CG Notes PDF

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INCOME U/H CAPITAL GAIN
Capital Asset -
Means Excludes
(a) Property of any kind, whether or not (a) Stock in Trade, [Note 4]
connected with business or profession. [Note (b) Personal Effects, [Note 4]
1]
(c) Agricultural Lands in India, [Note 5]
(b) Any Securities held by a Foreign
(d) 6/2% Gold Bonds 1977, 7% Gold Bonds 1980 &
Institutional Investor which has invested in
National Defence Gold Bonds, 1980,
such Securities in accordance with the
Regulations made under SEBI Act, 1992. (e) Special Bearer Bonds, 1991,
[Note 2, 3] (f) Gold Deposit Bonds, 1999.
(c) [w.e.f. 01.04.2021[ any Unit Linked (g) Deposit Certificates issued under Gold
Insurance Policy (ULIP) to which exemption monetization Scheme, 2015.
u/s 10(10D) does not apply.
Significant Issues
Personal • Silver Utensils used for entertaining guests should also be treated as articles held
Effects vs for personal use. [Himmatlal C.Valia (2000) 248 ITR 262 (Guj)]
Capital • Gold and Silver Coins and bars used for pooja are “Capital Assets”. [Maharaja
Assets Rana Hemant Singhji 103 ITR 61 (SC)]
Agri Land Agricultural Land sold for non-agricultural purposes is assessable to Capital Gains
Tax. [Sarifa Bibi Mohamed Ibrahim & Others 204 ITR 631 (SC)]
Right to Right to acquire a property is a Capital Asset. Any sum received as consideration for
acquire a the relinquishment of such right is a transfer. Capital Gains = Consideration received -
CAPITAL GAIN _RAM BAAN CA VIKRAM BIYANI

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property Amount paid for such right. [Vijay Flexible Containers 188 ITR 699 (Bom.)]
Membership Membership of a Stock Exchange is a Property and its transfer attracts Capital Gain
of a Stock taxation. [Sathiya Narain Modani (Raj.) 272 ITR 138]
Exchange
Exchange of Exchange of Gold Bonds for Gold on redemption, does not attract Capital Gains. In
Bonds for case of subsequent sale of such gold, Capital Gain is chargeable to tax. For this
Gold purpose,
• Date of acquisition = Date of redemption of Gold Bonds.
• Cost of acquisition of Gold = Market Value of the Gold on the date of redemption.
[Gold Bonds: Circular No.415 dt. 14.3.85, 152 ITR 205 (St.)]
Illustration - Sec.2(14) - Sale of Work of Art - M 08

Vasudha contends that sale of a work of art held by her is not subject to Capital Gains Tax. Is
she correct?
1. Principle: Refer meaning of Capital Asset and Personal Effects given above.
2. Conclusion: “Works of Art” held by Ms. Vasudha is Capital Asset, and hence is taxable as “Capital
Gains”. Note: However, if the transfer is covered u/s 47(ix) (i.e. transfer to Government approved
Institutions), then such transfer shall not be liable to Capital Gains tax.
Short-Term & Long-Term Capital Asset / Gain

1. Short-Term Capital Asset (STCA) [Sec. 2(42A)]:
(a) For Financial Assets: Following items are treated as STCA if they are held for not more
than 12 Months.
• A Share or Security (other than a Unit) listed in a Recognised Stock Exchange in India, or
• Units of UTI, or
• Unit of Equity Oriented Fund, or
• Zero Coupon Bond
(b) Unlisted shares, and Immovable Property being Land or Building or both, held not
more than 24 months shall be treated as Short Term Capital Asset.
(c) For all other Capital Assets other than (a), (b), above: Capital Assets held by an Assessee
for not more than 36 months immediately preceding the date of transfer, are treated as Short-
Term Capital Assets.
2. Long-Term Capital Asset (LTCA) [Sec. 2(29AA)]: Not a Short-Term Capital Asset.
3. Capital Gains - LTCG / STCG:

(a) Long-Term Capital Gain [Sec.2(29B)] = Capital Gains arising from transfer of Long Term Capital
Asset.
(b) Short-Term Capital Gain [Sec.2(42B)] = Capital Gain arising from transfer of Short Term Capital
Asset.

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Transfer for Capital Gain purposes [Sec.2(47)]

The following transactions are regarded as “Transfer” u/s 2(47) -
Sec.2(47) Nature of Transaction
(i) Sale, Exchange, Relinquishment of asset.
(ii) Extinguishment of any rights therein.
(iii) Compulsory Acquisition thereof under any law.
(iv) Conversion of Capital Asset into Stock-in-Trade.
(iva) Maturity / Redemption of a Zero Coupon Bond.
(v) Part Performance of a Contract u/s 53 A of the Transfer of Property Act and possession
of property.
(vi) Transactions, which have the effect of transferring/enabling the enjoyment of Immovable
Property.
Transfer always includes disposing of or parting with an asset or any interest therein, or creating any
interest in any asset in any manner by way of an agreement either directly or indirectly, absolutely or
conditionally, voluntarily or involuntarily (whether entered into in India or outside India) or otherwise.
The above transfer will be covered u/s 2(47) irrespective of the fact that such transfer has been
characterized as being dependent upon the transfer of Shares of Company registered/incorporated
outside India.
Legal Decisions
Transfer:
1. Allotment of Shares in Amalgamated Company to the Shareholders of Amalgamating Company in
view of amalgamation, is an extinguishment u/s 2(47). [ Grace Collis 248 ITR 323 (SC)]
2. Transfer of Leasehold Interest in immovable property for long period of time amounts to transfer for
the purposes of Capital Gains. [A.R.Krishnamurthy & A.R. Rajagopalan 176 ITR 155 (SC), R.K.
Palshikar 172 ITR 311 (SC)]
3. Redemption of Preference Shares by the Company is a relinquishment of ownership by the
Shareholder, and the same is regarded as Transfer u/s 2(47). [Anarkali Sarabhai 224 ITR 422 (SC)]
Not a Transfer:
1. Sale proceeds of trees of spontaneous growth will not result in Capital Gains, as they do not bring
in any profit or gain. ]Suman Tea & Plywood Industries (P.) Ltd. (1997) 226 ITR 34 (SC)]
2. In case of sale of old and unyielding rubber trees, no Capital Gain is chargeable to tax. [Kalpetta
Estates Ltd 221 ITR 601 (SC)]
3. Conversion of a Firm into a Company under Part IX of the Companies Act, 1956 is not a transfer.
Not chargeable for Capital Gains. [Texspin Engg. & Mfg. Works 263 1TR 345 (Bom.)]

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Changeability of Capital Gains [Sec.45(1)]

1. Nature of Income: Profits / Gains arising from transfer of a Capital Asset.
2. Year of Taxability: Capital Gains is taxable as income of previous year in which transfer takes
place.
3. Exceptions: Generally, Capital Gain is taxable in the previous year in which transfer of the Asset
takes dace. The exceptions are -
Sec. Nature of Transfer
45(1 A) Insurance Compensation received on destruction or damage to Capital Asset.
45(2) Conversion of Capital Asset into Stock in Trade.
45(5) Compulsory Acquisition of any Capital Asset.
45(5A) Capital Gains based on Specified Agreement for Development of a Project.
Cost of Acquisition [Sec.55]

1. General Principles:
Situation Cost of Acquisition
(a) Capital Asset became property of an Cost of Acquisition to the Assessee or Fair Market
Assessee before 01.04.2001. Value (FMV) as on 01.04.2001 at the option of
the Assessee. (i.e. whichever is higher).
(b) Capital Asset became property of an Cost incurred by the Assessee.

Assessee on or after 01.04.2001.
(c) Capital Asset became property of Previous Cost to the Previous Owner or Fair Market Value
Owner before 01.04.2001 and transferred to the (FMV) of the Asset as on 01.04.2001, at the
Assessee by any mode u/s 49(1). option of the Assessee (i.e. whichever is higher.)
Note:
 When Cost of Acquisition of the Previous Owner cannot be ascertained, FMV on the date on
which Capital Asset became the Property of the Previous Owner shall be considered.
 In case of a Capital Asset being Land or Building or Both, the Fair Market Value of such Asset
on 01.04.2001, for the purpose of determination of Cost of Acquisition shall not exceed the
Stamp Duty Value of such Asset as on 01.04.2001. (w.e.f. 01.04.2021)
 u/s 2(22B), FMV in relation to a Capital Asset means -
1. Price that the Capital Asset would ordinarily fetch on sale in the Open Market on the relevant date,
and
2. Where the Price referred above is not ascertainable, Price is to be determined as per Income Tax
Rules.

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3. Specified Intangible Assets:

Specified Intangible Asset Mode of Acquisition Cost of Acquisition
• Goodwill of a Business or profession (a) Acquisition of Asset by Purchase Price

• Trademark or Brand Name associated with a Assessee by purchase
business (not of profession) from previous owner.
• Right to manufacture, produce or process any
article or thing (b) Any other case (not Nil
being a case u/s 49(1), i.e.
• Right to carry on any business HUF Partition, Gift, Will,
• Tenancy Rights, Stage Carriage Permits or etc.)
Loom hours
4. Other Points:
Capital Asset Cost of Acquisition
(a) Property, the value of which is taxed u/s 56(2)(vii) Value considered for the purposes of
or (viia), i.e. as gifts taxable under Income from Other Sec.56(2)(vii)/(viia)
Sources.
(b) Any sum of money or any property which is Value which is considered for the purposes of
received by any person without consideration or for Sec.56(2)(x)
inadequate consideration referred u/s 56(2)(x) [Sec.49
w.e.f. 01.04.2018]
(c) Specific Securities or Sweat Equity Shares Fair Market Value which has been taken into
[Sec.49(2AA)] account for the purpose of Valuation of
Note: Holding Period shall be reckoned from Date of Perquisites on which tax were paid under the
Allotment or Transfer of such Shares. head Salaries.
(d) Rights of a Partner u/s 42 of LLP Act, which Cost of Acquisition of Share(s) in the Co.
became property of the Assessee on conversion of immediately before the transfer.
Pvt. Co / Unlisted Public Co. into an LLP u/s 47(xiiib).
(e) For Units in Segregated Portfolio in the case of a The Cost of Acquisition of a Unit(s) in the
Capital Asset, being a Unit or Units in a Segregated Segregated Portfolio shall be the amount
Portfolio, referred u/s 49(2AG) which bears, to the Cost of Acquisition of a
Unit(s) held by the Assessee in the Total
Portfolio, the same proportion as the Net Asset
Value of the Asset transferred to the
Segregated Portfolio bears to the Net Assets
Value of the Total Portfolio immediately before
the Segregation of Portfolios as per Sec.
49(2AG). As per Sec. 49(2AH), the Cost of
Acquisition of the Original Units held by the
Unit Holder in the Main Portfolio shall be
deemed to have been reduced by the amount
as so arrived u/s 49(2AG). [Note]
Note: The Period of Holding of units in Segregated Portfolio include the period of Original Units in
Main Portfolio also.

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Cost of Acquisition in Specific Circumstances for Specific Assets [Sec.55(2)(a)] w.e.f. 01.04.2021:
Capital Assets:
(a) Goodwill of Business or profession, or
(b) Right to manufacture / produce / process any article / right to carry on business or profession, or
(c) Tenancy rights, Route permits, Loom Hours, Trade Marks, Brand name related to business
Situation Cost of Acquisition
(a) Acquisition of such assets by Assessee by purchase Purchase price (Less) Depreciation claimed
from a previous owner u/s 32 before AY 2021-2022, if any
(b) Case falling u/s 49(1 )(i) to 49(iv) and such asset was Purchase price for such previous owner
acquired by the previous owner (as defined in that section) (Less) Depreciation claimed u/s 32 before
by purchase AY 2021-2022, if any
Cost of Improvement [Sec.48]

Situation Cost of Improvement
Capital Asset became property All expenditure of a capital nature, in making any addition or alteration
of the Previous Owner or an to the Capital Asset on or after 01.04.2001 by the Previous Owner or
Assessee before 01.04.2001. the Assessee.
Any other case (a) All expenditure of capital nature in making any addition or alteration
to the Capital Asset by the Assessee, and
(b) All expenditure of capital nature in making any addition or alteration
to the Capital Asset by the Previous Owner, in case the Assessee
became the owner of Property by any mode u/s 49(1).
Note: Cost of Improvement does not include any expenditure which is deductible in computing the
income chargeable under the head “Income from House Property”, “Profits and Gains of Business or
Profession” or “Income from Other Sources”.
Indexed Cost of Acquisition / Improvement [Sec.55]

1. Meaning: Indexation is a benefit given to the Assessee in computation of Long Term Capital Gains
using Cost Inflation Index (CII).
2. Computation: Indexed Cost of Acquisition (ICA) and Indexed Cost of Improvement (ICI) is
computed in the following manner -
Situation ICA
Acquired prior to Cost of Acquisition (as determined under Para 7.1.7 above) x CII for Year of Transfer
01.04.2001
Acquired on or Cost of Acquisition (as determined under Para 7.1.7 above) x CII for Year of Transfer
after /VC CII for Year of Acquisition

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01.04.2001
(b) Indexed Cost of Improvement (ICI):

Cost of Improvement (as determined under Para 7.1.8 above) x CII for Year of Transfer /CII for Year
of Improvement
Note: ICI can be computed only if it is incurred on or after 01.04.2001.
CII for If an Assessee acquired a Capital Asset by way of Gift and transferred such Asset, then
transfer Indexed Cost of Acquisition would be with reference to the year in which Previous Owner held
of Gifted the asset and not the year in which Assessee became the Owner. Therefore, the CII should
Asset be based on the year in which the Previous Owner acquired the asset and not the year in
which the Assessee became the Owner. [CIT vs Manjula J. Shah 204 Taxmann 691
(Bom.)] and (Arun Shungloo Trust vs CIT 205 Taxmann 456 (Del.)]
COST INFLATION INDEX (CII) AS NOTIFIED BY THE CENTRAL GOVERNMENT
F.Y CII F.Y CII
2001-2002 100 2012-2013 200
2002-2003 105 2013-2014 220
2003-2004 109 2014-2015 240
2004-2005 113 2015-2016 254
2005-2006 117 2016-2017 264
2006-2007 122 2017-2018 272
2007-2008 129 2018-2019 280
2008-2009 137 2019-2020 289
2009-2010 148 2020-2021 301
2010-2011 167 2021-2022 317
2011-2012 184

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Issues on Cost of Acquisition and Cost of Improvement

Mortgage • Created by Previous Owner: Mortgage was created by Previous Owner during his
life-time and was not discharged on the date of his death. His Successor had
discharged the Mortgage Debt. The Successor obtained only the Mortgagor’s Interest
in the property, and the amount paid to clear off the Mortgage Debt is Cost of
Acquisition u/s 48, and deductible.
• Created by Assessee: Mortgage created by Assessee himself does not form part of
cost of acquisition / improvement and not deductible. [VSMR Jagadishchandran 227
ITR 240 (SC)]
Transfer • Money paid to mother to relinquish her right of residence in the property is
related deductible. [CV Soundararajan 150 ITR 80 (Mad.)j
Expenses, • Amount paid to the existing tenant of the property for vacating and handing over
peaceful vacant possession will be treated as cost of transfer. [A.Venkatraman &
removal
Others 137 ITR 846 (Mad.)]
of
• Any amount paid by the Assessee to his son, who had instituted suit-seeking
encum injunction restraining the Assessee from selling property, for removing encumbrances
brances prior to selling the property is deductible. [Abrar AIvi (2001) 247 ITR 312 (Bom.)]
• Compensation paid to Hutment Dwellers for vacating the land, is allowed as Cost of
Improvement in the computation of Capital Gains, since the eviction of Hutment
Dwellers increases the value of the land. [Ms.Piroja C.Patel (2000) 242 ITR 582
(Bom.)]
Land • Urban Land Tax and Corporation Tax are not part of cost of acquisition, but are costs
Tax, of holding. [SAS Hotel P Ltd (2000) 158 CTR 125 (Mad.)]
Charges, • Betterment Charges paid to Municipality under a Town Planning Scheme are
considered part of cost of improvement. [Mathuradas Mangaldas Parekh 126 ITR
etc.
669 (Guj.)]
Legal Legal Fees, Brokerage or Commission in connection with the transfer is allowable as
Fees deduction. [Sahroop Narain 32 Taxman 453 (Raj.)]
Take over as In the case of take-over of an undertaking as a going concern, and the Purchaser has
Going taken Gratuity Liability of existing employees, the Gratuity Liability does not form part
Concern of consideration, and the same cannot be added to the cost of acquisition. [Hooghly
Mills Co. Ltd 287 ITR 333 (SC)]
Estate Estate Duty paid in respect of inherited property is neither Cost of Acquisition nor Cost
Duty of Improvement. Hence not allowable as deduction in computation of Capital Gains.
[Rm. Arunachalam 227 ITR 222 (SC)]
Interest on Interest incurred on Loan borrowed for any asset can be claimed as deduction from
Loan Funds income of such asset. If the Assessee wants to capitalise such interest, it is possible
only when the loan was sought exclusively for acquisition of such asset. [Sharanpur
Electric Supply Co. 194 ITR 294 (SC)]

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Date of Date of Contract for purchase or sale will be considered as date of acquisition / sale
contract provided the transaction is followed up by delivery for the purpose of Capital Gains.
[C. No. 704 / 28.4.95]
Rural In case of conversion of Rural Agricultural Land and sold subsequently, for the
Agri purpose of computation of Capital Gain, the original cost of acquisition of the land
shall be the cost of acquisition of the converted asset and not the Market Value on the
Land
date of conversion [M. Nachiappan 144 CTR 359 (Mad.)]
Illustration - Cost of Acquisition / Indexation Benefit - N 08

Mrs. X, an Individual Resident Woman, wanted to know whether tax is attracted on sale of gold
and jewellery gifted to her by her parent at the occasion of her marriage in the year 2000 which
was purchased at a total cost of ₹ 2,00,000 ₹
1. Since Mrs. X has acquired the property by way of Gift before 01.04.2001, the cost of purchase of
the Jewellery by the Previous Owner (or) Fair Market Value of the Asset on 01.04.2001, whichever is
high, shall be treated as the Cost of Acquisition of the asset.
2. As the asset is a Long-Term Capital Asset and is acquired before 01.04.2001, the Assessee shall
be eligible for Indexation Benefit as applicable to the Previous Year 2001-2002, i.e. 100.
Illustration - Sale of Land and Buildings purchased separately

A land was purchased in April 2011 and the building was constructed on it during 2017-2018.
The building was sold in 2018. Is the Capital Gain arising out of sale, Long-Term or Short-Term
Capital Gain?
1. Principle: Land and Building are two separate Capital Assets for the purpose of computation of
Capital Gains. So, the composite consideration received for Land and Building should be
apportioned between the Land and Superstructure. 2
2. Conclusion: In the instant case, Capital Gain arising out of Land will be Long-Term Capital
Gains (since Holding Period is > 24 months). Capital Gain arising out of super-structure will be Short-
Term Capital Gain, (since Holding Period is < 24 months). [C.R.Subramanian 242 ITR 342 (Kar.),
Dr.D.L.Ramachandra Rao 236 ITR 51 (Mad.) and Vimal Chand Golecha 201 ITR 442 (Raj.)]

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Transaction Not Regarded as Transfer [Sec.47]
Total / Partial Partition of HUF [Sec.47(i)]

1. Principle: Distribution of Capital Asset in total or partial partition of HUF is not considered as
transfer and not chargeable to Capital Gain tax.
2. Holding Period for Transferee, in case of subsequent transfer [Sec.2(42A)]: Previous Owner’s
holding period shall be included.
3. Cost in the hands of Transferee [Sec.49[: Cost to Previous Owner.
Gift / Will / Irrevocable Trust [Sec.47(iii)]

1. Principle: Transfer of Capital Asset under a Gift / Will / Irrevocable Trust is not considered as
transfer and not chargeable to Capital Gain Tax.
2. Exclusion: Shares, Debentures or Warrants allotted by a Company directly or indirectly to its
Employees under ESOP are not covered by the above exception.
3. Holding Period for Transferee, in case of subsequent transfer [Sec.2(42A)]: Previous Owner’s
4. Cost in the hands of Transferee [Sec.49[: Cost to Previous Owner.
Transfer between Holding Company & Subsidiary

1. Holding to Subsidiary [Sec.47(iv)]:
(a) Principle: Transfer of Capital Asset by a Holding Company to its Subsidiary is not considered as
transfer, and not chargeable to Capital Gain Tax.
(b) Conditions:
• Holding Company or its Nominees should hold 100% Shares in Subsidiary Company.
• Subsidiary Company should be an Indian Company.
(c) Holding Period for Transferee, in case of subsequent transfer [Sec.2(42A)]: Previous Owner’s
(d) Cost in the hands of Transferee [Sec. 49[: Cost to Previous Owner.
2. Subsidiary to Holding [Sec.47(v)]:

(a) Principle: Transfer of Capital Asset by a Subsidiary Company to its Holding Company is not
considered as transfer, and not chargeable to Capital Gain Tax.
(b) Conditions:
• Whole of the Share Capital of the Subsidiary Company should be held by Holding Company.
• Holding Company should be an Indian Company.
(d) Cost in the hands of Transferee [Sec. 49[: Cost to Previous Owner.
Certain transfers in Amalgamation of Companies

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1. Amalgamating Co. to Amalgamated Co. [Sec.47(vi)]:

(a) Principle: Transfer of a Capital Asset, in a scheme of amalgamation, by the Amalgamating
Company to the Amalgamated Company is not considered as transfer and not chargeable to Capital
Gain Tax.
(b) Condition: Amalgamated Company should be an Indian Company.
(d) Cost in the hands of Transferee [Sec.49]: Cost to Previous Owner.
2. Transfer of Shares by Shareholders [Sec.47(vii)]:

(a) Principle: Transfer of Shares by Shareholders in a scheme of Amalgamation is not considered as
transfer, and not chargeable to Capital Gain Tax.
(b) Conditions:
• Asset Transferred: Shares held in Amalgamating Company.
• Consideration received: Shares of Amalgamated Company, except where the Shareholder itself is
the amalgamated Company.
• The Amalgamated Company is an Indian Company.
(c) Holding Period for Transferee, in case of subsequent transfer [Sec.2(42A)]: Period of holding
of Amalgamating Company Shares shall be included.
(d) Cost in the hands of Transferee [Sec.49[: Cost of Acquisition of Amalgamating Company’s
Shares.
Note: If the consideration consists of something more than the share/shares in the Amalgamated
Company, then the Assessee is not entitled to exemption u/s 47. [Goutam Sarabai Trust 173 ITR
216 (Guj.)]
Certain transfers in Demerger of Companies
1. Demerged Co. to Resulting Co. [Sec.47(vib)]:

(a) Principle: Transfer of Capital Asset, by a Demerged Company to the Resulting Company, is not
considered as transfer, and not chargeable to Capital Gain Tax.
(b) Condition: Resulting Company should be an Indian Company.
(c) Cost in the hands of Transferee [Sec.491: Cost to Previous Owner.
2. Issue of Shares by Demerged Company [Sec.47(vid)]:

(a) Principle: Transfer or Issue of Shares by the Resulting Company, in a scheme of Demerger, to
the Shareholders of the Demerged Company, is not considered as a transfer, and not chargeable to
Capital Gain Tax.
(b) Condition: The transfer or issue should be made in consideration of Demerger of the undertaking
(c) Cost of Acquisition of Resulting Company’s Shares on Demerger [Sec.49(2C)]:
Cost of Acquisition of Demerged Co’s Shares * Net Book Value of Assets transferred to Resulting Co.
Net Worth of the Demerged Company before Demerger Net Worth of Demerged Co. = Paid up Share
Capital and General Reserve as per books, before demerger.
(d) Cost of Acquisition of Demerged Company’s Shares after Demerger [Sec.49(2D)]:

Original Cost of Acquisition of Shares in Demerged Company
Less: Cost of Acquisition of Resulting Company’s Shares as above
(e) Holding Period for Transferee, in case of subsequent transfer [Sec.2(42A)]: Holding Period in
Demerged Company shall be included.

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Notified Reverse Mortgage Scheme [Sec.47(xvi)]

Applicability (a) Reverse Mortgage is a Scheme for the benefit of Senior Citizens who own a
Residential House Property.
(b) Senior Citizens can mortgage their house with a Scheduled Bank or Housing
Finance Company, in return for a lumpsum amount or for a regular monthly/ quarterly/
annual income.
Concept (a) The Senior Citizens can continue to live in the house and receive regular income
without the both eration of having to repay the loan. They can use the loan amount for
renovation and extension of residential property, family’s medical and emergency
expenditure, etc. but not for speculative or trading purpose.
(b) The Bank will recover the loan along with the accumulated interest by selling the
house after the death of the Borrower. The excess amount will be given to the legal
heirs.
(c) However, before resorting to the sale of the house, preference will be given to the
legal heirs to repay the loan and interest and get the mortgaged property released.
Tax (a) Transfer of Capital Asset in a transaction of Reverse Mortgage under a scheme
Implication made and notified by Central Govt, is not a transfer for the purpose of Capital Gains.
[Sec.47(xvi)].
(b) The amount received by Senior Citizen as loan, either in lumpsum or in
installments is exempt from tax u/s 10(43).
Other transactions not regarded as Transfer

1. Distribution of Assets to Shareholders, as it is (in specie), on liquidation of Company
[Sec.46(1)]
2. Rupee Denominated Bond - Not a Transfer [Sec.47(viiaa)]: Any transfer made outside India, of
a Capital asset being Rupee Denominated Bond of an Indian Company, issued outside India, by a
Non Resident to another Non Resident shall not be regarded as Transfer.
3. Transfer of Capital Asset, by a non-resident on a recognized stock exchange located in any

International Financial Services Centre (IFSC) [Sec.47(viiab)]
(a) Not considered as Transfer: Transactions in the following Capital assets shall not be regarded
as transfer, if the consideration is paid or payable in foreign currency -
(i) Bond or GDR, referred u/s 115AC (1) or
(ii) Rupee denominated bond of an Indian Company or
(iii) Derivative.
(iv) Such other notified Securities.

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Notified Securities for the purpose of Sec.47(viiab) as follows- [Notfn. No.l6/2020, dt

05.03.2020]
(a) Foreign Currency denominated Bond
(b) Unit of a Mutual Fund
(c) Unit of a Business Trust
(d) Foreign Currency Denominated Equity Share of a Company
(e) Unit of Alternative Investment Fund,
Condition: The Notified Securities are listed on a recognised stock exchange located in any
International Financial Services Centre in accordance with the regulations made by the SEBI under
the SEBI Act 1992 or the IFSC Authority under the IFSC Authority Act 2019, as the case may be.
4. Transfer of Sovereign Gold Bond issued by the RBI under the Sovereign Gold Bond Scheme,
2015 by way of redemption, by an assessee being an Individual. [Sec.47(viic)]
5. Transfer of Works of Art, Archaeological, Scientific or Art Collection, Books, Manuscripts,

Drawings, Paintings, Photographs, Printings. [Sec.47(ix)]
Condition: The transfer should be made to Government, University, National Museum, National Art
Gallery, National Archives, or any institution notified by Central Government to be of national
importance.
6. Conversion of Bonds, Debentures, Debenture Stock and Deposit Certificates in any form,
into Shares or Debentures of that Company. [Sec.47(x)]
(a) Holding Period for Transferee, in case of subsequent transfer: Holding Period of earlier asset
cannot be taken into account.
(b) Cost in the hands of Transferee: Cost of New Asset = That portion of the Cost of Old Asset that
is converted.
7. Conversion of Preference Shares to Equity Shares [Sec.47(xb)]:

• Situation: Capital Asset, being Equity Share of a Company, became the property of the Assessee in
consideration of a transfer u/s 47(xb)
• Cost of Acquisition of the Asset Acquired = Cost of the Preference Shares so converted.
Illustration - Reverse Mortgage Scheme - N 10

Sachin received ₹ 15,00,000 on 23.07.2021 on transfer of his Residential Building in a
transaction of Reverse Mortgage under a scheme notified by the Central Government. The
building was acquired in March 2015 for ₹ 8,00,000. Is the amount received on Reverse
Mortgage chargeable to Tax in the hands of Sachin under the head 'Capital Gains'?
Cost Inflation Index for the Financial Year 2014-2015 = 240, Financial Year 2021-2022 = 317.
1. Principle: U/s 47(xvi), transfer of a Capital Asset in a transaction under Notified Reverse Mortgage
Scheme is not a transfer.
2. Conclusion: In the given case, transfer of Residential Building will not attract Capital Gain Tax.

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Insurance Compensation [Sec.45(1A)]

1. Causes:
(a) Flood, Typhoon, Hurricane, Cyclone, Earthquake or other convulsion of nature, or
(b) Riot or Civil Disturbance,
(c) Accidental Fire or Explosion,
(d) Action by an enemy or action taken in combating an enemy (whether with or without a declaration
of war)
2. Year of Taxability: Any Profits or Gains arising from receipt of such money or other assets shall be
chargeable as Income of the year in which the money or other asset was received from the Insurer.
3. Computation of Capital Gains:
(a) Consideration Received = Money or Fair Market Value (FMV) of the Assets on the date of receipt.
(b) Capital Gains = Money received or FMV of Asset received Less Cost of Acquisition or Indexed
Cost of Acquisition.
4. Benefit of Indexation: Indexation will be given upto the Year of Destruction or Damage.
5. Depreciable Assets:
(a) Compensation received shall be reduced from the WDV of the Block, and any surplus shall be
chargeable as Short Term Capital Gains, and loss shall be treated as Short Term Capital Loss.
(b) If some asset still exists in the Block and no surplus is available, then depreciation may be claimed
on the balance.
Significant Issues
Damaged and If Damaged Machinery is repaired and re-used, the expense is deductible u/s 31. Any
Rescued Insurance Compensation received for the damage is treated as income u/s 41(1), to
the extent of deduction allowed u/s 31. Excess amount is Capital Receipt and not
Machines
chargeable to tax. [Sirpur Paper Mills Ltd. 122 ITR 776]
Loss of Stock- Compensation received from Insurance Company for loss of Stock-in-Trade or Raw
in-Trade Material is taxable under Profits and Gains of Business or Profession. [Needle
Industries Ltd 245 ITR 556 (Mad.))
illustration - Insurance Compensation on Loss of Depreciable Asset - M 00 (F)

The Assessee was a Company carrying on business of manufacture and sale of art-silk cloth.
It purchased Machinery worth ₹ 4 Lakhs on 01.05.2017 and insured it with United India
Assurance Ltd, against fire, flood, earthquake, etc. Depreciation was granted at 15% for each
assessment year. The Insurance Policy contained a reinstatement clause requiring the
Insurance Company to pay the value of the machinery, as on the date of fire etc, in case of
destruction or loss. A fire broke out in August 2021 causing extensive damage to the
machinery of the Assessee rendering them totally useless. The Assessee Company received a

15
sum of ₹ 6 Lakhs from the Insurance Company on 15.03.2022. Discuss the issues arising on
account of the transactions and their tax treatment.
Illustration - Loss of Stock, Machinery and Jewellery - N 06

Mr. A, is an Individual carrying on business. His stock and machinery were damaged and
destroyed in a fire accident. The value of stock lost (totally damaged) was ₹ 6,50,000. Certain
portion of the Machinery could be salvaged. The Opening WDV of the Block as on 01.04.2021
was ₹ 10,80,000.
During the process of safeguarding machinery and in the fire fighting operations, Mr. A lost
his gold chain and a diamond ring, which he had purchased in April 2018, for k 1,20,000.
Market Value of these two items on the date of fire accident was ₹ 1,80,000.
Mr. A received the following amounts from the Insurance Company: (a) Towards ₹ 4,80,000
Loss of Stock
(b) Towards Damage of Machinery ₹ 6,00,000
(c) Towards Gold Chain and Diamond Ring ₹ 1,80,000
Comment on the tax treatment of the above three items under the provisions of the Income Tax
Act, 1961.
Conversion of Capital Asset to Stock in Trade [Sec 45(2) ]

1. Transfer: Conversion of Capital Asset into Stock-in- trade is a transfer u/s 2(47).
2. Year of Taxability: Capital Gain is taxable in the previous year in which converted stock is sold or
otherwise transferred.
3. Computation: In the year of sale or transfer of Stock, the income shall be computed as under -
(a) Capital Gain = Fair Market Value (FMV) of Stock on date of Conversion Less Cost (or) Indexed
Cost of Acquisition.
(b) Business Income = Consideration received on sale Less FMV of Capital Asset on date of
conversion.
4. Benefit of Indexation: Indexation shall apply on the basis of the year in which conversion takes
place.
Illustration - Sec.45(2) - Conversion of Capital Asset into Stock-in-Trade - M 11

Aarav converts his plot of land purchased in July 2015, for ₹ 80,000 into Stock-in-Trade on
31st March 2021. The Fair Market Value as on 31.03.2021 was ₹ 1,90,000. The Stock in Trade
was sold for ₹ 2,25,000 in the month of January 2022. Find out the Taxable Income if any, and
if so under which Head of Income and for which Assessment Year?
Cost Inflation Index for the Financial Year 2015-2016 = 254, Financial Year 2021-2022 =317.
Illustration - RTP
Ms. Gunjan purchased a Land at a cost of ₹ 50 Lakhs in the Financial Year 2011-2012 and held
the same as her capital asset till 31st August 2017. She started her Real Estate Business on
1st September 2017, 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 ₹ 320 Lakhs. She constructed 8 Flats of
equal size, quality and dimension. Cost of Construction of each Flat is ₹ 36 Lakhs.
Construction was completed in January 2021. She sold 5 Flats at ₹ 90 Lakhs per Flat in April
2021. She invested ₹ 70 Lakhs in Bonds issued by National Highways Authority of India on
31st May 2021. Compute the Capital Gains and Business Income arising from the above
transactions in the hands of M.J. Gunjan for Assessment Year 2022-2023 indicating clearly the

16
reasons for treatment for each item. CII: FY 2011-2012: 184, FY 2017-2018: 272, FY 2018-2019:
280, FY 2020-2021:301, FY 2021- 2022: 317.
Conversion of Inventory into Capital Asset

1. Applicability: Capital Asset referred u/s 28 (via), i.e. Inventory converted into Capital Asset.
2. Year of Taxability: Capital Gain is taxable in the previous year in which the Capital Asset is sold or
otherwise transferred.
3. Holding Period of Capital Asset [Sec.2(42A)]: Holding Period shall be reckoned from the date of
its conversion or treatment.
4. Cost of Acquisition [Sec.49(9)]: Fair market value on the date of conversion/ treatment as
determined in the prescribed manner.
Transfer of Shares held in Demat Form [Sec.45(2A)]

Concept of Demat Form
• Under this Scheme, the Shareholder does not have a Certificate to claim ownership of a Share(s) in
a Company. His interest is reflected by way of entries in the books of a Depository (an Intermediary
Agent who maintains the records of Shareholders).
• It is similar to a Bank Account where the Account Holder, and not the Banker, is the true owner of
the
money value of sum indicated against his name in the Bank’s books.
1. Person Liable: Sale of Shares held in a Dematerialized Form with a Depository, is chargeable to
tax as the income of the Beneficial Owner.
2. Cost of Acquisition and Period of Holding:
(a) Cost of Acquisition and the period of holding shall be determined on the basis of FIFO Method.
[Circular No. 768 dated 24.06.1998]
(b) FIFO Method will be applied for each account independently.
(c) When Physical Stock is dematerialized, the date of credit into the Depository Account shall be
considered for the purpose of FIFO Method. But, Indexed Cost of Acquisition shall be computed on
the basis of year of acquisition. [Circular No. 768 of 1998]
Illustration - Shares in Demat Form - M 03 (F)

Mukherjee furnishes the following information regarding purchases of shares
No. of Shares Month & Year of Purchase Shares Dematted Month & Year
1,000 March 2007 July 2014
500 March 2010

17
1.000 December 2011 October 2013
He sold 1500 Shares in January 2022 out of the dematted Shares. He seeks your advice as to
the taxability towards Capital Gains for the Assessment Year 2022-2023.
Refer Principles above.
1. In the above case, the Assessee sold 1,500 Shares in January 2022.
2. 1000 Shares credited in Depository Account in October 2013 (purchased in December 2011) and
500 Shares credited in July 2014 (out of 1,000 Shares purchased in March 2007) shall be deemed to
be “sold” by applying FIFO Method. But, indexation shall apply on the basis of year of acquisition of
those Shares.
Introduction of Capital Asset by Partner in Firm, etc.[Sec.45(3)]

1. Transfer: Introduction of a Capital Asset by a Partner into the Firm or by a Member in AOP / BOI,
is a transfer u/s 2(47).
2. Year of Taxability: Capital Gain is charged to tax in the Previous Year in which such transfer
takes place.
3. Capital Gain = Amount credited in books in the Partners ₹ Capital Account
Less: Cost or Indexed Cost of Acquisition.
Distribution of Capital Asset on Dissolution [Sec.45(4)]

1. Transfer: Receipt of Capital Asset/ Moneys or Both by Partner of Firm or Members of AOP/BOI, as
a result of reconstitution of such entity.
2. Year of Taxability: Any profits or gains arising from such receipt by Partner or Member shall be
chargeable to tax u/h Capital Gains in the hands of such Firm or AOP or BOI in the previous year in
which such Capital Asset/ Moneys/ Both have been received by such Partner or Member.
3. Capital Gain = Capital Gains shall be determined according to the Following Formula.
A=B+C-D
Where,
A = income chargeable to income-tax
B = value of any money received (on the date of receipt by such Partner or Member)
C = the amount of fair market value of the capital asset received (on the date of receipt by such
Partner or Member)
D = the amount of balance in the capital account of such Partner or Member (as represented in the
books of Accounts of the Firm or AOP or BOI at the time of reconstitution)
Note:
(a) Value of ‘A ₹ shall be deemed to be Zero if it is negative
(b) Balance in the capital Account should be calculated without taking into account the increase due
to Revaluation of any asset or self generated goodwill or any other self generated asset. (Goodwill or
asset acquired without incurring any cost for purchase or which has been generated during the course
of business)
Important Issues
Capital Assets The expression “otherwise” includes transfer of Capital Assets by way of
distributed on distribution of Capital Assets to the Partners by a Partnership Firm, even during
reconstitution of the existence of such Partnership, i.e. on account of retirement of a Partner.

18
Firm Consequently, such transfer attracts Capital Gains Tax. [AN Naik Associates
(2004) 136 Taxman 107 (Bom.)J
Amount received by Amount received on retirement by a Retiring Partner in respect of his share in the
Retiring Partner Partnership Firm including Goodwill, is not assessable as Capital Gains.
[Mohanbai Padmabhai 165 ITR 166(SC). Lingamallu Raghukumar 247 ITR
801(SC)]
Valuation of Stock When the business of the Firm is not continued, Stock shall be valued at Market
on Dissolution Price at the time of dissolution and the surplus shall be taxed in the hands of the
Firm as Business Income. [ALA Firm 189 ITR 285(SC)]
Valuation of Stock Upon retirement or death of a Partner, if the business of the Firm continues, the
on re-constitution Stock- in-Trade shall be valued at Cost or Market Price, whichever is lower.
of Firm [Sakthi Trading Co. 250 ITR 871 (SC)]
Transfer of Firm Transfer of an Immovable Property belonging to the Firm, to its Partners, not on
Property to the dissolution, requires registration. Transfer by mere book entries is not valid.
Partner without Subsequent sale of Immovable Property resulting in Capital Gains shall be
registration chargeable to tax in the hands of the Firm, and not in the hands of the Partners.
[JM Mehtha & Bros. 214 ITR 716 (Bom.))
Compulsory Acquisition by Government [Sec.45(5)]

1. Chargeability It is a transfer u/s 2(47) chargeable to tax under the head Capital Gains.
2.Nature of (a) Compulsory Acquisition under any law (or)

Transfer (b) Sale Consideration on transfer is determined or approved by Central Govt or
RBI.
3.Taxability of A. Normal or Original Compensation [Sec.45(5)(a)]:

Receipts (a) Original Compensation is taxable in the previous year in which it is first
received.
(b) Whole of the compensation is taxable, even if a portion of the amount is
received.
(c) Capital Gain = Whole of the Normal Compensation Less Cost or Indexed Cost
of Acquisition.
Note: Indexation shall be applied for the year in which the asset is compulsorily
acquired.
B. Enhanced Compensation [Sec.45(5)(b)]:
(a) Enhanced Compensation is taxable in the previous year in which it is actually
received.
(b) Cost of Acquisition and Cost of Improvement shall be taken as ‘NIL’.
(c) Capital Gain = Enhanced Compensation received Less Expenses on Receipt
of Enhanced Compensation.
4. Interim Order Any amount of Compensation received in pursuance of an Interim Order of a

Court, Tribunal or Other Authority shall be deemed to be income chargeable
under the head “Capital Gains” of the previous year in which the Final Order of
such Court, Tribunal or Other Authority is made.
5. Compensation Compensation received subsequent to the death of Assessee is taxable in the

received by Legal hands of his legal heirs, under the head “Capital Gains”.

19
Heirs
6. Reduction of Where normal compensation / enhanced compensation is reduced by Court /

Compensation Tribunal / Other Authority, then the Capital Gain assessed in the year of receipt
shall be recomputed accordingly, and rectification of assessment shall be made
u/s 155.
Interest on Enhanced Compensation on account of compulsory acquisition, is chargeable under the

head "Income from Other Sources". [K S Krishna Rao 181ITR 408 (SC)]
Capital Gains based on Specified agreement for development of a

project [Sec.45(5A)]
1. Applicability: Individual, HUF
2. Nature of Transaction: Capital Gains araising from the transfer of a Capital Asset, being Land or
Building or both, under a Specified Agreement,
3. Year of Taxability: Capital Gains shall be chargeable to tax as Income of the PY in which the
Certificate of Completion for the whole or part of the project is issued by the Competent Authority.
4. Deemed Value of Consideration: For the purpose of Sec.48, the Stamp Duty Value of his share,
being Land or Building or both, in the project on the date of issuing the Certificate of Completion, (+)
Consideration received in Cash, if any, shall be deemed to be the full value of the consideration
received
or accruing as a result of the transfer of the Capital Asset.
5. Transfer before Date of Issue of Completion Certificate:
• Benefit u/s 45(5A), shall not apply, if the assessee transfers his share in the project to any other
person on or before the Date of Issue of Certificate of Completion. In such a situation, the Capital
Gains shall be deemed to be the Income of the PY in which such transfer takes place.
• Determination of Full value of consideration received or accruing as a result of such transfer shall
be computed as per provisions of the Act without considering the provisions u/s 45(5A).
6. Meaning of Terms:
(a) Competent Authority - The authority empowered to approve the Building plan by or under any
law for the time being in force.
(b) Specified Agreement - A Registered agreement in which a person owning Land or Building or
both, agrees to allow another person to develop a Real Estate project on such Land or Building or
both, in consideration of a share, being Land or Building or both in such project, whether with or
without payment of part of the consideration in Cash.
(c) Stamp Duty Value - The value adopted or assessed or assessable by any authority of
Government for the purpose of payment of Stamp Duty in respect of an immovable property being
Land or Building or both.
Distribution of Assets by Company in Liquidation [Sec.46]

1. Tax Treatment in Company’s hands:
In case of Sale by Liquidator and distribution of Sale Distribution of Capital Assets in

20
Proceeds to Shareholders specie (as it is)
Tax Effect Taxable in the Company’s hands as Capital Not a transfer. Hence not taxable.
Gains. [Sec.46(1)J
2. Tax Treatment in Shareholders ₹ hands:

(a) Computation of Capital Gains on Receipt of Assets / Cash from Company
Step 1 Total Value Received = FMV of Asset received on the date of Liquidation and amount
received in cash.
Step 2 Determine the Shareholders ₹ Interest in accumulated profits on the date of liquidation, i.e.
Deemed Dividend u/s 2(22)(c).
Step 3 Consideration for Transfer for determining Capital Gain = Step 1 - Step 2
Step 4 Capital Gain = Consideration for Transfer for determining Capital Gain (Step 3)
Less: Cost of Acquisition of Shares (Indexed Cost, in suitable cases).
(b) Capital Gain on Subsequent Sale of Asset received by Shareholders on Liquidation:

Capital Gain = Net Consideration Less Fair Market Value u/s 46(2) and Cost of Improvement.
Important Issues
Money received from When money is received from Liquidator in instalments, then the Cost of
Liquidator in Acquisition has to be deducted from earlier payments and once the Cost of
instalments Acquisition is wiped off, any sum received thereafter will be Capital Gain.
[Inland Agencies (P) Ltd 143 ITR 186 (Mad.)]
Receipt of A Shareholder of a Company receiving assets whether as capital or in any

Agricultural Land on other form including Agricultural Land, from the Company in liquidation, is
liquidation of liable to pay tax on Capital Gains on the Market Value of the assets on date of
Company distribution, in terms of Sec.46(2). [N Bagavathi Ammal 259 ITR 679(SC)[
Illustration - Distribution of Assets by Company in Liquidation - M 08

Ms. Vasumathi purchased 1,000 Equity Shares of Rajesh Co Pvt. Ltd on 28.02.2015 for ₹
1,20,000. The Company was wound up on 31.07.2021. The following is the summarized
financial position of the Company as on 31.07.2021:
Liabilities Assets ₹
6,000 Equity Shares 6,00,000 Agricultural Lands Cash 42,00,000

General Reserve 40,00,000 at Bank 6,50,000
Provision for Taxation
2,50,000
Total 48,50,000 Total 48,50,000
The remaining assets were distributed to the Shareholders in the proportion of their
Shareholding. The Market Value of 6 acres of Agricultural Land (in an urban area) as on
31.07.2021 is ₹ 10,00,000 per acre.
The Agricultural Land received above was sold by Ms. Vasumathi on 28.02.2022 for ₹
15,00,000. Discuss the tax consequences in the hands of the Company and Ms. Vasumathi.
[CII for FY 2014-2015 = 240; CII for FY 2021-2022 = 317]

21
Slump Sale [Sec.50B]

1. Meaning: Slump Sale means transfer of one or more undertaking(s) as a result of sale, for a
lumpsum consideration, without assigning any value to the individual Assets and Liabilities
transferred. [Sec.2(42C)]
2. Short Term or Long Term: Capital Gain arising from Slump Sale of Capital Asset, being one or
more undertakings owned or held by the Assessee for more than 36 months is Long Term Capital
Gains. Otherwise, it will be treated as Short Term Capital Gains.
3. No Benefit of Indexation: Benefit of Indexed Cost of Acquisition / Improvement is not available in
computing Long-Term Capital Gains.
4. Computation of Capital Gain:
Step 1 Total Value of the Assets = Depreciable Assets at WDV + Assets at NIL Value (See Note) +
Other Assets at Book Value
Step 2 Net Worth = Total Value of the Assets (Step 1) Less Liability taken over
Step 3 Capital Gain = Net Consideration Less Net Worth (Step 2)
Note:
• WDV means WDV as determined under the Income Tax Act, 1961.
• If the whole of the expenditure has been allowed as deduction or is allowable as deduction under
Sec.35AD, Value of such Assets = NIL.
• In case of a Capital Asset being Goodwill of a Business or Profession which has not been acquired
by the assessee by purchase from a Previous Owner = NIL
• Any change on account of revaluation of assets shall not be considered.
5. Stamp Duty Value: Determination of Value for Stamp Duty, Registration Fees, etc. shall not be
regarded as assigning values to individual assets or liabilities.
6. Auditor’s Report: Report of a Chartered Accountant in Form 3CEA shall be enclosed along with
Return of Income, indicating and certifying the computation of Net Worth of the Division / Undertaking.
7. Computation of Net Worth in case of Slump Sale [W.e.f. 01.04.2021: In relation to

Capital Assets being an Undertaking or Division transferred by way of such slump sale, -
(a) Net Worth of the Undertaking or the Division, as the case may be, shall be deemed to be the cost

22
of acquisition and the cost of improvement for the purposes of Sec. 48 & 49 and no regard shall be
given to the provisions contained in Sec. 48 second proviso.
(b) Fair Market Value of the capital assets as on the date of transfer, calculated in the prescribed
manner, shall be deemed to be the full value of the consideration received or accruing as a result of
the transfer of such Capital Asset.
Rule 11UAE: Computation of Fair Market Value of Capital Assets for the purposes of section
50B:
For the purpose of section 50B(2)(ii), fair market value of the capital assets shall be the FMV1 or
FMV2, whichever is higher.
FMV: The fair market value of the capital assets under FMV1 and FMV2 shall be determined on the
date of slump sale and for this purpose valuation date referred to in rule 11UA shall also mean the
date of slump sale.
Formula for Computation: (1) FMV1 = A+B+C+D - L
Variable Meaning
FMV1 The FMV1 shall be the fair market value of the capital assets transferred by way
of slump sale determined in accordance with the above formula.
A book value of all the assets (other than jewellery, artistic work, shares, securities
and immovable property) as appearing in the books of accounts of the
undertaking or the division transferred by way of slump sale as reduced by the
following amount which relate to such undertaking or the division,
(i) any amount of income-tax paid, if any, less the amount of income-tax refund
claimed, if any, and
(ii) any amount shown as asset including the unamortised amount of deferred
expenditure which does not represent the value of any asset.
B the price which the jewellery and artistic work would fetch if sold in the open
market on the basis of the valuation report obtained from a registered valuer.
C fair market value of shares and securities as determined in the manner provided
in subrule (1) of rule 11UA
D the value adopted or assessed or assessable by any authority of the

Government for the purpose of payment of stamp duty in respect of the
immovable property
L book value of liabilities as appearing in the books of accounts of the undertaking

or the
division transferred by way of slump sale, but not including the following
amounts
which relates to such undertaking or division, namely, -
(i) the paid-up capital in respect of equity shares
(ii) the amount set apart for payment of dividends on preference shares and

23
equity shares where such dividends have not been declared before the date of
transfer at a general body meeting of the company
(iii) reserves and surplus, by whatever name called, even if the resulting figure is
negative, other than those set apart towards depreciation
(iv) any amount representing provision for taxation, other than amount of
income-tax paid, if any, less the amount of income-tax claimed as refund, if any,
to the extent of the excess over the tax payable with reference to the book
profits in accordance with the law applicable thereto
(v) any amount representing provisions made for meeting liabilities, other than
ascertained liabilities;
(vi) any amount representing contingent liabilities other than arrears of dividends
payable in respect of cumulative preference shares.
(2) FMV2 = E+F+G+H
Variable Meaning
FMV2 The FMV2 shall be the fair market value of the consideration received or accruing
as a result of transfer by way of slump sale determined in accordance with the
above formula
E value of the monetary consideration received or accruing as a result of the

transfer
F fair market value of non-monetary consideration received or accruing as a result

of the transfer represented by property referred to in rule 11UA(1) determined in
the manner provided in rule 11UA(1) for the property covered in that rule.
G the price which the non-monetary consideration received or accruing as a result

of the transfer represented by property, other than immovable property, which is
not referred to in Rule ll-UA(1) would fetch if sold in the open market on the basis
of the valuation report obtained from a registered valuer, in respect of property
H the value adopted or assessed or assessable by any authority of the Government

for the purpose of payment of stamp duty in respect of the immovable property in
case the nonmonetary consideration received or accruing as a result of the
transfer is represented by the immovable property
Meaning of Certain Terms:
Terms Meaning
Registered Valuer shall have the same meanings as assigned in rule 11U
Securities shall have the same meanings as assigned in rule 11U

24
Illustration - Sec.50B - N 10
Mr. A is a Proprietor of Akash Enterprises having 2 units. He transferred on 01.04.2021 his Unit
1 by way of Slump Sale for a Total Consideration of ₹ 25 Lakhs. The expenses incurred for this
transfer were ₹ 28,000. His Balance Sheet as on 31.03.2021 is as under:
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 (Bldg 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 1,50,000 60.000 2.10.000
Assets
Total 21,50,000 Total 17,50,000 4,00,000 21,50,000
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 01.07.2019 for ₹ 50,000 on which no
Depreciation has been charged.
Compute the Capital Gain for the Assessment Year 2022-2023.
Illustration :
Summary figures in the Balance Sheet of JB Opticals Limited as on 31.03.2022 are as under -
Paid-Up Capital = ₹ 2,52,00,000
Unit 'A'( ₹ ) Unit 'B'( ₹ )

25
Fixed Assets 1,00,00,000 1,50,00,000
Debtors 1,00,00,000 75,00,000
Stock-in-Trade 50,00,000 25,00,000
Liabilities 28,00,000 50,00,000
Reserves 1,48,00,000
Share Premium 22,00,000
(Revaluation Reserve) (70,00,000)
The Company acquired Unit B on 01.04.2019. They made certain capital additions in the form
of Generator Set and Additional Building, etc. for ₹ 25 Lakhs during the year 2019-2020. The
Members of the Company have authorised the Board in their Meeting held on 28.01.2020, to
dispose of the Unit B. The Company decides to sell the Unit B by way of Slump Sale, for ₹ 225
Lakhs as consideration. The Buyer has agreed with the Vendor-Company to give time for
putting through the sale but not later than 30.06.2022, subject to a discount of 1% on agreed
sale consideration. However, this discount is not applicable if the sale is completed after
31.03.2022.
The Company now approaches you to advise them as a measure of tax planning to determine
the date of sale keeping in view of the Capital Gains Tax. The Written Down Value of the Fixed
Assets u/s 43(6) is ₹ 125 Lakhs. Assume corporate tax rate @30%.
Illustration - M 18 : Star Enterprises has transferred its unit R to A Ltd by way of slump sale on
January 23, 2022. The summarized Balance Sheet of Star Enterprises as on the date is given
below: ( ₹ in Lakhs)
Liabilities Amount Assets Amount
Own Capital 1,750 Fixed Assets:
Accumulated P 8i L balance 670 Unit P 200
Liabilities: Unit Q 150
Unit P 90 Unit R 600
Unit Q 160 Other Assets:
Unit R 140 Unit P 570
Unit Q 850
Unit R 440
Total 2,810 Total 2,810
Using the further information below, compute the Capital Gains arising from slump sale of Unit
R for Assessment Year 2022-23.
Slump Sale consideration on transfer of Unit R was ₹ 930 Lakhs.
Fixed Assets of Unit R includes land which was purchased at ₹ 110 lakhs in the year 2012 and
was revalued at ₹ 140 Lakhs.

26
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.
Unit R was set up by Star Enterprises in Oct, 2010.
Note: Cost of Inflation Indices for the Financial Year 2010-2011 and financial year 2021-22 are
167 and 317 respectively.
Illustration -Value adopted by Stamp Valuation Authority - N 13

Mr. Vaibhav sold a house, held as a Capital Asset, to his friend Mr. Dhanush on 1st December
2021, 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 Valuation based on State Government
Guidelines was ₹ 45,00,000. Mr. Vaibhav preferred an appeal to the Revenue Divisional Officer,
who fixed the value of the House as ₹ 35,00,000 ( ₹ 22,00,000 for Land and the balance for
Building portion). The differential Stamp Duty was paid, accepting the said value determined.
Mr. Viabhav had purchased the Land on 1st June 2010, for ₹ 5,19,000 and completed the
construction of the House on 1st October 2020, for ₹ 14,00,000.
CII: FY 2010-2011: 167, FY: 2021-2022: 317.
Briefly discuss the tax implications in the hands of Mr. Vaibhav for the Assessment Year 2022-
2023 and compute the Capital Gains chargeable to tax.
Illustration -Value adopted by Stamp Valuation Authority - M 15

Ms. Mohini transferred a House to her friend Ms. Ragini for ₹ 40,00,000 on 01.10.2021. 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 ₹ 43,00,000.
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 2022-2023, before considering
the transfer of said house are ₹ 2,80,000 and ₹ 3,45,000, respectively. Ms. Mohini had
purchased the House on 15th May 2015 for ₹ 25,00,000 and Registration Expenses were ₹
1,50,000.
You are required to explain provisions of the 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 Indices are: FY 2015-2016: 254 & FY 2021-2022: 317.
Illustration - Application of Sec.50C - M 12

Dinesh received a vacant site as Gift from his friend in November 2014. The site was acquired
by his friend for ₹ 6,00,000 in April 2009. Dinesh constructed a Residential Building during the
year 2016-2017 in the said site for ₹ 25,00,000. He carried out some Further extension of the
construction in the year 2016-2017 for ₹ 6,00,000.
Dinesh sold the Residential Building for ₹ 55,00,000 in August 2021 but the State Stamp
Valuation Authority adopted ₹ 65,00,000 as value for the purpose of Stamp Duty.
Compute his Long Term Capital Gain, for the Assessment J022-2023 based on the above
information.
CII: FY 2009-2010: 148, FY 2014-2015: 240, FY 2016-2017: 264, 2021-2022: 317.
Illustration - Application of Sec.50C - M 12 (Mod)

Anshu transfers Land and Building on 02.07.2021 and furnishes the following information.

27
Particulars ₹
(i) Net Consideration received 18,00,000
(ii) Value adopted by Stamp Valuation Authority 24,00,000
(iii) Value ascertained by Valuation Officer on reference by the Assessing Officer 24,00,000
(iv)This Land was acquired by Anshu on 01.04.2001. FMV as on 01.04.2001 5,10,000
(v) A Residential Building was constructed on Land by Anshu at cost of (construction 4,20,000
completed during Financial Year 2014-2015)
(vi) Short Term Capital Loss incurred on Sale of Shares during FY 2015-2016 b/f 50,000
Anshu seeks your advice to the amount to be invested in NHAI Bonds so as to be exempt from
Capital Gain Tax under IT Act.
CII for FY 2001-2002 = 100; CII for FY 2014-2015 = 240; FY 2021-2022 = 317
Illustration - Sec.50C - M 11
Ms. Chhaya transferred a vacant site to Ms. Dayama for ₹ 4,25,000. The Stamp Valuation
Authority fixed the value of vacant site for Stamp Duty purpose at ₹ 6,00,000. The Total Income
of Chhaya and Dayama before considering the transfer of vacant site are ₹ 50,000 and ₹
2,05,000 respectively. The Indexed Cost of Acquisition for Ms. Chhaya in respect of vacant site
is ₹ 4,00,000 (computed). Determine the Total Income of both Ms. Chhaya and Ms. Dayama
taking into account the above said transaction.
Full Value of Consideration for transfer of Share other than Quoted Share [Sec
50CA]:
1. Where the consideration received or accruing as a result of transfer of a Capital Asset, being Share
of a Company other than a Quoted Share is less than the FMV determined in the prescribed manner,
then FMV so determined, shall be deemed to be the Full value of consideration u/s 48.
2. Quoted Share - the Share quoted on any Recognised Stock Exchange with regularity from time to
time, where the quotation of such share is based on current transaction made in the ordinary course
of business.
3. Exceptions: Provisions of Sec.50CA shall not apply to any consideration received or accruing as a
result of transfer by prescribed persons subject to conditions.
FMV = Consideration [Sec.50D]
1. Situation: Consideration received or accruing as a result of transfer of capital asset is not
ascertainable or cannot be determined.
2. FMV = Consideration: For computing Capital Gains, the Fair Market Value of the Asset on the
date of transfer shall be deemed to be the Full Value of the consideration received or accruing as a
result of such transfer.
Forfeiture of Advance Received [Sec.51]

When negotiations for transfer of Capital Asset fail to result in a transfer, the Owner of the Asset may
retain the advance (or other sum) received by him. Upto FY 2013-2014, such amount was to be
reduced from the Cost of Acquisition (COA), or Written Down Value (WDV) or Fair Market Value
(FMV). However, from FY 2014— 2015, no adjustment is to be made in the COA/WDV/FMV, and the
amount shall be taxable under Income from Other Sources.
Significant Issues
Interest on Unpaid Interest on unpaid sale price of a Capital Asset is a Revenue Receipt and not

28
Sale Price chargeable to Capital Gains. [Mount Stuart Tea Estate & Amas Coffee
Plantation 239 ITR 489 (Mad.)[
Effect of Forfeiture In the hands of Transferee / Vendee, Forfeiture of Advance Money is not a
on Transferee relinquishment in his hands and the loss is not a Capital Loss under Capital
Gains. [Sterling Investment Corpn. Ltd 123 ITR 441 (Bom.)]
Compensation Any further amount received as compensation towards cancellation of

Received agreement falls within the provision of ‘or otherwise”, and the same shall be
treated u/s 51. [Based on Travancore Rubber & Tea Company Ltd. 109
Tax 250 (SC)J
Illustration - Sec.51 - Capital Gain subsequent to forfeiture of Advance - M 93, N 09(Mod)

A house was purchased on 01.05.2010 for ₹ 7 Lakhs and was used as a Residence by the
Owner. The Owner had contracted to sell this property in June 2021 for ₹ 8 Lakhs, and he had
received an advance of ₹ 50,000 towards sale. The intending Purchaser did not proceed with
the transaction and the advance was forfeited by the Owner. The property was sold in July
2021 to another Buyer for ₹ 20,00,000. The Owner, from out of sale proceeds, invested ₹ 3
Lakhs in New Residence in December 2021. Compute the Net Taxable Capital Gains, and Other
Income if any.
CII: FY 2010-2011 = 167; FY 2021-2022 = 317.
Illustration - Sec.51 - Forfeiture of Advance by Previous Owner in Prior Period - M 11 (Mod)

Mr. Rakesh purchased a House Property on 14th April 1998 for ₹ 2,50,000. He entered into an
agreement with Mr. B for sale of house on 15th September 2001 and received an Advance of ₹
25,000. However, since Mr. B did not remit the balance amount, Mr. Rakesh forfeited the
advance. Later on, he gifted the House Property to his friend Mr. A on 15th June 2003.
Following renovations were carried out by ₹

Mr. Rakesh and Mr. A to the House Property -
Particulars Amount
By Mr. Rakesh during FY 1998-1999 1,00,000

By Mr. A during FY 2008-2009 1,00,000
By Mr. A during FY 2010-2011 2,50,000
The Fair Market Value of the Property as on 01.04.2001 is ₹ 2,50,000.

Mr. A entered into an agreement with Mr. C for sale of the House on 1st June 2018 and
received an Advance of ₹ 1,00,000. The said amount was forfeited by Mr. A, since Mr. C could
not fulfill the terms of the agreement. Finally, the House was sold by Mr. A to Mr. Sanjay on
2nd January 2022 for a consideration of ₹ 15,00,000.
Compute the Capital Gains chargeable to tax in the hands of Mr. A for the Assessment Year
2022-2023.
Family Arrangements
1. Meaning: A Family Arrangement is an agreement between the members of the same family,
intended generally and reasonably for the benefit of the family, either by compromising doubtful or
disputed rights, or by preserving the family property or the peace and security of the family, by
avoiding litigation, or by saving its honour.
2. Dealing between Members: Family Arrangements are governed by principles which are not
applicable to dealings between the strangers, and the family arrangement amongst them is for the
interest of the family, for the harmonious way of living.

29
3. Re-alignment of Interest: Re-alignment of interest by way of effecting family arrangement among

the Family Members would not amount to transfer. [Al.Ramanathan [2000] 245 ITR 494 (Mad.)]
Exemption from Capital Gains
Exemptions available in computation of capital gain

Sec. Assessee Conditions to be satisfied Quantum of
to whom exemption
allowed
54 Individual 1. Transfer should be of a residential house Actual amount
/HUF income of which is chargeable under the head invested in new asset
'Income from house property'. or the capital gain
2. It must be a long-term capital asset. whichever is less.
3. Purchase of one residential house in India
should be within one year before or 2 years after,
or construction should be within 3 years after the
date of transfer.
However, where the amount of the capital gain
does not exceed ₹ 2 crore, the assessee, may at
his option, purchase or construct two residential
houses in India.
Further, where during any assessment year, the
assessee has exercised the option of two houses
referred above, he shall not be subsequently
entitled to exercise the option for the same or any
other assessment year.

30
Therefore, now the exemption can be claimed for

purchase/construction of two residential houses
instead of one. This benefit is available only when
the capital gain does not exceed ₹ 2 crore.
Further, this benefit is available only once in a life
time.
54B Individual 1. Transfer (excluding compulsory acquisition) Actual amount
/HUF should be of agricultural land. invested in new asset
2. It must have been used in the 2 years or the capital gain
immediately preceding the date of transfer for whichever is less.
agricultural purposes either by the assessee or his
parent or by the HUF.
3. Another agricultural land should be purchased
within 2 years after the date of transfer.
54D Any 1. There must be compulsory acquisition.
assessee 2. The property compulsorily acquired should be
which is land and building forming part of an industrial
an undertaking.
industrial 3. The asset must have been used in the 2 years
undertaki immediately preceding the date of transfer of the
ng assessee for the purpose of the business of the
undertaking.
4. Within a period of 3 years after the date of
compulsory acquisition any other land or building
should be purchased or constructed for the use of
existing or newly set up industrial undertaking.
54EC Any 1. The asset transferred should be a long-term Actual amount

assessee capital asset being land or building or both invested subject to
2. Within a period of 6 months after the date of maximum of ₹ 50 lakhs
transfer, the capital gain must he invested in the in specified asset or
specified assets i.e. bonds redeemable after 5 the capital gain
years issued by NHA1, RECL & Power Finance whichever is less.
Corporation (PFC)
54EE Any 1. The asset transferred should be a long-term Actual amount
assessee capital asset invested subject to
2. Such asset is transferred on or after 1.4.2016 maximum of ₹ 50 lakhs
3. Within a period of 6 months after the date of in specified asset or
transfer, the capital gain must he invested in the the capital gain
long-term specified assets whichever is less.
54F Individual 1. The asset transferred should be a long-term If the cost of the new
/HUF capital asset, not being a residential house. residential house is not
2. Within a period of 1 year before or 2 years after less than the net
the date of transfer, a one residential house in consideration then the
India should be purchased or constructed within a whole of the capital
period of 3 years after the date of transfer. gain. Otherwise, LTCG
x Amt. invested
Net consideration price

31
3. The assessee should not own more than one

residential house on the date of transfer.
4. The assessee should not within a period of 2
years purchase or should not within a period of 3
years construct any residential house other than
the new asset.
Illustration - Sale of Property and Exemption u/s 54

Mr. Pranav, a Resident Individual aged 55 Years, had purchased a Plot of Land at a cost of ₹
9,00,000 in June, 2009. He constructed a House for his residence on that Land at a cost of ₹
15,00,000 in August, 2011. He sold that House in May, 2021 at ₹ 1,50,00,OOOand purchased
Two Residential Houses in June, 2021 for ₹ 75,00,000 and in September, 2021 for ₹ 20,00,000.
He furnishes other Income and Investment as follows:
Interest on Fixed Deposit with a Bank (Net of TDS ₹ 15,000) ₹ 1,35,000
Investment in PPF ₹ 1,00,000
CII for Financial Year 2009-2010, 2011-2012 and 2021-2022 are 148,184 and 317respectively.
Compute Taxable Income and Tax Payable by Mr. Pranav for the AY 2022-2023.
Illustration - Sale of Inherited Property - M 02

Mr. Surinder furnishes the following particulars for the previous year ending 31.03.2022.
He had a Residential House, inherited from his father in December 2008, the Fair Market Value
of which on 01.04.2001 is ₹ 13 Lakhs. In the year 2011-2012, further construction and
improvements costed ₹ 10 Lakhs.
On 10.05.2021, the House was sold for ₹ 75 Lakhs. Expenditure in connection with transfer is ₹
50,000.
On 20.12.2021, he purchased a Residential House for ₹ 20 Lakhs.

32
Required:
1. Compute the taxable Capital Gain for the above data.
2. What will be the taxable Capital Gain, if the cost of the new Residential House is only ₹ 12
Lakhs?
3. What will be the tax effect if Mr. Surinder sold the new Residential House acquired as above,
within one year from the date of its acquisition for a consideration of ₹ 30 Lakhs? Give your
answer in both cases, i.e. if Cost of the new Residential House is - (a) ₹ 20 Lakhs, and (b) ₹ 12
Lakhs.
Illustration - Sec.54- N 12(Mod)
Mr. C inherited from his father 8 plots of Land in 1999. His father had purchased the plots in
1986 for ₹ 5 Lakhs. The Fair Market Value of the Plots as on 01.04.2001 was ₹ 16 Lakhs. ( ₹ 2
Lakh for each plot)
On 1st June 2008, C started a Business of dealer in plots and converted the 8 plots as stock in
trade of his business. He recorded the plots in his books and ₹ 64 Lakhs being the FMV on the
date. In June 2011, C sold the 8 plots for ₹ 75 Lakhs.
In the same year, he acquired a Residential House Property for ₹ 50 Lakhs. He invested an
amount of ₹ 5 Lakhs in construction of one more floor in his house in June 2013. The house
was sold by him in June 2020 for ₹ 80,00,000.
The valuation adopted by the Registration Authorities for charge of Stamp Duty was ₹
98,50,000. As per the Assessee's request, the Assessing Officer made a reference to a
Valuation Officer. The value determined by the Valuation Officer was ₹ 99,20,000. Brokerage of
1% of Sale Consideration was paid by C.
The relevant Cost Inflation Indices are - FY 2004-2005 - 113, FY 2008-2009 - 137, FY 2012- 2013 -
200, FY 2013-2014 - 220, FY 2020-2021 - 301, FY 2021-2022 - 317. Give the tax computation for
the relevant Assessment Years.
Illustration - Conversion into Stock Sec.54F Exemption - N 16

Mr. Anand Prakash, a Resident Individual, aged 55 years, purchased 10 Plots in the financial
year 1995-1996 for ₹ 8 Lakh Fair Market Value as on 01.04.2001 is 15 Lakhs. On 1st April 2009,
he started a business of Property dealing and converted all 10 plots as Stock in Trade of his
business, and recorded the cost at ₹ 40 Lakh in his books being the Fair Market Value on 1st
April 2009.
On 31st March 2016, he sold all 10 Plots for ₹ 55 Lakh and purchased a Residential House
Property for ₹ 50 Lakh. He has constructed 2 rooms in this Residential House in June 2016
and has spent ₹ 8 Lakh.
He sold the above Residential House on 5th Feb 2022, for ₹ 73 Lakh. The valuation adopted by
Stamp Valuation Authority for the payment of Stamp Duty was ₹ 95 Lakh. On the request of Mr.
Anand Prakash, A.O. made a reference to the Valuation Officer. The Valuation Officer
determined the value at ₹ 98 Lakh. Mr. Anand Prakash paid brokerage 1% of Sale
Consideration.
Compute the Total Income and total Tax Liability of Mr. Anand Prakash for the Assessment
Year 2022-2023.
(Cost Inflation Index: 2002-2003: 105, 2008-2009: 137, 2014-2015: 240, 2015-2016: 254, 2016-
2017: 264, 2020-2021: 301, 2021-2022: 317)
Illustration - Investment u/s 54F - Ranking of Proposals- RTP

Sumit purchases 2,500 (non-listed) Shares in Amit Ltd on 16th August 2007 for ₹ 10,000. On

33
17th May 2009, he gets 500 Bonus Shares. On 20th October 2015, he acquires 1,500 Right
Shares at the rate of ₹ 15 per Share. He sells 4,500 (non-listed) Shares in Amit Ltd on 12th
February 2022 at the rate of ₹ 150 per Share (Brokerage on Sale is 2%). He owns one
Residential House Property. He purchases a Residential House on 29th June 2021 for ₹
3,50,000. Ascertain the amount of Capital Gains chargeable to tax for AY 2022-2023.
CII: FY 2007-2008 = 129, 2009-2010 = 148, 2015-2016 = 254, 2021-2022 = 317.
Illustration - Investment u/s 54F - Ranking of Proposals- M 10(Mod)

Anand, a Resident Individual and a Senior Citizen, purchased 25,000 shares of AB Ltd, an
Unlisted Company at ₹ 100 per Share, on 01.04.2006. On 01.10.2007, AB Ltd declared Bonus
Share @ 20% on the original holdings. On 01.04.2008, AB Ltd issued Rights Shares at one
Share per every two Shares held at ₹ 60 per Share. Anand subscribed in full, his Rights Share
entitlement. Anand sold all his Original Shares,Right and Bonus Shares of AB Ltd on
30.04.2021 for ₹ 300 per Share. He paid Brokerage @ 2% on the Sale Value of Shares. Anand
purchased a Residential Flat for ₹ 20 Lakhs on 01.07.2021 as he did not own any house/ flat
and invested ₹ 25 Lakhs in REC bonds (Capital Gain) out of the Net Sale Consideration of Sale
of Shares. Anand has no other income during the Previous Year 2021-2022. Compute the
Capital Gains and the total income chargeable to tax, and tax thereon, for the Previous Year
2021-2022.
CII: 2006-2007 = 122, 2007-2008 = 129, 2008-2009 = 137, 2020-2021 = 301, 2021-2022=317.
Exemption u/s 10(37): This Section deals with total non-taxability of Agricultural Land in case of
compulsory acquisition / determination of consideration determined by Central Government / RBI -
Applicability Individuals and HUF
Conditions (a) Specified Area: Agricultural Land is situated in area referred to u/s 2(14)(iii)(a)/(b).
(b) Used for Agriculture: During the two years preceding the date of transfer, the
Land was being used for agricultural puiposes by such Individual / His Parent / HUF.
(c) Compulsory Acquisition: Transfer is by way of Compulsory Acquisition under any
law or the consideration for such transfer is determined by Central Government or
RBI.
(d) Date of Receipt of Compensation: Compensation / Consideration (including
Compensation / Consideration enhanced by a Court / Tribunal / Other Authority)
received on or after 1.4.2004.
Illustration - Sec.10 (37)- M 06

X is in possession of Agricultural Land situated within urban limits, which is used for
agricultural purposes during the preceding 3 years by his Father. On 04.04.2021, this Land is
compulsorily acquired by the Government of India on a compensation fixed and paid by it for
₹ 10 Lakhs. Advise X as to the tax consequences, assuming that the entire amount is invested
34
in purchase of Shares.
In the given case, the Agricultural Land is used by the Assessee’s Father for agricultural purposes in
the preceding three years and it is situated within prescribed limits, the compensation of ₹ 10 Lakhs
received from the Government is completely exempt from tax u/s 10(37).
Illustration - Sec 54, 54EC- N 11

Mr. Selvan, acquired a Residential House in January, 2008 for ₹ 10,00,000 and made some
improvements by way of additional construction to the house, incurring expenditure of ₹
2,00,000 in October, 2012. He sold the House Property in October 2021 for ₹ 75,00,000. The
value of property was adopted as ₹ 80,00,000 by the State Stamp Valuation Authority for
Registration purpose. He acquired a Residential House in January 2022 for ₹ 25,00,000. He
deposited ₹ 20,00,000 in Capital Gains Bonds issued by National Highways Authority of India
(NHAI) in June 2022.Compute the Capital Gain chargeable to Tax for the Assessment Year
2022-2023.
What would be the tax consequence and in which Assessment Year it would be taxable, if the
House Property acquired in January 2022 is sold for ₹ 40,00,000 in March 2022?
CII: FY 2007-2008 = 129, FY 2012-2013 = 200, FY 2021-2022 =317.
Illustration - Maximum Investment u/s 54EC- M 11

Mr. Chandru transferred a Vacant Site on 28.10.2021 for ₹ 100 Lakhs. The site was acquired for
₹ 9,99,300 on 30.6.2008. He deposited ₹ 50 Lakhs in eligible Bonds issued by Rural
Electrification Corporation Ltd (REC) on 20.03.2022.
Again, he deposited ₹ 20 Lakhs in eligible Bonds issued by National Highways Authority of
India (NHAI) on 16.04.2022.
Compute the chargeable Capital Gain in the hands of Chandru for the Assessment Year 2022-
2023
Illustration - Sec. 50C, 51 - M 17

Mr. Yuthistra bought a vacant Land for ₹ 80 Lakhs in May 2009. Registration and Other
Expenses were 10% of the Cost of Land. He constructed a Residential Building on the said
Land for ₹ 100 Lakhs during the Financial year 2011-2012.
He entered into an Agreement for Sale of the above said Residential House with Mr. John (not
a relative) in April 2020. The Sale Consideration was fixed at ₹ 700 Lakhs and on 23.04.2020,
Mr. Yuthistra received ₹ 20 Lakhs as advance in cash by executing an agreement.
The Sale Deed was executed and registered on 14.01.2022 for the agreed consideration.
However, the State Stamp Valuation Authority had revised the values, hence the Value of
Property for Stamp Duty purposes was ₹ 770 Lakhs. Mr. Yuthistra, Paid 1% as Brokerage on
Sale Consideration received.
Subsequent to sale, Mr. Yuthistra made following Investments:
(i) Acquired a Residential House at Delhi for ₹ 110 Lakhs.
(ii) Acquired a Residential House at London for ₹ 190 Lakhs.
(iii) Subscribed to NHAI Capital Gains Bond (approved u/s 54EC) for ₹ 45 Lakhs on
29.03.2022& for ₹ 50 Lakhs on 12.05.2022.
Compute the Income chargeable under the head 'Capital Gains'. The choice of exemption must
be in the manner most beneficial to the Assessee. Cost Inflation Index: F.Y. 2009-2010 = 148,
F.Y. 2011-2012 = 184, F.Y. 2021-2022 = 317.
Illustration - Sec. 50C, 54, 54EC - M 14

Mr. Roy, aged 55 years owned a Residential House in Ghaziabad. It was acquired by Mr. Roy
on 10.10.2008 for ₹ 20,00,000. He sold it for ₹ 53,00,000 on 04.11.2021. The Stamp Valuation
Authority of the State fixed value of the property at ₹ 70,00,000. The Assessee paid 2% of the
Sale Consideration as Brokerage on the sale of the said property.
35
Mr. Roy acquired a Residential House Property at Kolkata on 10.12.2021 for ₹ 8,00,000 and
deposited ₹ 5,00,000 on 10.04.2022 and ₹ 5,00,000 on 15.06.2022 in the Capital Gains Bonds of
Rural Electrification Corporation Ltd. He deposited ₹ 4,00,000 on 06.07.2022 and ₹ 3,00,000 on
01.11.2022 in the Capital Gain Deposit Scheme in a Nationalised Bank for construction of an
Additional Floor on the Residential House Property in Kolkata.
Compute the Capital Gain chargeable to Tax for the Assessment Year 2022-2023 assuming Mr.
Roy has no other income. Cost Inflation Index for FY 2008-2009 = 137 and FY 2021-2022 = 317.
Illustration - Quantification of amount to be invested u/s 54EC- M 06(Mod)

Mr. A who transfers Land and Building on 02.01.2022, furnishes the following information -
(a) Net Consideration received ₹ 25 Lakhs.
(b) Value adopted by Stamp Valuation Authority, which was not contested by Mr. A ₹ 28 Lakhs.
(c) Value ascertained by Valuation Officer on reference by the Assessing Officer ₹ 30 Lakhs.
(d) This Land was distributed to Mr.A on the partial partition of his HUF on 01.04.1999. Fair
Market Value of the Land as on 01.04.2004 was ₹ 4,25,000.
(e) A Residential Building was constructed on the above Land by Mr. A at a cost of ₹ 3,00,000
(Construction completed on 01.12.2015) during the Financial Year 2015-2016.
(f) Short-Term Capital Loss incurred on sale of Shares during the Financial Year 2016-2017 ₹
1,65,000.
Mr. A seeks your advice as to the amount to be invested in NHAI Bonds, so as to be exempt
from Capital Gain Tax.
Illustration - Jul 21
Mr. A is the owner of residential house which was purchased on 1st September, 2017 for ₹
9,00,000. He sold the said house on 4th September, 2021 for ₹ 19,00,000. Valuation as per
stamp
valuation authorities was ₹ 45,00,000. He invested ₹ 19,00,000 in NHAI Bonds on 21st March,
2022.
The cost of Inflation of Index for - FY 2017-18 - 272 FY 2021-22 – 317
Capital Gains from Financial Assets

The Cost and Holding Period relating to Financial Assets are given below -
Cost & Holding Period in relation to certain Financial Assets [Sec.55]
Particulars of Asset Date of Acq/ Holding Cost of Acquisition

Period
1. Shares originally purchased:
(a) Primary Market Date of Allotment Allotment Price
(b) Secondary Market Date of Broker’s Note Amount paid + Brokerage Charges
(i) Transactions through Share Date of Contract of Sale + Adjustment for ex. & cum.
Brokers Dividend/ Interest
(ii)
Transactions between parties As above (excluding Brokerage)
directly
2. Shares acquired in different lots FIFO method FIFO Method

36
at different points of time
3. Shares held in Depository FIFO Method FIFO Method

System (taxable in hands of
Beneficial Owner)
4. Right Shares offered to existing Date of Allotment Offer Price

Shareholders and subscribed
by him
5. Right Shares acquired by a Date of Allotment Offer Price + Amount Paid for
person by way of Renouncement
renouncement
6. Renouncement of Right Shares Holding Period = From NIL

in favour of another person date of offer of such
right, to the date of
renouncement (always
STCG)
7. Financial Asset acquired Date of Allotment of such NIL

without any Financial Assets [See Note 1]
payment/consideration.
8. Equity Shares allotted under a From the date of being Cost to acquire the Original
scheme of Demutualization or Member of Recognized Membership of the Exchange
Coiporatization approved by Stock Exchange in India
SEBI immediately prior to such
Demutualization or
Corporatization
9 Trading or Clearing Rights of From the date of being NIL

Recognized Stock Exchange Member of Recognized
(obtained equity shares through Stock Exchange in India
Demutualization or immediately prior to such
corporatization) Demutualization or
Corporatization
10 Consolidation / Sub-Division / From date of holding Cost of Acquisition of original

Conversion of Shares [See original Shares / Stock Share / Stock
Note 2]
Note:
1. If Bonus Shares are allotted to the Assessee prior to 01.04.2001, the Assessee may opt for Market
Value as on 01.04.2001.
2. This covers the following items -
(a) Consolidation and Division of all or any of the Share Capital of the Company into Shares of larger
amount than its existing Shares,
(b) Conversion of any Shares of the Company into Stock,
(c) Re-Conversion of any Stock into Shares of the Company,
(d) Sub-Division of any of the Shares of the Company into shares of smaller amount, or
(e) Conversion of one kind of Shares of the Company into another kind.
3. Transfer of an Unit of the Unit Scheme 1964 referred to in Schedule I to the Unit Trust of India
(Transfer of Undertaking and Repeal) Act, 2002, on or after 01.04.2002, is exempt from tax. [Sec.
10(33)]

37
Illustration - Capital Gain on Transfer of Financial Assets- N 11

Mr. Mithun purchased 100 shares of M/s Good money Co. Ltd on 01.11.2019 at rate of ₹ 1,000
per Share in Public Issue of the Company.
The Company allotted Bonus Shares in the ratio of 1:1 on 01.12.2019. He has also received
dividend of ₹ 10 per Share on 01.05.2021.
To celebrate his 75th birthday, Mr. Mithun has sold all the Shares on 01.10.2021 at the rate of ₹
3,300 per Share through a Recognized Stock Exchange and paid brokerage of 1% and
Securities Transaction Tax of 0.02%. The Cost Inflation Indices are as follows:
Financial Year Cost Inflation Index Financial Year Cost Inflation Index
2019-2020 289 2021-2022 317
The FMV of these shares on 31.01.2021 is ₹ 2000 per share

Compute his Total Income Tax Liability for the Assessment Year 2022-2023 assuming that he
is having no Income other than given above.
Illustration - Capital Gain on Transfer of Financial Assets - M 13

Ms. Neelima had purchased 500 Equity Shares in A Ltd at a cost of ₹ 30 per Share (Brokerage
1%) in February 1998. She got 50 Bonus Shares in September 2002. She agai n got 550 Bonus
Shares by virtue of her holding, in March 2008. Fair Market Value of the Shares of A Ltd on
April 2003, is ₹ 200. In January 2022, she transferred all her Shares at ₹ 300 per Share ₹
Brokerage 2%).
Compute the Capital Gains taxable in the hands of Ms. Neelima for Asfjessment Year 2022-
2023 assuming A Ltd is an Unlisted Company and Securities Transaction Tax was not
applicable at the time for sale. CII- F.Y 2003-2004 = 109, F.Y 2007-2008= 129, F.Y 2021-2022 =
317
Assessee: Ms. Neelima Previous Year: 2020-2022 Assessment Year: 2022-2023
Rates of Capital Gains Tax[Sec.112]

1. Short-Term Capital Gain: STCG is taxed at normal rates as applicable to various Assessees.
However, in respect of Equity Shares, Equity Oriented Mutual Fund and Units of Business
Trust transferred and on which STT paid, Sec. 111A will apply, i.e. taxable at 15%. The
following points are relevant for such STCG.
(a) Chapter VI-A deduction shall not be allowed in respect of Income from such Short Term
Capital Gain.
(b) Special Benefit for Resident Individual / HUF:
• Condition: Total Income excluding Short -Term Capital Gains is less than the basic exemption.
• Benefit: Tax on Short-Term Capital Gain is determined as follows:
Tax on STCG = 15% of [Total Income including STCG (Less) Basic Exemption]
Note: For Non-Resident, the basic exemption benefit is not available for STCG (STT Paid)
(c) Where a transaction is undertaken on a Recognized Stock Exchange located in any
International Financial Services Centre and where the consideration for such transaction is paid
or payable in Foreign Currency, Such transaction is chargeable at 15% even STT not paid.

38
(d) Explanation for the Terms:

• “Equity Oriented Fund” shall have the meaning assigned to in Explanation to Sec. 10(38).
• “International Financial Services Centre” shall have the same meaning as assigned to it in Sec.
2(q) of the Special Economic Zone Act, 2005,
• "Recognized Stock Exchange” shall have the meaning assigned to it in clause (ii) of the
Explanation 1 of Sec. 43(5).
Long-Term Capital Gain arising from transfer of Securities listed in a

Recognised Stock Exchange, not covered by Securities Transaction Tax:
(a) Compute Capital Gain without indexation and charge tax at l0%.
(b) Compute Capital Gain with indexation and charge tax at20% as perSec. 112
(c) The Assessee has the option to choose either of the above whichever to is beneficial
him.
Notes:
(a) Chapter VIA Deduction shall not be allowed in respect of Income from Long-Term Capital Gain.
(b) Special Benefit for Resident Individuals / HUF:
• Condition: Total Income excluding Long-Term Capital Gains is less than the basic exemption.
• Benefit: Tax on Long-Term Capital Gain is determined as follows -
Tax on LTCG = 20% of [Total Income including LTCG (Less) Basic Exemption]
Note: For Non-Resident, the basic exemption benefit is not available for LTCG.
Only that amount of Long-Term Capital Gains which is included in the Total Income would be subject
to tax, at a prescribed flat rate u/s 112.
Tax on Long Term Capital Gains in Certain Cases [Sec.112A]

1. Conditions for applicability [Sec. 1 12A(1)]:
(i) Total Income of an assessee, includes any income chargeable under the head “Capital Gains”, and
(ii) Capital gains arise from the transfer of a long-term capital asset being an
 Equity Share in a Company or
 a Unit of an Equity Oriented Fund or
 a Unit of a Business trust, and
Nature of Long Term Capital Asset STT Paid during
Equity Share in a Company Acquisition and Transfer of such Capital Asset
Unit of an Equity oriented fund or a Business trust Transfer of such Capital Asset
Note 1: The condition of payment of STT shall not apply to a transfer undertaken on a Recognised
Stock Exchange, located in any International Financial Services Centre (IFSC) and where the
consideration for such transfer is received or receivable in Foreign Currency. [Sec. 1l2A(3)]
“International Financial Services Centre” shall have the same meaning as u/s 2(q) of SEZ Act, 2005.
Note 2: The Central Government may by notification specify the nature of acquisition of Equity Share
in a Company for which STT shall not apply. [Sec. 1l2A(4)]
2. Meaning of Equity Oriented Fund: “Equity Oriented fund” means a fund set up under a scheme of
a Mutual Fund specified u/s 10 (23D) or [w.e.f. 01.04.2021 Fund set up under a scheme of an
Insurance Company comprising Unit Linked Insurance Policies to which exemption u/s 10(10D) does
39
not apply [For details discussion on Sec. 10(10D) - Refer Chapter 8] and
Fund Invested in Minimum Investment in
If the fund invests in the Units of • minimum of 90% of the total proceeds of such fund is invested
another fund which is traded on a in the units of such other fund and
Recognized Stock Exchange • such other fund also invests a minimum of 90% of its total
proceeds in the listed Equity Shares of Domestic Companies
In any other case Minimum of 65% of the total proceeds of such fund is invested in
the listed Equity Shares of Domestic Companies
Note 3: Percentage of Equity Shareholding or Unit held in respect of the fund, shall be computed with
reference to the annual average of the monthly averages of the opening and closing figures.
Note 4: In case of a scheme of an insurance company comprising ULIP to which exemption u/s
10(10D) does not apply, the minimum requirement as specified above, is required to be satisfied
throughout the term of such insurance policy.
3. Computation of Tax Payable [Sec.112A(2)]: The tax payable by an assessee on his total income
shall be determined only in the following manner (i.e Sec. 112 shall not apply) -
Computation of Income Tax Payable
Description (₹)
Step: 1 XXX
[LTCG (-) ₹ 1,00,000] x 10%(A)
Step:2 XXX
Amount of IT payable on the balance of TI (assuming as if such balance excluding the
LTCG amount were the total income of the assessee) (B)
Total Tax Payable = (A)+(B) XXX
[Note -Special rate of 10% of tax rate shall be applicable for such LTCG exceeding ₹ 1,00,000]
Cost of Acquisition : In respect of long-term Capital Asset acquired by the assessee before
01.02.2018 shall be higher of—
(i) Cost of Acquisition of such asset and
(ii) Lower of-
• FMV of such asset and
• Full value of consideration received or accruing as a result of the transfer of the capital
asset. “Fair Market Value” means-
Nature of Capital Asset FMV
Capital Asset is listed on any recognised stock Highest price of the capital asset quoted on such
exchange and traded on 31.01.2018 exchange on 31.01.2018
Capital Asset is listed on any recognised stock Highest price of such asset on such exchange on

40
exchange, but no trading in such asset on such a date immediately preceding 31.01.2018,
exchange on 31.01.2018 when such asset was traded on such exchange
Capital Asset is a unit and is not Listed on a NAV of such asset as on 31.01.2018
recognised stock exchange on 31.01.2018
Equity Share Not listed on recognised stock An amount which bears to the Cost of Acquisition
exchange as on 31.01.18, but listed on the date of the same proportion as Cost Inflation Index for
Transfer or the financial year 2017-2018, bears to the CII for
Equity Share which is Listed on a recognized the
Stock exchange on the date of transfer and which • First year in which the asset was held by the
became the property of the assessee in assessee or
consideration of share which is not listed on such
• For the year beginning on 01.04.2001,
exchange as on 31.01.2018 by way of transaction
whichever is later
not regarded as transfer u/s 47
Special Benefit for Resident Individuals / HUF:

• Applicability: Resident Individual or Resident HUF
• Condition: Total income excluding Long-Term Capital Gains is less than the basic exemption.
• Benefit: Tax on Long-Term Capital Gain is determined as follows - Tax on LTCG = 10% [Total
Income including LTCG - Basic Exemption] - 1,00,000]
7. Chapter VI-A Deductions (Sec. 1l2A(7)]: Where the Gross Total Income of an assessee includes
any LTCG referred u/s 112A( 1), the deduction under Chapter VI-A shall be allowed from the Gross
Total Income as reduced by the amount of such Capital Gains, i.e, No deduction shall be allowed
under Chapter VIA in respect of income from LTCG.
8. Rebate u/s 87A [Sec. 112A(8)J: Where the Total income of an assessee includes any LTCG
referred u/s 112A(1), rebate u/s 87A shall be allowed from the Income-tax on the total income as
reduced by the amount of tax payable on such Capital Gains, i.e, No rebate shall be allowed in
respect of tax payable on LTCG.
Illustration 1:
Particulars Date Rate
Acquisition of the Equity Share 01.01.2018 ₹ 100
FMV 31.01.2022 ₹ 200
Sale of Equity Shares 01.04.2023 ₹ 250
1. Cost of Acquisition: As the actual cost of acquisition is less than the fair market value as on 31st
of January, 2022, the fair market value of Rs. 200 will be taken as the cost of acquisition.
2. Long-term capital gain = ₹ 50 ( ₹ 250 - ₹ 200).

41
Illustration 2:
FMV 31.01.2022 ₹ 200
1. Cost of Acquisition: In this case, the actual cost of acquisition is less than the fair market value as
on 31st of January, 2022. However, the sale value is also less than the fair market value as on 31st of
January, 2022.
2. Long term Capital Gain: The sale value of ₹ 150 will be taken as the cost of acquisition and the
long-term capital gain will be NIL ( ₹ 150 - ₹ 150).
Illustration 3:
FMV 31.01.2022 ₹ 50
1. Cost of Acquisition: In this case, the fair market value as on 31st of January, 2022 is less than the
actual cost of acquisition, and therefore, the actual cost of ₹ 100 will be taken as actual cost of
acquisition.
2. Long Term Capital Gain: Long-term capital gain will be ₹ 50 (T150 - ₹ 100).
Illustration 4:
FMV 31.01.2022 ₹ 200
1. Cost of Acquisition: In this case, the actual cost of acquisition is less than the fair market value as
on 31st January, 2022. The sale value is less than the fair market value as on 31st of January, 2022
and also the actual cost of acquisition. Therefore, the actual cost of Rs. 100 will be taken as the cost
of acquisition.
2. Long-term capital loss: Long Term Capital Loss = ₹ 50 ( ₹ 50 - ₹ 100).
Illustration - Computation of Total Income - LTCG - Deduction under Chapter Vl-A - N08(Mod)
Paulomi has transferred 1,000 Equity Shares (STT not paid)of Hetal Ltd, (which she acquired at
cost of ₹ 10,000 in 1.4.2019 to Dhaval, her brother, at a consideration of ₹ 3,41,476 on
15.05.2021 privately.
During the Previous Year 2021-2022 she has paid through e-banking ₹ 15,000 towards Medical

42
Premium, ₹ 50,000 towards L.I.P. and ₹ 25,000 towards PPF.

Assuming she has no other source of Income, compute her Total Income and Tax Payable for
Assessment Year 2022-2023.
Illustration - Computation of Tax Liability on Capital Gains of Non-Resident

Rosy and Mary are sisters, born and brought up at Mumbai. Rosy got married in 1974 and
settled at Canada since 1974. Mary got married and settled at Mumbai. Both of them are below
60 years.
Particulars Rosy Mary
1. Pension received from State Government — ₹ 10,000
2. Pension received from Canadian Government ₹ 20,000 -
3. Long Term Capital Gain on sale of Land at Mumbai ₹ 1,00,000 ₹ 50,000
4. STCG on sale of Shares of Indian Listed Companies in ₹ 20,000 ₹ 2,50,000

respect of which STT was paid
5. LIC Premium paid - ₹ 10,000
6. Premium paid to Canadian Life Insurance Corporation at ₹ 10,000 —

Canada
7. Medidaim Policy Premium paid — ₹ 5,000
8. Tax Saving Bond purchased in March 2020 ₹ 30,000 ₹ 20,000
9. Rent received in respect of house property at Mumbai ₹ 60,000 ₹ 30,000
Compute Total Income of Mrs. Rosy and Mrs. Mary for the Assessment Year 2022-2023 and tax
thereon.
Illustration-Treatment of Long Term Capital Loss-M 05

Mr. Y submits the following information pertaining to the year ended 31.03.2022 —
(a) On 30.11.2021, when he attained the age of 60, his friends in India gave a flat at Surat as a
gift, each contributing a sum of ₹ 20,000 in cash. The cost of the flat purchased using the
various gifts was ₹ 3.4 Lakhs.
(b) His close friend abroad sent him a Cash Gift of ₹ 75,000 through his relative, for the above
occasion.
(c) Mr.Y sold the above flat on 30.01.2022 for ₹ 3.6 Lakhs. The Registrar's valuation for stamp
duty purposes was ₹ 3.7 Lakhs. Neither Mr. Y nor the buyer, questioned the value fixed by the
Registrar.
(d) He purchased some Equity Shares in X Pvt Ltd (unlisted) on 05.02.2021 for ₹ 3.5 Lakhs,
which were sold on 15.03.2022 for ₹ 3.20 Lakhs.
You are requested to calculate the Total Income of Y for Assessment Year 2022-2023.
Illustration - Capital Gain on more than one Asset - N 93

Mrs. Padmini owned two motor-cars, which were mainly used for business purposes. The
Written Down Value on 01.04.2021 of the Block of Assets comprising of only these two cars,
both of which were purchased in May 2011, was ₹ 1,81,000. These two cars were sold in June
2021, for ₹

43
1.50.000. In February 2022, she sold 1,000 Shares in X Ltd (unlisted), an Indian Company, for ₹
3.50.000. She had purchased the same during January 2020 for ₹ 2,44,000. A House Plot
purchased by her in March 2010 for ₹ 2,73,000 was sold by her for ₹ 6,50,000 on 18.01.2022.
Compute the amount of Net Capital Gains chargeable to tax in respect of the above
transactions for the Assessment Year 2022-2023.
Illustration - Capital Gain on Listed Equity Shares - N 19,Jul 21

Mr. Rajan provides you the following details with regard to scale of certain securities by him
during F.Y. 2021-2022:
(i) Sold 10000 shares of A Ltd on 05.04.2021 @ ₹ 650 per share A Ltd. is a listed company.
These shares were acquired by Mr. Rajan on 05.04.2017 @ ₹ 100 per share. STT was paid both
at the time of acquisition as well as at the time of transfer of such shares which was affected
through a recognized stock exchange. On 31.01.2018, the shares of A Ltd were traded on a
recognized stock exchange as under:
Highest Price - ₹ 300 per share Average Price - ₹ 290 per share Lowest Price - ₹ 280 per share
(ii) Sold 100 units of B Mutual Fund on 20.04.2021 @ ₹ 50 per unit B Mutual Fund is an equity
oriented fund. These units were acquired by Mr. Rajan on 15.04.2017 @ ₹ 10 per unit. STT was
paid only at the time of transfer of such units. On 31.01.2018, the Net Asset Value of the units
of B Mutual Fund was ₹ 55 per unit.
(iii) Sold 100 shares of C Ltd on 25.04.2021 @ ₹ 200 per share C Ltd is an un-listed company.
These shares were issued by the company as bonus shares on 30.09.1999. The Fair Market
Value of these shares as on 01.04.2001 was ₹ 50 per share.
Cost Inflation Index for various financial year are as under:
2001-2002 - 100
2018-2019- 280
2021-2022-317
Calculate the amount chargeable to tax under the head 'Capital Gains ₹ and also calculate tax
on such gains for A.Y. 2022-2023 assuming that the other incomes of Mr. Rajan exceeds the
maximum amount not chargeable to tax. (Ignore Surcharge and cess).
Illustration
(A) Compute the capital gain in the hands of R who has transferred the following assets
during the previous year 2021-22:
Name of the Asset Cost of acquisition FMV on Full value of

1.4.2001 consideratio
n

44
₹ ₹
(1) Goodwill of a business — 2,40,000 4,00,000
(2) Tenancy rights of a commercial — 4,00,000 6,00,000

building
(3) Route permit — 2,50,000 5,00,000
(4) Shares acquired in 1978 2,90,000 2,00,000 10,00,000
(B) Would your answer change if the Goodwill transferred is of a profession instead of
business?
(C) What shall be your answer if the above shares are listed on a recognized stock
exchange and were sold on 1.12.2021 through a recognised stock exchange and STT was
paid. Assume the FMV of the above shares as on 31.1.2018 was ₹ 4,30,000.
(D) What shall be your answer if the above share are listed on a recognized stock exchange
but were sold off market.
Illustration : A building was acquired by A in 1994 for ₹ 5,00,000. He spent ₹ 1,40,000 in

year 1999 for some additions to that building. He further spent ₹ 2,00,000 for construction of
additional room in the year 2004-05. A died in 2012-13 and the same property passed on to
his son B under a will. The market value as on that date was ₹ 20,00,000. B spent ₹
3,00,000 on 5.1.2014 for further addition in that building. On 6.7.2016 the building was
converted into stock-in-trade. Market value of that building as on that date was ₹ 35,00,000.
The above building was sold on 5.1.2022 for ₹ 39,00,000. Compute capital gain and any
other income which is liable to tax. Market value of the above building as on 1.4.2001 was ₹
8,50,000. C.l.I. of previous years 2004-05, 2012-13, 2013-14, 2016-17 and 2021 -22 is 113,
200, 220, 264 and 317 respectively.
Illustration : A sold on 31.10.2021 an agricultural land, which he has been using for
agricultural purposes for several years, for ₹ 32,00,000. He acquired that land in 1978 for ₹
1,00,000. The market value of such land as on 1.4.2001 was ₹ 8,50,000. He purchased rural
agricultural land for ₹ 3,50,000 on 25.2.2022 which was sold for ₹ 5,00,000 on 15.5.2022.
Further, a sum of ₹ 5,50,000 was invested by him in purchase of residential property on
25.5.2022. He owned only one house property before this date. The new house property
was sold on 31.8.2022 for ₹ 6,50,000. Compute capital gain for assessment year 2022-23
and assessment year 2023-24.
Illustration: X submits you the following particulars:
Particulars Cost ₹ Market value Date of Sale Price

as on sale
1.4.2001 ₹
Urban agricultural land 1.5.1978 50,000 4,25,000 15.7.2021 15,00,000

45
Rural agricultural land 4.4.1982 1,00,000 6,50,000 16.9.2021 12,00,000
Listed shares 5.7.2020 60,000 40,000 4.6.2021 80,000
Gold 6.8.2002 2,05,000 1,80,000 5.2.2022 7,00,000
Residential house 8.6.1964 30,000 25,00,000 25.2.2022 70,00,000

property
He deposited a sum of ₹ 4,00,000 on 25.6.2022 in the capital gain scheme as he intends to

buy an agricultural land later. Out of the sale proceeds of gold, he has invested ₹ 1,96,000
on the purchase of residential house property on 15.5.2022. The shares were sold through a
recognised stock exchange and therefore STT was paid. The FMV of these shares as on
31.1.2018 was ₹ 75,000.
Compute taxable capital gain for the assessment year 2022-23. CII for the previous years
2001-02, 2002-03 and 2021-22 was 100, 105 and 317 respectively.
Illustration : R enters into a partnership with G on 1.5.2021 to start an export business. The
following assets have been introduced by R as his capital contribution which he was using in
his business earlier:
(A) Land; (B) Plant and Machinery
The particulars of the above assets are given below.
Particulars Land Plant and Machinery
Date of Acquisition 6.6.1978 7.7.1991
Fair Market Value as on 1.5.2021 10,00,000 5,00,000
Amount recorded in the books of accounts 10,40,000 4,00,000
Cost of acquisition 30,000 —
WDV of Plant & Machinery as on 1.4.2021 — 3,00,000
Fair Market Value as on 1.4.2001 2,10,000 —
On 25.3.2022 he purchased a residential house property for ₹ 4,20,000. The said property
was sold on 28.3.2024 for ₹ 7,00,000. Compute the capital gain for various assessment
years.
Illustration: A firm has 2 partners namely X and Y. It was dissolved on 15.9.2021 and the
details of the assets and manner in which these assets were distributed to partners are given
below:
Machines: WDV of 2 machines as on 1.4.2021 was ₹ 4,00,000. Third machine was bought
on 5.5.2021 for ₹ 2,00,000. Market value of 2 machines given to X and 1 machine given to Y

46
was ₹ 5,00,000 and ₹ 1,50,000 respectively. However, these were given to X and Y at ₹
4,00,000 and ₹ 2,00,000 respectively.
Furniture: WDV of furniture and fixture on 1.4.2021 was ₹ 2,00,000, the same was given to X
for ₹ 1,00,000. The market value of this furniture is ₹ 2,50,000.
Land: Land was given to Y. It was bought in 2002-03 for ₹ 20,00,000. The stamp duty value
of land as on date of distribution was ₹ 64,00,000 but it was given at ₹ 55,00,000.
Compute the capital gain of the firm for the assessment year 2022-23. CII of the previous
year 2002-03 was 105.
Illustration : R who paid an application money of ₹ 5 per share on 1.3.2004 was allotted
500 shares on 1.5.2004. He paid the first call of ₹ 3 per share on 1.6.2007 and the second
call of ₹ 2 per share was paid on 1.5.2008. R sold all the 500 shares on 1.6.2021 for ₹ 50
per share. The shares were not sold through a recognised stock exchange.
Compute capital gain. CII for the previous year 2003-04, 2004-05, 2007-08 and 2022-23 was
109, 113, 129, 137 and 317 respectively.
Illustration : 'R', a resident of India, purchased 1000 listed equity shares of ₹ 10 each at ₹
115 per share from a broker on 5.4.2001. He paid ₹ 2,000 as brokerage. On 2.3.2003 he
was given bonus shares by the company on the basis of one share for every 2 shares held.
On 24.2.2021 he was given a right to acquire 1,000 right share @ ₹ 60 per share. He
acquired 50% of the right shares offered and sold the balance 50% of the right for a sum of ₹
60,000 on 3.4.2021. The right shares were allotted to him on 20.4.2021. All the shares held
by him were sold on 24.3.2022 @ ₹ 400 per share.
(A) Compute capital gain and tax for the assessment year 2022-23 assuming his income
from other sources is ₹ 1,12,000.
(B) What shall be your answer if these shares had been sold through a recognised stock
exchange. Assume the FMV of shares on 31.1.2018 was ₹ 350 per share.
Illustration : A owns 2 residential house properties. Property X was purchased by him in
1978 for ₹ 50,000 and property Y was purchased in 2002-03 for ₹ 6,70,000. Market Value of
property X and Y on 1.4.2001 was ₹ 4,25,000 and ₹ 5,00,000 respectively.
Both the house properties were sold by him on 6.7.2021 for ₹ 20,00,000 each. Brokerage of
₹ 20,000 for each of such properties was paid by A.
The sale proceeds was invested by him in the following manner:
Particulars ₹
(1) Purchase of residential property on 5.3.2022 9,00,000
(2) Purchase of agricultural land on 15.5.2022 3,00,000
(3) Deposit in capital gain scheme for construction of additional floor on the
residential house property purchased

47
Date of deposit Amount

deposited (₹)
16.5.2022 2,50,000
25.6.2022 1,00,000
31.7.2023 2,00,000
Compute capital gain for the assessment year 2022-23.

Illustration : R furnishes you the following information for the previous year 2021-22:
₹
Gross salary 6,10,000
Rent from house property 40,000 p.m. 4,80,000
Consideration price of 2000 shares sold on 6.6.2021 @ ₹ 300 per share 6,10,000
Cost of the above shares purchased on 12.4.2017 ( ₹ 2000 * 140) 2,80,000
Amount deposited in PPF 1,50,000
Compute the total income, assuming the highest fair market value on the recognized stock
exchange of above shares as on 31.1.2018 was:
(i) ₹ 240 per share
(ii) ₹ 280 per share
(iii) ₹ 100 per share
Illustration : R bought 500 listed shares in 1998 for ₹ 15 per shares. The market value of
these shares in 1.4.2001 was ₹ 25 per shares.
Compute the tax payable by R on capital gain from these shares, if the above shares were
sold on 15.11.2021 by R for—
(a) ₹ 2,10,000, (b) ₹ 1,90,000, (c) ₹ 1,80,000 and (d) ₹ 70,000
The above shares have not been sold through recognized stock exchange.
Illustration: From the following information, compute the tax payable by R for the
assessment year 2022-23:
(1) Listed shares purchased on 31.8.2002 for ₹ 40,000 sold for ₹ 4,30,000 on 1.11.2021
through a recognised stock exchange FMV as on 31.1.2018 ₹ 2,70,000.
(2) Gold ornaments purchased for ₹ 2,00,000 on 1.9.2001 sold for ₹ 5,70,000 on 1.12.2021.
(3) His gross salary for the previous year ending 31.3.2022 was ₹ 5,10,000.
Illustration : From the following information, compute the tax payable by R for the
assessment year 2022-23.
Listed shares purchased on 1.7.1993 for ₹ 50,000 sold for ₹ 3,00,000 on 1.10.2021. The
transaction of sale was not routed through stock exchange. The market value as on 1.4.2001
was ₹ 80,000. Other income — ₹ 2,30,000
Illustration : From the following information submitted by R, compute his tax liability for the
assessment year 2022-23:
1. Listed shares acquired in G Ltd. for ₹ 40,000 on 1.6.1998 (FMV as on 1.4.2001 ₹
2,60,000) sold for ₹ 4,80,000 on 1.11.2021 through a recognised stock exchange. FMV as

48
on 31.1.2018, ₹ 6,00,000.
2. Listed shares acquired in S Ltd. for ₹ 1,40,000 on 5.6.1986 sold for ₹ 16,00,000 on
1.12.2021 but such sale was not routed through a recognised stock exchange. The market
value as on 1.4.2001 was ₹ 4,60,000.
3. Income under the head salary ₹ 3,10,000.
Illustration : A had the following assets which were sold/compulsorily acquired during the
previous year.
Particulars Dt. of Mode of Dt of sale/ Sale price/ Cost of
acquisition acquisitio Compulsory compensa acquisiti
n acquisition tion ₹ on by
assessee
or
previous
owner ₹
Gold 2001-02 Self 31.10.2021 13,50,000 4,10,000
Urban Agricultural land 2006-07 Self 15.11.2021 21,00,000 7,20,000
Rural Agricultural land 1978-79 Gift from 15.12.2021 4,00,000 50,000
father on
1.5.1982
Motor Car for personal 2001-02 Self 15.1.2022 1,50,000 80,000
use
Land & Building forming 15.10.2005 Self 15.2.2022 6,00,000 4,00,000
part of Industrial
undertaking
(Compulsorily (W.D.V.
acquired) as on
1.4.2020
'A' purchased a residential house property on 20.2.2022 by investing ₹ 5,00,000. He
purchased an agricultural land on 13.4.2022 for ₹ 1,40,000. He also purchased a building for
₹ 1,50,000 on 31.7.2022 to be used for industrial undertaking.
Compute capital gain of A for the assessment year 2022-23.
Illustration : The written down value of the block of assets as on 1.4.2021 was ₹ 5,00,000.
An asset of the same block was acquired on 11.5.2021 for ₹ 3,00,000. There was a fire on
18.9.2021 and the assets were destroyed by fire and the assessee received a sum of ₹
11,00,000 from the insurance company. Compute the capital gain assuming:
(a) All the assets were destroyed by fire.
(b) Part of the block was destroyed by fire.
(2) What will be the answer if assessee received ₹ 6,00,000 from insurance company and
assume (a) all the assets were destroyed by the fire, (b) Part of the block was destroyed by
fire.

49

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1

INCOME U/H CAPITAL GAIN

CAPITAL GAIN _RAM BAAN CA VIKRAM BIYANI

Illustration - Sec.2(14) - Sale of Work of Art - M 08

Short-Term & Long-Term Capital Asset / Gain

3. Capital Gains - LTCG / STCG:

CAPITAL GAIN _RAM BAAN CA VIKRAM BIYANI

Transfer for Capital Gain purposes [Sec.2(47)]

Sec.2(47) Nature of Transaction

(i) Sale, Exchange, Relinquishment of asset.

(ii) Extinguishment of any rights therein.

(iii) Compulsory Acquisition thereof under any law.

(iv) Conversion of Capital Asset into Stock-in-Trade.

(iva) Maturity / Redemption of a Zero Coupon Bond.

CAPITAL GAIN _RAM BAAN CA VIKRAM BIYANI

Changeability of Capital Gains [Sec.45(1)]

Sec. Nature of Transfer

45(1 A) Insurance Compensation received on destruction or damage to Capital Asset.

45(2) Conversion of Capital Asset into Stock in Trade.

45(5) Compulsory Acquisition of any Capital Asset.

45(5A) Capital Gains based on Specified Agreement for Development of a Project.

Cost of Acquisition [Sec.55]

Situation Cost of Acquisition

(b) Capital Asset became property of an Cost incurred by the Assessee.

CAPITAL GAIN _RAM BAAN CA VIKRAM BIYANI

3. Specified Intangible Assets:

• Goodwill of a Business or profession (a) Acquisition of Asset by Purchase Price

Capital Asset Cost of Acquisition

CAPITAL GAIN _RAM BAAN CA VIKRAM BIYANI

Situation Cost of Acquisition

Cost of Improvement [Sec.48]

Indexed Cost of Acquisition / Improvement [Sec.55]

CAPITAL GAIN _RAM BAAN CA VIKRAM BIYANI

(b) Indexed Cost of Improvement (ICI):

Note: ICI can be computed only if it is incurred on or after 01.04.2001.

COST INFLATION INDEX (CII) AS NOTIFIED BY THE CENTRAL GOVERNMENT

F.Y CII F.Y CII

2001-2002 100 2012-2013 200

2002-2003 105 2013-2014 220

2003-2004 109 2014-2015 240

2004-2005 113 2015-2016 254

2005-2006 117 2016-2017 264

2006-2007 122 2017-2018 272

2007-2008 129 2018-2019 280

2008-2009 137 2019-2020 289

2009-2010 148 2020-2021 301

2010-2011 167 2021-2022 317

CAPITAL GAIN _RAM BAAN CA VIKRAM BIYANI

Issues on Cost of Acquisition and Cost of Improvement

CAPITAL GAIN _RAM BAAN CA VIKRAM BIYANI

Illustration - Cost of Acquisition / Indexation Benefit - N 08

Illustration - Sale of Land and Buildings purchased separately

CAPITAL GAIN _RAM BAAN CA VIKRAM BIYANI

Transaction Not Regarded as Transfer [Sec.47]

Total / Partial Partition of HUF [Sec.47(i)]

Gift / Will / Irrevocable Trust [Sec.47(iii)]

Transfer between Holding Company & Subsidiary

2. Subsidiary to Holding [Sec.47(v)]:

Certain transfers in Amalgamation of Companies

1. Amalgamating Co. to Amalgamated Co. [Sec.47(vi)]:

2. Transfer of Shares by Shareholders [Sec.47(vii)]:

Certain transfers in Demerger of Companies

1. Demerged Co. to Resulting Co. [Sec.47(vib)]: