Taxmann's Direct Tax Laws & International Taxation (DT) | A.Y. 2023-24 | CRACKER

Chapter-Wise Marks Distribution

Sr. No. Chapter Nov. 2018 May 2019* Nov. 2019* Nov. 2020* Jan. 2021* July 2021* Dec. 2021* May 2022*

Part I - Direct Tax Laws 1 I nc o me f r o m Sal ari es 2 I nc o me f r o m Ho us e Pr op ert y 3. Pr ofit s a nd Gai ns of Busi ness or Pr of essi on 14 14 18 20 14 14 14 14 4. Capi t al Gai ns 6 4 4 5. I nco me fr o m Ot her Sour ces 4 6. Tax on Conversi on of Un acc o unt e d Money 4 7 Cl ubbi ng of I nc o me 8 Set off of l oss es or carr y f or war d a nd s et off of l oss es 4 9 De d ucti o ns f r o m Gr os s Tot al I nc o me 9 10. Taxati o n of Co oper ati ve Soci eti es 6 11. De ducti on f or Speci al Ec o no m i c Zone 4 12. Ex pe n di t ur e o n Ex e mpt I nc o me 13 Taxati on of Poli ti cal Parti es & El ect or al Tr ust 14 Ta x ati o n of Chari t a bl e / Reli gi o us Tr ust 8 8 8 16 8 8 8 8 15 Taxati o n of Mut ual Co n cer ns 16 M i ni mu m Al t er nat e Ta x ( MAT) 14 8 6 17. Taxati on of Fi r ms, LLP a nd A OP/ B OI 8 4

Sr. No.

Chapter Nov. 2018 May 2019* Nov. 2019* Nov. 2020* Jan. 2021* July 2021* Dec. 2021* May 2022* 18 Al t er nat e M i ni mu m Ta x ( A MT) 8 19 Taxati on of Busi ness Tr ust s ( REI Ts, I nvI Ts) 8 8 20. Appli cati on v. Di versi on of I nc o me 21. Ass ess me nt Pr oce dur es 6 4 2 8 8 4 4 22. Appeal s a nd Revi si ons 5 4 4 23 Sur vey, Sear c h a nd Sei z ur e 3 4 24 Pe nal ti es a nd Pr os ec uti ons 4 4 25 Settl e me nt of Cas es 5 26 Li a bili t y i n Speci al Cas es 4 4 4 4 27 Ass ess me nt of HUF 28. Tax De ducti on a nd Coll ec ti on at So ur ce 14 12 14 8 8 8 12 8 29. Col l e cti o n a n d Re c over y of Tax 4 30. I nt er est 31 M i s cell a ne o us Topi cs, STT/ CTT a nd I FS C 5 4 4 32 Tax Pl a nni ng, Tax Avoi d a n c e a n d Ta x Ev a si o n (I ncl udi ng GAA R)

4 4 4 4 4

33 Tax I nci de nce i n I ndi a 6 6 7 6 6 34 Taxati on of Non Resi de nt s 6 6 6 6 35. Do ubl e Taxati on Reli ef 12 10 6 6 12 8 6 36. Tr a nsf er Pri ci ng 6 12 6 11 12 6 10 6 37. Adva nce Ruli ngs 3 38 Eq uali s ati on Levy 3 6 6 39 Ov er vi e w of Mo del Ta x Conve nti ons 6 40 Appli cati on a ndi nt er pr et a ti on of Tax Tr eati es 6 2 6 41 F u n d a me nt al s of Ba s e Er osi on a nd Pr ofit Shi fti ng ( BEPS)

10 4 * Fr o m May 2019 o n war ds, due t o i nt r o ducti o n of MC Qs f or 30 Mar ks, t he r e mai ni ng pa per of 70 mar ks c o nt ai ni ng des cri pti ve q uesti o ns, has t ot al 88 mar ks q uesti o ns w i t h opti o ns, whi c h i s q ua nti f y a bove. As t he MC Qs Pa per i s not r el eas e d o ut si de t he exa m hall by I CAI, i t i s not possi bl e t o q ua nti f y t he all ocati o n of 30 mar ks i n MC Qs.

Previous Exams Trend Analysis

Year Question No. Com pulsory

Nov. 2018

Chapter Name Marks Category

Q 1( a ) Yes Pr ofit s a nd Gai ns of Busi ness or Pr of essi on 14 Pr acti cal

Q . 1(b ) Yes Taxati on of Non Resi de nt s 6 Pr acti cal

Q 2( a ) Yes M i ni mu m Al t er nat e Tax ( MAT) 14 Pr acti cal

Q 2(b ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 6 Pr acti cal

Q . 3( a ) Yes Capi t al Gai ns 6 Pr acti cal

Q . 3(b ) Yes Taxati on of Chari t a bl e/ Reli gi o us Tr ust s 8 Pr acti cal

Q 3( c ) Yes Tr a nsf er Pri ci ng 6 Pr acti cal

Q . 4( a ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 4 Pr acti cal

Q . 4(b ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 10 Pr acti cal

Q 4( c ) Yes Over vi e w of Model Tax Conve nti ons 6 The or y

Q 5( a )(i ) Settl e me nt of Cas es 5 Pr acti cal

Q . 5( a )(ii ) Appeal s a nd Revi si ons 5 Pr acti cal

Q . 5(b ) Yes Ass ess me nt Pr oce dur es 6 Pr acti cal

Q 5( c ) Yes Sear c h, Sur vey a nd Sei z ur e 3 Pr acti cal

Q . 5(d ) Yes Tax I nci de nce i n I ndi a 6 Pr acti cal

Q . 6( a ) Yes M i s cell a ne o us Topi cs 5 Pr acti cal

Q 6(b ) Yes De ducti on f r o m Gr oss Tot al I nc o me 9 Pr acti cal Q 6( c ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 3 Pr acti cal Q . 6(d ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 3 Pr acti cal May 2019 Q 1 Yes Pr ofit s a nd Gai ns of Busi ness or Pr of essi on 14 Pr acti cal Q . 2( a ) Yes M i ni mu m Al t er nat e Tax ( MAT) 8 Pr acti cal Q . 2(b ) Yes Taxati on of Non Resi de nt s 6 Pr acti cal Q 3( a ) Yes Taxati on of Chari t a bl e/ Reli gi o us Tr ust 8 Pr acti cal Q 3(b ) Yes Tr a nsf er Pri ci ng 6 Pr acti cal

Year Question

No. Com pulsory

Chapter Name

Marks Category

Q . 4( a ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 2 Pr acti cal

Q 4(b ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 2 Pr acti cal

Q 4( c )(i ) Tax De ducti on a nd Coll ecti on at So ur ce 4 Pr acti cal

Q . 4( c )(ii ) Tax De ducti on a nd Coll ecti on at So ur ce 4 Pr acti cal

Q . 4(d ) Yes Tr a nsf er Pri ci ng 6 Pr acti cal

Q 5( a ) Yes Ass ess me nt Pr oce dur es 4 Pr acti cal

Q . 5(b ) Yes Sear c h, Sur vey a nd Sei z ur e 4 Pr acti cal

Q . 5( c ) Yes Adva nce Ruli ng 3 Pr acti cal

Q 5(d ) Yes Eq uali s ati on Levy 3 Pr acti cal

Q 6( a ) Yes Tax Pl a nni ng, Tax Av oi da nce a nd Tax Evasi on 4 The or y

Q . 6(b ) Yes Li a bili t y i n Speci al Cas es 4 Pr acti cal

Q 6( c ) Yes Ap pl i c ati o n a n d I nt er pr et ati o n of Ta x Tr eati es 6 The or y

Q 1 Yes Pr ofit s a nd Gai ns of Busi ness or Pr of essi on 14 Pr acti cal

Nov. 2019

Q . 2( a ) Yes Taxati on of Fi r ms, LLP a nd A OP/ B OI 8 Pr acti cal

Q 2(b ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 6 Pr acti cal

Q . 3( a ) Yes Taxati on of Chari t a bl e/ Reli gi o us Tr ust 8 The or y

Q . 3(b ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 6 Pr acti cal

Q 4( a ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 8 Pr acti cal

Q 4(b ) Yes Tr a nsf er Pri ci ng 6 The or y

Q . 5( a )(i ) Appeal s a nd Revi si ons 4 Pr acti cal

Q . 5( a )(ii ) De ducti on f or Speci al Ec ono m i c Zone 4 Pr acti cal

Q 5( a )(iii ) Pr ofit s a nd Gai ns of Busi ness or Pr of essi on 4 Pr acti cal

Q . 5(b ) Yes Tax I nci de nce i n I ndi a 6 Pr acti cal

Q . 6( a ) Yes Tax Pl a nni ng, Tax Av oi da nce a nd Tax Evasi on 4 Pr acti cal

Q 6(b ) Yes Li a bili t y i n Speci al Cas es 4 The or y

Q . 6( c )(i ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 4 The or y

Q . 6( c )(ii ) Yes Ap pl i c ati o n a n d I nt er pr et ati o n of Ta x Tr eati es 2 The or y

Q 1 Yes Pr ofit s a nd Gai ns of Busi ness or Pr of essi on 14 Pr acti cal

Nov. 2020

Q . 2( a ) Yes Taxati on of Chari t a bl e/ Reli gi o us Tr ust 10 Pr acti cal

Q . 2(b )(i ) Tax De ducti on a nd Coll ecti on at So ur ce 4 Pr acti cal

Year Question

No. Com pulsory

Chapter Name

Marks Category

Q . 2(b )(ii ) Tax De ducti on a nd Coll ecti on at So ur ce 4 Pr acti cal

Q 3( a ) Yes Pr ofit s a nd Gai ns of Busi ness or Pr of essi on 6 Pr acti cal

Q 3(b ) Yes Tax I nci de nce i n I ndi a 2 Pr acti cal

Q . 3( c ) Yes Tr a nsf er Pri ci ng 6 Pr acti cal

Q . 4( a ) Yes M i ni mu m Al t er nat e Tax ( MAT) 6 Pr acti cal

Q 4(b ) Yes Tax Pl a nni ng, Tax Av oi da nce a nd Tax Evasi on 4 The or y

Q . 4( c ) Yes Pe nal ti es a nd Pr os ec uti on 4 Pr acti cal

Q . 5( a ) Yes Taxati on of Chari t a bl e/ Reli gi o us Tr ust 6 Pr acti cal

Q 5(b ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 6 Pr acti cal

Q . 5( c ) Yes Ass ess me nt Pr oce dur es 2 Pr acti cal

Q . 6( a ) Yes Tax I nci de nce i n I ndi a 5 Pr acti cal

Q 6(b ) Yes Coll ecti on a nd Rec over y of Tax 4 Pr acti cal

Q 6( c ) Yes Tr a nsf er Pri ci ng 5 Pr acti cal Jan. 2021

Q . 1 Yes Pr ofit s a nd Gai ns f r o m Busi ness or Pr o f essi on 14 Pr acti cal

Q 2( a ) Yes Al t er nat e M i ni mu m Tax ( A MT) 8 Pr acti cal

Q 2(b ) Yes Tax I nci de nce i n I ndi a 6 Pr acti cal

Q . 3( a ) Yes Taxati on of Chari t a bl e/ Reli gi o us Tr ust 8 Pr acti cal

Q . 3(b ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 6 Pr acti cal

Q 4( a ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 8 Pr acti cal

Q . 4(b ) Yes Tr a nsf er Pri ci ng 6 Pr acti cal

Q . 5( a )(i ) Ass ess me nt Pr oce dur es 4 The or y

Q 5( a )(ii ) M i s cell a ne o us Topi cs 4 The or y

Q 5( a )(iii ) Capi t al Gai n 4 The or y

Q . 5(b ) Yes Taxati on of Co Oper ati ve Soci eti es 6 Pr acti cal

Q . 6( a )(i ) Yes Ass ess me nt Pr oce dur es 4 The or y

Q 6( a )(ii ) Yes Pe nal ti es a nd Pr os ec uti on 4 The or y Q . 6(b ) Yes Tr a nsf er Pri ci ng 6 Pr acti cal July 2021 Q . 1 Yes Pr ofit s a nd Gai ns f r o m Busi ness or Pr o f essi on 14 Pr acti cal Q 2( a ) Ass ess me nt Pr oce dur es 4 The or y or Q . 2( a ) Taxati on of Fi r ms, LLP & A OP/ B OI 4 The or y Q . 2(b ) Yes Ass ess me nt Pr oce dur es 4 The or y Q 2( c ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 6 Pr acti cal Q 3( a ) Yes Taxati on of Busi ness Tr ust s a nd I nvest me nt Funds 8 Pr acti cal

Year Question

No. Com pulsory

Chapter Name

Marks Category

Q . 3(b ) Yes Taxati on of Non Resi de nt 6 Pr acti cal

Q 4( a ) Yes Taxati on of Chari t a bl e/ Reli gi o us Tr ust 8 Pr acti cal

Q 4(b ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 6 Pr acti cal

Q . 5( a ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 8 Pr acti cal

Q . 5(b ) Yes Tr a nsf er Pri ci ng 6 Pr acti cal

Q 6( a ) Yes Li a bili t y i n Speci al Cas es 4 The or y

Q . 6(b ) Yes Funda me nt al s of Bas e Er osi on & Pr ofit s hi fti ng ( BEPS) 4 The or y

Q . 6( c ) Yes Appli cati on &I nt er pr et ati on of Tax Tr eati es 6 The or y

Dec. 2021

Q 1 Yes Pr ofit s a nd Gai ns f r o m Busi ness or Pr o f essi on 14 Pr acti cal

Q . 2( a )(i ) Yes Set off of l oss es or carr y f or war d a nd s et off of l oss es 4 Pr acti cal

Q . 2( a )(ii ) Yes Capi t al Gai n 4 Pr acti cal

Q 2(b ) Yes Tr a nsf er Pri ci ng 6 Pr acti cal

Q . 3( a ) Yes Taxati on of Chari t a bl e/ Reli gi o us Tr ust 8 Pr acti cal

Q . 3(b ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 6 Pr acti cal

Q 4( a )(i ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 4 Pr acti cal

Q 4( a )(ii ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 4 Pr acti cal

Q . 4(b ) Yes Taxati on of Non Resi de nt 6 Pr acti cal

Q . 5( a )(i ) Yes Ass ess me nt Pr oce dur es 4 The or y

Q 5( a )(ii ) Yes Appeal s a nd Revi si ons 4 The or y

Q . 5(b ) Yes Eq uali s ati on Levy 6 Pr acti cal

Q . 6( a ) Yes Tax Pl a nni ng, Tax Av oi da nce a nd Tax Evasi on (i ncl udi ng GAA R) 4 The or y

Q 6(b ) Yes M i s cell a ne o us Topi cs, STT/ CTT a nd I FS C 4 The or y

Q . 6( c )(i ) Yes Tr a nsf er Pri ci ng 4 The or y

Q . 6( c )(ii ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 2 The or y May 2022 Q 1 Yes Pr ofit s a nd Gai ns f r o m Busi ness or Pr o f essi on 14 Pr acti cal

Q . 2( a ) Yes Taxati on of Busi ness Tr ust s ( REI Ts, I nvI Ts) 8 Pr acti cal Q . 2(b ) Yes Tax I nci de nce i n I ndi a 6 Pr acti cal Q 3( a ) Yes Taxati on of Chari t a bl e/ Reli gi o us Tr ust 8 Pr acti cal Q 3(b ) Yes Do ubl e Taxati on Avoi da nce Agr ee me nt 6 Pr acti cal Q . 4( a ) Yes Tax De ducti on a nd Coll ecti on at So ur ce 8 Pr acti cal Q . 4(b ) Yes Tr a nsf er Pri ci ng 6 Pr acti cal

Year Question No. Com pulsory

Q . 5( a ) (i ) Fi rst Al t er na ti ve

Q 5( a )(i ) Sec ond Al t er na ti ve

Chapter Name

Marks Category

Ass ess me nt Pr oce dur es 4 The or y

Ta x o n Co n v er si o n of Un a c c o u nt e d Money 4 The or y

Q . 5( a )(ii ) Yes I nc o me f r o m Ot her So ur ces 4 The or y

Q 5(b ) Yes Eq uali s ati on Levy 6 Pr acti cal

Q . 6( a ) Yes Tax Pl a nni ng, Tax Av oi da nce a nd Tax Evasi on (I ncl udi ng GAA R) 4 The or y

Q . 6(b ) Yes Li a bili t y i n Speci al Cas es 4 The or y

Q 6( c ) Yes Funda me nt al s of BEPS 4 The or y

Chapter-Wise Comparison With Study Material

Chapter No. Name of Chapter Study Material Lesson No.

Part I - Direct Tax Laws

1. I nc o me f r o m Sal ari es 4 2. I nc o me f r o m Ho us e Pr opert y 5 3. Pr o fit s a nd Gai ns f r o m Busi ness or Pr of essi o n 6 4. Ca pi t al Gai ns 7 5. I nc o me f r o m Ot her So ur ces 8 6. Tax o n Co nversi o n of Unacc o unt e d Mo ne y 8 7. Cl ubbi ng of I nc o me 9 8. Set off of l oss es or carr y f or war d a nd s et off of l oss es 10 9. De d ucti o ns f r o m Gr oss Tot al I nc o me 11 10. Taxati o n of Co oper ati ve Soci eti es 11 11. De d ucti o n f or Speci al Ec o no m i c Zo ne 3 12. Ex pe ndi t ur e o n Exe mpt I nc o me 3 13. Taxati o n of Poli ti c al Parti es & El ect or al Tr ust 13 14 Taxati o n of Chari t a bl e / Reli gi o us Tr ust 13 15. Taxati o n of Mut ual Co ncer ns 6 16 M i ni mu m Al t er nat e Tax ( MAT) 12 17. Taxati o n of Fi r ms, LLP a nd A OP/ B OI 12 18 Al t er nat e M i ni mu m Tax ( A MT) 12 19. Taxati o n of Busi ness Tr ust s ( REI Ts, I nvI Ts) 12 20 Appli c ati o n v Di versi o n of I nc o me 1 21. Ass ess me nt Pr oce d ur es 17 22. Appe al s a nd Re vi si o ns 18 23. Sur ve y, Se ar c h a nd Sei z ur e 16

Chapter

No.

Name of Chapter Study Material

Lesson No. 24. Pe nal ti es a nd Pr os ec uti o ns 20 & 21 25. Settl e me nt of Cas es 26. Li a bili t y i n Speci al Cas es 22 27. Ass ess me nt of HUF 12 28. Tax De d ucti o n a nd Coll ecti o n at So ur ce 15 29. Coll ecti o n a nd Rec over y of Tax 15 30. I nt er est 17 31. M i s cell a ne o us Topi cs, S TT/ CTT a nd I FS C 23 32. Tax Pl a nni ng, Tax Av oi da nce a nd Tax Evasi o n (i ncl udi ng GAA R) 14

Part II - International Taxation

33 Tax I nci de nce i n I ndi a 2 34. Taxati o n of No n Resi de nt s 2 35 Do ubl e Taxati o n Reli ef 3 36. Tr a nsf er Pri ci ng 1 37 Adva nce Ruli ngs 4 38. Eq uali s ati o n Le vy 5 39 Over vi e w of Mo del Tax Co nve nti o ns 8 40. Appli c ati o n a nd i nt er pr et ati o n of Tax Tr e ati es 6 41. Funda me nt al s of BEPS 7

Contents

PAGE

Chapter-wise Marks Distribution I-5

Previous Exams Trend Analysis I-7

Chapter-wise Comparison With Study Material I-13

PART I

DIRECT TAX LAWS (70 MARKS)

Chapter 1

INCOME FROM SALARIES 1.3

Chapter 2 u INCOME FROM HOUSE PROPERTY 2.1

Chapter 3 u PROFITS AND GAINS OF BUSINESS OR PROFESSION 3.1

Chapter 4 u CAPITAL GAINS 4.1

Chapter 5 u INCOME FROM OTHER SOURCES 5.1

Chapter 6 u TAX ON CONVERSION OF UNACCOUNTED MONEY 6.1

Chapter 7

Chapter 8

u SET-OFF OF LOSSES OR CARRY FORWARD AND SET-OFF OF LOSSES 8.1

Chapter 9

u DEDUCTIONS FROM GROSS TOTAL INCOME 9.1

Chapter 10

u TAXATION OF CO-OPERATIVE SOCIETIES 10.1

Chapter 11

u DEDUCTION FOR SPECIAL ECONOMIC ZONE 11.1

Chapter 12

u EXPENDITURE ON EXEMPT INCOME 12.1

Chapter 13

u TAXATION OF POLITICAL PARTIES & ELECTORAL TRUST 13.1

Chapter 14

u TAXATION OF CHARITABLE/ RELIGIOUS TRUSTS 14.1

Chapter 15

u TAXATION OF MUTUAL CONCERNS 15.1

Chapter 16

u MINIMUM ALTERNATE TAX (MAT) 16.1

Chapter 17 u TAXATION OF FIRMS, LLP AND AOP/BOI 17.1

Chapter 18 u ALTERNATE MINIMUM TAX (AMT) 18.1

Chapter 19

u TAXATION OF BUSINESS TRUSTS (REITs, InvITs) 19.1

Chapter 20

u APPLICATION v. DIVERSION OF INCOME 20.1

Chapter 21

u ASSESSMENT PROCEDURES 21.1

Chapter 22 u APPEALS AND REVISIONS 22.1

C ONTE NTS I-17

PAGE

Chapter 23

u SURVEY, SEARCH AND SEIZURE 23.1

Chapter 24

u PENALTIES AND PROSECUTIONS 24.1

Chapter 25

u SETTLEMENT OF CASES 25.1

Chapter 26 u LIABILITY IN SPECIAL CASES 26.1

Chapter 27

u ASSESSMENT OF HUF 27.1

Chapter 28

u TAX DEDUCTION AND COLLECTION AT SOURCE 28.1

Chapter 29 u COLLECTION AND RECOVERY OF TAX 29.1

Chapter 30 u INTEREST 30.1

Chapter 31

u MISCELLANEOUS TOPICS, STT/ CTT AND IFSC 31.1

Chapter 32

u TAX PLANNING, TAX AVOIDANCE AND TAX EVASION (INCLUDING GAAR) 32.1

PART II

INTERNATIONAL TAXATION (30 MARKS)

Chapter 33

u TAX INCIDENCE IN INDIA 33.3

Chapter 34

u TAXATION OF NON-RESIDENTS 34.1

Chapter 35 u DOUBLE TAXATION RELIEF 35.1

Chapter 36

u TRANSFER PRICING 36.1

Chapter 37

u ADVANCE RULINGS 37.1

Chapter 38

u EQUALISATION LEVY 38.1

Chapter 39

u OVERVIEW OF MODEL TAX CONVENTIONS 39.1

Chapter 40

u APPLICATION AND INTERPRETATION OF TAX TREATIES 40.1

Chapter 41

u FUNDAMENTALS OF BEPS 41.1

CAPITAL GAINS

Q1. On 25-11-2022, A gave power of attorney and possession to B in respect of a vacant land acquired 10 years ago. The sale deed was executed in April, 2023. In which assessment year, the capital gain is chargeable to tax? [CA Final May 2010] [4 Marks] Ans. As per s ecti on 45( 1), t he c har gi ng s ecti on f or t he hea d‘ Capi t al gai ns ’ , a ny pr ofi t s a nd gai ns ari si ng f r o mt r a nsf er of a c a pi t al ass et s hall be c har ge a bl e t o i nc o me t ax under t he he a d c a pi t al gai ns in the previous year in which transfer took place. Furt her t he defi ni ti o n of ‘ Tr a nsf er ’ as c o nt ai ne d i n s ecti o n 2(47 ) i ncl udes, inter alia : a ny t r a ns acti o n i nv ol vi ng t he all o w i ng of t he poss essi o n of a ny i mmova bl e pr opert y t o be t a ke n or r et ai ne d i n part perf or ma nce of a c o nt r act of t he nat ur e r ef err e d t o i n s ecti o n 53 A of t he Tr a nsf er of Pr opert y Act, 1882; Al s o i n s ecti o n 50 C , Explanation

2 to section

50C pr ovi des as under: For t he p ur pos e of t hi s s ecti o n, t he e x pr essi o n “assessable ” me a ns t he pri ce whi c ht he st a mp val uati on a ut hori t y wo ul d have, not w i t hst a ndi ng c ont ai ne d i n a ny ot her l a w f or a ti me bei ng i n f or ce, a dopt e d or ass ess e d, i f i t wer e r ef err e d t o s uc h a ut hori t y f or t he p ur pos es of t he pay me nt of st a mp d ut y. The t er m assessable al s o c overs t r a nsf ers e xec ut e d t hr o ug h po wer of att or ne y w i t hi n t he s c ope of s ecti o n 50 C . Th us, whe n t he ass ess ee e xec ut es po wer of att or ne y a nd poss essi o n i s gi ve n, t he t r a nsf er i s c har ge a bl e t o c a pi t al gai n i n s uc h ye ar. Thus, on c o mbi ne r ea di ng of a bove pr ovi si ons, capi t al gai n s hall be c har gea bl e t o t ax i n t he ye ar whe n t he po wer of att or ne y a nd poss essi o n was gi ve n t o Mr. B i n r es pect of t he vac a nt l a nd. Q2. Can reference be made to the Valuation Officer u/s 55A where the A.O. is of the view that in the context of computation of capital gains, the value of asset as on 1-4-2001 adopted by the assessee is more than the FMV?

Ans. Secti o n 55 A de ali ng w i t h‘ Ref er e nce t o Val uati o n Offi cer ’ pr ovi des t hat t he A . O . may r ef er t he val uati o n of a c a pi t al ass et t o t he val uati o n offi cer w i t h a vi e w t o as cert ai n t he F MV of t he c a pi t al ass et f or t he p ur pos e of c o mp ut ati o n of c a pi t al gai n, i n a c as e wher e t he val ue of ass et as cl ai me d by t he ass ess ee i s i n acc or da nce w i t h t he esti mat e ma de by a r e gi st er e d val uer, a nd t he A . O . i s of t he opi ni o n t hat the value so claimed is at variance with the FMV of the asset. Ther ef or e, t he A . O . c a n ma ke a r ef er e nce t o t he Val uati o n Offi cer f or val uati o n of t he c a pi t al ass et i n a c as e wher e t he F MV of t he ass et as o n 1 4 2001 i s t a ke n as t he c ost of t he ass et a nd he i s of t he vi e w t hat t her e i s a variance bet wee n t he val ue as o n 1- 4- 2001 cl ai me d by t he ass ess ee i n acc or da nce w i t h t he esti mat e ma de by a r e gi st er e d val uer a nd t he f ai r mar ket val ue of t he ass et o n t hat dat e.

Q3. A sold a house to his friend B on 1-11-2022, for a consideration of ` 25,00,000. The Sub-Registrar refused to register the document for the said value, as according to him, Stamp Duty had to be paid of ` 45,00,000 which was the Government Guideline Value. Mr. A preferred an appeal to the Revenue Divisional Officer, who fixed the value of the house as ` 32,00,000 (` 22,00,000 for Land, balance for Building portion). The differential Stamp Duty was paid, accepting the said value determined. Assuming that the FMV is ` 32,00,000, what are the tax implications in the hands of Mr. A and Mr. B for the A.Y. 2023-24? Mr. A had purchased the Land on 1-6-2018 for ` 5,19,000 & completed the construction of house on 1-12-2020 for ` 14,00,000.

CII: FY 2017-18: 272, FY 2018-19: 280, FY 2019-20: 289, FY 2021-22: 317, FY 2022-23: 331 [CA Final May 2010] [4 Marks]

Ans.

Computation of Capital Gains for A.Y. 2023-24 Land (`) Building (`) Sal e Co nsi der ati o n ( Ref er Not e) 22, 00, 000 10, 00, 000

Less: Ex pe ns es o n t r a nsf er Net c o nsi der ati o n 22, 00, 000 10, 00, 000

Less: I nde xe d C OA - La nd [` 5, 19, 000 × 331/289] ( Bei ng LT CA) ( 5, 94, 426) Buil di ng ( Bei ng S T CA) ( 14, 00, 000) Ca pi t al gai n/(l oss) 16,05,574 (4,00,000)

Note: Val ue fi xe d i n a ppe al i.e. ` 32, 00, 000 (` 22, 00, 000 f or La nd a nd ` 10, 00, 000 f or Buil di ng) s hall be t a ke n as Sal e Co nsi der ati o n.

Tax Implication:

Mr. A: S T CL c a n be Set- off agai nst LT C G u/s 70. Ther ef or e, LT C G of ` 12, 05, 574 (` 16, 05, 574 ` 4, 00, 000) i s t axa bl e at 20 % .

Mr. B: Recei pt of i mmova bl e pr opert y f or i na de q uat e c o nsi der ati o n, i.e. st a mp d ut y val ue e xcee ds t he c o nsi der ati o n by mor e t ha n hi g her of ` 50, 000 or 10 % of c o nsi der ati o n, will be c har ge a bl e u/s 56( 2)( x ) as ‘ I nc o me f r o m Ot her So ur ces ’ . Taxa bl e a mo unt = St a mp d ut y – Co nsi der ati o n = ` 32, 00, 000 ` 25, 00, 000 = ` 7, 00, 000.

Q4. A resident woman (individual) sold a house property on 16-1-2023. On the said transaction, she earned a long-term capital gain of ` 1,01,50,000. She invested a sum of ` 50,00,000 in capital gains bonds specified in section 54EC on 5-3-2023. She further invested a sum of ` 50,00,000 in the same bonds on 5-5-2023. Her other income for the financial year 2022-23 was ` 56,000. Compute the tax payable by her for the A.Y. 2023-24. Assume the assessee has not opted for Sec. 115BAC.

[CA Final Nov. 2010] [6 Marks] Ans. To cl ai m e xe mpti o n u/s 54 EC , t he ass ess ee has t o i nvest i n s peci fi e d bo nds of RECL or N HAI w i t hi n 6 mo nt hs f r o mt he dat e of t r a nsf er of t he l o ng t er m c a pi t al ass et.

Ho we ver, t he a mo unt of i nvest me nt s i n t he bo nds by t he ass ess ee d uri ng t he fi na nci al ye ar i n whi c h s uc h t r a nsf er has t a ke n pl ace a nd i n s ubs e q ue nt fi na nci al ye ar s hall not e xcee d ` 50l a k hs i n aggr e gat e. Ther ef or e, e xe mpti o n i n r es pect of a mo unt i nvest e di n t he bo nds o n 5- 5- 2023 s hall not be avail a bl e.

Computation of taxable income for the A.Y. 2023-24 ` Lo ng t er m c a pi t al gai ns 1, 01, 50, 000

Less: Exe mpti o n u/s 54 EC 50, 00, 000

Taxa bl e Lo ng- t er m c a pi t al gai n 51, 50, 000

Ot her i nc o me 56, 000

Tot al I nc o me 52, 06, 000

Computation of Income-Tax payable: As per s ecti o n 112, i n c as e of a r esi de nt i ndi vi d ual, t he une x ha ust e d basi c e xe mpti o n li m i t c a n be e x ha ust e d agai nst l o ng t er m c a pi t al gai ns, a nd t ax wo ul d be l e vi a bl e o n t he bal a nce l o ng- t er m c a pi t al gai ns @ 20 % . Ther ef or e, t he basi c e xe mpti o n li m i t of ` 2, 50, 000 s ho ul d be fi rst a dj ust e d agai nst ot her i nc o me of ` 56, 000 a nd t he une x ha ust e d basi c e xe mpti o n li m i t of ` 1, 94, 000 s ho ul d be a dj ust e d agai nst t he l o ng t er m c a pi t al gai ns of ` 51, 50, 000

®

The bal a nce l o ng- t er m c a pi t al gai ns of ` 49, 56, 000 wo ul d be t axa bl e @ 20 % = ` 9, 91, 200 pl us Sur c har ge @ 10 % pl us Cess @ 4 % . Ther ef or e, t he t ax paya bl e by t he ass ess ee wo ul d be ` 11, 33, 933.

Q5. Hari has acquired a residential house property in Delhi on 1st April, 2010 for ` 10,00,000 and decided to sell the same on 3rd May, 2012 to Ms. Pari and an advance of ` 25,000 was taken from her. The balance money was not paid by Ms. Pari and Hari has forfeited the entire advance sum. On 3rd June, 2022, he sold this house to Mr. Suri for ` 35,00,000. In the meantime, on 4th April, 2022, he had purchased a residential house in Delhi for ` 8,00,000, where he was staying with his family on rent for the last 5 years and paid the full amount as per the purchase agreement. However, Hari does not possess any legal title till 31st March, 2023, as such transfer was not registered with the registration authority.

Hari has purchased another old house in Surat on 14th October, 2022 from Mr. X, an Indian resident, by paying ` 5,00,000 and the purchase was registered with the appropriate authority.

Determine the taxable capital gain arising from above transactions in the hands of Hari for A.Y. 2023-24. [CA Final Nov. 2010] [5 Marks]

Ans. Computation of taxable capital gain of Mr. Hari for the A.Y. 2023-24

`

Sal e Co nsi der ati o n 35, 00, 000

Less: I nde xe d c ost of ac q ui si ti o n ( Not e 1) 19, 32, 485

Lo ng Ter m Ca pi t al Gai n 15, 67, 515

Less: Exe mpti o n u/s 54 i n r es pect of i nvest me nt i n ho us e at Del hi a nd Sur at ( Not e 2) 13, 00, 000

Taxa bl e Lo ng Ter m Ca pi t al Gai n 2, 67, 515

Notes:

1. Co mp ut ati o n of i nde xe d c ost of ac q ui si ti o n

`

Cost of ac q ui si ti o n 10, 00, 000

Less: Adva nce t a ke n a nd f orf ei t e d as per s ec. 51 25, 000

Cost f or t he p ur pos e of I nde xati o n 9, 75, 000

I nde xe d c ost of ac q ui si ti o n (` 9, 75, 000 × 331/167) 19, 32, 485

2. I n or der t o avail e xe mpti o n u/s 54, t he r esi de nti al ho us e pr opert y s ho ul d be p ur c has e d w i t hi n 1 ye ar bef or e or w i t hi n 2 ye ars aft er t he dat e of t r a nsf er or i t s ho ul d be c o nst r uct e d w i t hi n a peri o d of 3 ye ars aft er t he dat e of t r a nsf er of t he ori gi nal LT r esi de nti al HP .

As per t he a me nd me nt ma de by t he Fi na nce Act, 2019, a n i ndi vi d ual c a n cl ai m e xe mpti o n u/s 54 i n r es pect of p ur c has e of two residential house properties i n I ndi a pr ovi de d t he c a pi t al gai ns does not e xcee d ` 2 cr or e. Her e, i n t hi s c as e, si nce t he c a pi t al gai ns does not e xcee d ` 2 cr or es, Hari c a n cl ai m e xe mpti o n i n r es pect of bot h t he ho us e pr operti es u/s 54. Wher e t he ass ess ee e xer ci s e d t he opti o n t o cl ai m e xe mpti o n i n r es pect of t wo r esi de nti al ho us e pr operti es, he c a nnot s ubs e q ue ntl y e nti tl e d t o e xer ci s e t he opti o n f or t he s a me or a ny ot her ass ess me nt ye ar. I n t hi s c as e, Hari has p ur c has e d t he r esi de nti al ho us e i n Del hi w i t hi n o ne ye ar bef or e t he dat e of t r a nsf er a nd pai d t he f ull a mo unt of ` 8, 00, 000 as per t he p ur c has e agr ee me nt, t ho ug h he does not poss ess a ny l e gal ti tl e till 31 3 2023 si nce t he t r a nsf er was not r e gi st er e d w i t h t he r e gi st r ati o n a ut hori t y. Ho we ver, for the purpose of claiming exemption under section 54, holding of legal title is not necessary. I f t he t ax payer pays t he f ull c o nsi der ati o n i n t er ms of t he p ur c has e agr ee me nt w i t hi n t he sti p ul at e d peri o d, t he e xe mpti o n under s ecti o n 54 wo ul d be avail a bl e.

Hari has al s o p ur c has e d ol d ho us e i n Sur at o n 14 10 2022 by payi ng ` 5, 00, 000 a nd t her ef or e, he s hall be eli gi bl e t o cl ai m e xe mpti o n u/s 54 i n r es pect of bot h t he ho us e pr opert y p ur c has e d i.e. ` 13, 00, 000 (` 8, 00, 000 + ` 5, 00, 000)

Q6. “Any transfer of a capital asset or intangible asset by a private company or unlisted public company to a LLP or any transfer of share or shares held in a company by a shareholder on conversion of a company into a LLP in accordance with section 56 and section 57 of the Limited Liability Partnership Act, 2008, shall not be regarded as a transfer for the purposes of levy of capital gains tax under section 45 subject to fulfilment of certain conditions”. Explain in the context of the provisions contained in the Act. [CA Final May 2011] [6 Marks] Ans. Any t r a nsf er of a c a pi t al ass et or i nt a ngi bl e ass et by a pri vat e c o mpa ny or unli st e d p ubli c c o mpa ny t o a n LLP or a ny t r a nsf er of a s har e( s ) hel d i n a c o mpa ny by a s har e hol der o n c o nversi o n of a c o mpa ny i nt o a n LLP s hall not be r e gar de d as a t r a nsf er f or t he p ur pos e of l e vy of c a pi t al gai ns o n f ul fil me nt of t he f oll o w i ng c o ndi ti o ns:

( a ) All t he ass et s a nd li a bili ti es of t he c o mpa ny i mme di at el y bef or e t he c o nversi o n bec o me t he ass et s a nd li a bili ti es of t he LLP ;

(b ) All t he s har e hol ders of t he c o mpa nyi mme di at el y bef or e t he c onversi on bec o me t he part ners of t he LLP a nd t hei r c a pi t al c o nt ri b uti o n a nd pr ofi t s hari ng r ati o i n t he LLP ar e i n t he s a me pr oporti o n as t hei r s har e hol di ng i n t he c o mpa ny o n t he dat e of c o nversi o n;

( c

) The s har e hol ders of t he c o mpa ny do not r ecei ve a ny c o nsi der ati o n or be nefi t, di r ectl y or i ndi r ectl y, i n a ny f or m or ma nner, ot her t ha n by way of s har e i n pr ofi t a nd c a pi t al c o nt ri b uti o n i n t he LLP ;

(d ) The aggr e gat e of t he pr ofi t s hari ng r ati o of t he s har e hol ders of t he c o mpa ny i n t he LLP s hall not be l ess t ha n 50 % at a ny ti me d uri ng t he peri o d of 5 ye ars f r o mt he dat e of c o nversi o n;

( e ) The t ot al s al es, t ur nover or gr oss r ecei pt s i n b usi ness of t he c o mpa ny i n a ny of t he 3 P . Y . pr ece di ng t he P . Y . i n whi c h t he c o nversi o n t a kes pl ace does not e xcee d ` 60 l a k hs;

( ea

) The t ot al val ue of t he ass et s as a ppe ari ng i n t he books of acc o unt of t he c o mpa ny i n a ny of t he t hr ee pr e vi o us ye ars pr ece di ng t he pr e vi o us ye ar i n whi c h c o nversi o n t a kes pl ace does not e xcee d ` 5 cr or es; a nd

(f ) No a mo unt i s pai d, ei t her di r ectl y or i ndi r ectl y, t o a ny part ner o ut of bal a nce of acc u mul at e d pr ofi t st a ndi ng i n t he acc o unt s of t he c o mpa ny o n t he dat e of c o nversi o n f or a peri o d of 3 ye ars f r o m t he dat e of c o nversi o n.

Q7. Mr. X transferred his residential house to Y for ` 11 lakh on 1st April, 2022. The value of the said house as per Stamp Valuation Authority was ` 16 lakh. Mr. Y is a childhood friend of Mr. X. Mr. X gifted a plot of land (purchased by him on 1st August, 2019) to Mr. Y on 1st July, 2022. The value as per Stamp Valuation Authority is ` 8 lakh. Mr. Y sold the land on 1st March, 2023 at ` 14 lakh. Compute the income of Mr. Y chargeable under the heads “Capital Gains” and “Income from other sources” for Assessment Year 2023-24. [CA Final Nov 2011] [5 Marks] Ans. Computation of income of Mr. Y for A.Y. 2023-24 `

Capital Gains

Sal e c o nsi der ati o n 14, 00, 000

Less: Cost of ac q ui si ti o n ( dee me d t o be t he st a mp val ue c har ge d t o t ax u/s 56( 2)( x ) as per s ecti o n 49( 4) ( Not e 3) 8, 00, 000 Short t er m c a pi t al gai ns ( Not e 4) 6, 00, 000

Income from other sources Resi de nti al Ho us e r ecei ve d f or i na de q uat e c o nsi der ati o n ( Not e 1) 5, 00, 000 St a mp d ut y v al ue of pl ot of l a n d r e c ei v e d wi t h o ut c o nsi der ati o n [ t axa bl e u/s 56( 2)( x )] ( Not e 2) 8, 00, 000

Total Income 19,00,000

Notes:

(

1) As per Sec. 56( 2)( x ), wher e a ny i mmova bl e pr opert y i s ac q ui r e d f or i na de q uat e c o nsi der ati o n a nd i f t he st a mp d ut y val ue e xcee ds t he c o nsi der ati o n by mor e t ha n hi g her of ` 50, 000 or 10 % of t he c onsi der ati on, t he di ff er e nce bet wee n st a mp dut y val ue of t he pr opert y a nd t he c o nsi der ati o n s hall be t axa bl e as i nc o me f r o m ot her s o ur ces. The hi g her i n ` 50, 000 a nd 10 % of t he c o nsi der ati o n [i.e. ` 1, 10, 000 (` 11, 00, 000 × 10 %)] i s ` 1, 10, 000 a nd si nce t he di ff er e nce bet wee n t he st a mp d ut y val ue a nd c o nsi der ati o n e xcee ds ` 1, 10, 000, t he di ff er e nce of ` 5,00,000 (i.e. ` 16, 00, 000 ` 11, 00, 000) i s chargeable to tax i n t he ha nds of Mr. Y .

( 2) Sec. 56( 2)( x ) i s al s o att r act e d wher e t he i mmova bl e pr opert y i s t r a nsf err e d w i t ho ut c o nsi der ati o n, i f t he st a mp d ut y val ue of s uc h pr opert y e xcee ds ` 50, 000. I n t hi s c as e, si nce Mr. Y has r ecei ve d a pl ot of l a nd f r o m Mr. X , a no n- r el ati ve, w i t ho ut c o nsi der ati o n a nd t he st a mp d ut y val ue of ` 8 l a k h e xcee ds ` 50, 000, t he e nti r e st a mp d ut y val ue of ` 8 l a k h i s c har ge a bl e t o t ax u/s 56( 2)( x ).

( 3) Secti o n 49( 4) pr ovi des t hat wher e t he c a pi t al gai n ari s es f r o m t he t r a nsf er of s uc h pr opert y whi c h has bee n s ubj ect t o t ax u/s 56( 2) ( x ), t he c ost of ac q ui si ti o n s hall be dee me d t o be t he val ue t a ke n i nt o acc o unt f or t he p ur pos e of s ecti o n 56( 2)( x ). Ther ef or e, ` 8 l a k h wo ul d be t he c ost of ac q ui si ti o n i n t hi s c as e.

( 4) Wher e c ost i s c o mp ut e d as per Sec. 49( 4), t he peri o d of hol di ng of pr e vi o us o wner i s not t o be i ncl ude d a nd t her ef or e, t he r es ul t a nt c a pi t al gai ns will be s hort- t er m c a pi t al gai ns.

[CA Final May 2012] [3 Marks]

Ans. Wher e t he a mo unt de posi t e d i n Ca pi t al Gai ns Acc o unt s Sc he me t o avail e xe mpti o n i s not utili z e d f or t he s peci fi e d p ur pos e me nti o ne d under t he r es pecti ve s ecti o n (i.e., s ecti o ns 54, 54 B , 54 G , et c. ) w i t hi n t he s peci fi e d peri o d of t wo ye ars or t hr ee ye ars, as t he c as e may be, t he n t he unutilized amount shall be chargeable as capital gain in the previous year in which the specified period of two years or three years, as the case may be, expires. The nature of the capital gain shall be same as t he nat ur e of t he c a pi t al gai n whi c h was cl ai me d as e xe mpti o n under t he s ecti o n e arli er. The t ax t r e at me nt i n t he e ve nt of de at h of t he ass ess ee bef or e t he sti p ul at e d ti me whi c h r es ul t s i n r ecei vi ng of t he a mo unt by hi s l e gal hei rs will be di ff er e nt. The C B DT has, i n Circular No.743 dated 6-5-1996 , cl ari fi e d t hat

Q8. What are the consequences if the amount deposited in Capital Gains Account Scheme to avail exemption from capital gains is not utilised within the stipulated time? Is there any difference in the tax treatment in the event of death of the assessee before the stipulated time?

®

i n t he e ve nt of de at h of a n i ndi vi d ual bef or e t he sti p ul at e d peri o d, t he un utili z e d a mo unt wo ul d not be c har ge a bl e t o t ax i n t he ha nds of t he l e gal hei rs of t he dece as e di ndi vi d ual, si nce s uc h un utili z e d a mo unt i s not i nc o me b ut i s a part of t he est at e de v ol vi ng upo n t he m .

Q9. State the cases where the benefit of indexation of cost is not available for determination of capital gains. [CA Final May 2012] [7 Marks] Ans. Cas es wher e be nefi t of i nde xati o n of c ost i s not avail a bl e f or det er m i nati o n of c a pi t al gai ns ar e as f oll o ws:

1 Tr a nsf er of c a pi t al ass et s hel d f or not mor e t ha n 36 mo nt hs ( 12 mo nt hs i n c as e of li st e d s har es, uni t s, et c. a nd 24 mo nt hs i n c as e of unli st e d s har es a ndi mmova bl e pr opert y), si nce c a pi t al gai ns ari si ng t her ef r o m wo ul d be a s hort t er m c a pi t al gai ns.

2. Tr a nsf er of de pr eci a bl e ass et s wher e c o mp ut ati o n i s g over ne d by s ecti o n 50, si nce c a pi t al gai ns ari si ng t her ef r o m wo ul d al ways be s hort t er m c a pi t al gai ns, e ve n i f t he y ar e hel d f or mor e t ha n 36 mo nt hs.

3. Tr a nsf er of undert a ki ng or di vi si o n i n a sl u mp s al e u/s 50 B .

4. Tr a nsf er of bo nds / de be nt ur es ot her t ha n c a pi t al i nde xe d bo nds i ss ue d by t he Gover n me nt ( Thi r d pr ovi s o t o s ecti o n 48)

5. Tr a nsf er of s har es i n or de be nt ur es of a n I ndi a n c o mpa ny, ac q ui r e d by a no n r esi de nt i n f or ei g n c urr e nc y ( Fi rst pr ovi s o t o s ecti o n 48).

6 Tr a nsf er of a f or ei g n e xc ha nge ass et by a no n r esi de nt I ndi a n, who opt s t o be g over ne d by t he pr ovi si o ns of Cha pt er XII- A( Secti o n 115 D).

7. Tr a nsf er of bo nds a nd GDRs by no n r esi de nt r ef err e d t oi n Sec. 115 AC .

8 Tr a nsf er of uni t s of Uni t Tr ust of I ndi a or a Mut ual Fund s peci fi e d u/s 10(23D ) p ur c has e d i n f or ei g n c urr e nc y by a n overs e as fi na nci al or ga ni s ati o n r ef err e d t o as Off s hor e Fund ( Secti o n 115 A B).

9. Tr a nsf er of s ec uri ti es by For ei g n I nsti t uti o nal I nvest ors ( Sec. 115 A D).

10. Tr a nsf er of unli st e d s ec uri ti es by a no n- r esi de nt as per pr ovi si o ns of Sec. 112.

11. Lo ng t er m c a pi t al gai ns r ef err e d t o i n Sec. 112 A .

Q10. PQR Ltd. has two units–one engaged in manufacture of Computer Hardware and the other involved in developing Software. As a restructuring drive, the Company has decided to sell its Software Unit as a going concern by way of slump sale for ` 385 Lakhs to a new Company called S Ltd., in which it holds 74% Equity Shares. The FMV of the capital assets of the unit on the date of transfer calculated as per Rule 11UAE is ` 400 lakhs. The Balance Sheet of PQR Ltd. as on 31st March 2023, being the date on which software unit has been transferred, is as under:

Liabilities ` in Lakhs Assets ` in Lakhs

Paid-up Share Capital 300 Fixed Assets

General Reserve 150 Hardware Unit 170 Share Premium 50 Software Unit 200 Revaluation Reserve 120 Debtors

Current Liabilities Hardware Unit 140 Hardware Unit 40 Software Unit 110 Software Unit 90 Inventories Hardware Unit 95 Software Unit 35 750 750

Following additional information are furnished by the Management:

(i) The Software Unit is in existence since May, 2019.

(ii) Fixed Assets of Software Unit includes land which was purchased at ` 40 Lakhs in the year 2016 and revalued at ` 60 Lakhs as on March 31, 2023.

(iii) Fixed Assets of Software Unit mirrored at ` 140 Lakhs (` 200 Lakhs minus land value ` 60 Lakhs) is Written Down Value of Depreciable Assets as per books of account. However, the Written Down Value of these Assets u/s 43(6) of the Income-tax Act is ` 90 Lakhs.

Required:

(a) Ascertain the tax liability, which would arise from slump sale to PQR Ltd.

(b) What would be your advice as a Tax Consultant to make the restructuring plan to the Company more tax savvy, without changing the amount of sale consideration?

[CA Final Nov. 2012, May 2011] [10 Marks]

Ans.

(a)

As per s ecti o n 50 B , a ny pr ofi t s or gai ns ari si ng f r o m t he sl u mp s al e s hall be t axa bl e as l o ng t er m c a pi t al gai ns, i f t he undert a ki ng i s hel d f or mor e t ha n 36 mo nt hs or mor e. I nde xati o n be nefi t i s not avail a bl e. Ca pi t al gai ns = “ Sl u mp s al e c o nsi der ati o n” minus “ Net wort h of t he Undert a ki ng or di vi si o n”

“ Net wort h” = Aggr e gat e val ue of t ot al ass et s of t he undert a ki ng/ di vi si o n minus Val ue of t ot al li a bili ti es of s uc h undert a ki ng or di vi si o n as appearing in the books of account.

4.10

(

:

For c o mp uti ng t he ‘ Net Wort h’, no n de pr eci a bl e ass et s ar e t o be t a ke n at t hei r book val ues. I n c as e of de pr eci a bl e ass et s, t he wri tt e n do wn val ue of s uc h ass et s s hall be c o mp ut e d as per s ecti o n 43( 6).

Cha nge i n t he val ue of ass et s o n acc o unt of revaluation of assets shall be ignored f or t he p ur pos es of c o mp uti ng t he net wort h.

Computation of Tax Liability arising on Slump Sale

` in Lakhs

Sal e Co nsi der ati o n ( as per Rul e 11 UAE) 400. 00

Less: Net Wort h of Busi ness Tr a nsf err e d ( Not e 1) 185. 00

Lo ng Ter m Ca pi t al Gai n ( Uni t o wne d f or mor e t ha n 36 Mo nt hs) 215 00

Tax o n a bove at 20 % u/s 112 [` 215. 00 La k hs × 20 %] 43. 00

Add: Sur c har ge at 7 % ( Si nce t he Tot al I nc o me e xcee ds ` 1 Cr or e) 3. 01

Tax a nd Sur c har ge Paya bl e 46 01

Add: He al t h & Ed uc ati o n cess @ 4 % 1. 84

Tot al Tax Li a bili t y under Sl u mp Sal e 47. 85

Note:

1. Net Worth of Software Unit:

` in Lakhs

De pr eci a bl e Ass et s at WDV 90

La nd at Book Val ue ( Re val ue d fi g ur e s hall not be c o nsi der e d) 40

De bt ors at Book Val ue 110 I nve nt ori es at Book Val ue 35 Total Assets 275

Less: Liabilities ( 90) Net Wort h of Soft war e Uni t 185

2. Be nefi t of i nde xati o n i s not avail a bl e as t he t r a nsf er i s o n sl u mp s al e basi s.

Conditions: But t he a bove t r a nsf er r e q ui r es f ul fil me nt of f oll o w i ng c o ndi ti o ns

( a ) Hol di ng Co. s ho ul d not ce as e t o hol d 100 % Shar es f or 8 Ye ars f r o m dat e of t r a nsf er of s uc h b usi ness, or

(b ) Subsi di ar y Co. s hall not c o nvert t he Ca pi t al Ass et s i nt o St oc k i n Tr a de w i t hi n 8 ye ars.

Result: Ass et s t r a nsf err e d by t he Hol di ng Co mpa ny t o i t s 100 % I ndi a n Subsi di ar y Co mpa ny i s not a t r a nsf er u/s 47(iv ), a nd t he t r a ns acti o n wo ul d not attract Capital Gains.

Option 2: S Ltd - Demerger

P QR Li m i t e d may g o i n f or De mer ger a nd t r a nsf er t he Soft war e Uni t t o S Lt d

Result: Tr a nsf er of Ca pi t al Ass et s by a De mer ge d Co mpa ny ( P QR Lt d. ) t o a Res ul ti ng Co mpa ny i s not a transfer u/s 47(vib ) i f t he Res ul ti ng Co mpa ny i s a n I ndi a n Co mpa ny.

Q11. Mr. Shakti purchased a residential house in March, 2011 for ` 22 lakhs. He sold the house on 1st December, 2022 for ` 100 lakhs. He paid brokerage at 2% on sale price. He invested ` 80 lakhs in April, 2023 in equity shares of Shakti Private Limited, an eligible start-up. Mr. Shakti holds 80% of share capital of the company. The company utilised the sum of ` 80 lakhs in the following manner:

(i) Purchase of new machinery during April, 2023 ` 70 lakhs (including ` 10 lakhs for purchase of computers).

(ii) Deposit in specified bank on 25th September, 2023 ` 6 lakhs.

(iii) Remaining ` 4 lakhs was held as Cash balance. The due date for filing return of income for Mr. Shakti for A.Y. 2023-24 is 31st October, 2023. Assume that he files return on 28.10.2023. Compute the taxable capital gain arising from the above transaction for Assessment Year 2023-24. [CA Final May 2013] [6 Marks] Ans. Computation of taxable capital gains of Mr. Shakti for A.Y. 2023-24

`

Gr oss s al e c o nsi der ati o n 1, 00, 00, 000

Less: Expe ns es ont r a nsf er ( 2 % of t he gr oss s al e c onsi der ati on) 2, 00, 000 Net s al e c o nsi der ati o n 98, 00, 000

Less: I nde xe d c ost of ac q ui si ti o n (` 22, 00, 000 × 331/167) 43, 60, 479 Lo ng t er m c a pi t al gai ns 54, 39, 521

TAXMANN ®

Less: Exe mpti o n under s ecti o n 54 GB ( See Not e bel o w)

`

(` 54, 39, 521 × ` 76, 00, 000/ ` 98, 00, 000) 42, 18, 404 Taxa bl e Ca pi t al Gai ns 12, 21, 117

Deemed cost of new plant and machinery for exemption u/s 54GB: `

Pur c has e c ost of ne w pl a nt a nd mac hi ner y ac q ui r e d i n April, 2022 (i ncl udi ng c o mp ut ers) 70, 00, 000

A mo unt de posi t e d i n t he s peci fi e d ba nk bef or e t he d ue dat e of fili ng of r et ur n 6, 00, 000 Dee me d c ost of ne w pl a nt a nd mac hi ner y f or e xe mpti o n u/s 54 GB 76, 00, 000

Note: Exe mpti on u/s 54 GB ca n be avail e d on LTC G ont r a nsf er of a r esi de nti al ho us e, si nce all t he c o ndi ti o ns gi ve n bel o w ar e f ul fill e d by Mr. Sha kti:

(i ) The s al e pr ocee ds ar e us e d f or s ubs cri pti o n i n t he e q ui t y s har es of a n eli gi bl e st art up.

(ii ) Mr. Shakti hol ds mor e t ha n 50 % of t he s har e capi t al i nt he s ai d c o mpa ny.

(iii ) Furt her, t he a mo unt of s ubs cri pti o n as s har e c a pi t al has bee n utili z e d by t he eli gi bl e st art up f or p ur c has e of ne w pl a nt a nd mac hi ner y w i t hi n a peri o d of o ne ye ar f r o mt he dat e of s ubs cri pti o n by t he ass ess ee.

Q12. Tani purchased a land at a cost of ` 34 lakhs in the financial year 2010-11 and held the same as her capital asset till 31st March, 2019. Tani started her real estate business on 1st April, 2019 and converted the said land into stock-in-trade of her business on the said date, when the fair market value of the land was ` 150 lakhs.

She constructed 20 flats of equal size, quality and dimension. Cost of construction of each flat is ` 8 lakhs. Construction was completed in December, 2022. She sold 15 flats at ` 20 lakhs per flat between Jan., 2023 and March, 2023. Remaining 5 flats were held in stock as on 31-03-2023.

She invested ` 50 lakhs in bonds issued by Rural Electrification Corporation Ltd. on 31st March, 2023.

Compute the amount of chargeable capital gain and business income in the hands of Tani arising from the above transactions for Assessment Year 2023-24 indicating clearly the reasons for treatment for each item.

Cost Inflation Index: FY 2010-11: 167; FY 2019-20: 289; FY 2022-23: 331. [CA Final May 2013] [10 Marks]

Ans.

Computation of Capital gains and business income of Tani for A.Y. 2023-24 `

Capital Gains

F MV of l a nd o n t he dat e of c o nversi o n dee me d as t he f ull val ue of c o nsi der ati o n f or t he p ur pos es of s ecti o n 45( 2) 1, 50, 00, 000 Less : I nde xe d c ost of ac q ui si ti o n [` 34, 00, 000 × 289/167] 58, 83, 832 91, 16, 168

Pr oporti o nat e c a pi t al gai ns ari si ng d uri ng A . Y . 2023 24 [` 91, 16, 168 × 3/4] 68, 37, 126

Less: Exe mpti o n u/s 54 EC 50, 00, 000 Ca pi t al gai ns c har ge a bl e t o t ax f or A . Y . 2023 24 18, 37, 126

Business Income

Sal e pri ce of fl at s [ 15 × ` 20 l a k hs] 3, 00, 00, 000

Less: Cost of fl at s Fai r mar ket val ue of l a nd o n t he dat e of c o nversi o n [` 150 l a k hs × 3/4] 1, 12, 50, 000 Cost of c o nst r ucti o n of fl at s [ 15 × ` 8 l a k hs] 1, 20, 00, 000 Busi ness i nc o me c har ge a bl e t o t ax f or A . Y . 2023 24 67, 50, 000

Alternate presentation for computation of capital gains `

Pr oporti o nat e Fai r Mar ket Val ue as o n 1st April 2019 t he dat e of c o nversi o n t o be t a ke n as dee me d c o nsi der ati o n (` 150 l a k hs × 15/20) 1, 12, 50, 000

Less: Pr oporti o nat e I nde xe d C OA of La nd ( Not e 1) (` 34, 00, 000 × 289/167 × 15/20) 44, 12, 874 Lo ng t er m c a pi t al gai n 68, 37, 126

Less : Exe mpti o n u/s 54 EC I nvest me nt i n bo nds i ss ue d by Rur al El ect ri fi c ati o n Cor por ati o n Lt d. 50, 00, 000 Taxa bl e Lo ng Ter m Ca pi t al Gai ns 18, 37, 126

Notes: ( 1) The c o nversi o n of a c a pi t al ass et i nt o st oc k i n t r a de i s t r e at e d as a t r a nsf er under s ecti o n 2(47 ) i n t he ye ar i n whi c h t he c a pi t al ass et i s c o nvert e d i nt o st oc k i n t r a de.

(

2) Ho we ver, as per s ec. 45( 2), t he c a pi t al gai ns ari si ng f r o mt he t r a nsf er by way of c o nversi o n of c a pi t al ass et s i nt o st oc k i n t r a de will be c har ge a bl e t o t ax o nl y i n t he ye ar i n whi c h t he st oc k i n t r a de i s s ol d.

( 3) Thei ndexati on be nefi t f or c o mp uti ngi ndexe d c ost of ac q ui si ti on wo ul d , ho we ver, be avail a bl e o nl y up t o t he ye ar of c o nversi o n of c a pi t al ass et t o st oc k i n t r a de a nd not up t o t he ye ar of s al e of st oc k i n t r a de.

( 4) For t he p ur pos e of c o mp uti ng c a pi t al gai ns i n s uc h c as es, t he F MV of t he c a pi t al ass et o n t he dat e o n whi c h i t was c o nvert e d i nt o st oc k i n t r a de s hall be dee me d t o be t he f ull val ue of c o nsi der ati o n r ecei ve d or accr ui ng as a r es ul t of t he t r a nsf er of t he c a pi t al ass et. I n t hi s c as e, si nce o nl y 75 % of t he st oc k i n t r a de ( 15 fl at s o ut of 20 fl at s) i s s ol d i n t he P . Y . 2022 23, o nl y pr oporti o nat e c a pi t al gai ns (i.e., 75 %) wo ul d be c har ge a bl e t o t ax i n t he A . Y . 2023 24.

( 5) On s al e of s uc h st oc k i n t r a de, b usi ness i nc o me wo ul d ari s e. The b usi ness i nc o me c har ge a bl e t o t ax wo ul d be t he di ff er e nce bet wee n t he pri ce at whi c h t he st oc k i n t r a de i s s ol d a nd t he f ai r mar ket val ue o n t he dat e of c o nversi o n of t he c a pi t al ass et i nt o st oc k i n t r a de.

( 6) I n cas e of c onversi on of capi t al ass et i nt o st oc k i n t r a de a nd s ubs e q ue nt s al e of st oc k-i n- t r a de, t he peri o d of 6 mo nt hs i s t o be r ec ko ne d f r o mt he dat e of s al e of st oc k i n t r a de f or t he p ur pos e of e xe mpti o n u/s 54 EC . I n t hi s c as e, si nce t he i nvest me nt i n bo nds of RECL has bee n ma de w i t hi n 6 mo nt hs of s al e of fl at s, t he s a me q uali fi es f or e xe mpti o n under s ecti o n 54 EC .

Q13. The proprietary firm of ‘Mr. Amolak’ a practicing Chartered Accountant, was converted into partnership on 1-9-2022 when his son joined him in the firm for 50% share. All the assets and liabilities of the erstwhile proprietary firm were transferred into the newly constituted partnership firm.

“Mr. Amolak” was credited and paid an amount of ` 5 lakhs in his account from the firm. Explain as to chargeability of this amount of ` 5 lakhs in the hands of “Mr. Amolak” when it stands paid for:

(i) transfer of business into partnership; (ii) goodwill by the incoming partner. [CA Final Nov. 2013] [4 Marks] Ans.

(i) If the amount was paid for transfer of business/profession to partnership: On c o nversi o n of a pr opri et ar y b usi ness i nt o a part ners hi p, there is a transfer of interest in the assets of the proprietor’s business as t he e xcl usi ve i nt er est of t he pr opri et or i s r e d uce d a nd t he b usi ness ass et s bec o me ass et s of t he fi r m . Al s o, s ecti o n 47 whi c h li st s t he t r a ns acti o ns

not r e gar de d as “t r a nsf er” does not i ncl ude w i t hi ni t s s c ope, t r a nsf er of c a pi t al ass et s c o ns e q ue nt t o s uccessi o n of a s ol e pr opri et ar y c o ncer n by a part ners hi p fi r m . Ther ef or e, t he t r a nsf er of c a pi t al ass et s by a s ol e pr opri et ar y c o ncer n c o ns e q ue nt t oi t s c o nversi o ni nt o part ners hi p fi r mi s a t r a nsf er. I n t he gi ve n q uesti o n, as per s ecti o n 45( 3), t he a mo unt of ` 5 l a k hs, r ec or de d i n t he books of acc o unt of t he fi r m , wo ul d be t he f ull val ue of c o nsi der ati o n r ecei ve d as a r es ul t of t r a nsf er a nd t he c a pi t al gai ns r es ul ti ng f r o mt hi s t r a nsf er wo ul d be c har ge a bl e t o t ax i n t he ha nds of Mr. A mol a k.

(ii) If the amount is paid by the incoming partner for Goodwill: The Supr e me Co urt, i n CIT v. B. C. Srinivasa Setty (1981), o bs er ve d t hat wher e “t he c ost of ac q ui si ti o n of t he c a pi t al ass et” i s not possible to ascertain , t he n, t r a nsf er of s uc h ass et i s not c har ge a bl e t o t ax. Secti o n 55( 2)( a ) pr ovi des t hat t he c ost of ac q ui si ti o n of cert ai n s el f ge ner at e d ass et s, i ncl udi ng g oo d will of a b usi ness, i s Nil. Al s o, as per t he a me nd me nt ma de by t he Fi na nce Act, 2021, t he c ost of ac q ui si ti o n of s el f- ge ner at e d g oo d will of a pr of essi o n i s al s o Nil. Ther ef or e, f or s uc h ass et s, t he deci si o n of t he Supr e me Co urt i n B . C . Sri ni vas a Sett y ’ s c as e wo ul d not a ppl y.

Ther ef or e, t he c o nsi der ati o n of ` 5 l a k hs pai d t o war ds t he g oo d will of a pr of essi o n s hall be t axa bl e as c a pi t al gai ns w . e. f. A . Y . 2021 22 a nd i t s c ost of ac q ui si ti o n will be t a ke n as Nil.

Q14. Mr. X had a leasehold property since 5th May, 2015. The leasehold rights were converted into freehold on 20th May, 2022. The said property was sold on 10th January, 2023. The assessee claimed the capital gain as long-term capital gain. The A.O. contended the same as short-term as the property was acquired by converting the leasehold right into freehold right only on 20th May, 2022. Is Mr. X justified in his claim?

[CA Final May 2015] [4 Marks]

Ans. The i ss ue under c o nsi der ati o ni n t hi s c as e i s wher e al e as e hol d pr opert y i s p ur c has e d a nd c o nvert e d i nt o f r ee hol d pr opert y at a l at er poi nt of ti me a nd t he n s ol d, s ho ul d t he peri o d of hol di ng be r ec ko ne d f r o m t he dat e of p ur c has e or f r o m t he dat e of c o nversi o n f or det er m i ni ng whet her t he r es ul t a nt c a pi t al gai ns i s s hort- t er m or l o ng- t er m . The f act s of t he c as e ar e si mil ar t o t he f act s i n

CIT v. Smt. Rama Rani Kalia (2013) (All.). I n t hat c as e, i t was o bs er ve d t hat t he c o nversi o n of l e as e hol d pr opert y i nt o f r ee hol d pr opert y was not hi ng b ut i mpr ove me nt of t he ti tl e over t he pr opert y, as t he ass ess ee was t he o wner pri or t o c o nversi o n. Furt her, t he di ff er e nce bet wee n “ s hort- t er m c a pi t al ass et” a nd “l o ng- t er m c a pi t al ass et” i s t he peri o d f or whi c h t he pr opert y has bee n hel d by t he ass ess ee a nd not t he nat ur e of ti tl e over t he pr opert y.