Amount (`)
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
3. The Inadequate consideration is paid by Ms. Ragini to Ms. Mohini. The Difference of ` 9,00,000 (` 41,00,000 – 32,00,000).
Q2. Mr. Martin sold his residential house property on 08-06-2023 for ` 70 lakhs which was purchased by him for 20 lakhs on 05-05-2007. 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 25-12-2023 for 15 lakhs. He deposited 10 lakhs on 10-01-2024 in the capital gain bond of National Highway Authority of India (NHAI).
He deposited another 10 lakhs on 10-07-2024 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. 2024-25 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 2007-08 = 129 and 2023-24 = 348. [Nov. 2015, 8 Marks]
Ans. Computation of Taxable Income of Mr. Martin (Assessment year 2024-25)
Particulars Amount (`)Amount (`)
Capital Gain:
Gross Sale Consideration (Being Stamp Valuation Authority) 90,00,000
Particulars Amount (`)Amount (`)
Less: Brokerage (2,00,000)
Net Sale Consideration 88,00,000
Less: Indexed Cost of Acquisition (20,00,000×348/129) (53,95,349)
Long term Capital Gain 34,04,651
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) (NIL)(25,00,000)
Taxable Long term Capital Gain 9,04,651
Gross Total Income 9,04,651
Less: Deduction under Chapter VIA Nil Total Income 9,04,651
Total Income Rounded off nearest ` 10 9,04,650
Notes:
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:
On transfer of residential house building or land appurtenant thereto, being a long-term capital asset.
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.
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.
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 2024-25)
Particulars
on Long Term Capital Gain ` 6,54,650 (` 9,04,650 – 2,50,000 basic exemption @ 20%) 1,30,930
Q3. Discuss the taxability or otherwise in the hands of the recipient as per the provisions of the Income-tax Act, 1961.
ABC Private Limited closely held Company issued 10,000 shares at ` 130 Per share. The face value of the share is ` 100 per share and the fair market value of the share is ` 120 per share. [May 2016, 2 Marks]
Ans. Taxability in the hands of ABC Private Limited
Particulars
Q4. 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 06-06-2023 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 capital asset: ParticularsRelevant Provisions
(i) Section 51 & Section 56(2)(ix)
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.
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
ParticularsRelevant Provisions
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 202324, 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 in nancial year 2023-24.
Q5. Mr. Sunil entered into an agreement with Mr. Dhaval to sell his residential house located at Navi Mumbai on 16-08-2023 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 has handed over the possession of the property on 15-12-2023 and the registration process was completed on 14-01-2024. He paid the sale proceed as per the sale agreement. The value determined by the stamp duty authority on 16-08-2023 was Rupees 100 lakhs. Whereas on 14-01-2024 it was ` 1,01,50,000.
Mr. Sunil had acquired the property on 01-04-2002 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 2024-25. Also compute tax liability.
Cost in ation index for nancial years 2002-03 = 105, 2003-04 = 109, 2023-24 = 348. [Nov. 2017, 5 Marks]
Ans. Computation of Taxable Capital Gain of Mr. Sunil (Assessment Year 2024-25)
Particulars
Amount (`)Amount (`)
Gross Sale Consideration (Being Stamp Duty Value) 1,00,00,000
Less: Indexed Cost of Acquisition (10,00,000×348/105) (33,14,286)
Long term Capital Gain 66,85,714
Less: Sec. 54 Purchase of New Residential House (35,00,000)
Taxable Long term Capital Gain 31,85,714
Less: Deduction under Chapter VIA Nil
Total Income 31,85,714
Rounded off to 31,85,710
Computation of Tax Liability of Mr. Sunil (Assessment Year 2024-25)
(`)
Tax on Long Term Capital Gain ` 29,35,710 (31,85,710 – 2,50,000 basic exemption) @ 20% 5,87,142
Add: HEC @4% of ` 5,87,142 23,486
Notes:
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.
Q6. Star Enterprises has transferred its unit R to A Ltd. by way of Slump Sale on January 3, 2024. The summarized Balance Sheet of Star Enterprises as on that date is given below:
Using the further information below, Compute the Capital Gains arising from slump sale of Unit R for Assessment year 2024-25.
(i) Slump sale consideration on transfer of Unit R was ` 930 lakhs.
(ii) Fixed Assets of Unit R includes land which was purchased at ` 110 lakhs in the year 2012 and was revalued at ` 140 lakhs.
(
iii) Other fixed assets are reflected at ` 460 lakhs. (i.e. ` 600 lakhs less value of land) which represents written down value of those assets as per books. The written down value of these asset is ` 430 lakhs.
(
iv) Unit R was set up by Star Enterprises in Oct., 2011.
Note: Cost of In ation Indices for the nancial years 2010-11 = 167; 2011-12 = 184 and 2023-24 = 348. [May 2018, 10 Marks]
Ans. Computation of Capital Gain in Slump Sale of Unit R (Assessment Year 2024-25)
Particulars
Sale consideration of unit R
Less: Expenditure on transfer NIL
Less: Net worth of Unit R (Note 6)
Long term capital gain 90
Notes:
1. Indexation is not done in case of Slump Sale.
2. Holding period for unit R is from date of commencement of unit to date of transfer. The period is October 2011 to 3rd January 2024, which is more than 36 months and hence long term capital gain arises.
3. Fixed assets mean land cost + depreciable assets as per written down value
Fixed assets = ` 110 Lakhs + ` 430 Lakhs = 540 Lakhs.
4. Other Assets of Unit R = ` 440 lakhs.
5. Liabilities of unit R = ` 140 lakhs.
6. Net Worth of unit R = Fixed asset + Other assets - liabilities
Net Worth of unit R = ` 540 + ` 440 – ` 140 = ` 840 lakhs.
Q7. Mr. Subramani sold a house plot to Mrs. Vimala for ` 45 lakhs on 12-5-2023. 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 21-3-2024 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]
Ans. Tax consequences in the hands of Mr. Subramani
Particulars
Relevant Provisions
Section 50CIf 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
Section 56(2)( x )
clause (a)
Section 56(2)( x )
clause (b)
Relevant Provisions
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.
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.
Particulars
Relevant Provisions
Case Ans. Hence as per section 56(2)(x), in this case, Mrs. Vimala purchased the house for ` 45 Lakhs which is less than ` 53 Lakhs being stamp duty value. Therefore difference of ` 8 Lakhs (` 53 - ` 45) is taxable in the head Income from Other Sources.
Computation of Taxable Capital Gain in the hands of Mrs. Vimala (Assessment Year 2024-25)
Q8. Mr. Roy owned residential house in Noida, it was acquired on 09.09.2013 for ` 30,00,000. He sold it for ` 1,57,00,000 on 07.01.2020. Mr. Roy utilized the sale proceeds of the above property to acquire a residential house in Panchkula for ` 2,05,00,000 on 20.07.2021. The said house property was sold on 31.10.2023 and he purchased another residential house in Delhi for ` 2,57,00,000 on 02.03.2024. The property at Panchkula was sold for ` 3,25,00,000. Calculate capital gain chargeable to tax for assessment years 2020-21 and 2024-25. All working should be part of your answer.
Cost In ation Index for various nancial year are as under (2013-14 = 220), (2019-20 = 289), (2021-22 = 317), (2023-24 = 348).
Ans.
[May 2019, 6 Marks]
Computation of Capital Gain of Mr. Roy (Assessment Year 2020-21)
Particulars
(`)
Gross Value of Consideration 1,57,00,000
Less: Indexed Cost of Acquisition (30,00,000 × 289 220 ) 39,40,909
Long Term Capital Gain 1,17,59,091
Less: Exemption u/s 54 (1,17,59,091)
Taxable Long Term Capital Gain NIL
7.10 SEC. A : INCOME TAX LAW
Computation of Capital Gain of Mr. Roy (Assessment Year 2024-25)
Particulars Amount (`)
Gross Value of Consideration
Less: Indexed Cost of Acquisition
3,25,00,000
(2,05,00,000 – 1,17,59,091) = 87,40,909 × 348 317 (95,95,698)
Long Term Capital Gain
2,29,04,302
Less: Exemption u/s 54 (2,29,04,302)
Taxable Long Term Capital Gain NIL
Notes:
1. The house property, whether let-out or self-occupied, is a long-term capital asset and it must be held for a period of more-than 24 months before sale or transfer.
2. Under section 54, long-term capital gain on sale of residential house is exempt, if another house is purchased within one year prior or two years, hence from the date of sale or new house is constructed within next three years from date of sale. Exemption is restricted up to amount of long-term capital gain or cost of new house, which is lower.
3. In assessment year 2020-21 capital gain on sale of Noida house is ` 1,17,59,091 and cost of new house purchased in Panchkula is ` 2,05,00,000. Hence least amount ` 1,17,59,091is exempt.
4. In assessment year 2024-25 residential house in Panchkula was sold for ` 3,25,00,000 on 31.10.2023, which was purchased for ` 2,05,00,000 on 20.07.2021. Since this house was sold within three years from date of purchase, exemption ` 1,17,59,091is revoked. Accordingly cost of acquisition of Panchkula house will be 2,05,00,000 minus ` 1,17,59,091 = ` 87,40,909 and indexed cost of acquisition = ` 87,40,909 × 348 317 = ` 95,95,698.
5. Accordingly exemption of long-term capital gain on sale of Panchkula house is restricted to cost of new house purchased in Delhi ` 2,57,00,000 or long-term capital gain on sale of Panchkula house ` 2,29,04,302, whichever is lower. Hence exemption = ` 2,29,04,302.
Taxable Long Term Capital Gain for assessment year 2024-25 is NIL.
