LAW OF TAXATION

Capital Gains- A Critical Study

Submitted by

Himanshu Pandey

(201117)

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM
ACKNOWLEDGEMENT

I would like to express my gratitude towards our Taxtion law Professor Mr.R.VISHNU
KUMAR Sir for giving me the opportunity to work on this topic and guiding towards
completing the project in an appropriate manner. I would like to thank everyone who has
supported me and guided me towards completing this project.

Himanshu Pandey

(201117)
TABLE OF CONTENTS PG NO.

INTRODUCTION 4

PROVISIONS AND ANALYSIS 8

THE FALLOUT OF THE RETROSPECTIVE AMENDMENT 9

THE LEGAL BATTLE 10

THE FINAL DECISION 12

CONCLUSION 13

BIBLIOGRAPHY 14
RESEARCH METHODOLOGY

AIMS & OBJECTIVES: The researcher aims to study the Concept of Capital gains with a
Critical study.

SCOPE & LIMITATIONS: The topic of this project necessitates a detailed reference to the
Capital gains with cases study. However, the surfeit of data to be dealt with and the
required critique of some cases in the project, a summary one.

METHODOLOGY: The researcher uses both analytical and descriptive methods in

presenting the project.

SOURCES: both primary and secondary sources of data are used.

MODE OF CITATION: A uniform mode of citation is used.

Table Of Cases

CIT v ACE Builders Pvt. Ltd

ACIT v. Deepak S. Bheda

Devendra Motilal Kothari vs. Dy. CIT

CIT Vs. Black & Veatch Consulting Pvt. Ltd

Introduction

Firstly, Capital gains in simple words means An increase in the value of a capital asset
(investment or real estate) that gives it a higher worth than the purchase price. The gain is not
realized until the asset is sold. A capital gain may be short term (one year or less) or long term
(more than one year) and must be claimed on income taxes. A capital loss is incurred when there
is a decrease in the capital asset value compared to an asset's purchase price. Profit that results
when the price of a security held by a mutual fund rises above its purchase price and the security
is sold (realized gain). If the security continues to be held, the gain is unrealized. A capital loss
would occur when the opposite takes place.

Long-term capital gains are usually taxed at a lower rate than regular income. This is done to
encourage entrepreneurship and investment in the economy.

Tax conscious mutual fund investors should determine a mutual fund's unrealized accumulated
capital gains, which are expressed as a percentage of its net assets, before investing in a fund
with a significant unrealized capital gain component. This circumstance is referred to as a fund's
capital gains exposure. When distributed by a fund, capital gains are a taxable obligation for the
fund's investors.

Capital gains under Income Tax Act 1961

Any Income derived from a Capital asset movable or immovable is taxable under the
head Capital Gains under Income Tax Act 1961. The Capital Gains have been divided in two
parts under Income Tax Act 1961. One is short term capital gain and other is long term capital
gain.
1.Short Term Capital Gains : If any taxpayer has sold a Capital asset within 36 months and
Shares or securities within 12 months of its purchase then the gain arising out of its sales after
deducting there from the expenses of sale(Commission etc) and the cost of acquisition and
improvement is treated as short term capital gain and is included in the income of the taxpayer.
The deduction u/s 80C to 80U can be taken from the income from short term capital gain apart
from the short term capital gain u/s111A
Taxability of short term capital gains: Section 111A of the Income tax Act provides that those
equity shares or equity oriented funds which have been sold in a stock exchange and securities
transaction tax is chargeable on such transaction of sale then the short term capital gain arising
from such transaction will be chargeable to tax @10% upto assessment year 2008-09 and 15%
from assessment year 2009-10 onwards.
The short term capital gains other than those u/s 111A shall be added to the income of the
assessee and no such benefit is available on short term capital gains arising in other cases and
they will be taxed normally at slab rates applicable to the assessee.
If an assessee does the business of selling and purchasing shares he cannot take advantage of
section 111A or section 10(38). In this case income will be treated as business income.
Capital gains in case of depreciable assets : According to section 50 of Income tax act if an
assessee has sold a capital asset forming part of block of assets (building, machinery etc) on
which the depreciation has been allowed under Income Tax Act, the income arising from such
capital asset is treated as short term capital gain.
Where some assets are left in block of assets: If a part of such capital asset forming part of a
block of asset has been sold and after deducting the net consideration received from sale of such
asset from the written down value of the block of such asset the written down value comes to
NIL then the gain arising shall be treated as short term capital gain and in such case where
written down value has become NIL no depreciation shall be available on such block of asset
even if some assets are physically left in the block of assets.

When no assets are left in block of assets: If the whole of the capital assets forming part of a
block of assets have been sold during a year and the assessee has suffered a loss after deducting
the net sale consideration from the written down value of the block of assets then such loss shall
be treated as short term capital loss and no depreciation shall be allowed from such block of
assets.
It was decided by Chandigarh tribunal in (2004) 3 S.O.T. 521/ 83 T.T.J. 1057 if the whole of
capital assets in a block have been sold in a year and some gain arises after the sale such gain
shall not be treated as short term capital gain if some new asset has been purchased within the
same year in the same block of assets and the total value of new and old capital assets in the
same block is more than the sale consideration of the assets sold, since the block of asset does
not cease to exist in such case as is required u/s 50(2). This can be explained with an example as
below:
Written down value of 5 Machinery
as on 01-04-2010 Rs. 500000
5 machinery sold on 01-05-2010 Rs. 600000
New Machinery purchased on 01-06-2010 Rs. 250000
now in above cases the difference between the w.d.v and sale value i.e Rs 100000 can not be
treated as short term capital gain in the year 2010-01 since new machinery has been purchased in
the same block of asset afterwards in the same year and the total of new and old machinery is
more than the sale value of the machineries sold as a result the block of asset continue to exist.

Short term capital gain where land & building are sold together: Some times it happens that
in a block of assets namely land & building, the whole of land & building is sold together. In
such cases the capital gain on land and building should be calculated separately.
The Supreme Court has held in (1967) 65ITR 377 that depreciation is available on the value of
building and not on the value of plot. Considering the above decision of Supreme Court, the
Rajasthan High court in (1993)201 ITR 442 has held that Plot and building are different assets. If
the assessee has purchased plot more than 3 years back and constructed building on it less than 3
years back then the gain arising on sale of plot shall be long term capital gain and the benefit of
indexation shall be given on it whereas the gain arising on sale of building shall be short term
capital gain and will be added to the income of the assessee. Therefore both should be calculated
separately.
Where the plot has been purchased more than three years back and the building has been
constructed on it less than 3 years back, it is advisable that in the sale deed the sale value of plot
and building should be shown separately for more clarity and if the consolidated sale value of the
Plot and building has been written in the sale deed then the valuation of plot and building should
be done separately from a registered valuer.
Capital asset transferred by the partner to the partnership firm: As per section 45(3) of the
Income Tax Act 1961 if any partner in a firm transfers his asset to the firm then the capital gain
on such asset as arising to the partner shall be calculated by presuming the sale value of such
asset as is shown in the books of accounts of the firm and not the market value of the asset.
whether such gain is treated as long term or short term will be decided as below:
a) If the depreciation has been claimed on the asset transferred to the firm then in view of section
50(2) the gain arising there from will be treated as short term capital gain.
b) If the partner has been the owner of the asset for more than 36 months and no depreciation has
been claimed on it then the gain arising from such asset shall be treated as long term capital gain.

Capital gain in case of Dissolution of a Firm: As per section 45(4) of the Income Tax Act
where any partnership firm or AOP or BOI is dissolved and the Capital assets of the such firm or
AOP or BOI are transferred by way of distribution of assets to the partners at the time of
Dissolution in such case the gain arising from such transfer to the partners will be treated as
capital gain and the firm will be liable for paying tax on it in the year of distribution of the assets.
For the purpose of section 48 the fair market value of the asset on the date of such transfer shall
be deemed to be the full value of the consideration received or accruing as a result of the
transfer.

2. Long Term Capital Gain: A Capital Asset held for more than 36 months and 12 months in
case of shares or securities is a long term capital asset and the gain arising therefrom is a long
term capital gain. Long term capital gains are arrived at after deducting from the net sale
consideration of the long term capital asset the indexed cost of acquisition and the indexed cost
of improvement of the asset.
The Central govt notifies cost inflation index for every year. The indexed cost of acquisition is
calculated by multiplying the actual cost of acquisition with C.I.I of the year in which the capital
asset is sold and divided by C.I.I of the year of purchase of capital asset. Similarly the indexed
cost of improvement can be calculated by using the C.I.I of the year in which the capital asset is
improved. Where the capital asset was acquired before the year 1981 then the cost of acquisition
shall be the fair market value or the actual cost of its acquisition which ever is higher. The Fair
market value of a capital asset can be known by the valuation of the registered valuer.
The cost inflation index table as notified is here below:
Cost Inflation Index Notified by the GOVTs

Financial Year (CII) Financial Year (CII)

1981-82 100 1999-2000 389
1982-83 109 2000-2001 406
1983-84 116 2001-2002 426
1984-85 125 2002-2003 447
1985-86 133 2003-2004 463
1986-87 140 2004-2005 480
1987-88 150 2005-2006 497
1987-88 150 2006-2007 519
1988-89 161 2007-2008 551
1989-90 172 2008-2009 582
1990-91 182 2009-2010 632
1991-92 199 2010-2011 711
1992-93 223 2011-2012 785
1993-94 244 2012-13 852
1994-95 259 2013-14 939
1995-96 281 2014-15 1024
1996-97 305
1997-98 331
1998-99 351
If a capital asset has been subjected to depreciation then no indexation benefit is allowed on sale
of such capital asset in view of section 50(2) as discussed above.
Sec.48: Capital gains-Cost of improvement-PMS fee-Investment portfolio- PMS fee held to be
deductible expenditure.(S.45 )
In the case of ACIT v. Deepak S. Bheda,1 The assessee entered into an investment management
(Portfolio Management Scheme) agreement with ENAM AMC pursuant to which it paid Rs.
2.11 crores as performance fees/ maintenance fee. This was treated as a cost of purchase of the
shares. The AO disallowed the claim & the CIT (A) confirmed it on the basis that the as the PMS
gains were assessable as capital gains, the expenditure was neither cost of investment or

1
(2012) 6 TaxCorp (A.T.) 28128 (PUNE)
improvement nor an expenditure incidental to sale. Before the Tribunal, the assessee relied on its
own case where it had been held in Devendra Motilal Kothari vs. Dy. CIT2 that as there was a
nexus between the expenditure and the acquisition of shares, the same was allowable u/s 48.
Held, The decision of the Pune Bench of the Tribunal in the case was not followed by the
Mumbai Bench in the case of (2011) 5 TaxCorp (A.T.) 26164 (MUMBAI). The Mumbai Bench
following other decisions of the coordinate Benches of the Tribunal declined to follow the
decision in the case (2011) 5 TaxCorp (A.T.) 25069 (PUNE).
It is the settled proposition of law that when two view are possible on the same issue the view
which is favourable to the assessee has to be followed. [CIT Vs. Vegetable Products 88 ITR 192
(SC)]. Further, in the instant case the Tribunal in assessees own case has already taken a view in
favour of the assessee. Since the AO & CIT(A) have followed the order for earlier year in case of
the assessee and since the order of CIT(A) for earlier year has been reversed by the Tribunal,
therefore, unless and until the decision of the Tribunal is reversed by a higher court, the same in
our opinion should be followed. In this view of the matter, we, respectfully following the order
of the Tribunal in assessees own case reported in (2011) 5 TaxCorp (A.T.) 25069 (PUNE) for
A.Y. 2004-05 allow the claim of the Portfolio Management fees as an allowable expenditure.
S.54EC: Capital gains-Investment in bonds- Exemption- Fact that s. 54EC bonds were available
during the 6 months & that there were alternative bonds available irrelevant if the bonds not
available on the last date.
S.54EC: Capital gains-Investment in bonds- Exemption- Fact that s. 54EC bonds were available
during the 6 months & that there were alternative bonds available irrelevant if the bonds not
available on the last date.
In case of CIT Vs. Black & Veatch Consulting Pvt. Ltd.3
The assessee sold factory building on 22.3.2006 and earned LTCG of Rs.49.36 lakhs. The
LTCG was invested in s. 54EC bonds of Rural Electrification Corporation (REC Bonds) on
31.1.2007, beyond the period of 6 months (21.9.2006) specified in s. 54EC. The assessee
claimed that the delay was due to the fact that for the period from 4.8.2006 to 22.1.2007, the
bonds were not available and the investment was made when available. The Tribunal allowed the
assessees claim (included in file). Before the High Court, the department argued that (a) even if

2
136 TTJ 188 (Mum.)(Trib.)
3
(2012) 6 TaxCorp (DT) 52215 (BOMBAY)
the bonds were not available for a part of the period, they were available for some time in the
period after the transfer (1.7.2006 to 3.8.2006) and the assessee ought to have invested then &
(b) the s. 54EC bonds issued by National Highway Authority (NHAI) were available and the
assessee could have invested in them. Held by the High Court dismissing the appeal:

(i) The departments contention that the assessee ought to have invested in the period that the S.
54EC bonds were available (1.7.2006 to 3.8.2006) after the transfer is not well founded. The
assessee was entitled to wait till the last date (21.9.2006) to invest in the bonds. As of that date,
the bonds were not available. The fact that they were available in an earlier period after the
transfer makes no difference because the assessee right to buy the bonds upto the last date cannot
be prejudiced. Lex not cogit impossibila (law does not compel a man to do that which he cannot
possibly perform) and impossibilum nulla oblignto est (law does not expect a party to do the
impossible) are well known maxims in law and would squarely apply to the present case;

(ii) The departments contention that the assessee ought to have purchased the alternative s.
54EC NHAI bonds is also not well founded because if s. 54EC confers a choice investing either
in the REC bonds or the NHAI bonds, the revenue cannot insist that the assessee ought to have
invested in the NHAI bonds.
Capital gain from Plot and building should be separately calculated: As discussed above plot
and building are separate assets and the capital gain on above should be calculated separately. If
the plot is purchased more than 3 years back and building has been constructed within 3 years
the capital gain on plot will be considered as long term and the capital gain on building will be
treated as short term capital gain.
Taxation of Long term capital gains: The long term capital gains are taxed @ 20% after the
benefit of indexation as discussed above. No deduction is allowed from the long term capital
gains from section 80C to 80U. But in case of individual and HUF where the income is below
the basic exempted limit the shortage in basic exemption limit is adjusted against the long term
capital gains.
Section 112(1) provides that any capital gain arising from a long term capital asset being the
listed securities which are sold outside the stock exchange the long term capital gain shall be
calculated on such securities as below:
a) Tax arrived at @ 20% on such long term capital gain after indexation u/s 48 or
b) Tax arrived at @ 10 % on such long term capital gain without indexation
Whichever is less.
The long term capital gain on equity shares or units of equity oriented mutual fund which are
sold in the stock exchange and on which securities transaction tax is paid, is exempt u/s 10(38).
Section 50C: Section 50C has been introduced with effect from 01-04-2003 and is a very
important section while calculating capital gain on land & building. Section 50C provides that
Where the consideration received or accruing as a result of the transfer by an assessee of a
capital asset, being land or building or both, is less than the value adopted or assessed or
assessable by stamp valuation authority) for the purpose of payment of stamp duty in respect of
such transfer, the value so adopted or assessed or assessable shall, for the purposes of section 48,
be deemed to be the full value of the consideration received or accruing as a result of such
transfer.
It means that the capital gain will be calculated by considering the sale value of the capital asset
as equal to the value adopted or assessed by the stamp valuation authority for that capital asset if
the actual sale value is less than the value assessed by stamp valuation authority.
If the assessee claims that the value adopted by the stamp valuation authority exceeds the fair
market value then the assessing officer may refer to the valuation officer for valuation of the fair
market value of the asset. If the fair market value declared by the valuer is more than the value
adopted or assessed or assessable by the stamp valuation authority, the value so adopted assessed
or assessable by the stamp valuation authority will be taken as full value of consideration of the
capital asset.
CBDT vide its circular No 8/2002 dt 27-08-2002 has declared that if the valuation officer has
declared the fair market value of the capital asset less than the value adopted, assessed or
assessable by the stamp valuation authority then the capital gain shall be calculated on the value
so declared by the valuer.
After the adding of word assessable u/s 50C in 2009 now it has become clear that even those
immovable properties in which no sale deed is entered into and which have been sold on a full
and final agreement will be within the ambit of section 50C.

FULL VALUE OF CONSIDERATION

Full Value of Consideration means what the transferor receives or is entitled to receive as
consideration for the Sale of Property /Asset. This Value may be in cash or in kind i.e. in
exchange for an Asset.
In case of exchange of an asset, the full value for the computation of Capital Gains shall be the
Fair Market Value of the Property (Asset) granted in exchange. Fair Market Value in relation to
Capital Gains means the price which the Property (Asset) would normally fetch if sold in the
open market on the Relevant Date.
In case, the full value of consideration is received in instalments in different years, the entire
value of consideration shall be the Market Value of the Property/Asset granted in exchange.
EXPENSES ON TRANSFER
Expenses on Transfer include any expenditure incurred, whether directly or indirectly, for the
purpose of transfer like Advertisement Expense, Brokerage Expense, Stamp Duty, Registration
Fees, and Legal Expenses etc. However, any expense which has been claimed as a deduction
under any other provision of the Income Tax Act cannot be claimed as a deduction under this
Clause.

COST OF ACQUISITION

Cost of Acquisition is the price which the assessee has paid, or the amount which the assessee
has incurred, for acquiring the Property /Asset. The Expenses incurred at the time of completing
the title are a part of the cost of acquisition.
In cases where the Capital Asset became the property of the assessee in any of the manners
mentioned below, the cost of acquisition shall be deemed to be the cost for which the previous
owner of the property acquired it:-
On the Distribution of Assets/ Total Partition of HUF
Under a Gift or Will
By Succession, Inheritance or Devolution
On Distribution of Assets on Liquidation of a Company
Where the cost for which the previous owner of the capital asset acquired the property cannot be
ascertained, the cost of acquisition to the previous owner shall be the fair market value of the
asset on the date on which the asset became the property of the previous owner. The Interest on
money borrowed for acquiring the capital asset will also form a part of the cost of Asset4
COST OF IMPROVEMENT
All Capital Expenditures incurred in making any additions or alterations to the Capital Asset by
the Assessee after it became his property or alterations to the capital asset by the assessee after it
became his property shall be deductible as the Cost of Improvement. If the Asset was transferred
to the assessee under the cases specified immediately above, the capital expenditure incurred by
the previous owner shall also be treated as cost of improvement.
However, the Cost of Improvement does not include any capital asset which is deductible in
computing the chargeable under head- Income from House Property, Profits or Gains of
Business or Profession, or Income from Other Sources. Only the Capital Expenses are
considered as a cost of Improvement and routine expenses on Repairs and Maintenance do not
form part of cost of improvement.
For the purpose of Computation of Long Term Capital Gain, Indexation using the Cost Inflation
Index shall be done to the Cost of Acquisition & Cost of Improvement and the resultant figure
shall be the Indexed Cost of Acquisition & Indexed Cost of Improvement for the purpose of
computation of LTCG

Indexed Cost = Actual Cost * Cost Inflation Index of the Year of Sale

Cost Inflation Index of the Year of Purchase

The Assessee also has the option of not opting for Indexation and the Long Term Capital Gain
Tax Rate in this case shall be 10%

4
CIT v Mithlesh Kumari (1973) 92 ITR 9 (Del).
Capital gains exemption u/s 54EC of Income tax Act, 1961

Section 54EC of Income Tax Act, 1961 provides an option to save tax on capital gain arising
from transfer of long term capital asset subject to fulfillment of certain conditions. Provisions of
section 54EC are being discussed hereinbelow for the benefit of all concerneds.
Circumstances under which deduction u/s 54EC is available: The deduction u/s 54EC will be
available subject to the following conditions:
The asset transferred should be a long term capital asset and hence there should be a long term
capital gain.
Such capital asset should have been transferred after 1-04-2000 by the assessee.
The assessee has within a period of 6 mopnths after the date of such transfer has invested the
capital gain in the long term specified asset.
Specified assets are the bonds redeemable after 3 years issued by National Bank for Agriculture
and Rural Development (NABARD) or by the National Highways Authority of India (NHAI) or
the bonds issued by Rural Electrification corporation Ltd. With effect from A.Y 2002-03
National Housing bank and SIDBI have been also included who can issue such bonds u/s 54EC.
The cost of long term specified assets which is considered for the purpose of exemption u/s
54EC, shall not be eligible for deduction with refernce to such cost u/s 80C. It means investment
made in bonds u/s 54EC is not eligible for deduction u/s 80C
Quantum of deduction: The capital gain shall be exempt u/s 54EC only to the extent it is invested
in the long term specified assets within a period of 6 months from the date of such transfer. It
means if a long term capital gain arises to the tune of Rs. 10 lakh and bonds u/s 54EC are
purchased amounting Rs. 8 lakh then capital gain of Rs. 8 lakh will only be exempted u/s 54EC
and the remaining capital gain of Rs. 2 lakh will be taxable.
Limit of investment: After 01-04-2007, the investment made in the long term specified capital
asset i.e bonds u/s 54EC during any financial year cannot exceed Rs. 50,00,000. Thus investment
in bonds in one financial year can be made only to the extent of Rs. 50 Lakhs
Recently Jaipur ITAT in Assistant Commissioner of Income-tax, Circle-2, Ajmer v. Shri Raj
Kumar Jain & Sons (HUF) [2012] 19 taxmann.com 27 (Jaipur - Trib.) held that as per section
54EC investment within 6 months is investment for that particular financial year in which
transfer has taken place and said period of six months would not include some part of subsequent
financial year.

Which means that if a person has capital gain of Rs. 1 crore on 1st January,2011, he cannot make
investment of Rs. 50 lakh before 31st march, 2011 and of Rs. 50 lakh after 31st march so as to
claim exemption from capital gains to the tune of Rs. 1 crore by claiming that investment of Rs.
50 lakh has been made in separate financial year and of Rs. 50 lakh in separate financial year.
The total limit of investment u/s 54EC for a capital gains relating to one year cannot exceed Rs.
50 lakhs.
Lock in period of 3 years: Once investment is made u/s 54EC in specified bonds then such bonds
cannot be transferred or converted into money (otherwise than by transfer) within a period of
three years from the date of their acquisition, otherwise the amount of capital gain exempt u/s
54EC earlier, shall be deemed to be long-term capital gain of the previous year in which such
bonds are transferred or converted into money (otherwise than by sale).
If the assessee takes any loan or advance on the security of such long term specified asset, he
shall be deemed to have converted (otherwise than by transfer) such long term specified asset
into money on the date on which such loan or advance is taken.
Exemption in case bonds purchased in joint name: Where the investment in bonds for claiming
exemption was made in joint name it was held that there was no requirement in the section that
the investment should be in the name of the assessee. The object of insertion of section 54EC
was to give an incentive to the development of infrastructure. In 2001 the section was widened to
include bonds issued by Rural Electrification Corporation Ltd. If development of infrastructure
was the object, it would not matter whether the investment was made in the name of the assessee
exclusively or in the joint names of the assessee and somebody else. The only condition was that
the funds used for the investment must be traceable to the sale proceeds of the capital asset. That
condition was satisfied by assessee. The CIT(A) had found that the son did not contribute
anything to the investment and this finding was not in dispute. The consequences that flow from
including the sons name as a joint name were not relevant for the purpose of granting exemption
u/s 54EC to the assessee. The CIT(A) had noted that the assessee was 69 years of age at the
relevant time and it was only a matter of convenience and to avoid any problem in future that the
sons name was included. The assessee was eligible for the exemption u/s 54EC of the Act in
ITO v Saraswati Ramanathan5

Benefit u/s 54EC available even in case of depericiable asset: If depericiable asset is held for
more than 36 months then capital gain arising therefrom even though is considered as short term
capital gain, but in such case there is no denial as to claiming exemption u/s 54EC against such
short term capital gain.

It was held in CIT v Assam Petroleum Industries (P) Ltd. (2003) 131 Taxmann 699 (Gau) 6 that
although as per section 50 the profit arising from the transfer of depericiable asset shall be gain
arising from the transfer of short term capital asset, hence short term capital gain but section 50
nowhere says that depericiable asset shall be treated as short term capital asset. Section 54E is in
independent provision which is not controlled by section 50. If the conditions necessary u/s 54E
are compiled with by the assessee, he will be entitled to the benefit envisaged in section 54E,
even on transfer of depericiable assets held for more than 36 months.

Similarly it was held in CIT v ACE Builders Pvt. Ltd. 20057 (BOMBAY High Court) Section
50 makes it explicitly clear that the deemed fiction created in sub-section (1) and (2) of section
50 is restricted only to the mode of computation of capital gains contained in section 48 and 49.
It is well established in law that a fiction created by the Legislature has to be confined to the
purpose for which it is created, it does not apply to other provisions. Thus, the deeming fiction
created under section 50 is restricted to sections 48 and 49 only and it is not applicable to section
54E.
The ratio in the above decision shall also be equally applicable to section 54EC and 54F.
In CIT v Kamal Wahal8 the Delhi High Court applied the rule of purposive construction and the
object of enactment of Section 54F, has held that the assessee is entitled to claim exemption
under Section 54F in respect of utilization of sale proceeds of capital asset for investment in
residential house property in the name of his wife.

5
(2008) 300 ITR (AT) 410 (Del.).
6
[2003] 262 ITR 587/131 Taxman 699 (Gau.) (para 13).
7
2005 144 TAXMAN 855 Bom.
8
2013) 351 ITR 4 (Delhi
Exemption allowed where investment was made after 6 months due to non-availability of bonds:
Where the assessee could not invest the money due to non-availability of bonds qualifying for
deduction under section 54EC it was held there was a reasonable cause for not purchasing the
bonds within the time specified in section 54EC. Since the assessee purchased the bonds as soon
as same were available it was eligible to claim deduction under section 54EC9.

Conclusion
A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a non-
inventory asset that was purchased at a cost amount that was lower than the amount realized on
the sale. The most common capital gains are realized from the sale of stocks, bonds, precious
metals and property. Not all countries implement a capital gains tax and most have different rates
of taxation for individuals and corporations.
For equities, an example of a popular and liquid asset, national and state legislation often has a
large array of fiscal obligations that must be respected regarding capital gains. Taxes are charged
by the state over the transactions, dividends and capital gains on the stock market. However,
these fiscal obligations may vary from jurisdiction to jurisdiction.
As of 2008, equities are considered long term capital if the holding period is one year or more.
Long term capital gains from equities are not taxed if shares are sold through recognized stock
exchange and Securities Transaction Tax, or STT, is paid on the sale. STT in India is currently
between 0.017% and 0.125% of total amount received on sale of securities through a recognized
Indian stock exchange like the NSE or BSE. However short term capital gain from equities held
for less than one year, is sold through recognised stock exchange and STT paid should not be
considered and it is taxable at a flat rate of 15% and other surcharges, educational cess are
imposed.(w.e.f. 1 April 2009).
The capital gains being profits are to be taxable because the land, house value always increased
value so the income should be taxed all the money will be deposited with the assesse. This leads
to unequity so as to overcome the capital gains are to taxed.

9
Cello Plast v DCIT 2010 -TMI - 208185 (ITAT, Mumbai)2010 TIOL 60 ITAT (Mum) [BCAJ]
Bibliography
Books Refferred

1.Taxation- By C.A. Arvind Dubey, 2014 Edition.

2.Taxmanns Income Tax Act, 2014 Edition

Websites Reffered

1.www.taxguru.in/income-tax/capital-gains-under-income-tax-act-1961.html accessed on 14-11-2014.

2. http://www.legalserviceindia.com/article/l305-Capital-Gains-Tax-&-Joint-Development-Agreement.html
accessed on 14-11-2014.

3.www.Taxguru.in