By: Ankit Bansal

Sunir Parikh
Nayan Bhatia
Deekshant Kumar
 Conditions for Tax
Liability
Condition-1 There should be a Capital Asset.

Condition-2 The Capital Asset is Transferred by

the assessee.

Condition-3 Such Transfer takes place during the

previous year.

Condition-4 Any Profit or gain arises as a result of

transfer
 Meaning of Capital
Asset
Capital Asset means Any property held by assessee whether or not
connected with his business or profession.
Types of Capital
Assets
 Period Of Holding
Situations
Capital Asset Acquired by way of
gift, will, inheritance, etc.
Right Shares
Allotment of shares of
amalgamated Indian Company
against shares of amalgamating
company
Purchase of shares and security
through broker
Shares purchased in several lots at FIFO method should be adopted
different point of time
How to Calculate Period of
holding
The period of holding of previous
owner should be included
It should be counted from the date
of allotment of right shares
It should be counted from the date
of acquisition of shares in the
amalgamating company
It should be counted from date of
purchase by broker on behalf of
investor
 Some Judicial
Pronouncements
Shares in a company entitling right of occupancy in a flat –
Period of holding of 36 months or more should be considered
for Long term capital asset – ITO v. Nayana K. Shah (2000)
(Mumbai)
Transfer of land after construction of building - Separate sales
consideration for land and building should be identified – CIT
v. Vimal Chand Golecha (1993) (Rajasthan)
 Sale of depreciable asset - Always treat as short term
Conversion of Stock-in-trade into capital asset – Holding
period would commence from the date when such stock was
purchased and not when it is converted – Kalyani exports &
Investments (p) ltd. v CIT (2001) (pune)
 Transfer of Capital
asset
Transfer includes:
Sale
Exchange
Relinquishment (e.g. Renouncement of Right shares)
Extinguishment
 Insurance claim received –Vania Silk mills (p) ltd. v. CIT (1991)
(SC) – Not taxable as there is no transfer
 Reduction of share capital – Kartikeya V. Sarabhai v. CIT
(1997) (SC) – Taxable in the hands of shareholder.
 Transfer of immovable property.
Some Judicial
Pronouncements
Tenancy rights – It is treated as transfer – A. Gasper v.
CIT (1979) (Calcutta)
Forward contract - Not treated as transfer – CIT v.
Anglo India Jute mills co. ltd. (1981) (Calcutta)
Temporary transfer - Taxable – Rajendra Mining v. CIT
(1961) (AP)
Cancellation of Agreement - Compensation received
by buyer is for relinquishment of his right on property
and hence taxable – K.R. Srinath v. CIT(2002)(Madras)
Revaluation of Asset – not a transfer –Well Packaging
v. CIT (2003) (Madras)
Transactions not treated
as transfer u/s 47
Transfer of capital asset under gift or will or
irrevocable trust(except ESOPs).
Transfer of capital asset by holding company
to its 100% subsidiary Indian Company and
vice versa.
Distribution of capital asset in total or partial
partition of Hindu undivided family (HUF)
Allotment of shares in amalgamated shares in
lieu of shares held in amalgamating company
 Transfer when
Completed and Effective
Immovable property when documents are
registered.
When documents are not registered following
conditions should be satisfied
 There should contract in writing.
 Transferee has paid or is willing to pay
consideration.
 Transferee should have taken possession of
property.
Movable Property –When property is delivered
Computation of capital
gains
Short-term capital gain
1. Find out full value of consideration
2. Deduct the following:
a. Expenditure incurred wholly and exclusively in
connection with such transfer.
b. Cost of acquisition
c. Cost of improvement
3. From the following deduct the exemptions
4. The balance amount is the short-term capital
gains.
5. It will be taxable at normal slab rate.(except for
shares and securities u/s 111A)
Computation of capital
gains
Long-term capital gains
1. Find out the full value of consideration
2. Deduct the following
a. Expenditure incurred wholly and exclusively in
connection with such transfer
b. Indexed cost of acquisition
c. Indexed cost of improvement
3. From the resulting deduct the exemptions
4. Balancing amount is long-term capital gains
5. It is taxable at flat rate of 20% (exempt for
shares and securities u/s 10(36))
 Full value of
consideration
In general terms consideration means value
received or receivable by the transferor in
lieu of assets, which he has transferred.
Following are some exceptional situations.
Situations Full value of considerations

Money or assets received from Value of money or FMV of Assets

insurance company.
Conversion of capital asset into Fair market value of capital asset on
stock in trade date of transfer
Transfer of capital asset by partner Amount recorded in the books of
in his firm accounts of firm
Transfer of capital asset by firm to FMV on the date of transfer
his partners on dissolution
 Expenditure on
Transfer
Such expenditure should be incurred wholly and
exclusively in connection with such transfer- Sita Nanda v.
CIT (2001) (Delhi ).
Expenses after passing of title can be deductible CIT v. P.
rajendran (1981) )(Karnataka)
Payment to co – operative society to get NOC- Damodar
nagalia v. CIT (2007) (Mumbai)
Payment to tenant
Not deductible -CIT v. T Srinivas Rao (1987) (AP)
Deductible - CIT v. A venkataraman (1982) (Madras)
Expenditure for enhancement of compensation – CIT v.
P.rajendran (1981) (Karnataka).
Repayment of loan or discharge of Mortgage.
 Cost of acquisition
Ground rent – CIT v. Mithlesh Kumari (1973) (Delhi)
Interest on money borrowed
Litigation expenses for registration of shares
Estate duty – S. Valliammai v. CIT (1981) (Madras)
Mortgage - CIT v. RoshanBabu Mohammed Hussein
merchant (2005) (Mumbai)
Conversion of agricultural land into non agricultural land.
Meccanne Industries Ltd. V. CIT (2002) (Madras)
 Cost of improvement
Expenditure incurred before 1st April, 1981 not
considered.
Double deduction not permitted.
In case of gift received and later on sold the
for cost of acquisition the year for indexation
would be the one when seller becomes buyer
(sec 48),however for cost of improvement
year for indexation would be the year of
improvement (sec 49)