Capital Gains S.

45 –
(2) Any profit or gain arising from the transfer of a
cap. asset effected in the P.Y., shall subject to
exemptions u/s. 54, 54B, 54D, 54EC, 54F, 54G
and 54GA be chargeable to I.T. under the head
Cap. Gains and be taxable in the P.Y. in which
the transfer took place.
(1A) Notwithstanding anything contained in Sub-
S. (1), any profit or gain arising from receipt of
money or other assets under an insurance from
an insurer on a/c. of damage or destruction of
any cap. asset as a result of –
(i) flood, typhoon, hurricane, cyclone, earthquake
or other convulsion of nature, or
(ii) riot, or civil disturbance, or
(iii) accident, fire or explosion, or
(iv) Action by an enemy or action taken in
combating an enemy,
shall be deemed to be the income of such person of
the P. Y. in which such money or other asset was
received and money or the F.M.V. of such asset
received shall be the F.V.C..
 The decision of the S.C. in Vania Silk Mills Pvt.
Ltd. v. CIT 191 ITR 647 will not have application
after the insertion of sub-s. (1A).
(2) Notwithstanding anything contained in Sub-s.
(1), the profits and gains arising from transfer by
way of conversion or treatment by the owner of a
cap. asset into stock in trade of bus. carried on
by him shall be taxable as his income of the P.Y.
in which such stock in trade is sold or transferred
by him and for computing cap. gain, the F.M.V.
of the asset on the date of such conversion shall
be deemed to be the F.V.C.
(2A) Any profits or gains from the transfer of any
beneficial interest in any securities, during the
P.Y., by the depository shall be taxable as the
income of the beneficial owner of the P.Y. in
which the transfer took place and shall not be
regarded as the income of the depository. For
computing cap. gains, the cost of acquisition and
period of holding shall be determined by the
FIFO method.
(3) Profits or gains from transfer of a cap. asset by
a person to a firm, AOP or BOI in which he is a
partner or becomes a partner or member by way
of capital cont. or otherwise shall be taxable in
the P. Y. in which transfer takes place.
The amount recorded in the books of a/c. of the
firm, AOP or BOI as the value of the cap. asset
shall be the F.V.C.
(4) The profits or gains arising from the transfer of
a cap. asset by way of distribution of cap. assets
on the dissolution of a firm, AOP or BOI other
than a co. or a co-op. soc. or otherwise shall be
taxable as the income of the firm, AOP or BOI
of the P.Y. in which the transfer takes place.
F.M.V. of the asset on the date of transfer shall
be the F.V.C.
If cap. gain is taxable in the P.Y. of distribution
of the asset, the same will be taxable in the
status of BOI.
CIT v. Artex Manufacturing Co. 227 ITR 260
(S.C.)
On retirement, there is no transfer from the
retiring partner to the firm.
Addl. CIT v. Mohanbhai Pamabhai 165 ITR 166
(S.C.).
Tribhuvandas G. Patel v CIT 236 ITR 515(SC)
Cap. gain arises on distribution and not on
dissolution.
CIT v. Vijayalaxmi Metal Industries 256 ITR 540
(Mad.)
(5) Notwithstanding anything contained in sub-
s.(1), cap. gain arising on transfer of a cap.
asset on its compulsory acquisition shall be
chargeable as under –
(a) Cap. Gain computed with reference to the
compensation awarded or consideration
determined or approved by the Central Govt.
or R.B.I. shall be chargeable in the P. Y. in
which such compensation or part thereof was
first received,
(b) the amount by which the comp. or cons. is
enhanced or further enhanced by the Court, etc.
shall be chargeable in the P. Y. in which such
amount was received by the ‘A’.
(c) Where in the assessment, cap. gain is
computed by taking the comp. or cons. as in (a)
above or enhanced comp. as in (b) above, and
subsequently such comp. or cons. is reduced by
any Court etc., the cap. gain of that year shall be
recomputed by taking the reduced comp. as
F.V.C.
 In respect of enhanced or further enhanced comp.,
the cost of acquisition and the cost of improvement
shall be taken as Rs. NIL.
Where enhanced comp. is received by any
person other than the ‘A’ due to his death or for any
other reason, the amount shall be taxable in the
hands of the receiver.
The A.O. shall amend the Asst. Order by taking
the reduced comp. within 4 years from the end of
the P.Y. in which order reducing the comp. was
passed.
Some decisions –
(b) The date of transfer in case of compulsory
acquisition is the date of possession by the
Govt. or the authority consequent to the
passing of award.
S. Appla Narasamma v. CIT 168 ITR 17 (A.P.)
(b) When possession of prop. is taken by the Govt.
under the urgency provisions of S. 17 of the
Land Acquisition Act without making award,
the date of transfer shall be the date of
possession.
CIT v. Shiv Chand Satnam Paul 229 ITR 745
(P & H).
(c) Solatium u/s. 4(1) which means compensation
for disappointment, inconvenience, wounded
feelings, forms part of the consideration for
computing cap. gains.
Kawalves Ltd. v. CIT 197 ITR 95 (Ker.)
(6) Notwithstanding anything contained in sub-sec.
(1), the difference between the repurchase price
of the units referred to in S. 80CCB(2) and the
cap. value of such units shall be deemed to be the
cap. gains arising to the ‘A’ in the P. Y. of
repurchase or termination of the plan.
Transfer on Liquidation of a Co. S. 46 –
(2) Notwithstanding anything contained in s. 45,
distribution of assets of a co. on its liquidation
shall not be regarded as transfer.
(3) Any money received or value of assets received
by a shareholder on the date of distribution as
reduced by deemed dividend u/s. 2(22)(c) shall
be deemed to be the F.V.C. in the case of the
shareholder u/s. 48.
Decision –
Where on liquidation of a co., assets are distributed
piecemeal, the cap. gain is taxable in the P. Y. in
which the final distribution is made.
CIT v. Jaykrishna Harivallabhdas 231 ITR 108
(Guj.)
Contrary decision of Bombay High Court –
Cable & Wireless Ltd. v. V.H. Gangal 90 ITR 84
(Bom.)
Cap. Gains on purchase of Own Securities/Shares
S.46A.
The difference between the value of
consideration received by the shareholder or the
holder of other specified security and the cost of
acquisition subject to S. 48, on purchases of shares
or securities by the co. shall be deemed to be the
cap. gains arising to such holder in the P. Y. of
purchase by the Co.
Computation of Capital Gain S. 48 –
Short-term – Rs.
Full value of Consideration xxx
Less: Cost of Acquisition xxx
Cost of Improvement xxx
Exp. Incurred wholly &
exclusively in connection
transfer xxx xxx
xxx
Less: Exempt. u/s.54B/54D/54G xxx
Short term Capital Gain xxx
===
Long-term – Rs.
Full Value of Consideration xxx
Less: Indexed Cost of Acquisition xxx
Indexed Cost of Improvement xxx
Exp. Incurred wholly &
exclusively in connection with
transfer xxx xxx
xxx
Less: Exempt. u/s. 54, etc. xxx
Long-term Capital Gain xxx
===
Indexed Cost of Acquisition –
Cost Inflation Index for the F.Y.
Cost of Acquis. x in which the asset is transferred
Cost Inflation Index of the first
year in which the asset was held
by the ‘A’ or for the year
beginning on 1.4.81, whichever
is later.
Indexed Cost of Improvement –
Cost Inflation Index of the year
Cost of x in which the asset is transferred
Improvement Cost Inflation Index of the year
in which improvement to the
asset took place.
 Cap. Gains arising to a non-res. from transfer
of shares or debentures of an Indian Co. shall be
computed by converting the cost of acquisition,
exp. on transfer and F.V.C. into the original
foreign
currency utilised for their purchase and the cap.
gain so computed shall be reconverted into Indian
Currency. This method will apply to every
Reinvestment, thereafter, in and sale of shares
& debentures of an Indian Co.
 Indexation of cost shall not be allowed in the
case of transfer of a long-term cap. asset being
bond
or debenture other than capital indexed bonds
issued by the Govt.
Where shares, deb. or warrants acquired under
employee stock option plan referred to in S. 47(iii)
are transferred under a gift or an irrevocable trust,
the market value on the date of such transfer shall
be deemed to be the F.V.C.
• Full Value of Consideration –
Means the whole price without any deduction.
In case of exchange of assets, F.V.C. means
value of the asset received.
F.V.C. means the price bargained for, except in
case of –
(iv) conversion of cap. asset into stock in trade
(v) transfer of asset as cap. cont. in a firm
(vi) distribution of asset on dissolution of firm
(vii)compulsory acquisition of asset
(viii)Transfer of immovable prop. covered by
S.50C.
Decision :
Where by acquiring a portion of a larger
plot, the value of the unacquired portion is
injuriously affected, comp. received for
injurious affection of unacquired portion is
also part of F.V.C..
CIT v. P. Mahalaxmi 134 ITR 428 (Kar.)
(b) Exp. on Transfer –
Exps. on a/c of brokerage, legal exps., transfer
exps., regn. fees, travelling exps., litigation
exps. for claiming enhancement of comp. are
exps. in connection with transfer.
Decisions –
Exp. wholly & exclusively related to transfer is
deductible.
Sasson J. David & Co. Pvt. Ltd. 118 ITR 261
(S.C.)
Exp. may be incurred before or after passing the
title.
CIT v. P. Rajendran 127 ITR 810 (Ker.)
Cost of Acquisition –
Value for which an asset is acquired and all
exps. incurred directly or indirectly in connection
with the acquisition of asset.
Decisions –
(6) Litigation exps. for compelling the co. to
register the shares in the name of the ‘A’ form
part of cost of acquisition.
CIT v. Bengal Assam Investors Ltd. 72 ITR 319
(Cal.)
(2) Amount paid by transferee to clear the mortgage
debt created by the transferor on the asset is part
of cost of acq. of transferee.
V.S.M.R. Jagdish Chandran v. CIT 227 ITR 240
(S.C.)
If prop. is mortgaged by the ‘A’ himself, amount
paid to discharge the debt is not part of cost of
acq.
CIT v. Attili N. Rao 119 Taxman 1030 (S.C.)
Cost of Improvement –
Includes all exps. incurred after 31.3.81 by an
‘A’ for making additions to cap. asset after the
date of acq.
Deemed Cost of Acquisition S. 49 –
(4) Where the cap. asset became the prop. of the
‘A’ –
(v) on any distribution of asset on the total or
partial partition of a H.U.F.,
(vi) Under a gift or will,
(iii) (a) by succession, inheritance or devolution or
(b) on any distribution of assets on the dissolution
of a firm, BOI or AOP, where such dissolution
took place before 1.4.87 or
(c) on dist. of assets on liquidation of a co., or
(d) under a transfer to a revocable or irrevocable
trust, or
(e) under a transfer referred to in S. 47(iv), 47(v),
47(vi), 47(via), 47(viaa), 47(vica) or 47(vicb).
(iv) in case of a H.U.F. by the mode referred to in
S. 64(2) after 31st Dec., 1969,
the cost of acq. of the asset shall be deemed to be
the cost of acq. of the previous owner plus cost of
improvement of the assets incurred by the
previous owner or the ‘A’.
Where the previous owner also acquired the asset
by any of the above modes, the previous owner
means the last previous owner who acquired it by
any mode other than any of the above modes.
Decision –
Where a member of a H.U.F. had thrown his
separate prop. into the common stock of the
family on or before 31st Dec., 1969, the cost of
acq. in the case of H.U.F. would be
indeterminable. Hence, no cap. gain would be
taxable in the hands of H.U.F. on its subsequent
transfer.
CIT v. Ashok Kumar Jalan 204 ITR 16 (Pat.)
(2) Where the share in amalgamated co. which is an
Indian Co. became the prop. of the ‘A’ as referred
to in s. 47(vii), the cost of acq. of such shares
shall be the cost of acq. of shares in
amalgamating co.
(2A) Where a share or deb. in a co., became the
prop. of the ‘A’ on conversion referred to in S.
47(x), the cost of acq. of such asset shall be
deemed to be that part of the cost of deb., deb.
stock or dep. cert. in relation to which such asset
is acquired by the ‘A’.
(2AA) Where the value of shares, deb. or warrants has
been taken as perquisite u/s. 17(2), their cost of acq.
shall be such value taken under S. 17(2).
(2AB) Where the cap gain arises from the trnsfer of
specified security or sweat equity shares, the cost of
acquisition of such security or shares shall be the
F.M.V. which has been taken into a/c while computing
the value of fringe benefits u/s. 115WC(1)(ba).
(2C) Cost of acq. of shares in resulting co. –
Cost of acq. of Net Book Value of assets
shares in demerged x transferred in demerger
Co. Net worth of the demerged
co. immediately before
demerger.
(2D) Cost of acq. of original shares held in the demerged
co. shall be deemed to have been reduced by the amount
arrived at in sub-sec.(2C).
Net Worth means the aggregate of paid up share cap.
and general reserves appearing in books of account of
demerged co. immediately before demerger.
(2E) The provisions of sub sec. (2),(2C)&(2D) shall also
apply to bus. Reorganisation of a co op bank u/s. 44DB.
(3) Notwithstanding anything contained in sub-sec.(1),
where cap. gain arising from the transfer of a cap. asset
referred to in S. 47(iv) or 47(v) is taxable by virtue of S.
47A(1), the cost of acq. of such asset to the transferee
co. shall be the cost for which such asset was acquired
by it.
Cap. Gain in case of depreciable assets S. 50 –
Rs.
Full Value of consideration of cap. assets
falling within the block of assets xxx
Less: Exp. on transfer xxx
W.D.V. of the block at the
beginning of the P.Y. xxx
Actual Cost of any asset
acquired during the P.Y. xxx xxx
S.T.C.G. xxx
===
 Where the block ceases to exist as all the assets
in that block are transferred during the P.Y., the
above difference shall be deemed to be
S.T.C.G./S.T.C.L.
Decisions –
(3) The word ‘acquired’ used in S. 50 is of a very
amorphous nature and an asset can be acquired
within the meaning of S. 50 without obtaining a
valid title. The cost of such asset shall be added
to W.D.V. while computing S.T.C.G. u/s. 50.
Orient Cartons Pvt. Ltd. v. D.C. 60 ITD 87
(Bom.)
(2) For the purpose of S. 50, the actual cost of
assets falling within the block of assets shall be
added to the opening W.D.V. of the block even if
the asset was not put to use during the P.Y. S.50
does not require the ‘A’ to use the asset.
Oceanic Investments Ltd. v. AC 57 TTJ 549
(Bom.)
Special Provisions – Cost of Acquisition of
Depreciable Assets – S. 50A –
Where the ‘A’ has obtained depreciation on an
asset u/s. 32(1)(i), Ss. 48 and 49 shall apply
subject to the modification that the W.D.V. u/s..
43(6), as adjusted, shall be taken as the cost of
acq. of the ‘A’.
Computation of Cap. Gains in case of Slump Sale
S. 50B –
(1) Any profits or gains arising from slump sale
effected in the P.Y. shall be taxable as L.T.C.G.
of the P.Y. in which the transfer took place.
 If the profit or gain arises from the transfer of an
undertaking owned and held by the ‘A’ for not more
than thirty six months the gain shall be regarded as
S.T.C.G.
(2) The net worth of the undertaking or the division shall
be deemed to be the cost of acq. and the cost of impr.
for the purposes of Ss. 48 and 49 and the Second
Proviso of S. 48 shall not apply (No indexation
allowed).
(3) ‘A’ shall, in the case of slump sale, furnish audit
report indicating the computation of net worth of the
undertaking or division and certifying that it has been
correctly arrived at in accordance with the provisions
of this section.
 Net worth shall be the aggregate value of total
assets of the undertaking or division as reduced
by the value of its liabilities as appearing in its
books of a/c.. Revaluation of assets shall be
ignored for computing the net worth.
For computing net worth, the value of total
assets shall be, W.D.V. u/s. 43(6)(c) of the block
of assets in case of depreciable assets and book
value in the case of other assets.
Transfer of Immovable Property S. 50C –
(1) Where the consideration received or accruing
as a result of transfer of a cap. asset by the ‘A’,
being land or build. or both is less than the
value adopted or assessed by the Stamp
Valuation Authority for the payment of stamp
duty, the value so adopted or assessed shall, for
the purposes of S. 48, be deemed to be the
F.V.C. received or accruing as a result of such
transfer.
(2) Without prejudice to Sub-sec. (1), where –
(a) the ‘A’ claims before the A.O. that the value
adopted or assessed by the Stamp Valuation
Authority under Sub-sec. (1) exceeds the F.M.V.
of the prop. on the date of transfer and (b) the
value so adopted or assessed by the S.V.A. has
not been disputed in appeal or revision or no
reference has been made before any other
authority, court or high court,
the A.O. may refer the valuation of the cap.
asset to a Valuation Officer and where any
reference is made, S. 16A(2), 6A(3),(4),(5)
and (6), S. 23A(1)(i), (6) and (7), S. 24(5),
S. 34AA, S. 35 and S. 37 of the Wealth-tax
Act, 1957 shall, with necessary
modifications, apply in relation to such
reference.
(3) Where the value ascertained under sub-sec. (2)
exceeds the value adopted or assessed by the
S.V.A., the value so adopted or assessed by the
S.V.A. shall be taken as F.V.C. .
S. 155(15) provides w.e.f. 1.6.2002 that –
Where in the assessment of any year, cap. gain is
computed by taking F.V.C. as the value adopted by
the S.V.A. for stamp duty and subsequently such
value is revised in any appeal, revision or reference
referred to in clause (b) of Sub-sec. (2) of this
section, the A.O. shall amend the assessment order
to compute cap. gain taking the F.V.C. as so
revised in such appeal, revision or reference.
S. 154 shall apply accordingly. The time limit of 4
years shall be reckoned from the end of the P.Y. in
which the order revising the value was passed in
that appeal or revision or reference.
 Sections of W.T. Act

Reference to Valuation Officer S. 16A

Appealable Orders before CIT(A) S. 23A
Appeal to ITAT S. 24
Appearance by Regd. Valuers S. 34AA
Rectification of Mistakes S. 35
Power to take evidence on oath S. 37