Professional Documents
Culture Documents
[INCOME TAX]
Assessment Year 2016-17
T K SRIDHAR
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2(14)
2(29A)
2(29B)
2(42A)
2(42B)
2(42C)
Slump sale
2(47)
Transfer
2(48)
Page
Content
Section
10(33)
10(36)
10(37)
10(38)
Exemption of LTCG from listed equity shares under head capital gain
10(41)
10(43)
Page
Content
45(1)
45(1A)
45(2)
45(2A)
45(3)
Introduction of capital asset by a partners into the firm or by a member into the AOP or
BOI
45(4)
45(5)
Page
45(6)
46
46A
Capital gains on purchase by company of its own shares or other specified securities
47
47A
48
Mode of computation
49
50
50A
50B
50C
50D
51
54
54B
Capital gain on transfer of land used for agricultural purposes not to be charged in
certain cases
54D
54EC
54F
Capital gain on transfer of certain capital assets not to be charged in case of investment in
residential house
54G
54GA
54GB
54H
55
Meaning of adjusted, cost of improvement and cost of acquisition for the purpose of S.48
& 49
55A
CII
PY
CII
PY
CII
PY
CII
1981-82
100
1990-91
182
1999-00
389
2008-09
582
1982-83
109
1991-92
199
2000-01
406
2009-10
632
1983-84
116
1992-93
223
2001-02
426
2010-11
711
1984-85
125
1993-94
244
2002-03
447
2011-12
785
1985-86
133
1994-95
259
2003-04
463
2012-13
852
1986-87
140
1995-96
281
2004-05
480
2013-14
939
1987-88
150
1996-97
305
2005-06
497
2014-15
1024
1988-89
161
1997-98
331
2006-07
519
2015-16
1081
1989-90
172
1998-99
351
2007-08
551
Description
Capital Asset (CA)
Definition
Includes property of any kind except stock, personal effects, Rural
agricultural land etc. [Jewellery is a capital asset]
2(29A)
Asset (LTCA)
2(29B)
gains (LTCG)
2(42A)
2(42B)
Asset (STCA)
Gains (STCG)
2(42C)
Slump sale
2(47)
Transfer
2(48)
Zero Coupon
Bond
Capital Gains
10.1
Important Provisions
10(33)
10(36)
10(37)
10(38)
Exemption of LTCG from listed equity shares under head capital gain
10(41)
10(43)
Content
Computation
45(1)
CG = SC CA or ICA
YOT
45(1A)
CG = CR CA or ICA
YOR
45(2)
CG = FMV CA or ICA;
YOTCS
BI = SC FMV
CG = SC CA or ICA
YOT
CG = BV CA or ICA
YOI
CG = FMV CA or ICA
YOD
CG = NCR CA or ICA
YORI
45(2A)
45(4)
45(5)
Re-compute (b)
45(6)
CG = BBP CA
46
46A
YOR
Cash received
Dividend (S.2(22)(c))
CA or ICA
CG
CG = BBP CA or ICA
YOR
YOB
Income Tax
10.2
BV Book Value
CA Cost of Acquisition
CG Capital Gain
CI Cost of Improvement
CR Claim Received
ECR Enhanced Compensation Received
ICA Indexed Cost of Acquisition
ICI Indexed Cost of Improvement
NCR Normal Compensation Received
SC Sale Consideration
YOD Year of Distribution
YOI Year of Introduction
YOR Year of Receipt
YORB Year of Repurchase or Buyback
YORI Year of Receipt of I installment
YOT Year of Transfer
YOTCS Year of Transfer of Converted Shares
S
47
47A
48
Mode of computation
49
S
50
50A
depreciable assets
CG = SC less Original CA
YOT
YOT
Slump Sale
YOT
Sector Units
50B
50C
50D
YOT
[from AY 2013-14]
51
Capital Gains
10.3
S
54
54B
Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases
54D
Capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases
54EC
54F
Capital gain on transfer of certain capital assets not to be charged in case of investment in
residential house
54G
Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from
urban area
54GA
Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from
urban area to any Special Economic Zone
54GB
54H
55
Meaning of adjusted, cost of improvement and cost of acquisition for the purpose of S.48 & 49
55A
Any stock in trade, consumable stores or raw materials held for the purpose of business or
profession.
Exclusion 2
Personal effects of the assessee. It means moveable property including wearing apparel
and furniture held for his personal use or for the use of any member of his family
dependent upon him but exclude (a) Jewellery (b) Painting (c) Archaeological Collection
(d) Drawing (e) Sculptures (f) any work of art even though it is meant for personal use of
assessee
Exclusion 3
Exclusion 4
6% Gold Deposit Bonds, 1977 or 7% Gold Bonds, 1980 or National Defense Gold Bonds,
1980 issued by Central Government.
Exclusion 5
Exclusion 6
Important Notes:
1.
"Jewellery" is a capital asset. For the purpose of this chapter, Jewellery includes the following:-
Income Tax
10.4
(a)
Ornaments make of silver, gold, platinum, or any other metal or any alloy containing one or more of
such precious metal, whether or not containing any precious or semi-precious stones and whether or
not worked or sewn into any wearing apparel.
(b) Precious or semi-precious stones, whether or not set in any furniture, utensil of other article or
worked or sewn into any wearing apparel.
2.
Agricultural land situated in rural area is not a capital asset: For this chapter, rural area means the
land situated:
(a) In any area within the territorial jurisdiction of a municipality having a population of 10,000 or more;
(b) In any area specified by the government.
3.
Examples of personal effect are furniture, car, scooter etc. Silver bars, rupee coins for pooja, festivals
etc is capital asset and not personal effect.
4.
Personal effects of movable assets are not capital assets are not a capital asset. However personal
effects of immovable assets are capital assets and hence capital gain arises on the sale of residential
houses etc.
Less
24,00,000
23,34,773
65,227
Capital Gains
10.5
Question: Write short note on long term capital asset as defined u/s 2(29A)?
Answer: A capital asset which is not a Short Term Capital Asset is a Long term Capital Asset. In other
words, if the asset is held for more than 36 months or 12 months, as the case may be, such an asset will be
treated as Long Term Capital Assets.
Question: Write Short note on Short Term Capital Assets as defined u/s 2(42A)?
Answer: A capital asset held by an assessee for not more than 36 months immediately preceding the date
of its transfer is known as a short term capital asset.
However, the following assets shall be treated as short term capital assets if the period held is not more
than 12 months immediately preceding the date of its transfer.
a.
Equity or Preference shares in a company (listed in a recognized stock exchange in India) (but up to
10th July 10, 2014, whether shares are quoted or not is considered)
b.
c.
Units of UTI or Units of an equity oriented mutual fund (whether quoted or not) (but up to 10th July
10, 2014 only Mutual Funds specified u/s 10(23D) (whether quoted or not is eligible) was considered)
Short Term Capital Gain as defined u/s 2(42B) of the Income Tax Act, 1961-It implies that any profit
or gains arising from the transfer of short term capital assets is called short term capital gain.
b.
Long Term Capital Gain as defined u/s 2(29B) of the Income Tax Act, 1961-it implies that any profit or
gains arising from the transfer of long term capital assets is called long capital gain.
Income Tax
10.6
Answer: Land held by partnership firm, which is not engaged in real estate business, would be treated as
fixed asset of the firm. Transfer of the same is assessable as capital asset, hence capital gains and not as
business income. [Mohakampur Ice & Storage 281 ITR 354 (All.)]
For original subscribers, Income = difference between market value on 31 st March of the previous year
and 1st April of the previous year
For subsequent purchases, income = difference between market value on 31 st March of the previous
year and cost of purchase of the bond
3.
For the Investor, Short term Capital Gains = Sale Price less Cost of Bond;
ii. For Traders, Business Income = Sale price less cost of bond.
4.
Cost of bond = Cost of acquisition + Income already taxed up to the date of transfer.
5.
For the Investor, Interest Income = Redemption Price less market value as on the last valuation
date, immediately preceeding the maturity date.
In case of a trader, this interest income would be construed as Business Income.
ii. For subsequent purchasers, Interest Income = Redemption price less cost of the bond to such
purchaser.
In case of a trader, this interest income would be construed as Business Income.
Where, Cost of bond = cost of acquisition + income already taxed by the bond holder up to the
date of redemption
Capital Gains
10.7
a.
b.
c.
d. In a case where the asset is converted by the owner thereof into, or is treated by him as stock-in-trade
of a business carried on by him, such conversion or treatment; or
e.
Any transaction involving the allowing of the possession of any immovable property to be taken or
retain in the part performance of the contract as referred in Section 53A of the Transfer of Property
Act, 1882.
f.
Allotment or lease under a housing building scheme of society, company or other association.
g.
Important Points:
a.
b.
Reduction of face value of share and consequent payment to the shareholder towards such
reduction amount to transfer as it results in extinguishments of right in the shares held by the
shareholder. Decided in the case of Kartikeya Sarabhai (SC)
Movable property: title to a movable property passes at the time when property is delivered
pursuant to a contract to sell. Entries in the books of account are not relevant for determining date of
transfer.
2.
Immovable property:
(a) immovable property when documents are registered: transfer is compete on registration.
(b) immovable property when documents are not registered: transfer is complete on satisfaction of
conditions laid u/s 53A of the Transfer of Property Act, which are listed below.
1.
2.
the transferee has paid consideration or is willing to perform his part of the contract and
3.
Income Tax
10.8
Capital Gains
10.9
Question: Write Short note on exemption on compulsory acquisition of agriculture land u/s 10(37)?
Answer: In the case of an individual or HUF, an income from the transfer of urban agricultural land shall
be exempt if
(a) such land was being used for agricultural purposes by such Individual or HUF or his parents, during
two years immediately preceding the date of transfer.
(b) transfer is by way of compulsory acquisition under any law, or consideration is determined by
Central Government or RBI
(c) such income has arisen from the compensation received by assessee on or after 1 st April, 2004.
Income Tax
10.10
the Central Government or the Reserve Bank of India, resultant capital gain will be exempt. In this case,
however, the compensation has been fixed by the State Government and hence the exemption will not be
available.
Question: Write Short note on exemption of LTCG from listed equity shares u/s 10(38) under head
capital gain?
Answer: Long term capital gain from transfer of equity shares or units of equity - oriented mutual fund
(where funds are invested in equity shares in domestic company, more than 65% of total proceeds of
fund) shall be exempt if i.
Capital Gains
10.11
loan or monthly installment. When possession of the property is given to the bank, there is no transfer
and, consequently, capital gain is not chargeable to tax. However, when bank transfers the property to
realize the amount of loan and interest, capital gain will be taxable as the transaction is treated as
transfer. If this transfer takes place during the lifetime of Abhiks Father (generally in the case reversed
mortgage, bank transfers the property after the death of the person who has pledged the property),
capital gain would be taxable in the hand of Abhiks Father.
If transfer by the bank takes place after the death of Abhiks father then capital gain will be taxable in the
hands of legal heirs of Abhiks father.
Question: Write short note on method of calculation of capital gains u/s 48?
Answer:
Computation of Short Term Capital Gain
Consideration Received
Expenses of Transfer
Net Consideration
Less
Cost of Acquisition
Less
Cost of Improvement
Taxable STCG
Less
Less
Expenses of Transfer
Net Consideration
Less
Less
Less
Taxable LTCG
Question: Write short note on concept of indexation in case of long term capital gains?
Answer: If the capital gain arises from the transfer of a long term capital asset, then for the purpose of
computing capital gains:
i.
Note 1: No deduction will be allowed in respect of payment of securities transaction tax in computing
income under the head capital gains.
Note 2: COI is always indexed in case of long term capital asset irrespective of year in which such
improvement was incurred.
Income Tax
10.12
Note 3: Indexation of cost shall not be allowed in case of transfer of bonds & debentures other than
capital indexed bonds issued by the Government.
In the following cases benefit of indexation is not allowed:Capital Assets
Bond or Debentures (Other than capital indexed bond issued by Government)
Share or Debenture of Indian Co. acquired by utilizing convertible foreign exchange (first proviso of
section 48)
Depreciable assets
Slump Sale under Selection 50B
Transfer of units purchased in foreign currency by an assessee covered u/s 115AB
Transfer of GDR's purchased in foreign currency by an assessee covered u/s 115ACA
Transfer of Securities by Foreign Institutional Investors (FII) u/s 115AD
Question: Write Short note on cost of improvement under head capital gain?
Answer: Cost of improvement incurred before 01.04.1981 shall be ignored for all cases.
All expenditure incurred on improvement of assets by the assessee or the previous owner on or after
01.04-1981 shall be treated as cost of improvement.
Such profit or gain is not exempt from tax u/s 54, 54B, 54D, 54EC, 54ED, 54F, 54G and 54GA
All of the above conditions must be satisfied at a one point of time for the purpose of taxing capital gains.
Answer: (b)
Capital Gains
10.13
a) Nil
b) Cost of acquisition of the asset to father
c)
Question: Write short note on insurance claim received u/s 45(1A) under head capital gains?
Answer: If any person receives any money or other assets on account of insurance claim from the
insurance claim from the insurer on account of damage to, or destruction of, any capital asset from
Flood, typhoon, hurricane, earthquake & other convulsion of nature
Riot or civil disturbance
Accidental fire or explosion
Action by enemy or action taken in combating an enemy
Then any profit from the receipt of such money shall chargeable to capital gain and shall be deemed to be
the income of such person of the previous year in which such money or asset was received and money
received or FMV of the asset received, shall be deemed to be full consideration.
i.
4,80,000
6,00,000
1,80,000
You are requested to briefly comment on the tax treatment of the above three items under the provisions
of the income-tax Act, 1961.
Answer: Tax Treatments:
Stock
Sale Consideration (Compensation)
4,80,000
Less
Cost of acquisition
6,50,000
Less
Machinery
6,00,000
1,80,000
10,80,000
Income Tax
10.14
Less
Business income
2,05,253
(1,70,000)
(4,80,000)
(25,253)
1,90,000
Less
1,29,620
60,380
2,25,000
Capital Gains
10.15
Less
1,90,000
35,000
95,380
Question: Write short note on dematerialization u/s 45(2A) under head capital gain?
Answer: Where any person had, at any time during the previous year, any beneficial interest in any
security, then any profit and gain arising from transfer made by depositary shall be chargeable to tax as
an income of the beneficial owner of the previous year in which the transfer took place.
Cost of Acquisition (COA) and period of holding (POH) shall be determined on the FIFO basis.
Particulars
Quantity
300
Credit
10.11.2004
500 on 25.11.2005 @ 70
per share
06.12.2007
Shares of XYZ LTD. held in physical form, were got dematerialised on 01.12.2007
M sold 600 dematerialised shares on 6th June 2015 @ 200 per share. Brokerage is paid @ 2% of sale price.
Compute capital gains.
Answer:
a) Person Liable: The sale of shares held under Dematerialized format with a depository is chargeable
to tax as the income of the beneficial owner.
b) Cost of Acquisition and period of holdings: The cost of acquisition and the period of holding shall
be determined on FIFO Method. [Circular No. 768 dated 24.6.1998]
i.
ii. When physical stock is dematerialised, 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.
1,20,000
Brokerage 2%
2,400
Income Tax
76,127
10.16
(ii)
3,924
80,051
37,549
Question: Write short note on transfer of capital asset by a partner to firm u/s 45(3) under head capital
gain?
Answer: Capital gain arising from the transfer of a capital asset by way of contribution to the firm or
otherwise, shall be chargeable to tax in the previous year in which such transfer takes place.
For the purpose of sale consideration, the amount recorded in the books of the firm as a value of capital
asset shall be taken
Less:
34,00,000
34,59,200
59,200
a) Full value of consideration is taken as the value at which it is recorded in the books of accounts of the
firm.
Capital Gains
10.17
Question 17: Write short note on dissolution of firm u/s 45(4) under the head capital gain?
Answer: Capital Gains arising from the transfer of the capital assets by a firm at the time of dissolution of
the firm or otherwise, shall be chargeable to tax as an income of the firm in which such distribution takes
place. For the purpose of the sale consideration, FMV of the capital assets on the date of distribution shall
be taken.
Capital Gain = FMV on the date of transfer - Cost or Indexed COA
Less
30,00,000
14,17,705
15,82,295
Block of machinery
Stock
Land
(given to P)
(given to Q)
(given to R)
Year of acquisition
1995-96
2007-08
1978-79
Cost of acquisition ()
7,20,000
4,00,000
10,000
15,00,000
6,00,000
30,00,000
WDV as on 31.12.15
10,40,000
10,00,000
4,50,000
18,00,000
2,70,000
Compute the income taxable in the hands of the firm for the assessment year 2016-17. What shall be the
cost of acquisition of such assets to the partners of the firm?
Income Tax
10.18
Answer:
Less
15,00,000
10,40,000
4,60,000
Less
6,00,000
Cost of Acquisition
4,00,000
Business Income
2,00,000
Less
30,00,000
29,18,700
81,300
10,00,000
Partner Q
4,50,000
Partner R
18,00,000
Question 18: Write short note on compulsorily acquisition u/s 45(5) u/h capital gain?
Answer: Where a Capital asset is compulsorily acquired by the Government of similar agency, under any
law then,
1.
Capital gain shall be computed in the year in which the asset was acquired.
2.
Capital gain for initial compensation / original compensation shall be taxable in the year in which
such compensation or part thereof is first received by the assessee.
3.
Any additional compensation, increased compensation received by the assessee is taxable in the year
in which such additional amount is received.
4.
For the purpose of additional compensation COA & COI Shall be zero.
5.
Any expense incurred for the purpose of realization of the additional compensation shall be deducted
from the sale consideration.
6.
7.
Capital Gains
10.19
Less
32,00,000
23,55,000
8,45,000
14,00,000
Cost of Acquisition
NIL
Cost of Improvement
NIL
Legal Expenses
(40,000)
13,60,000
Question: Assume from the previous problem, that the enhanced compensation is reduced by Supreme
Court from 14,00,000 to 10,00,000 on 7.7.2017 and the legal expenses incurred 20,000.
Answer:
Re-computation of Long Term Capital Gains for the A.Y. 2018-19
Revised enhanced compensation received
Less
14,00,000
Cost of Acquisition
NIL
Cost of Improvement
NIL
60,000
13,40,000
Note: the assessing officer can re-compute the income of the AY 2018-19 within 4 years from the end of
the year in which order of the Supreme Court, reducing the compensation, is passed (i.e. 31.03.2023).
Income Tax
10.20
b.
Distribution in Kind: Fair market value (FMV) of assets on the date of liquidation less deemed
divided u/s 2(22)(c).
While computing the period of holding of such assets the period after the date of liquidation shall be
ignored.
Capital Gain on the sale of assets received at the time of Liquidation: The cost of acquisition of the asset
received in liquidation, shall be its fair market value on the date of distribution, without deducting
deemed dividend u/s 2(22)(c).
6,00,000
Assets
Agricultural lands
42,00,000
Capital Gains
10.21
General reserve
Provision for taxation
40,00,000
Cash at Bank
6,50,000
2,50,000
48,50,000
48,50,000
The tax liability (towards dividend distribution tax) was ascertained at 3,00,000 after considering refund
due to the company. 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 31.07.2015 is
10,00,000 per acre.
The agricultural land received above was sold by Ms. Vasumathi on 29.2.2016 for 15,00,000.
Discuss the tax consequences in the hands of the company and Ms. Vasumathi.
Answer: In the hands of the company: As per section 46(1), in case of distribution of capital assets
amongst the shareholders on liquidation of the company is not regarded as transfer in the hands of the
company. Consequently, there will be no capital gains in the hands of the company.
In the hands of Ms. Vasumathi (shareholder)
Section 46(2) provides that such capital gains would be chargeable in the hands of the shareholder.
Ms. Vasumathi holds 1/6th of the shareholding of the company
Market value of agricultural land received (1 acre @ 10 lakhs)
Add
Amount ( )
10,00,000
58,333
10,58,333
Less
Less
Less
6,58,333
4,00,000
2,05,253
1,94,747
15,00,000
10,00,000
5,00,000
Note: Dividend u/s 2(22) (c) 6,58,333 will be exempt under section 10(34).
Note: Since the question states that there is refund due to the company, it is assumed that the provision
for taxation of 250,000 shown in Balance Sheet is in respect of dividend distribution tax. Therefore, the
tax liability in respect of dividend distribution tax ascertained at 3,00,000 has to be reduced from bank
balance while computing full value of consideration under section 46(2), 50,000, being the difference
between 3,00,000 and 2,50,000 has to be reduced from General Reserve for calculating deemed dividend
under section 2(22)(c ).
Income Tax
10.22
Where a shareholder receives any consideration from the company for purchase of its own shares or
other specified securities, it is a transfer chargeable under the head Capital Gains.
2.
The Capital Gains taxable in the previous year in which the shares or securities are purchased by the
Company.
3.
Capital Gains = Value of Consideration Received Less Cost of Acquisition or Indexed cost of
acquisition.
4.
No deemed dividend: In case of buy back of shares, there is no question of deemed dividend u/s
2(22)(d).
Incase Shares treated as Stock-in-Trade are exchanged for Shares of other companies,
Stock-in-Trade
then, Business Profit = Market Value of Shares exchanged Less Book Value of Original
Shares. [Orient Trading Co. Ltd. 224 ITR 371 (SC)]
Reduction of
When there is a reduction in the Face Value of the Shares and consequent payment by
Capital
the Company to the Shareholders towards such reduction, the reduction of Share
Capital is charged to Capital Gains Tax. [Kartikeya vs. Sarabhai 228 ITR 163 (SC)]
Less
Consideration for transfer of 100 equity shares [500 shares 20%] @ 130 per share
13,000
11,084
1,916
Capital Gains
10.23
Provisions
(i)
(iii)
Any transfer of capital asset under a gift or will or an irrevocable trust. However, it would
not include transfer under gift or an irrevocable trust of a capital asset being shares or
debentures or warrants allotted by a company to the employees under the ESOP scheme in
accordance with the guidelines issued by the Central Government in this behalf.
(iv)
Transfer of capital asset to its wholly owned Indian subsidiary company by a holding
company
(v)
Transfer of capital asset by a wholly owned subsidiary company to its Indian holding
company
(vi)
(via)
(viaa)
(viab) 1
(vib)
Transfer of capital asset by the demerged company to the resulting Indian company in a
scheme of demerger
Following clause (viab) shall be inserted by the Finance Act, 2015, w.e.f. 1-4-2016
Income Tax
10.24
(vic)
Transfer of capital asset, being a share or shares held in Indian company, by the demerged
foreign company to the resulting foreign company, if
(a) the shareholders holding not less than three-fourths in the value of the shares of the
demerged foreign company continue to remain shareholders of the resulting foreign
company; and
(b) such transfer does not attract tax on capital gains in the country, in which the demerged
foreign company is incorporated.
(vica)
(vicb)
(vicc)1
any transfer in a demerger, of a capital asset, being a share of a foreign company , referred to
in the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or
indirectly, its value substantially from the share or shares of an Indian company, held by the
demerged foreign company to the resulting foreign company, if
(a) the shareholders, holding not less than three-fourths in value of the shares of the
demerged foreign company, continue to remain shareholders of the resulting foreign
company; and
(b) such transfer does not attract tax on capital gains in the country in which the demerged
foreign company is incorporated:
(vid)
any transfer or issue of shares by the resulting company, in a scheme of demerger to the
shareholders of the demerged company if the transfer or issue is made in consideration of
demerger of the undertaking;
(vii)
(viia)
any transfer of a capital asset, being bonds or Global Depository Receipts referred to in subsection (1) of section 115AC, made outside India by a non-resident to another non-resident;
(viib)
any transfer of a capital asset, being a Government Security carrying a periodic payment of interest,
made outside India through an intermediary dealing in settlement of securities, by a non-resident to
Following clause (viab) shall be inserted by the Finance Act, 2015, w.e.f. 1-4-2016
Capital Gains
10.25
another non-resident.
(viii)
any transfer of agricultural land in India effected before the 1st day of March, 1970;
(ix)
any transfer of a capital asset, being any work of art, archaeological, scientifi c or art
collection, book, manuscript, drawing, painting, photograph or print, to the Government or
a University or the National Museum, National Art Gallery, National Archives or any such
other public museum or institution as may be notified by the Central Government in the
Official Gazette to be of national importance or to be of renown throughout any State or
States.
(x)
(xa)
(xi)
any transfer made on or before the 31st day of December, 1998 by a person (not being a
company) of a capital asset being membership of a recognised stock exchange to a company
in exchange of shares allotted by that company to the transferor.
(xii)
any transfer of a capital asset, being land of a sick industrial company, made under a
scheme prepared and sanctioned under section 18 of the Sick Industrial Companies (Special
Provisions) Act, 1985 (1 of 1986) where such sick industrial company is being managed by
its workers' co-operative
(xiii)
Income Tax
10.26
any transfer of a capital asset being a membership right held by a member of a recognised
stock exchange in India for acquisition of shares and trading or clearing rights acquired by
such member in that recognised stock exchange in accordance with a scheme for
demutualisation or corporatisation which is approved by the Securities and Exchange Board
of India established under section 3 of the Securities and Exchange Board of India Act, 1992
(15 of 1992);
(xiiib)
any transfer of a capital asset or intangible asset by a private company or unlisted public
company to a limited liability partnership or any transfer of a share or shares held in the
company by a shareholder as a result of conversion of the company into a limited liability
partnership in accordance with the provisions of section 56 or section 57 of the Limited
Liability Partnership Act, 2008 (6 of 2009):
Provided that
(a) all the assets and liabilities of the company immediately before the conversion become
the assets and liabilities of the limited liability partnership;
(b) all the shareholders of the company immediately before the conversion become the
partners of the limited liability partnership and their capital contribution and profit sharing
ratio in the limited liability partnership are in the same proportion as their shareholding in
the company on the date of conversion;
(c) the shareholders of the company do not receive any consideration or benefit, directly or
indirectly, in any form or manner, other than by way of share in profit and capital
contribution in the limited liability partnership;
(d) the aggregate of the profit sharing ratio of the shareholders of the company in the
limited liability partnership shall not be less than fifty per cent at any time during the
period of five years from the date of conversion;
(e) the total sales, turnover or gross receipts in the business of the company in any of the
three previous years preceding the previous year in which the conversion takes place does
not exceed sixty lakh rupees; and
(f) no amount is paid, either directly or indirectly, to any partner out of balance of
accumulated profit standing in the accounts of the company on the date of conversion for a
period of three years from the date of conversion.
(xiv)
Capital Gains
10.27
by it as a result of which the sole proprietary concern sells or otherwise transfers any capital
asset or intangible asset to the company:
Provided that
(a) all the assets and liabilities of the sole proprietary concern relating to the business
immediately before the succession become the assets and liabilities of the company;
(b) the shareholding of the sole proprietor in the company is not less than fifty per cent of
the total voting power in the company and his shareholding continues to remain as such for
a period of five years from the date of the succession; and
(c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in
any form or manner, other than by way of allotment of shares in the company;
(xv)
any transfer in a scheme for lending of any securities under an agreement or arrangement,
which the assessee has entered into with the borrower of such securities and which is
subject to the guidelines issued by the SEBI, in this regard;
(xvi)
any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and
notified by the Central Government
(xvii)
any transfer of a capital asset, being share of a special purpose vehicle to a business trust in
exchange of units allotted by that trust to the transferor.
Explanation.For the purposes of this clause, the expression "special purpose vehicle" shall
have the meaning assigned to it in the Explanation to clause (23FC) of section 10.]
(xviii)1
any transfer by a unit holder of a capital asset, being a unit or units, held by him in the
consolidating scheme of a mutual fund, made in consideration of the allotment to him of a
capital asset, being a unit or units, in the consolidated scheme of the mutual fund:
Provided that the consolidation is of two or more schemes of equity oriented fund or of two
or more schemes of a fund other than equity oriented fund.
Explanation. For the purposes of this clause,
(a) "consolidated scheme" means the scheme with which the consolidating scheme merges
or which is formed as a result of such merger;
(b) "consolidating scheme" means the scheme of a mutual fund which merges under the
process of consolidation of the schemes of mutual fund in accordance with the Securities
and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities
and Exchange Board of India Act, 1992 (15 of 1992);
(c) "equity oriented fund" shall have the meaning assigned to it in clause ( 38) of section 10;
(d) "mutual fund" means a mutual fund specified under clause (23D) of section 10.
Following clause (viab) shall be inserted by the Finance Act, 2015, w.e.f. 1-4-2016
Income Tax
10.28
Before
Period
S.47(iv)
Transfer
by
subsidiary
or
holding
/ (v)
company
to
wholly
owned
holding
8 years
S.47(xi)
3 years
S.47(xiii)
Capital Gains
10.29
/ (xiv)
S.47(xiiib)
Question: Write Short note on deemed cost of acquisition under the head capital gain?
Answer: When the capital asset becomes the property of the assessee in any of the manner mentioned
below, the cost of the acquisition of the asset shall be deemed to be the cost for which the previous owner
of the property acquired it. Following are the examples of the cases:
a.
b.
c.
f.
On the transfer by a wholly owned India subsidiary company to its holding company or vice versa
g.
On any transfer in a scheme of amalgamation of two Indian companies subject to certain conditions
u/s 47.
w.r.t S
49
49(1)
49(1)(i)
S.47(i)
CA = CAP
S.47(iii)
CA = CAP
by succession, inheritance or
CA = CAP
devolution, or
49(1)(iii)(b)
CA = CAP
liquidation of a company, or
Income Tax
10.30
49(1)(iii)(d)
an irrevocable trust, or
49(1)(iii)(e)
47(vii)
transfer by amalgamating
company
49(2A)
49(2AA)
47(x)
/(xa)
debenture
17(2)(vi)
CA = FMV
47(xiiib)
49(2AB)
115WC
CA = FMV
(1)(ba)
securities
115AC
(1)(b)
of GDR
49(2AC)
47(xvii)
CA shares = CA of units
49(2AD)2
47(xviii)
49(2C)
47(vid)
49(2ABB)1
company in demerger
49(2D)
49(2E)
after S.49(2C)
by CA u/s 49(2C)
49(3)
47(iv) /
CG by S.47A
(v)
49(4)
1
2
was acquired
56(2)(vii)
Cost of Acquisition of
/(viia)
property taxable
gifts
Capital Gains
10.31
Particulars
Less:
Amount( )
5,00,000
3,00,000
2,00,000
As per S.49(2AA) the cost of acquisition of such shares shall be adopted while computing the capital gain.
Hence, the cost of acquisition for Mr. Rao shall be 3,00,000.
2.
3.
the actual cost of any assets falling within the block of assets acquired during the previous year,
such excess shall be deemed to be the capital gains arising from the transfer of short -term capital
assets.
Where all assets in a block are transferred during the previous year, the block itself will cease to
exist. In such a situation, the difference between the sale value of the assets and the WDV of the
block of assets at the beginning of the previous year together with the actual cost of any asset falling
within that block of assets acquired by the assessee during the previous year will be deemed to be
the capital gains arising from the transfer of short term capital assets.
Income Tax
10.32
[CA INTER M99 & N08, 7 & 10 Marks][Similar in M99 Kishore Industries]
Question: Singhania & Co. own six machines, put in use for business in March, 2012. The
depreciation on these machines is charged @ 15%. The written down value of these machines at the
end of the previous year relevant to assessment year 2016-17 was 8,50,000. A new plant was bought
for 8,50,000 on 30 th November, 2015.
Three of the old machines were sold on 10 th June, 2015 for 11,00,000.
You are required to:
1.
2.
compute the capital gains liable to tax for Assessment Year 2016-17.
3.
If Singhania & Co. had sold the three machines in June, 2015 for 21,00,000, will there be any
difference in your above workings? Explain.
Answer:
Computation of depreciation claim for A.Y.2016-17
Particulars
W.D.V. of the block as on 1.4.2015
Add
8,50,000
_8,50,000
17,00,000
Less
11,00,000
_6,00,000
Since the value of the block as on 31.3.16 comprises of a new asset which has been put to use for less
than 180 days, depreciation is restricted to 50% of the prescribed percentage of 15% i.e. depreciation
is restricted to 7%. Therefore, the depreciation allowable for the year is 45,000, being 7% of
6,00,000.
(2) The provisions u/s 50 for computation of capital gains in the case of depreciable assets can be
invoked only under the following circumstances:
a.
When one or some of the assets in the block are re-sold for consideration more than the value of
the block.
b. When all the assets are transferred for a consideration more than the value of the block.
c.
When all the assets are transferred for a consideration less than the value of the block.
Since in the first two cases, the sale consideration is more than the written down value of the block,
the computation would result in short term capital gains.
In the third case, since the written down value exceeds the sale consideration, the resultant figure
would be a short term capital loss.
In the given case, capital gains will not arise as the block of asset continues to exist, and some of the
assets are sold for a price which is lesser than the written down value of the block.
Capital Gains
10.33
(3) If the three machines are sold in June, 2015 for 21,00,000, then short term capital gains would
arise, since the sale consideration is more than the aggregate of the written down value of the block
at the beginning of the year and the additions made during the year.
Particulars
Sale consideration
Less
50A
21,00,000
8,50,000
_8,50,000
17,00,000
_4,00,000
[CA INTER M03, M06 & N08, 5, 6 & 6 Marks][CMA INTER SY08, J14, 5 Marks]
Question: What is Slump sale? How is capital gain computed in case of a slump sale?
Question: Write short notes on: Special provision for computation of capital gains in the case of
slump sale u/s 50B of Income-tax Act, 1961.
Answer: Meaning of slump sale: Sale of undertaking for a lump sum consideration without determining
the value of the individual assets and liabilities [S.2(42C)].
If any person has transferred the entire unit or part of the unit for a lump-sum consideration, capital
gain shall be computed for the entire unit instead of individual asset. Any profit or gain from the
slump sale shall be chargeable as Long Term Capital Gain in the year of transfer, if undertaking is
owned by the assessee for more than 36 months immediately preceding the date of transfer.
Otherwise it shall be short term capital gain. Benefit of indexation is not allowed in the case of slump
sale.
For computing capital gain, cost of acquisition and cost of improvement shall be Net Worth.
Net Worth shall be the total value of assets of the undertaking as reduced by the liabilities appearing
in the books of account. Revaluation shall be ignored.
A report from of Chartered Accountant is required to be furnished certifying that net worth has been
computed correctly.
While computing the net worth in case of slump sale for the purpose of computing capital gain, in the
case of capital assets in respect of which the whole of the expenditure has been allowed or is
allowable as a deduction under 35AD, its cost shall be taken as Nil as the entire cost has been allowed
as a deduction (w.e.f. 01.04.2010)
Income Tax
10.34
in lakh
in lakh
Assets
in lakh
300
Fixed Assets
General Reserve
150
Hardware unit
170
Share Premium
50
Software unit
200
Revaluation Reserve
120
Current Liabilities
Hardware unit
40
Software unit
90
130
in lakh
370
Debtors
Hardware unit
140
Software unit
110
250
Inventories
Hardware unit
95
Software unit
35
750
130
750
Capital Gains
10.35
If the assessee owned and held the undertaking transferred under slump sale for more than 36 months
before slump sale, the capital gain shall be deemed to be long-term capital gain. Indexation benefit is not
available in case of slump sale as per section 50B(2).
Ascertainment of tax liability from slump sale of software unit
Particulars
Less
( in lakh)
385
185
200
(The capital gains is long-term as the Software Unit is heldfor more than 36 months)
Tax liability on LTCG u/s 112 @ 20% on 200 lakhs
Add
40.00
Surcharge 7%
3.00
43.00
Add
1.29
44.29
Working Note:
Computation of net worth of Software Unit
( in lakh)
(1)
(i)
(ii)
Debtors
(iii)
Inventories
35
(2)
90
110
40
275
90
185
Note 1: For computing net worth, the aggregate value of total assets in the case of depreciable assets shall
be the written down value of the block of assets as per section 43(6).
Income Tax
10.36
2.
Applicability: Sale Consideration is less than the value adopted or assessed or assessable by the
State Government Authority (referred to as Stamp Valuation Authority) for the purpose of
payment of Stamp Duty.
Note: The word Assessable means the price which the Stamp Valuation Authority would have
adopted or assessed, if it were referred to such authority for the purpose of the payments of Stamp
Duty (W.e.f. 01.10.2009).
3.
Consideration adopted for Capital Gains: Value adopted by the Stamp Valuation Authority.
4.
The assessee can claim that the value adopted or assessed by the Stamp Valuation Authority
exceeds the Fair Market Value of the property as on the date of transfer.
b.
Value adopted by the Stamp Valuation Authority is not disputed before any authority or Court.
c.
Where the value determined by the Valuation Officer exceeds the value adopted by the Stamp
Valuation Authority, the Capital Gain shall be considered as follows
Capital Gains = Value adopted by Stamp Valuation Authority Less Cost or Indexed Cost of Acquisition.
Sehwag gifted a vacant site to his friend Sachin on 23.05.2015 on the occasion of latters birthday.
2.
Sehwag had acquired the said vacant site in May, 2011 for 30,00,000.
3.
The fair market value of the site for stamp duty purposes on the date of gift i.e., on 23.05.2015 was
60,00,000.
4.
Sachin sold the vacant site on 15.03.2016 for a consideration of 70 lakhs when its stamp duty value
on the date of sale was 90 lakhs.
For capital gains, state with reason, whether it is short-term or long-term. Also compute the capital gains
chargeable to tax in the hands of Sehwag.
Answer: Computation of total income in the hands of Sachin A.Y. 2016-17
Particulars
Capital gains:
Less
90,00,000
Cost of acquisition
60,00,000
30,00,000
60,00,000
Total income
90,00,000
Capital Gains
10.37
Note: Where a property is received without consideration, the FMV i.e., stamp duty valuation is the value
taxable under the head income from other sources in the hands of Sachin. The holding period in the
hands of Sachin shall be from the date of receipt of property and not from the date of acquisition by the
previous owner. Since it was received on 23.05.2015 and sold on 15.03.2016 it is a short-term capital asset
and the resultant gain is short-term capital gain. The donor Sehwag is not subject to capital gains as the
property was not transferred but was gifted which is not regarded as transfer u/s 47.
50D
Question: Write Short note on advance money forfeited u/s 51 under the head Capital Gain:
Answer: If any advance money is forfeited by the assessee, then the amount so forfeited shall be
deducted from the cost for which the asset was acquired or the fair market value or written down value,
as the case may be for computing cost of acquisition.
This provision is applicable only when the transfer as per the original agreement does not take place and
the advance money is received and forfeited by the assessee as per the agreement
If advance money forfeited is more than the cost of acquisition, then such excess shall not be taxable.
Key Note: Only the amount forfeited by the assessee is deducted, the amount forfeited by the previous
owner shall not be considered.
Note: If any advance money is forfeited on after the previous year 2014-15 is included in the total income
u/s 56(2)(ix)
[CA INTER M11, 8 Marks][CMA INTER D11, 7 Marks (Aggarwal instead of Rakesh)]
Question: Mr. Rakesh purchased a house property on 14th April, 1979 for 1,05,000. He entered into an
agreement with Mr. B for the sale of house on 15th September, 1983 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, 1987.
Following renovations were carried out by Mr. Rakesh and Mr. A to the house property:
Amount ( )
By Mr. Aggarwal during FY 1979-80
10,000
50,000
1,90,000
Income Tax
10.38
Finally, the house was sold by Mr. A to Mr. Sanjay on 2 nd January, 2016 for a consideration of 24,00,000.
Compute the capital gains chargeable to tax in the hands of Mr. A for the assessment year 2016-17. Cost
inflation indices are as under:
Answer: Computation of capital gains chargeable to tax in the hands of Mr. A
Particulars
Amount ( )
Sale consideration
24,00,000
Less
Less
Less
7,56,700
)
4,32,400
)
7,93,012
4,17,888
Question: From the previous problem, Mr. A entered into an agreement with Mr. C for sale of the house
on 1st June, 2015 (instead of 1st June, 2000) and received an advance of 80,000. The said amount was
forfeited by Mr. A since Mr. C could not fulfill the terms of the agreement.
Answer: Computation of capital gains chargeable to tax in the hands of Mr. A
Particulars
Amount ( )
Sale consideration
24,00,000
Less
Less
Less
16,21,500
)
4,32,400
)
7,93,012
(4,46,912)
80,000
Question: Write short note on cost of acquisition u/s 55 under head capital gain?
Answer:
S
55(1)
55(1)(b)
Nil
55(2)(a)
Actual
right to manufacture, produce or process any article or thing or right to carry on any
Capital Gains
10.39
Actual
(ii) self-generated
Nil
Question: Write short note on cost of acquisition of different types of Shares (S.55) under head capital
gains?
Types of Shares
Period of holding
55(2)(aa)
(i)
Actual payment
a.
Primary market
Allotment Price
From allotment
b.
Secondary market
Amount paid + Brokerage Charges +
Date
note
Transaction
through
share
broker
of
brokers
interest
Transaction between parties
Date of contract of
sale
(ii)
Nil
(iii)
Price paid
From Allotment
From Allotment
original shareholder
(iiia)
Bonus shares
the company
From Allotment
exchange
55(2)(b)
Cost of Acquisition of assets is the value for which it was acquired by the assessee.
Expenses of capital nature for completing or acquiring the capital assets are includible in the
cost of Acquisition. It will be determined as below:
(i)
If the asset is acquired before 01.04.1981, cost of acquisition shall be the expenditure incurred
by the assessee for acquiring the asset or its fair market value as on 01.04.1981, whichever is
higher.
(ii)
If the asset has been acquired with effect from 01.04.1981 onwards, cost of acquisition shall be
the expenditure incurred by the assessee for acquiring the asset.
(iii)
Where the capital asset became the property of the assessee on the distribution of the capital
assets of a company on its liquidation and the assessee has been assessed to the income-tax
under the head "capital gains" in respect of that asset u/s 46, means the fair market value of the
Income Tax
10.40
Where the capital asset, being a share or a stock of a company, become the property of the
assessee on
(a) the consolidation
(b) conversion of shares in to stocks
(c) re-conversion of any stock of the company into shares
(d) sub-division
(e) conversion of one kind of shares into another kind of shares
In all the above cases, CA = CA of the original stock or shares
55(3)
Cost of acquisition of a capital asset, being goodwill of a business or a trade mark or brand name
associated with a business or a right to manufacture, produce or process any article or thing, or
right to carry on any business, tenancy rights, stage carriage permits and loom hours [Section
55(2)(a)]
(i) If the above capital assets have been purchased by the assessee, the cost of acquisition is the
amount of the purchase price. For example, if Mr. A purchases a stage carriage permit from
Mr. B for 2 lacs, that will be the cost of acquisition for Mr. A.
(ii) If the above capital assets are self-generated, the cost of acquisition shall be taken as nil.
(iii) In case the capital asset is acquired by any mode given under clauses (i) to (iv) of section
49(1), the cost of acquisition will be the cost to the previous owner if the previous owner paid
for it. However, if it was self-generated by the previous owner, the cost of acquisition will be
taken as nil.
2.
Cost of acquisition of other self-generated assets not covered u/s 55(2)(a) In respect of selfgenerated goodwill of a profession and other self-generated assets not specifically covered u/s
55(2)(a), the decision of the Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 will
apply. In that case, the Supreme Court held that if the cost of acquisition of a self-generated asset
is incapable of determination, then transfer of such asset is not taxable and consequently the
gains thereon cannot be brought to charge.
Capital Gains
10.41
Question: When a person retires from a profession and receives any amount towards self-generated
goodwill, it is1
a) Taxable as income from profession
b) Exempt income u/s 10
c)
Less
12,00,000
NIL
12,00,000
(b)
12,00,000
Less
11,54,093
45,907
15,00,000
NIL
15,00,000
Income Tax
10.42
on 15.7.2015 at a premium of 40 per share. Instead of taking up the right, he renounced it in favour of B
at a price of 10 per share. What is the capital gain chargeable in the hands of A. What will be the cost of
the shares in the hands of B?
Answer:
Capital gain in the hand of A
Section
10,000
S.55(2)(aa)(ii)
Nil
10,000
Section
10,000
Amount paid to X & Co. Ltd. towards 1000 shares (1000 x 50)
55
50,000
60,000
(A)
500 equity shares
Cost of acquisition
Original Share
Bonus Share
Bonus Share
Feb 1979
Sep, 1980
Mar, 85
WEH (Cost
WEH (Cost
Nil
or FMV 1981)
or FMV 1981)
Capital Gains
10.43
12,000
1,32,000
2,400
240
2,640
1,17,600
11,760
1,29,360
2,70,2501
27,0252
NIL
(1,52,650)
(15,265)
1,29,360
Less
1,20,000
22,880
(B) In case the company is listed & shares are sold in recognised stock exchange where STT is paid,
capital gain is exempt from tax. So capital loss computed shall be ignored.
[CA INTER N98, N01, M98 & N09, 5, 5, 6 & 3 Marks][CMA RTP D11]
Question: Write short note on reference to valuation officer u/s 55A under head capital gain?
Answer: For the purpose of ascertaining the fair market value of a capital asset, the assessing officer may
refer the valuation of capital asset to valuation of capital asset to valuation officer in the following cases:
1.
If the report of the registered valuer is attached - If the value of the asset claimed by the assessee, is as
per the estimate made by a registered valuer and assessing officer is of opinion that the value so
claimed is less than its fair market value.
2.
If the report of the registered valuer is not attached - If assessing officer is of the opinion that the
market value of the asset exceeds the value of the asset as claimed by the assessee and the difference
is more than 15% of the value claimed by assessee or more than 25,000/- of the value so claimed.
3.
The assessing officer is of opinion that, having regard to the nature of asset and other relevant
circumstances, is necessary to make the reference.
+
+
Income Tax
10.44
Particulars
Amounts ( )
47,25,000
Less
29,18,700
Less
Less
)
)
10,64,276
37,500
7,04,524
Question: Write short note on capital gains of non-residents and the method of conversion under Rule
115A under head capital gain?
Answer: In case of a non-resident assessee, the capital gains arising from the transfer of shares or
debentures in an India company, shall be computed by converting
1.
2.
The expenditure incurred wholly and exclusively in connection with such transfer and
3.
Sale consideration received or accruing as a result of transfer of capital asset into the same foreign
currency as was initially utilized in the purchase of such shares or debentures. The capital gain so
computed in the foreign currency shall be reconverted into Indian Currency.
Indexation is not applicable
Question: Write short note on tax on STCG from listed equity shares u/s 111A u/h capital gain?
Answer: Short Term Capital Gain from transfer of equity shares or units or equity oriented mutual fund
shall be taxable @ 15% if:
They are sold through recognized stock exchange.
Security transaction tax is chargeable on such transaction.
Transfer took place on or after 01.10.2004
No Deduction under VI-A shall be allowed from such income.
Capital Gains
10.45
If normal income is less than basic exemption deficiency shall be allowed from short term capital
gain.
54
54B
Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases
54D
Capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases
54EC
54ED
54F
Capital gain on transfer of certain capital assets not to be charged in case of investment in
residential house
54G
Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from
urban area
54GA
Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from
urban area to any Special Economic Zone
54GB
54H
54B
54D
54EC
54F
54G
54GA
54GB
Plant
/
Machinery
or Land /
Building for
industrial
undertaking
in
urban
area
All
Residential
house
[during
1.4.12
to
31.3.17]
LTCA / STCA
Residential
house,
whether stay
or not
Agri.
Land
Land / Build.
of industrial
undertaking
(compulsorily
acquired)
Any assets
Any
assets
other
than
Residential
House
Assessee
I+HUF
I+HUF
All
All
I+HUF
Plant
/
Machinery
or Land /
Building for
industrial
undertaking
in
urban
area
All
Capital
Gain
LTCA
LTCA /
STCA
LTCA / STCA
LTCA
LTCA
LTCA / STCA
Income Tax
I+HUF
10.46
Prior use
New Assets
One
residential
house
Period for
investment
Purchase one
residential
house
in
India, 1 year
earlier or 2
year after the
date
of
transfer
or
constructed
within 3 years
from the date
of transfer. In
the case of
compulsory
acquisition
from the date
of the receipt
of
compensation
Used by
him or
his
parents
for
2
years
Agri.
Land
may be
in rural
or
urban
Area
Used for
years
Within
2 years
after
the
date of
transfer
Within
3
years
after
the date of
the receipt of
compensation
Land
/
Building for
industrial
undertaking
One
residential
house
Purchase, 1
year earlier or
2 year after
the date of
transfer
or
constructed
within 3 years
from the date
of transfer. In
case
Compulsory
acquisition
from the date
of the receipt
of
compensation
Plant
/
Machinery
or Land /
Building for
Industrial
Undertaking
in
NonUrban Area
and
meeting
expenses of
the shifting
Within
1
year before
or 3 years
after
transfer.
Plant
/
Machinery
or Land /
Building for
Industrial
Undertaking
in Special
Economic
Zone and
meeting
expenses of
the shifting
Within
1
year before
or within 3
years after
transfer
Equity
shares
in
eligible
company
Shares
acquired
within the
due date of
filling
of
return and
the eligible
1
company
should
purchase
2
new asset
within one
year from
the date of
subscription
of shares
1 "eligible company" means a company which fulfils the following conditions, namely:
(i) it is a company incorporated in India during the period from the 1st day of April of the previous year relevant to
the assessment year in which the capital gain arises to the due date of furnishing of return of income under subsection (1) of section 139 by the assessee;
(ii) it is engaged in the business of manufacture of an article or a thing;
(iii) it is a company in which the assessee has more than fifty per cent share capital or more than fifty per cent voting
rights after the subscription in shares by the assessee; and
(iv) it is a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium
Enterprises Act, 2006 (27 of 2006);
2
"new asset" means new plant and machinery but does not include
(i) any machinery or plant which, before its installation by the assessee, was used either within or outside India by
any other person;
(ii) any machinery or plant installed in any office premises or any residential accommodation, including
accommodation in the nature of a guest-house;
(iii) any office appliances including computers or computer software;
(iv) any vehicle; or
(v) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of
depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or
profession" of any previous year.
Capital Gains
10.47
Withdrawal
of
exemption
Transfer the
new asset
within 3 years
Transfer
the new
asset
within 3
years
Transfer the
new asset
within 3 years
Transfer the
new asset
within 3
years or
borrows
securing such
securities
Exemption
revoked
STCG
STCG
STCG
LTCG
Transfer the
new asset
within 3
years,
purchases
any
residential
house within
2 years or
constructs
any
residential
house within
3 years
LTCG
Transfer the
new asset
within 3
years
Transfer the
new asset
within 3
years
If the equity
shares sold
within 5
years or if
the new
asset not
purchased
within 1
year or sold
within 5
years by the
eligible
company
STCG
STCG
LTCG
Note 1: Any amount remains unutilised, deposit in Capital Gain A/c scheme, on or before the date of furnishing the return of
income (except S.54EC). If the deposited amount not used for specific purpose within the due date will be charged u/s 45.
Note 2: Amount of exemption (except S.54F & S.54GB): WEL (amount invested or capital gain)
and for S.54F and S.54GB, exemption = WEL (
Question: Write a note on extension of time for acquiring new asset or depositing or investing amount
of capital gain. [S.54H]
Answer: the period of acquiring new asset [for claiming benefits u/s 54] is calculated from the date of
receipt of the compensation, if the original asset compulsorily acquired under any law
Less
8,00,000
2,77,892
5,22,108
5,22,108
Nil
Income Tax
10.48
8,00,000
77,892
7,22,108
Less
22,00,000
Expenses on transfer
50,000
Net Consideration
21,50,000
12,31,909
9,18,091
Less
8,00,000
Less
4,00,000
4,00,000
Capital Gains
NIL
10.49
1,00,50,000
d) 2,50,000
b.
State the period for which the bonds should be held by the assessee. What will be the consequences if
such bonds are sold within the specified period?
c.
What will be the consequences if Saptarshi takes a loan against the security of such bonds?
Answer:
(a)
Less
Less
Less
Expenses on Transfer
19,00,000
40,000
Net Consideration
18,60,000
12,68,779
5,91,221
5,91,221
NIL
(b) Saptarshi should not transfer or convert (otherwise than transfer) into money such bonds within 3
years from the date of their acquisition. If these bonds are transferred or converted into money within 3
years, capital gain exempted earlier shall attract taxability towards long-term capital gain of the previous
year in which such asset is transferred or converted into money.
(c) If any loan is taken against security of such bonds, it shall be taxable as long-term capital gains of the
previous year in which such loan is taken against the security of such bonds.
Ans: B [52,50,000]
Income Tax
10.50
71,00,000
1,06,000
69,94,000
(
46,32,857
23,61,143
Exemption u/s 54
14,00,000
Exemption u/s 54 EC
7,00,000
21,00,000
2,61,143
Since Mr. Roy has no other income, he can set off 2,50,000 (the basic exemption limit) against his LTCG
income.
Less:
Nil
2,229
2,000
Balance
Add:
229
3% Education Cess
236
Rounded off
240
Capital Gains
10.51
Notes:
1.
5 lacs worth of REC bonds purchased on 15-6-2016 are not considered for exemption u/s 54EC, as
they are purchased more than 6 months after the date of transfer.
2.
3 lacs deposited in Capital Gains Deposit Scheme on 1-11-2016 is not considered for exemption u/s
54 since the same is deposited after 31-7-2016, the due date of filling return of income.
10,00,000
12,00,000
50,000
8,74,800
8,00,000
25,00,000
The assessee is ready to invest in long-term specified assets u/s 54EC, within specified time.
Compute the amount of taxable capital gain for the assessment year 2016-17 and the amount to be
invested u/s 54EC for availing the maximum exemption.
Answer:
Computation of taxable capital gain of Mr. Malik for A.Y.2016-17
Particulars
Factory building
Less
8,00,000
WDV as on 1.4.2015
8,74,800
(-) 74,800
Less
25,00,000
23,95,279
1,04,721
29,921
As per S.74, short term capital loss can be set-off against any income under the head Capital gains, long-
Income Tax
10.52
[CA INTER M06 & M12, 8 & 8 Marks (similar in M12 Anusha instead of Mr. A)]
Question: Mr. A who transfers land and building on 2.1.2016, furnishes the following information:
1.
2.
Value adopted by stamp valuation authority, which was not contested by Mr. A 19 lakhs.
3.
4.
This land was distributed to Mr. A on the partial partition of his HUF on 1.4.1981. Fair market
value of the land as on 1.4.81 was 1,10,000.
5.
A residential building was constructed on the above land by Mr. A at a cost of 3,20,000
(construction completed on 1.12.2012) during the financial year 2012-2013.
6.
Short-term capital loss incurred on sale of shares during the financial year 201 2-2013 2,05,000.
Mr. A seeks your advice as to the amount to be invested in NABARD bonds so as to be exempt from
clutches of capital gain tax.
Answer: Computation of Capital Gains of Mr. A for the Assessment Year 2015-16.
Particulars
(a)
Sale consideration
17,00,000
(b)
19,00,000
(c)
19,00,000
(d)
20,00,000
19,00,000
Less
11,89,100
4,06,009
3,04,891
2,05,000
99,891
Capital Gains
10.53
(i) Received as gift from his father on 1.6.1980 (5,000 shares) the market price on 1.4.81 50 per
share.
(ii) Bonus shares received from AB Ltd. on 21.7.1996 (2,000 shares).
(iii) Purchased on 1.2.2005 at the price of 125 per share (3,000 shares).
(c) Purchased one residential house at 25 lakhs, on 1.9.2016 from the sale proceeds of shares.
(d) `X already owns a residential house, even before the purchase of above house.
You are required to compute the taxable capital gain. He has no other source of income chargeable to
tax.
Answer: It is also assumed that the transaction of sale of shares is not exempt under section 10(38).
(a)
(b)
(c)
Less
40,00,000
27,02,500
Nil
8,44,531
35,47,031
4,52,969
2,83,106
1,69,863
a)
20,00,000
Less
16,98,714
3,01,286
32,00,000
Less
19,01,256
Income Tax
10.54
12,98,744
In order to avail the maximum benefit u/s 54F, the exemption should be computed as follows:
Total long-term Capital Gain
Less
16,00,030
15,38,490
61,540
d) Land cost of acquisition 5,00,000 during 1987-88 and sold for 30 lacs
The industrial undertaking was shifted as per policy of the Government from urban area to other area.
The new assets acquired during the period 1.1.16 to 31.3.16 are plant and machinery 20 lacs; buildings
40 lacs.
Compute capital gain chargeable to tax for the assessment year 2016-17.
Answer:
10,00,000
(ii)
48,00,000
(iii)
1,30,000
59,30,000
Less
30,00,000
36,03,333
6,03,333
53,26,667
20,00,000
Building
40,00,000
65,00,000
5,91,221
Capital Gains
1,30,000
10.55
4,26,000
Sold for
(b)
22,00,000
(c )
8,20,000
11,89,000
7,40,000
Sold for
6,00,000
(d )
1,15,000
(e )
Assets acquired for the undertaking in the SEZ (on or before 25.06.2016)
(i)
Land
3,00,000
(ii)
Building
5,00,000
(iii)
Computers
1,00,000
(iv)
Car
4,20,000
(v)
2,00,000
(vi)
Furniture
50,000
There is no intention of investing in any other asset in this undertaking. Compute the exemption available
under Section 54GA for the assessment year 2016-17.
Answer: Computation of exemption available u/s 54GA of the Capital Gain:
Particular
Sales consideration
Less
Building
22,00,000
11,89,000
6,00,000
(8,20,000)
(7,40,000)
14,08,753
3,69,000
(1,40,000)
(LTCG)
(STCG)
(STCL)
12,66,000
3,69,000
Nil
1,42,753
Nil
(1,40,000)
Cost of acquisition
Indexed cost of requisition (Land) (
Less
Land
Cars
7,91,247
LTCG
Income Tax
STCL
10.56
(1,40,000)
LTCG
2,753
In the given case, shares were purchased on 30.05.2015 within 4 months prior to Record Date i.e.
10.08.2015.
2.
Shares are sold on 30.09.2015 and on 20.12.2015. The first sale is within 3 months and the next one is
after that period. Dividend has been received @ 50% on Face Value 10 per share on the entire 1,000
shares.
3.
Loss arising out of transfer of the first 700 shares should be ignored to the extent of such dividend.
Computation of Taxable Capital Gains
Particulars
Date of Transfer
30.09.15
20.12.15
No. of Shares
700
300
35
25
() 24,500
7,500
Cost of Acquisition
() (35,000)
(15,000)
() (10,500)
(7,500)
3,500
Nil
(7,000)
(7,500)
(14,500)
Capital Gains
75,000
10.57
60,000
Note: Since 300 shares are transferred on 20.12.15 which is 3 months after the reorder date, dividend
received need not be adjusted against Short Term Capital Loss.
As per Rule 21 of Schedule III to the Act, the price or other consideration for which any property
may be acquired by or transferred to any person under the terms of a deed of trust or through or
under any restrictive agreement in any instrument of transfer shall be ignored for the purpose of
determining the value under the provisions of the Schedule.
2.
In view of the above, the value of the site should be taken as 15 Lakhs and not as 10 Lakhs.
3.
Answer: 8 years
Answer: (d) 100% of capital gain
3 Answer: shall. However, in case it is short term capital gain in respect of transaction in equity shares in a company
chargeable to STT (u/s 111A) deduction under Chapter VIA shall not be allowed. The question does not mention the
type of transaction. Hence, both answers would be possible.
2
Income Tax
10.58
10(38)
d) 10(36)
1
2
Answer: (a)
Answer: (c)
Capital Gains
10.59
Shares held in a company in liquidation: Period of holding will be taken from the date of acquisition
of shares to the date on which the company goes into liquidation:
2.
Bonus Shares: The period of holding shall be taken from the date of allotment of shares till the date
preceding the date of transfer of shares.
3.
Flat in a co-operative society: The period of holding shall be taken from the date of allotment of the
flat from the society to the date preceding the date of transfer of the flat.
4.
Transfer of a security by a depository: Period of holding shall be calculated on FIFO basis. For
deciding FIFO technique the date of entry in Demat Account is significant and the date of purchase
of security is irrelevant.
Income Tax
10.60
Question: Fill up the blanks: Zero Coupon Bond means a bond on which no payment and benefits
are received or receivable before maturity or redemption.
Answer: True - As per section 2(48), Zero Coupon Bond means a bond issued by any infrastructure
capital company or infrastructure capital fund or a public sector company on or after 1 st June 2005, in
respect of which no payment and benefit is received or receivable before maturity or redemption
from such issuing entity and which the Central Government may notify in this behalf.
Capital Gains
10.61
date of transfer, is compulsorily acquired under law and the compensation is fixed by the State
Government, resultant capital gain is exempt.
Answer: False. In this case, the compensation has been fixed by the State Government and hence
the exemption will not be available.
As per section 10(37), where an individual owns urban agricultural land which has been used for
agricultural purposes for a period of two years immediately preceding the date of transfer, and the
same is compulsorily acquired under any law and the compensation is determined or approved by
the Central Government or the Reserve Bank of India, resultant capital gain will be exempt.
Liabilities
Own Capital
Total
15,00,000
Assets
Building
Unit 1
Unit 2
Total
12,00,000
2,00,000
14,00,000
3,00,000
Machinery
3,00,000
1,00,000
4,00,000
2,00,000
Debtors
1,00,000
40,000
1,40,000
1,50,000
Other assets
1,50,000
60,000
2,10,000
17,50,000
4,00,000
21,50,000
Total
21,50,000
Total
Other information:
Income Tax
10.62
1.
Revaluation reserve is created by revising upward the value of the building of unit 1.
2.
3.
Other assets of unit 1 include patents acquired on 1.7.2013 for 50,000/- on which no depreciation has
been charged.
Less
25,00,000
Expenses of transfer
28,000
24,72,000
12,50,625
12,21,375
9,00,000
Machinery
3,00,000
Patents [Note 2]
28,125
12,28,125
Other Assets
Debtors
1,00,000
1,00,000
2,00,000
14,28,125
Value of Liabilities
Bank loan (200000 x 70%)
Trade creditors (150000 x 25%)
Net worth
140,000
37,500
1,77,500
12,50,625
Note 2: Since patents have been acquired 1.7.2013 therefore depreciation @ 25% p.a. will be charged for
two years on WDV basis. Therefore book values as on 31.3.2015 = 50000 x .75 x .75 = 28125.
Note 3: For the purpose of computation of net worth, the WDV determined as per section 43(6) has to be
considered in the case of depreciable asset. The said problem has been solved assuming that B/S value of
3 lakhs and 9 lakhs (12 lakhs 3 lakhs) represents the written down value of machinery & building
respectively, of unit 1.
Capital Gains
10.63
Particulars
Full value of consideration
Less
15,00,000
Expenses on transfer
Nil
Less
15,00,000
8,87,214
6,12,786
4,00,000
2,12,786
Sale proceeds
80,00,000
Less
Less
Less
Expenses of transfer
54,05,000
+
19,59,517
50,000
6,35,483
Less
Exemption u/s 54
6,35,483
Income Tax
10.64
NIL
Brokerage @ 2%
15,00,000
30,000
Net consideration
Less
14,70,000
3,99,384
10,70,616
Less
7,00,000
3,70,616
Note One of the conditions for claiming deduction u/s 54EC for the investment in REC/NHAI
Capital Gains bonds is that the deposit should be made within 6 months from the date of transfer. In
this case, the transfer took place on 1.7.15 and the 6 months period within which the deposit should
be made for the purpose of section 54EC would expire by 1.1.16. The investment in REC/NHAI
Capital Gains bonds was made only in March 2016. Therefore, the assessee is not eligible for section
54EC deduction.
Capital Gains
10.65
Less
13,00,000
4,16,838
8,83,162
Note: According to section 50C(1), where the consideration received or accruing as a result of the
transfer of land or building or both is less than the value adopted or assessed by the State stamp
valuation authority for the purpose of payment of stamp duty in respect of such transfer, then the
value so adopted or assessed by the State stamp valuation authority shall be deemed to be the full
value of the consideration received or accruing as a result of the transfer.
In this case, since the consideration of 7,00,000 received on transfer of land is less than the value of
13,00,000 fixed by the State stamp valuation authority, the value adopted by the State stamp
valuation authority is deemed to be the full value of consideration and capital gains is calculated
accordingly.
Particulars
Sale Consideration
3,15,000
Less
Less
Expense on transfer
Less
2,84,894
4,000
26,106
26,106
Income Tax
Nil
10.66
Sales Consideration
Less
5,00,000
3,14,244
1,85,756
1,48,605
37,151
Particulars
Sale consideration
Less
3,00,000
17,104
2,82,896
Total income
2,82,896
Tax liability
Income-tax @ 20% on 32,896 [2,82,896 2,50,000]
Capital Gains
6,579
10.67
Less
2,000
4,579
Add
Education Cess @ 2%
91
46
4,716
Notes
1.
As per section 112 of Income-tax Act, 1961, deductions under Chapter VI-A are not allowable
against long term capital gain. Therefore, Paulomi is not entitled to deduction u/s 80C in respect
of payment of LIP and contribution to PPF. She is also not entitled to deduction u/s 80D in
respect of medical insurance premium paid by her.
2.
Since Paulomi has not transferred her shares through the Stock Exchange and, therefore, has not
paid securities transaction tax, she is not entitled to claim exemption u/s 10(38) in respect of long
term capital gain.
3.
She is, however, entitled to reduce the long-term capital gain by the unexhausted basic
exemption limit and pay tax on the balance @20% as per section 112. In this case, since she has no
other source of income, the entire basic exemption limit of 2,50,000 can be reduced from the
long-term capital gain and rebate u/s 87A 2,000 also availed. It is presumed that Paulomi is a
resident assessee.
Computation of total income and tax liability of Mr. C for A.Y. 2016-17
Income Tax
86,50,000
10.68
63,500
85,86,500
97,87,726
10,41,426
1,08,29,152
Less
22,42,652
Nil
50,000
Less
29,185
Less
1,000
19,815
Capital Gains
10.69
Less:
80,00,000
26,62,562
4,35,010
49,02,428
Less:
Less
Capital gains exemption u/s 54EC is available only if deposited within 6 months.
25,00,000
Nil
24,02,428
40,00,000
Cost of acquisition
25,00,000
(25,00,000)
Nil
40,00,000
32,000
12,000
You are requested to calculate the taxable income for the assessment year 2016-17 and the tax liability, if
any.
Answer: Computation of taxable income
Sales consideration
Less
Less
45,00,000
16,32,931
28,67,069
12,00,000
Nil
Income Tax
10.70
16,67,069
32,000
16,99,069
12,000
16,87,069
Less:
Sale Consideration
41,00,000
Indexed COA
40,29,044
70,956
Other Income
2,80,000
Capital Gain
3,50,956
6,00,000
Other Income
3,45,000
9,45,000
Capital Gains
10.71
(1) On 30.11.2015, 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
lacs.
(2) His close friend abroad sent him a cash gift of 25,000 through his relative, for the above occasion.
(3) Mr. Y sold the above flat on 30.1.2016 for 3.6 lacs. The Registrars valuation for stamp duty purposes
was 3.7 lacs. Neither Mr. Y nor the buyer, questioned the value fixed by the Registrar.
(4) He had purchased some equity shares in X Pvt. Ltd. on 5.2.2014 for 3.5 lacs. These shares were sold
on 15.3.2016 for 2.8 lacs.
You are requested to calculate the total income of Mr. Y for the assessment year 2016-17.
Answer: Computation of Total Income
Add
Add
3,40,000
-----30,000
(1,22,929)
3,70,000
Less
Nil
3,70,000
Notes:
1.
2.
Gift received from unrelated person is not taxable if the amount received from each such unrelated
person is less than 50000 per annum.
3.
Less
3,70,000
3,40,000
30,000
Computation of long term capital gains [on sale of Equity Shares of X Private ltd.]
Sale consideration
Less
2,80,000
+
4,02,929
1,22,929
Income Tax
10.72
therefore it constitute a LTCA. The loss arising from sale of such shares, is therefore a long-term capital
loss. As per Section 70(3), long term capital loss can be set-off only against long-term capital gains. So,
long-term capital loss cannot be set-off against short-term capital gains. But, such long-term capital loss
can be carried forward to the next year for set-off against long-term capital gains arising in that year &
they can be carried forward for a maximum of 8 assessment years.
[CA INTER M10 & N13, 6 & 4 Marks (Similar in N13 Vaibhav & Dhanush instead of Rajkumar &
Dhuruv)]
Question: Mr. Rajkumar sold a house to his friend Mr. Dhuruv on 1 st November 2015 for a consideration
of 25,00,000. The Sub-Registrar refused to register the document for the said value, as according to him,
stamp duty had to be paid on 45,00,000, which was the Government guideline value. Mr. Raj Kumar
preferred an appeal to the Revenue Divisional Officer, who fixed the value of the house as 32,00,000
(22,00,000 for land balance for building portion). The differential stamp duty was paid, accepting the
said value determined. Assuming that the fair market value is 32,00,000, what are the tax implications in
the hands of Mr. Raj Kumar and Mr. Dhuruv for the assessment year 2016-17? Mr. Raj Kumar had
purchased the land on 1st June 2012 for 5,19,000 and completed the construction of house on 1 st October,
2013 for 14,00,000.
Answer: In the hands of the seller, Mr. Raj Kumar
As per section 50C(1), where the consideration received or accruing as a result of transfer of land or
building or both, is less than value adopted or assessed or assessable by the stamp valuation authority,
the value of adopted or assessed or assessable by the stamp valuation authority shall be deemed to be the
full value of consideration received or accruing as a result of transfer.
Where the assessee appeals against the stamp valuation and the value is reduced in appeal by the
appellate authority (Revenue Divisional Officer, in this case), such value will be regarded as the
consideration received or accruing as a result of transfer.
In the given problem, land has been held for a period exceeding 36 months and building for a period less
than 36 months immediately preceding the date of transfer. So land is a long-term capital asset, while
building is a short-term capital asset.
Particulars
Long term capital gain on sale of land
Consideration received or accruing as a result of transfer of land
Less
22,00,000
6,58,496
21,99,352
Less
10,00,000
Cost of acquisition
14,00,000
4,00,000
Capital Gains
10.73
As per section 70, short-term capital loss can be set-off against long term capital gains. Therefore, the net
taxable long-term capital gains would be 17,99,342 (i.e.) [21,99,352 4,00,000].
In the hands of the buyer Mr. Dhuruv.
As per Section 56 (2)(vii), inserted by the Finance Act, 2009, where an individual receives from a nonrelative, any immovable property for inadequate consideration, and the difference between the stamp
value (or the value reduced by the appellate authority, as in this case) and the consideration exceeds
50,000, such difference is chargeable to tax as income from other sources. The problem states that the
immovable property in question was received on 1 st November, 2014 from a non- relative. Hence the
above provisions will be attracted. The inadequate consideration to the tune of 7 lacs (32 lacs less 25 lacs)
will be assessed as income from other sources.
[CA IPCC N15, 8 Marks]
Question: Mr. Martin sold his residential house property on 08-06-2015 for 70 lakhs which was purchased
by him for 20 lakhs on 05-05-2005. He paid 1 lakh as brokerage for the said property. The stamp duty
valuation assessed by sub registrar was 80 lakhs.
He bought another house property on 25-12-2015 for 15 lakhs.
He deposited 10 lakhs on 10-11-2015 in the capital gain bond of National Highway Authority of India
(NHAI).
He deposited another 10 lakhs on 10-07-2016 in the capital gain deposit scheme with SBI for construction
of additional floor of house property.
Compute income under the head Capital Gains for A.Y. 2016-17 as per Income Tax Act, 1961 and also
Income tax payable on the assumption that he has no other income chargeable to tax.
2.
Within a period of 6 months the capital gain must be invested in long term asset for a locking period
of 3 years in a National highway authority of India.
Income Tax
10.74
Capital Gains
10.75
Capital Gain
Fair Market value of Y Ltd. on the date of conversion 9,000 x 300
Less
27,00,000
5,87,173
21,12,827
Business Income
Less
34,20,000
27,00,000
7,20,000
Business Income
Note: As securities transaction tax was not paid, exemption u/s 10(38) in respect of long term capital gain
is not available.
25
d) 50
Answer: (d)
Income Tax
10.76
Answer: Mr. Sanjay must satisfy the conditions contained in section 47(xiv) in order to be eligible for
exemption in respect of conversion of proprietary concern into company. The conditions are
1.
All the assets and liabilities of the sole proprietary concern relating to the business immediately
before the succession must become the assets and liabilities of the successor company.
2.
The shareholding of the proprietor relating to the business must not be less than 50% of the total
voting power and it should continue to remain so for a period of five years from the date of
succession; and
3.
The sole proprietor (Sanjay in this case) must not receive any consideration or benefit, directly or
indirectly, in any form or manner, other than by way of allotment of shares in the company.
10 lacs
d) None of these
60 months
d) 6 months
Answer: (c)
Answer: (d)
3
Answer: Long term
2
Capital Gains
10.77
Particulars
Proportionate Fair market value of land-deemed consideration u/s 45(2): 15,50,000 x 5 /
8 (Note 1)
Less
9,68,750
) (Note 2)
1,92,418
7,76,332
Particulars
60,00,000
9,68,750
30,00,000
39,68,750
20,31,250
Notes:
1. Capital gain arising on conversion of capital asset into stock-in-trade is taxed in the year in which the
converted asset is transferred. Therefore, capital gain in respect of proportionate land for 5 flats is
chargeable to tax in assessment year 2016-17.
2.Although tax liability for capital gain is taxed in the year of actual transfer, cost inflation index of the
year in which capital asset is converted is to be used for determining capital gain, as transfer u/s 2(47) is
recognized in the year of conversion.
Answer: Short-term
Income Tax
10.78
State with reasons the implications of the above transaction on taxable income of Dev and Jeet for the
Assessment Year 2015-16.
Answer: Implication in the hands of Dev: As the flat sold by Dev formed part of his stock-in-trade, the
provision of section 43CA shall apply.
As per section 43CA where consideration as a result of transfer by an assessee of any immovable asset
(other than a capital asset) is less than the stamp duty value, then the stamp duty value shall be deemed
to be the full value of the consideration for the purpose of computing business profit from transfer of
such asset.
Therefore, the difference between the stamp duty value and the actual consideration i.e. 10 lacs (55 lacs
45 lacs) shall be charged to tax under the head profits and gains from business or profession.
Implication in the hand of Jeet: As per section 56(2)(vii) if any individual receive any immovable
property (being capital asset) for a consideration which is less than its stamp duty value by more than
5000, then the excess of stamp duty value over the actual consideration shall be taxed under the head
income from other sources
Therefore, the amount of 10 lacs, being the excess of stamp duty value over the actual consideration
shall be taxed in the hands of Jeet under the head income from other sources.
Applicable for
Exemption U/S
54B
54D
54G
10(37)
10(41)
Capital Gains
10.79
Renunciations of right to subscribe to right share, immediately after the offer was made by the
company.
2.
3.
4.
Sale of bonus shares within 6 months after the allotment; original shares were acquired 24 menthes e
earlier.
Answer:
1.
As per clause (e) of the Explanation 1 to section 2(42A) right to subscribe to any financial asset when
renounced in favour of any other person, the period shall be reckoned from the date of offer of such
right by the company. Since the time between the offer made by the company and its renunciation in
no case could exceed 12 months, it is always a short-term capital asset.
2.
Surgery equipment used by a surgeon in profession might have been allowed depreciation under
section 32. Hence, in view of section 50 it shall deemed to be a short-term capital asset and the gain or
loss if any sale be short-term capital gain or loss.
3.
As per proviso to section 50B(1) an undertaking owned and held for not more than 36 months shall
be short-term capital asset and when the undertaking was operated for 4 years before slump sale, it
shall be a long-term capital asset.
4.
As per clause (f) of the Explanation 1 to section 2(42A), a financial asset allotted without payment
shall be treated as long-term or short-term by reckoning the time period from the date of allotment of
such financial asset. Thus bonus shares sold within 6 months after allotment will be short-term
capital asset.
1
2
Exempt
(B) 20% on the distributed income
Income Tax
10.80
1
2
12 months
(B) 10%
Capital Gains
10.81
Answer: You are required to plan in such a way that the incidence of tax is the least.
Particulars
Less
Less
65,00,000
80,00,000
The higher of the two is to be adopted as deemed sale consideration u/s 50C
80,00,000
13,05,030
66,94,970
Exemption u/s 54
In respect of residential property acquired of Ranchi
55,00,000
11,94,970
Note: From the assessment year 2016-17 onwards, the exemption u/s. 54 is limited to one residential
house in India. Out of the two residential properties acquired by him, he can opt for exemption u/s. 54 in
respect of one property only. The higher of the value has been adopted for maximizing the benefit to the
assessee.
Income Tax
10.82
Capital Gains
10.83
(4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the
dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative
society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year
in which the said transfer takes place and, for the purposes 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.
(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital
asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was
determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the
consideration for such transfer is enhanced or further enhanced by any court, Tribunal or other authority, the capital
gain shall be dealt with in the following manner, namely :
(a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case
may be, the consideration determined or approved in the first instance by the Central Government or the
Reserve Bank of India shall be chargeable as income under the head "Capital gains" of the previous year
in which such compensation or part thereof, or such consideration or part thereof, was first received; and
(b) the amount by which the compensation or consideration is enhanced or further enhanced by the court,
Tribunal or other authority shall be deemed to be income chargeable under the head "Capital gains" of the
previous year in which such amount is received by the assessee :
91
[Provided that 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;]
(c) where in the assessment for any year, the capital gain arising from the transfer of a capital asset is computed
by taking the compensation or consideration referred to in clause (a) or, as the case may be, enhanced
compensation or consideration referred to in clause (b), and subsequently such compensation or
consideration is reduced by any court, Tribunal or other authority, such assessed capital gain of that year
shall be recomputed by taking the compensation or consideration as so reduced by such court, Tribunal or
other authority to be the full value of the consideration.
Explanation.For the purposes of this sub-section,
(i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall
be taken to be nil;
(ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day
of April, 1988;
(iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced
compensation or consideration is received by any other person, the amount referred to in clause (b) shall
be deemed to be the income, chargeable to tax under the head "Capital gains", of such other person.
(6) Notwithstanding anything contained in sub-section (1), the difference between the repurchase price of the units
referred to in sub-section (2) of section 80CCB and the capital value of such units shall be deemed to be the capital
gains arising to the assessee in the previous year in which such repurchase takes place or the plan referred to in that
section is terminated and shall be taxed accordingly.
Explanation.For the purposes of this sub-section, "capital value of such units" means any amount invested by the
assessee in the units referred to in sub-section (2) of section 80CCB.
Capital gains on distribution of assets by companies in liquidation.
Income Tax
10.84
46. (1) Notwithstanding anything contained in section 45, where the assets of a company are distributed to its
shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes
of section 45.
(2) Where a shareholder on the liquidation of a company receives any money or other assets from the company, he
shall be chargeable to income-tax under the head "Capital gains", in respect of the money so received or the market
value of the other assets on the date of distribution, as reduced by the amount assessed as dividend within the
meaning of sub-clause (c) of clause (22) of section 2 and the sum so arrived at shall be deemed to be the full value
of the consideration for the purposes of section 48.
Capital gains on purchase by company of its own shares or other specified securities.
46A. Where a shareholder or a holder of other specified securities receives any consideration from any company for
purchase of its own shares or other specified securities held by such shareholder or holder of other specified
securities, then, subject to the provisions of section 48, the difference between the cost of acquisition and the value
of consideration received by the shareholder or the holder of other specified securities, as the case may be, shall be
deemed to be the capital gains arising to such shareholder or the holder of other specified securities, as the case may
be, in the year in which such shares or other specified securities were purchased by the company.
Explanation.For the purposes of this section, "specified securities" shall have the meaning assigned to it
in Explanation to section 77A of the Companies Act, 1956 (1 of 1956).
Transactions not regarded as transfer.
47. Nothing contained in section 45 shall apply to the following transfers :
(i) any distribution of capital assets on the total or partial partition of a Hindu undivided family;
(ii) [***]
(iii) any transfer of a capital asset under a gift or will or an irrevocable trust :
Provided that this clause shall not apply to transfer under a gift or an irrevocable trust of a capital asset
being shares, debentures or warrants allotted by a company directly or indirectly to its employees under
any Employees' Stock Option Plan or Scheme of the company offered to such employees in accordance
with the guidelines issued by the Central Government in this behalf;
(iv) any transfer of a capital asset by a company to its subsidiary company, if
(a) the parent company or its nominees hold the whole of the share capital of the subsidiary company, and
(b) the subsidiary company is an Indian company;
(v) any transfer of a capital asset by a subsidiary company to the holding company, if
(a) the whole of the share capital of the subsidiary company is held by the holding company, and
(b) the holding company is an Indian company :
Provided that nothing contained in clause (iv) or clause (v) shall apply to the transfer of a capital asset
made after the 29th day of February, 1988, as stock-in-trade;
(vi) any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the
amalgamated company if the amalgamated company is an Indian company;
(via) any transfer, in a scheme of amalgamation, of a capital asset being a share or shares held in an Indian
company, by the amalgamating foreign company to the amalgamated foreign company, if
(a) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to
remain shareholders of the amalgamated foreign company, and
Capital Gains
10.85
(b) such transfer does not attract tax on capital gains in the country, in which the amalgamating company
is incorporated;
(viaa) any transfer, in a scheme of amalgamation of a banking company with a banking institution sanctioned and
brought into force by the Central Government under sub-section (7) of section 45 of the Banking
Regulation Act, 1949 (10 of 1949), of a capital asset by the banking company to the banking institution.
Explanation.For the purposes of this clause,
(i) "banking company" shall have the same meaning assigned to it in clause (c) of section 5 of the Banking
Regulation Act, 1949 (10 of 1949);
(ii) "banking institution" shall have the same meaning assigned to it in sub-section (15) of section 45 of the
Banking Regulation Act, 1949 (10 of 1949);]
Following clause (viab) shall be inserted after clause (viaa) of section 47 by the Finance Act, 2015,
w.e.f. 1-4-2016 :
(viab) any transfer, in a scheme of amalgamation, of a capital asset, being a share of a foreign company, referred
to in the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its
value substantially from the share or shares of an Indian company, held by the amalgamating foreign
company to the amalgamated foreign company, if
(A) at least twenty-five per cent of the shareholders of the amalgamating foreign company continue to
remain shareholders of the amalgamated foreign company; and
(B) such transfer does not attract tax on capital gains in the country in which the amalgamating company
is incorporated;
(vib) any transfer, in a demerger, of a capital asset by the demerged company to the resulting company, if the
resulting company is an Indian company;
(vic) any transfer in a demerger, of a capital asset, being a share or shares held in an Indian company, by the
demerged foreign company to the resulting foreign company, if
(a) the shareholders holding not less than three-fourths in value of the shares of the demerged foreign
company continue to remain shareholders of the resulting foreign company; and
(b) such transfer does not attract tax on capital gains in the country, in which the demerged foreign
company is incorporated :
Provided that the provisions of sections 391 to 394 of the Companies Act, 1956 (1 of 1956) shall not
apply in case of demergers referred to in this clause;
(vica) any transfer in a business reorganisation, of a capital asset by the predecessor co-operative bank to the
successor co-operative bank;
(vicb) any transfer by a shareholder, in a business reorganisation, of a capital asset being a share or shares held by
him in the predecessor co-operative bank if the transfer is made in consideration of the allotment to him of
any share or shares in the successor co-operative bank.
Explanation.For the purposes of clauses (vica) and (vicb), the expressions "business reorganisation",
"predecessor co-operative bank" and "successor co-operative bank" shall have the meanings respectively
assigned to them in section 44DB;
Following clause (vicc) shall be inserted after clause (vicb) of section 47 by the Finance Act, 2015,
w.e.f. 1-4-2016 :
(vicc) any transfer in a demerger, of a capital asset, being a share of a foreign company, referred to in
the Explanation 5 to clause (i) of sub-section (1) of section 9, which derives, directly or indirectly, its
value substantially from the share or shares of an Indian company, held by the demerged foreign company
to the resulting foreign company, if
Income Tax
10.86
(a) the shareholders, holding not less than three-fourths in value of the shares of the demerged foreign
company, continue to remain shareholders of the resulting foreign company; and
(b) such transfer does not attract tax on capital gains in the country in which the demerged foreign
company is incorporated:
Provided that the provisions of sections 391 to 394 of the Companies Act, 1956 (1 of 1956) shall not
apply in case of demergers referred to in this clause;
(vid) any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the
demerged company if the transfer or issue is made in consideration of demerger of the undertaking;
(vii) any transfer by a shareholder, in a scheme of amalgamation, of a capital asset being a share or shares held
by him in the amalgamating company, if
(a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated
company except where the shareholder itself is the amalgamated company, and
(b) the amalgamated company is an Indian company;
(viia) any transfer of a capital asset, being bonds or Global Depository Receipts referred to in sub-section (1)
of section 115AC, made outside India by a non-resident to another non-resident;
92
[(viib) any transfer of a capital asset, being a Government Security carrying a periodic payment of interest, made
outside India through an intermediary dealing in settlement of securities, by a non-resident to another
non-resident.
Explanation.For the purposes of this clause, "Government Security" shall have the meaning assigned to
it in clause (b) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);]
(viii) any transfer of agricultural land in India effected before the 1st day of March, 1970;
(ix) any transfer of a capital asset, being any work of art, archaeological, scientific or art collection, book,
manuscript, drawing, painting, photograph or print, to the Government or a University or the National
Museum, National Art Gallery, National Archives or any such other public museum or institution as may
be notified by the Central Government in the Official Gazette to be of national importance or to be of
renown throughout any State or States.
Explanation.For the purposes of this clause, "University" means a University established or
incorporated by or under a Central, State or Provincial Act and includes an institution declared under
section 3 of the University Grants Commission Act, 1956 (3 of 1956), to be a University for the purposes
of that Act;
(x) any transfer by way of conversion of bonds or debentures, debenture-stock or deposit certificates in any
form, of a company into shares or debentures of that company;
(xa) any transfer by way of conversion of bonds referred to in clause (a) of sub-section (1) of section
115AC into shares or debentures of any company;
(xi) any transfer made on or before the 31st day of December, 1998 by a person (not being a company) of a
capital asset being membership of a recognised stock exchange to a company in exchange of shares
allotted by that company to the transferor.
Explanation.For the purposes of this clause, the expression "membership of a recognised stock
exchange" means the membership of a stock exchange in India which is recognised under the provisions
of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);
(xii) any transfer of a capital asset, being land of a sick industrial company, made under a scheme prepared and
sanctioned under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986)
where such sick industrial company is being managed by its workers' co-operative :
Provided that such transfer is made during the period commencing from the previous year in which the
said company has become a sick industrial company under sub-section (1) of section 17 of that Act and
Capital Gains
10.87
ending with the previous year during which the entire net worth of such company becomes equal to or
exceeds the accumulated losses.
Explanation.For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause
(ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of
1986);
(xiii) any transfer of a capital asset or intangible asset by a firm to a company as a result of succession of the
firm by a company in the business carried on by the firm, or any transfer of a capital asset to a company in
the course of demutualisation or corporatisation of a recognised stock exchange in India as a result of
which an association of persons or body of individuals is succeeded by such company :
Provided that
(a) all the assets and liabilities of the firm or of the association of persons or body of individuals relating
to the business immediately before the succession become the assets and liabilities of the company;
(b) all the partners of the firm immediately before the succession become the shareholders of the company
in the same proportion in which their capital accounts stood in the books of the firm on the date of
the succession;
(c) the partners of the firm do not receive any consideration or benefit, directly or indirectly, in any form
or manner, other than by way of allotment of shares in the company; and
(d) the aggregate of the shareholding in the company of the partners of the firm is not less than fifty per
cent of the total voting power in the company and their shareholding continues to be as such for a
period of five years from the date of the succession;
(e) the demutualisation or corporatisation of a recognised stock exchange in India is carried out in
accordance with a scheme for demutualisation or corporatisation which is approved by the Securities
and Exchange Board of India established under section 3 of the Securities and Exchange Board of
India Act, 1992 (15 of 1992);
(xiiia) any transfer of a capital asset being a membership right held by a member of a recognised stock exchange
in India for acquisition of shares and trading or clearing rights acquired by such member in that recognised
stock exchange in accordance with a scheme for demutualisation or corporatisation which is approved by
the Securities and Exchange Board of India established under section 3 of the Securities and Exchange
Board of India Act, 1992 (15 of 1992);
(xiiib) any transfer of a capital asset or intangible asset by a private company or unlisted public company
(hereafter in this clause referred to as the company) to a limited liability partnership or any transfer of a
share or shares held in the company by a shareholder as a result of conversion of the company into a
limited liability partnership in accordance with the provisions of section 56 or section 57 of the Limited
Liability Partnership Act, 2008 (6 of 2009):
Provided that
(a) all the assets and liabilities of the company immediately before the conversion become the assets and
liabilities of the limited liability partnership;
(b) all the shareholders of the company immediately before the conversion become the partners of the
limited liability partnership and their capital contribution and profit sharing ratio in the limited
liability partnership are in the same proportion as their shareholding in the company on the date of
conversion;
(c) the shareholders of the company do not receive any consideration or benefit, directly or indirectly, in
any form or manner, other than by way of share in profit and capital contribution in the limited
liability partnership;
Income Tax
10.88
(d) the aggregate of the profit sharing ratio of the shareholders of the company in the limited liability
partnership shall not be less than fifty per cent at any time during the period of five years from the
date of conversion;
(e) the total sales, turnover or gross receipts in the business of the company in any of the three previous
years preceding the previous year in which the conversion takes place does not exceed sixty lakh
rupees; and
(f) no amount is paid, either directly or indirectly, to any partner out of balance of accumulated profit
standing in the accounts of the company on the date of conversion for a period of three years from
the date of conversion.
Explanation.For the purposes of this clause, the expressions "private company" and "unlisted public
company" shall have the meanings respectively assigned to them in the Limited Liability Partnership Act,
2008 (6 of 2009);
(xiv) where a sole proprietary concern is succeeded by a company in the business carried on by it as a result of
which the sole proprietary concern sells or otherwise transfers any capital asset or intangible asset to the
company :
Provided that
(a) all the assets and liabilities of the sole proprietary concern relating to the business immediately before
the succession become the assets and liabilities of the company;
(b) the shareholding of the sole proprietor in the company is not less than fifty per cent of the total voting
power in the company and his shareholding continues to remain as such for a period of five years
from the date of the succession; and
(c) the sole proprietor does not receive any consideration or benefit, directly or indirectly, in any form or
manner, other than by way of allotment of shares in the company;
(xv) any transfer in a scheme for lending of any securities under an agreement or arrangement, which the
assessee has entered into with the borrower of such securities and which is subject to the guidelines issued
by the Securities and Exchange Board of India, established under section 3 of the Securities and Exchange
Board of India Act, 1992 (15 of 1992) or the Reserve Bank of India constituted under sub-section (1) of
section 3 of the Reserve Bank of India Act, 1934 (2 of 1934), in this regard;
(xvi) any transfer of a capital asset in a transaction of reverse mortgage under a scheme made and notified by the
Central Government;
93
[(xvii) any transfer of a capital asset, being share of a special purpose vehicle to a business trust in exchange of
units allotted by that trust to the transferor.
Explanation.For the purposes of this clause, the expression "special purpose vehicle" shall have the
meaning assigned to it in theExplanation to clause (23FC) of section 10.]
Following clause (xviii) shall be inserted after clause (xvii) of section 47 by the Finance Act, 2015,
w.e.f. 1-4-2016 :
(xviii) any transfer by a unit holder of a capital asset, being a unit or units, held by him in the consolidating
scheme of a mutual fund, made in consideration of the allotment to him of a capital asset, being a unit or
units, in the consolidated scheme of the mutual fund:
Provided that the consolidation is of two or more schemes of equity oriented fund or of two or more
schemes of a fund other than equity oriented fund.
Explanation. For the purposes of this clause,
(a) "consolidated scheme" means the scheme with which the consolidating scheme merges or which is
formed as a result of such merger;
Capital Gains
10.89
(b) "consolidating scheme" means the scheme of a mutual fund which merges under the process of
consolidation of the schemes of mutual fund in accordance with the Securities and Exchange Board
of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India
Act, 1992 (15 of 1992);
(c) "equity oriented fund" shall have the meaning assigned to it in clause (38)of section 10;
(d) "mutual fund" means a mutual fund specified under clause (23D)of section 10.
Withdrawal of exemption in certain cases.
47A. (1) Where at any time before the expiry of a period of eight years from the date of the transfer of a capital asset
referred to in clause (iv) or, as the case may be, clause (v) of section 47,
(i) such capital asset is converted by the transferee company into, or is treated by it as, stock-in-trade of its
business; or
(ii) the parent company or its nominees or, as the case may be, the holding company ceases or cease to hold the
whole of the share capital of the subsidiary company,
the amount of profits or gains arising from the transfer of such capital asset not charged under section 45 by virtue of
the provisions contained in clause (iv) or, as the case may be, clause (v) of section 47 shall, notwithstanding
anything contained in the said clauses, be deemed to be income chargeable under the head "Capital gains" of the
previous year in which such transfer took place.
(2) Where at any time, before the expiry of a period of three years from the date of the transfer of a capital asset
referred to in clause (xi) ofsection 47, any of the shares allotted to the transferor in exchange of a membership in a
recognised stock exchange are transferred, the amount of profits and gains not charged under section 45 by virtue of
the provisions contained in clause (xi) of section 47 shall, notwithstanding anything contained in the said clause, be
deemed to be the income chargeable under the head "Capital gains" of the previous year in which such shares are
transferred.
(3) Where any of the conditions laid down in the proviso to clause (xiii) or the proviso to clause (xiv) of section
47 are not complied with, the amount of profits or gains arising from the transfer of such capital asset or intangible
asset not charged under section 45 by virtue of conditions laid down in the proviso to clause (xiii) or the proviso to
clause (xiv) of section 47 shall be deemed to be the profits and gains chargeable to tax of the successor company for
the previous year in which the requirements of the proviso to clause (xiii) or the proviso to clause (xiv), as the case
may be, are not complied with.
(4) Where any of the conditions laid down in the proviso to clause (xiiib) of section 47 are not complied with, the
amount of profits or gains arising from the transfer of such capital asset or intangible assets or share or shares not
charged under section 45 by virtue of conditions laid down in the said proviso shall be deemed to be the profits and
gains chargeable to tax of the successor limited liability partnership or the shareholder of the predecessor company,
as the case may be, for the previous year in which the requirements of the said proviso are not complied with.
Mode of computation.
48. The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the
consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :
(i) expenditure incurred wholly and exclusively in connection with such transfer;
(ii) the cost of acquisition of the asset and the cost of any improvement thereto:
94
Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital
asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition,
expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration
received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially
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10.90
utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall
be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be
applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in,
or debentures of, an Indian company :
Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than
capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to
in the first proviso, the provisions of clause (ii) shall have effect as if for the words "cost of acquisition" and "cost of
any improvement", the words "indexed cost of acquisition" and "indexed cost of any improvement" had respectively
been substituted:
Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the
transfer of a long-term capital asset being bond or debenture other than capital indexed bonds issued by the
Government :
Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section 47 are
transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be
the full value of consideration received or accruing as a result of transfer for the purposes of this section :
Provided also that no deduction shall be allowed in computing the income chargeable under the head "Capital
gains" in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2)
Act, 2004.
Explanation.For the purposes of this section,
(i) "foreign currency" and "Indian currency" shall have the meanings respectively assigned to them in section 2
of 95[the Foreign Exchange Management Act, 1999 (42 of 1999)];
(ii) the conversion of Indian currency into foreign currency and the reconversion of foreign currency into
Indian currency shall be at the rate of exchange prescribed in this behalf;
(iii) "indexed cost of acquisition" means an amount which bears to the cost of acquisition the same proportion
as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for
the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April,
1981, whichever is later;
(iv) "indexed cost of any improvement" means an amount which bears to the cost of improvement the same
proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation
Index for the year in which the improvement to the asset took place;
(v) "Cost Inflation Index", in relation to a previous year, means such Index as the Central Government may,
having regard to seventy-five per cent of average rise in the 96[Consumer Price Index for urban nonmanual employees] for the immediately preceding previous year to such previous year, by notification 97 in
the Official Gazette, specify, in this behalf.
Cost with reference to certain modes of acquisition.
49. (1) Where the capital asset became the property of the assessee
(i) on any distribution of assets on the total or partial partition of a Hindu undivided family;
(ii) 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, body of individuals, or other association of
persons, where such dissolution had taken place at any time before the 1st day of April, 1987, or
(c) on any distribution of assets on the liquidation of a company, or
(d) under a transfer to a revocable or an irrevocable trust, or
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10.91
(e) under any such transfer as is referred to in clause (iv) or clause (v) or clause (vi) or clause (via) 98[or
clause (viaa) or clause (vica) or clause (vicb)] or clause (xiii) or clause (xiiib) or clause (xiv)
of section 47;
(iv) such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at
any time after the 31st day of December, 1969,
the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property
acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the
assessee, as the case may be.
Explanation.In this sub-section the expression "previous owner of the property" in relation to any capital asset
owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition
other than that referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of this sub-section.
(2) Where the capital asset being a share or shares in an amalgamated company which is an Indian company became
the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47, the cost of
acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the
amalgamating company.
(2A) Where the capital asset, being a share or debenture of a company, became the property of the assessee in
consideration of a transfer referred to in clause (x) or clause (xa) of section 47, the cost of acquisition of the asset to
the assessee shall be deemed to be that part of the cost of debenture, debenture-stock, bond or deposit certificate in
relation to which such asset is acquired by the assessee.
(2AA) Where the capital gain arises from the transfer of specified security or sweat equity shares referred to in subclause (vi) of clause (2) ofsection 17, the cost of acquisition of such security or shares shall be the fair market value
which has been taken into account for the purposes of the said sub-clause.
(2AAA) Where the capital asset, being rights of a partner referred to in section 42 of the Limited Liability
Partnership Act, 2008 (6 of 2009), became the property of the assessee on conversion as referred to in clause (xiiib)
of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or
shares in the company immediately before its conversion.
(2AB) Where the capital gain arises from the transfer of specified security or sweat equity shares, the cost of
acquisition of such security or shares shall be the fair market value which has been taken into account while
computing the value of fringe benefits under clause (ba) of sub-section (1) of section 115WC.
(2ABB) Where the capital asset, being share or shares of a company, is acquired by a non-resident assessee on
redemption of Global Depository Receipts referred to in clause (b) of sub-section (1) of section 115AC held by such
assessee, the cost of acquisition of the share or shares shall be the price of such share or shares prevailing on any
recognised stock exchange on the date on which a request for such redemption was made.
Explanation.For the purposes of this sub-section, "recognised stock exchange" shall have the meaning assigned to
it in clause (ii) of theExplanation 1 to sub-section (5) of section 43.
99
[(2AC) Where the capital asset, being a unit of a business trust, became the property of the assessee in
consideration of a transfer as referred to in clause (xvii) of section 47, the cost of acquisition of the asset shall be
deemed to be the cost of acquisition to him of the share referred to in the said clause.]
Following sub-section (2AD) shall be inserted after sub-section (2AC) of section 49 by the Finance Act, 2015,
w.e.f. 1-4-2016 :
(2AD)Where the capital asset, being a unit or units in a consolidated scheme of a mutual fund, became the property
of the assessee in consideration of a transfer referred to in clause (xviii)of section 47, the cost of acquisition of the
asset shall be deemed to be the cost of acquisition to him of the unit or units in the consolidating scheme of the
mutual fund.
(2B) [***]
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10.92
(2C) The cost of acquisition of the shares in the resulting company shall be the amount which bears to the cost of
acquisition of shares held by the assessee in the demerged company the same proportion as the net book value of the
assets transferred in a demerger bears to the net worth of the demerged company immediately before such demerger.
(2D) The cost of acquisition of the original shares held by the shareholder in the demerged company shall be
deemed to have been reduced by the amount as so arrived at under sub-section (2C).
(2E) The provisions of sub-section (2), sub-section (2C) and sub-section (2D) shall, as far as may be, also apply in
relation to business reorganisation of a co-operative bank as referred to in section 44DB.
Explanation.For the purposes of this section, "net worth" shall mean the aggregate of the paid up share capital and
general reserves as appearing in the books of account of the demerged company immediately before the demerger.
(3) Notwithstanding anything contained in sub-section (1), where the capital gain arising from the transfer of a
capital asset referred to in clause (iv) or, as the case may be, clause (v) of section 47 is deemed to be income
chargeable under the head "Capital gains" by virtue of the provisions contained in section 47A, the cost of
acquisition of such asset to the transferee-company shall be the cost for which such asset was acquired by it.
(4) Where the capital gain arises from the transfer of a property, the value of which has been subject to income-tax
under clause (vii) or clause (viia)of sub-section (2) of section 56, the cost of acquisition of such property shall be
deemed to be the value which has been taken into account for the purposes of the said clause (vii) or clause (viia).
Special provision for computation of capital gains in case of depreciable assets.
50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part
of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax
Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications :
(1) where the full value of the consideration received or accruing as a result of the transfer of the asset together
with the full value of such consideration received or accruing as a result of the transfer of any other capital
asset falling within the block of the assets during the previous year, exceeds the aggregate of the following
amounts, namely :
(i) expenditure incurred wholly and exclusively in connection with such transfer or transfers;
(ii) the written down value of the block of assets at the beginning of the previous year; and
(iii) the actual cost of any asset falling within the block of assets acquired during the previous year,
such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;
(2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are
transferred during the previous year, the cost of acquisition of the block of assets shall be the written down
value of the block of assets at the beginning of the previous year, as increased by the actual cost of any
asset falling within that block of assets, acquired by the assessee during the previous year and the income
received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising
from the transfer of short-term capital assets.
Special provision for cost of acquisition in case of depreciable asset.
50A. Where the capital asset is an asset in respect of which a deduction on account of depreciation under clause (i)
of sub-section (1) of section 32has been obtained by the assessee in any previous year, the provisions of sections
48 and 49 shall apply subject to the modification that the written down value, as defined in clause (6) of section 43,
of the asset, as adjusted, shall be taken as the cost of acquisition of the asset.
Special provision for computation of capital gains in case of slump sale.
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10.93
50B. (1) Any profits or gains arising from the slump sale effected in the previous year shall be chargeable to
income-tax as capital gains arising from the transfer of long-term capital assets and shall be deemed to be the
income of the previous year in which the transfer took place :
Provided that any profits or gains arising from the transfer under the slump sale of any capital asset being one or
more undertakings owned and held by an assessee for not more than thirty-six months immediately preceding the
date of its transfer shall be deemed to be the capital gains arising from the transfer of short-term capital assets.
(2) In relation to capital assets being an undertaking or division transferred by way of such sale, the "net worth" of
the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of
improvement for the purposes of sections 48 and 49and no regard shall be given to the provisions contained in the
second proviso to section 48.
(3) Every assessee, in the case of slump sale, shall furnish in the prescribed form 1 along with the return of income, a
report of an accountant as defined in the Explanation below sub-section (2) of section 288, indicating the
computation of the net worth of the undertaking or division, as the case may be, and certifying that the net worth of
the undertaking or division, as the case may be, has been correctly arrived at in accordance with the provisions of
this section.
Explanation 1.For the purposes of this section, "net worth" shall be the aggregate value of total assets of the
undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its
books of account :
Provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes
of computing the net worth.
Explanation 2.For computing the net worth, the aggregate value of total assets shall be,
(a) in the case of depreciable assets, the written down value of the block of assets determined in accordance
with the provisions contained in sub-item (C) of item (i) of sub-clause (c) of clause (6) of section 43;
(b) in the case of capital assets in respect of which the whole of the expenditure has been allowed or is
allowable as a deduction undersection 35AD, nil; and
(c) in the case of other assets, the book value of such assets.
Special provision for full value of consideration in certain cases.
50C. (1) 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 any authority of a State
Government (hereafter in this section referred to as the "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.
(2) Without prejudice to the provisions of sub-section (1), where
(a) the assessee claims before any Assessing Officer that the value adopted or assessed or assessable by the
stamp valuation authority under sub-section (1) exceeds the fair market value of the property as on the
date of transfer;
(b) the value so adopted or assessed or assessable by the stamp valuation authority under sub-section (1) has
not been disputed in any appeal or revision or no reference has been made before any other authority,
court or the High Court,
the Assessing Officer may refer the valuation of the capital asset to a Valuation Officer and where any such
reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A, clause (i) of sub-section (1)
and sub-sections (6) and (7) of section 23A, sub-section (5) of section 24, section 34AA, section 35 and section 37
of the Wealth-tax Act, 1957 (27 of 1957), shall, with necessary modifications, apply in relation to such reference as
they apply in relation to a reference made by the Assessing Officer under sub-section (1) of section 16A of that Act.
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10.94
Explanation 1.For the purposes of this section, "Valuation Officer" shall have the same meaning as in clause (r) of
section 2 of the Wealth-tax Act, 1957 (27 of 1957).
Explanation 2.For the purposes of this section, the expression "assessable" means the price which the stamp
valuation authority would have, notwithstanding anything to the contrary contained in any other law for the time
being in force, adopted or assessed, if it were referred to such authority for the purposes of the payment of stamp
duty.
(3) Subject to the provisions contained in sub-section (2), where the value ascertained under sub-section (2) exceeds
the value adopted or assessed or assessable by the stamp valuation authority referred to in sub-section (1), the value
so adopted or assessed or assessable by such authority shall be taken as the full value of the consideration received
or accruing as a result of the transfer.
Fair market value deemed to be full value of consideration in certain cases.
50D. Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not
ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains,
the fair market value of the said 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.
Advance money received.
51. Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or
other money received and retained by the assessee in respect of such negotiations shall be deducted from the cost for
which the asset was acquired or the written down value or the fair market value, as the case may be, in computing
the cost of acquisition :
2
[Provided that where any sum of money, received as an advance or otherwise in the course of negotiations for
transfer of a capital asset, has been included in the total income of the assessee for any previous year in accordance
with the provisions of clause (ix) of sub-section (2) of section 56, then, such sum shall not be deducted from the cost
for which the asset was acquired or the written down value or the fair market value, as the case may be, in
computing the cost of acquisition.]
Profit on sale of property used for residence.
54. (1) Subject to the provisions of sub-section (2), where, in the case of an assessee being an individual or a Hindu
undivided family, the capital gain arises from the transfer of a long-term capital asset, being buildings or lands
appurtenant thereto, and being a residential house, the income of which is chargeable under the head "Income from
house property" (hereafter in this section referred to as the original asset), and the assessee has within a period of
one year before or two years after the date on which the transfer took place purchased, or has within a period of
three years after that date 3[constructed, one residential house in India], then, instead of the capital gain being
charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in
accordance with the following provisions of this section, that is to say,
(i) if the amount of the capital gain is greater than the cost of the residential house so purchased or constructed
(hereafter in this section referred to as the new asset), the difference between the amount of the capital
gain and the cost of the new asset shall be charged undersection 45 as the income of the previous year; and
for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a
period of three years of its purchase or construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not
be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain
Capital Gains
10.95
arising from its transfer within a period of three years of its purchase or construction, as the case may be,
the cost shall be reduced by the amount of the capital gain.
(2) The amount of the capital gain which is not appropriated by the assessee towards the purchase of the new asset
made within one year before the date on which the transfer of the original asset took place, or which is not utilised
by him for the purchase or construction of the new asset before the date of furnishing the return of income
under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not
later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1)
ofsection 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with,
any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and
such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if
any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so
deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or
construction of the new asset within the period specified in sub-section (1), then,
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the
period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
Explanation.[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
Capital gain on transfer of land used for agricultural purposes not to be charged in certain cases.
54B. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset
being land which, in the two years immediately preceding the date on which the transfer took place, was being used
by the assessee being an individual or his parent, or a Hindu undivided family for agricultural purposes (hereinafter
referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any
other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as
income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following
provisions of this section, that is to say,
(i) if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as
the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be
charged under section 45 as the income of the previous year; and for the purpose of computing in respect
of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the
cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not
be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain
arising from its transfer within a period of three years of its purchase, the cost shall be reduced, by the
amount of the capital gain.
(2) The amount of the capital gain which is not utilised by the assessee for the purchase of the new asset before the
date of furnishing the return of income under section 139, shall be deposited by him before furnishing such return
[such deposit being made in any case not later than the due date applicable in the case of the assessee for furnishing
the return of income under sub-section (1) of section 139] in an account in any such bank or institution as may be
specified in, and utilised in accordance with, any scheme which the Central Government may, by notification in the
Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, for the
purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase of the new asset
together with the amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase of the
new asset within the period specified in sub-section (1), then,
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10.96
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the
period of two years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
Explanation.[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
Capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases.
54D. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer by way of
compulsory acquisition under any law of a capital asset, being land or building or any right in land or building,
forming part of an industrial undertaking belonging to the assessee which, in the two years immediately preceding
the date on which the transfer took place, was being used by the assessee for the purposes of the business of the said
undertaking (hereafter in this section referred to as the original asset), and the assessee has within a period of three
years after that date purchased any other land or building or any right in any other land or building or constructed
any other building for the purposes of shifting or re-establishing the said undertaking or setting up another industrial
undertaking, then, instead of the capital gain being charged to income-tax as the income of the previous year in
which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that
is to say,
(i) if the amount of the capital gain is greater than the cost of the land, building or right so purchased or the
building so constructed (such land, building or right being hereafter in this section referred to as the new
asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged
under section 45 as the income of the previous year; and for the purpose of computing in respect of the
new asset any capital gain arising from its transfer within a period of three years of its purchase or
construction, as the case may be, the cost shall be nil; or
(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not
be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain
arising from its transfer within a period of three years of its purchase or construction, as the case may be,
the cost shall be reduced by the amount of the capital gain.
(2) The amount of the capital gain which is not utilised by the assessee for the purchase or construction of the new
asset before the date of furnishing the return of income under section 139, shall be deposited by him before
furnishing such return [such deposit being made in any case not later than the due date applicable in the case of the
assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such bank or
institution as may be specified in, and utilised in accordance with, any scheme which the Central Government may,
by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such
deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for the purchase
or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new
asset:
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or
construction of the new asset within the period specified in sub-section (1), then,
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the
period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
Explanation.[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
Capital gain not to be charged on investment in certain bonds.
54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred
being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six
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10.97
months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified
asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,
(a) if the cost of the long-term specified asset is not less than the capital gain arising from the transfer of the
original asset, the whole of such capital gain shall not be charged under section 45;
(b) if the cost of the long-term specified asset is less than the capital gain arising from the transfer of the original
asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of
acquisition of the long-term specified asset bears to the whole of the capital gain, shall not be charged
under section 45 :
Provided that the investment made on or after the 1st day of April, 2007 in the long-term specified asset by an
assessee during any financial year does not exceed fifty lakh rupees :
4
[Provided further that the investment made by an assessee in the long-term specified asset, from capital gains
arising from transfer of one or more original assets, during the financial year in which the original asset or assets
are transferred and in the subsequent financial year does not exceed fifty lakh rupees.]
(2) Where the long-term specified asset is transferred or converted (otherwise than by transfer) into money at any
time within a period of three years from the date of its acquisition, the amount of capital gains arising from the
transfer of the original asset not charged under section 45 on the basis of the cost of such long-term specified asset
as provided in clause (a) or, as the case may be, clause (b) of sub-section (1) shall be deemed to be the income
chargeable under the head "Capital gains" relating to long-term capital asset of the previous year in which the longterm specified asset is transferred or converted (otherwise than by transfer) into money.
Explanation.In a case where the original asset is transferred and the assessee invests the whole or any part of the
capital gain received or accrued as a result of transfer of the original asset in any long-term specified asset and such
assessee takes any loan or advance on the security of such specified asset, he shall be deemed to have converted
(otherwise than by transfer) such specified asset into money on the date on which such loan or advance is taken.
(3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or
clause (b) of sub-section (1),
(a) a deduction from the amount of income-tax with reference to such cost shall not be allowed under section
88 for any assessment year ending before the 1st day of April, 2006;
(b) a deduction from the income with reference to such cost shall not be allowed under section 80C for any
assessment year beginning on or after the 1st day of April, 2006.
Explanation.For the purposes of this section,
(a) "cost", in relation to any long-term specified asset, means the amount invested in such specified asset out of
capital gains received or accruing as a result of the transfer of the original asset;
(b) "long-term specified asset" for making any investment under this section during the period commencing from
the 1st day of April, 2006 and ending with the 31st day of March, 2007, means any bond, redeemable after
three years and issued on or after the 1st day of April, 2006, but on or before the 31st day of March, 2007,
(i) by the National Highways Authority of India constituted under section 3 of the National Highways
Authority of India Act, 1988 (68 of 1988); or
(ii) by the Rural Electrification Corporation Limited, a company formed and registered under the
Companies Act, 1956 (1 of 1956),
and notified by the Central Government in the Official Gazette for the purposes of this section with such
conditions (including the condition for providing a limit on the amount of investment by an assessee in such
bond) as it thinks fit:
Provided that where any bond has been notified before the 1st day of April, 2007, subject to the conditions
specified in the notification, by the Central Government in the Official Gazette under the provisions of clause
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10.98
(b) as they stood immediately before their amendment by the Finance Act, 2007, such bond shall be deemed
to be a bond notified under this clause;
(ba) "long-term specified asset" for making any investment under this section on or after the 1st day of April, 2007
means any bond, redeemable after three years and issued on or after the 1st day of April, 2007 by the
National Highways Authority of India constituted under section 3 of the National Highways Authority of
India Act, 1988 (68 of 1988) or by the Rural Electrification Corporation Limited, a company formed and
registered under the Companies Act, 1956 (1 of 1956).
Capital gain on transfer of certain capital assets not to be charged in case of investment in residential house.
54F. (1) Subject to the provisions of sub-section (4), where, in the case of an assessee being an individual or a Hindu
undivided family, the capital gain arises from the transfer of any long-term capital asset, not being a residential
house (hereafter in this section referred to as the original asset), and the assessee has, within a period of one year
before or two years after the date on which the transfer took place purchased, or has within a period of three years
after that date 5[constructed, one residential house in India] (hereafter in this section referred to as the new asset),
the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,
(a) if the cost of the new asset is not less than the net consideration in respect of the original asset, the whole of
such capital gain shall not be charged under section 45 ;
(b) if the cost of the new asset is less than the net consideration in respect of the original asset, so much of the
capital gain as bears to the whole of the capital gain the same proportion as the cost of the new asset bears to
the net consideration, shall not be charged under section 45:
Provided that nothing contained in this sub-section shall apply where
(a) the assessee,
(i) owns more than one residential house, other than the new asset, on the date of transfer of the original
asset; or
(ii) purchases any residential house, other than the new asset, within a period of one year after the date of
transfer of the original asset; or
(iii) constructs any residential house, other than the new asset, within a period of three years after the date
of transfer of the original asset; and
(b) the income from such residential house, other than the one residential house owned on the date of transfer of
the original asset, is chargeable under the head "Income from house property".
Explanation.For the purposes of this section,
"net consideration", in relation to the transfer of a capital asset, means the full value of the consideration
received or accruing as a result of the transfer of the capital asset as reduced by any expenditure incurred
wholly and exclusively in connection with such transfer.
(2) Where the assessee purchases, within the period of two years after the date of the transfer of the original asset, or
constructs, within the period of three years after such date, any residential house, the income from which is
chargeable under the head "Income from house property", other than the new asset, the amount of capital gain
arising from the transfer of the original asset not charged under section 45 on the basis of the cost of such new asset
as provided in clause (a), or, as the case may be, clause (b), of sub-section (1), shall be deemed to be income
chargeable under the head "Capital gains" relating to long-term capital assets of the previous year in which such
residential house is purchased or constructed.
(3) Where the new asset is transferred within a period of three years from the date of its purchase or, as the case may
be, its construction, the amount of capital gain arising from the transfer of the original asset not charged
under section 45 on the basis of the cost of such new asset as provided in clause (a) or, as the case may be, clause
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10.99
(b), of sub-section (1) shall be deemed to be income chargeable under the head "Capital gains" relating to long-term
capital assets of the previous year in which such new asset is transferred.
(4) The amount of the net consideration which is not appropriated by the assessee towards the purchase of the new
asset made within one year before the date on which the transfer of the original asset took place, or which is not
utilised by him for the purchase or construction of the new asset before the date of furnishing the return of income
under section 139, shall be deposited by him before furnishing such return [such deposit being made in any case not
later than the due date applicable in the case of the assessee for furnishing the return of income under sub-section (1)
of section 139] in an account in any such bank or institution as may be specified in, and utilised in accordance with,
any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and
such return shall be accompanied by proof of such deposit; and, for the purposes of sub-section (1), the amount, if
any, already utilised by the assessee for the purchase or construction of the new asset together with the amount so
deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for the purchase or
construction of the new asset within the period specified in sub-section (1), then,
(i) the amount by which
(a) the amount of capital gain arising from the transfer of the original asset not charged under section
45 on the basis of the cost of the new asset as provided in clause (a) or, as the case may be, clause
(b) of sub-section (1),
exceeds
(b) the amount that would not have been so charged had the amount actually utilised by the assessee for
the purchase or construction of the new asset within the period specified in sub-section (1) been the
cost of the new asset,
shall be charged under section 45 as income of the previous year in which the period of three years from the
date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw the unutilised amount in accordance with the scheme aforesaid.
Explanation.[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban
area.
54G. (1) Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital
asset, being machinery or plant or building or land or any rights in building or land used for the purposes of the
business of an industrial undertaking situate in an urban area, effected in the course of, or in consequence of, the
shifting of such industrial undertaking (hereafter in this section referred to as the original asset) to any area (other
than an urban area) and the assessee has within a period of one year before or three years after the date on which the
transfer took place,
(a) purchased new machinery or plant for the purposes of business of the industrial undertaking in the area to
which the said undertaking is shifted;
(b) acquired building or land or constructed building for the purposes of his business in the said area ;
(c) shifted the original asset and transferred the establishment of such undertaking to such area; and
(d) incurred expenses on such other purpose as may be specified in a scheme framed by the Central Government
for the purposes of this section,
then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer
took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,
(i) if the amount of the capital gain is greater than the cost and expenses incurred in relation to all or any of the
purposes mentioned in clauses (a) to (d) (such cost and expenses being hereafter in this section referred to as
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the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be
charged under section 45 as the income of the previous year; and for the purpose of computing in respect of
the new asset any capital gain arising from its transfer within a period of three years of its being purchased,
acquired, constructed or transferred, as the case may be, the cost shall be nil ; or
(ii) if the amount of the capital gain is equal to, or less than, the cost of the new asset, the capital gain shall not be
charged under section 45; and for the purpose of computing in respect of the new asset any capital gain
arising from its transfer within a period of three years of its being purchased, acquired, constructed or
transferred, as the case may be, the cost shall be reduced by the amount of the capital gain.
Explanation.In this sub-section, "urban area" means any such area within the limits of a municipal corporation or
municipality as the Central Government may, having regard to the population, concentration of industries, need for
proper planning of the area and other relevant factors, by general or special order, declare to be an urban area for the
purposes of this sub-section.
(2) The amount of capital gain which is not appropriated by the assessee towards the cost and expenses incurred in
relation to all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within one year before the
date on which the transfer of the original asset took place, or which is not utilised by him for all or any of the
purposes aforesaid before the date of furnishing the return of income under section 139, shall be deposited by him
before furnishing such return [such deposit being made in any case not later than the due date applicable in the case
of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such
bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central
Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied
by proof of such deposit ; and, for the purposes of sub-section (1), the amount, if any, already utilised by the
assessee for all or any of the purposes aforesaid together with the amount, so deposited shall be deemed to be the
cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for all or any of the
purposes mentioned in clauses (a) to (d) of sub-section (1) within the period specified in that sub-section, then,
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the
period of three years from the date of the transfer of the original asset expires ; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
Explanation.[Omitted by the Finance Act, 1992, w.e.f. 1-4-1993.]
Exemption of capital gains on transfer of assets in cases of shifting of industrial undertaking from urban area
to any Special Economic Zone.
54GA. (1) Notwithstanding anything contained in section 54G, where the capital gain arises from the transfer of a
capital asset, being machinery or plant or building or land or any rights in building or land used for the purposes of
the business of an industrial undertaking situate in an urban area, effected in the course of, or in consequence of the
shifting of such industrial undertaking to any Special Economic Zone, whether developed in any urban area or any
other area and the assessee has within a period of one year before or three years after the date on which the transfer
took place,
(a) purchased machinery or plant for the purposes of business of the industrial undertaking in the Special
Economic Zone to which the said undertaking is shifted;
(b) acquired building or land or constructed building for the purposes of his business in the Special Economic
Zone;
(c) shifted the original asset and transferred the establishment of such undertaking to the Special Economic Zone;
and
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10.101
(d) incurred expenses on such other purposes as may be specified in a scheme framed by the Central Government
for the purposes of this section,
then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer
took place, it shall, subject to the provisions of sub-section (2), be dealt with in accordance with the following
provisions of this section, that is to say,
(i) if the amount of the capital gain is greater than the cost and expenses incurred in relation to all or any of the
purposes mentioned in clauses (a) to (d) (such cost and expenses being hereafter in this section referred to as
the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be
charged under section 45 as the income of the previous year; and for the purpose of computing in respect of
the new asset any capital gain arising from its transfer within a period of three years of its being purchased,
acquired, constructed or transferred, as the case may be, the cost shall be Nil; or
(ii) if the amount of the capital gain is equal to, or less than, the cost of the new asset, the capital gain shall not be
charged under section 45, and for the purpose of computing in respect of the new asset any capital gain
arising from its transfer within a period of three years of its being purchased, acquired, constructed or
transferred, as the case may be, the cost shall be reduced by the amount of the capital gain.
Explanation.In this sub-section,
(a) "Special Economic Zone" shall have the meaning assigned to it in clause (za) of *[section 2 of] the Special
Economic Zones Act, 2005;
(b) "urban area" means any such area within the limits of a municipal corporation or municipality as the Central
Government may, having regard to the population, concentration of industries, need for proper planning of
the area and other relevant factors, by general or special order, declare to be an urban area for the purposes of
this sub-section.
(2) The amount of capital gain which is not appropriated by the assessee towards the cost and expenses incurred in
relation to all or any of the purposes mentioned in clauses (a) to (d) of sub-section (1) within one year before the
date on which the transfer of the original asset took place, or which is not utilised by him for all or any of the
purposes aforesaid before the date of furnishing the return of income under section 139, shall be deposited by him
before furnishing such return [such deposit being made in any case not later than the due date applicable in the case
of the assessee for furnishing the return of income under sub-section (1) of section 139] in an account in any such
bank or institution as may be specified in, and utilised in accordance with, any scheme which the Central
Government may, by notification, frame in this behalf and such return shall be accompanied by proof of such
deposit; and, for the purposes of sub-section (1), the amount, if any, already utilised by the assessee for all or any of
the aforesaid purposes together with the amount so deposited shall be deemed to be the cost of the new asset :
Provided that if the amount deposited under this sub-section is not utilised wholly or partly for all or any of the
purposes mentioned in clauses (a) to (d) of sub-section (1) within the period specified in that sub-section, then,
(i) the amount not so utilised shall be charged under section 45 as the income of the previous year in which the
period of three years from the date of the transfer of the original asset expires; and
(ii) the assessee shall be entitled to withdraw such amount in accordance with the scheme aforesaid.
Capital gain on transfer of residential property not to be charged in certain cases
54GB. (1) Where,
(i) the capital gain arises from the transfer of a long-term capital asset, being a residential property (a house or a
plot of land), owned by the eligible assessee (herein referred to as the assessee); and
(ii) the assessee, before the due date of furnishing of return of income under sub-section (1) of section 139,
utilises the net consideration for subscription in the equity shares of an eligible company (herein-referred to
as the company); and
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10.102
(iii) the company has, within one year from the date of subscription in equity shares by the assessee, utilised this
amount for purchase of new asset,
then, instead of the capital gain being charged to income-tax as the income of the previous year in which the transfer
takes place, it shall be dealt with in accordance with the following provisions of this section, that is to say,
(a) if the amount of the net consideration is greater than the cost of the new asset, then, so much of the capital
gain as it bears to the whole of the capital gain the same proportion as the cost of the new asset bears to the
net consideration, shall not be charged under section 45 as the income of the previous year; or
(b) if the amount of the net consideration is equal to or less than the cost of the new asset, the capital gain shall
not be charged under section 45 as the income of the previous year.
(2) The amount of the net consideration, which has been received by the company for issue of shares to the assessee,
to the extent it is not utilised by the company for the purchase of the new asset before the due date of furnishing of
the return of income by the assessee under section 139, shall be deposited by the company, before the said due date
in an account in any such bank or institution as may be specified and shall be utilised in accordance with any scheme
which the Central Government may, by notification in the Official Gazette, frame in this behalf and the return
furnished by the assessee shall be accompanied by proof of such deposit having been made.
(3) For the purposes of sub-section (1), the amount, if any, already utilised by the company for the purchase of the
new asset together with the amount deposited under sub-section (2) shall be deemed to be the cost of the new asset:
Provided that if the amount so deposited is not utilised, wholly or partly, for the purchase of the new asset within
the period specified in sub-section (1), then,
(i) the amount by which
(a) the amount of capital gain arising from the transfer of the residential property not charged
under section 45 on the basis of the cost of the new asset as provided in sub-section (1),
exceeds
(b) the amount that would not have been so charged had the amount actually utilised for the purchase of
the new asset within the period specified in sub-section (1) been the cost of the new asset,
shall be charged under section 45 as income of the assessee for the previous year in which the period of one
year from the date of the subscription in equity shares by the assessee expires; and
(ii) the company shall be entitled to withdraw such amount in accordance with the scheme.
(4) If the equity shares of the company or the new asset acquired by the company are sold or otherwise transferred
within a period of five years from the date of their acquisition, the amount of capital gain arising from the transfer of
the residential property not charged under section 45 as provided in sub-section (1) shall be deemed to be the income
of the assessee chargeable under the head "Capital gains" of the previous year in which such equity shares or such
new asset are sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of shares
or of the new asset, in the hands of the assessee or the company, as the case may be.
(5) The provisions of this section shall not apply to any transfer of residential property made after the 31st day of
March, 2017.
(6) For the purposes of this section,
(a) "eligible assessee" means an individual or a Hindu undivided family;
(b) "eligible company" means a company which fulfils the following conditions, namely:
(i) it is a company incorporated in India during the period from the 1st day of April of the previous year
relevant to the assessment year in which the capital gain arises to the due date of furnishing of return
of income under sub-section (1) of section 139 by the assessee;
(ii) it is engaged in the business of manufacture of an article or a thing;
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10.103
(iii) it is a company in which the assessee has more than fifty per cent share capital or more than fifty per
cent voting rights after the subscription in shares by the assessee; and
(iv) it is a company which qualifies to be a small or medium enterprise under the Micro, Small and
Medium Enterprises Act, 2006 (27 of 2006);
(c) "net consideration" shall have the meaning assigned to it in the Explanation to section 54F;
(d) "new asset" means new plant and machinery but does not include
(i) any machinery or plant which, before its installation by the assessee, was used either within or outside
India by any other person;
(ii) any machinery or plant installed in any office premises or any residential accommodation, including
accommodation in the nature of a guest-house;
(iii) any office appliances including computers or computer software;
(iv) any vehicle; or
(v) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by
way of depreciation or otherwise) in computing the income chargeable under the head "Profits and
gains of business or profession" of any previous year.
Extension of time for acquiring new asset or depositing or investing amount of capital gain.
54H. Notwithstanding anything contained in sections 54, 54B, 54D, 54EC and 54F, where the transfer of the
original asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such
acquisition is not received by the assessee on the date of such transfer, the period for acquiring the new asset by the
assessee referred to in those sections or, as the case may be, the period available to the assessee under those sections
for depositing or investing the amount of capital gain in relation to such compensation as is not received on the date
of the transfer, shall be reckoned from the date of receipt of such compensation :
Provided that where the compensation in respect of transfer of the original asset by way of compulsory acquisition
under any law is received before the 1st day of April, 1991, the aforesaid period or periods, if expired, shall extend
up to the 31st day of December, 1991.
Meaning of "adjusted", "cost of improvement" and "cost of acquisition".
55. (1) For the purposes of sections 48 and 49,
(a) [***]
(b) "cost of any improvement",
(1) in relation to a capital asset being goodwill of a business or a right to manufacture, produce or process
any article or thing or right to carry on any business shall be taken to be nil ; and
(2) in relation to any other capital asset,
(i) where the capital asset became the property of the previous owner or the assessee before the
1st day of April, 1981, means all expenditure of a capital nature incurred in making any
additions or alterations to the capital asset on or after the said date by the previous owner or
the assessee, and
(ii) in any other case, means all expenditure of a capital nature incurred in making any additions
or alterations to the capital asset by the assessee after it became his property, and, where the
capital asset became the property of the assessee by any of the modes specified in sub-section
(1) of section 49, by the previous owner,
but does not include any expenditure which is deductible in computing the income chargeable under
the head "Interest on securities", "Income from house property", "Profits and gains of business or
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profession", or "Income from other sources", and the expression "improvement" shall be construed
accordingly.
(2) For the purposes of sections 48 and 49, "cost of acquisition",
(a) in relation to a capital asset, being goodwill of a business or a trade mark or brand name associated
with a business or a right to manufacture, produce or process any article or thing or right to carry on
any business, tenancy rights, stage carriage permits or loom hours,
(i) in the case of acquisition of such asset by the assessee by purchase from a previous owner,
means the amount of the purchase price ; and
(ii) in any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1)
of section 49], shall be taken to benil ;
(aa) in a case where, by virtue of holding a capital asset, being a share or any other security, within the
meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956)
(hereafter in this clause referred to as the financial asset), the assessee
(A) becomes entitled to subscribe to any additional financial asset ; or
(B) is allotted any additional financial asset without any payment,
then, subject to the provisions of sub-clauses (i) and (ii) of clause (b),
(i) in relation to the original financial asset, on the basis of which the assessee becomes entitled to
any additional financial asset, means the amount actually paid for acquiring the original
financial asset ;
(ii) in relation to any right to renounce the said entitlement to subscribe to the financial asset,
when such right is renounced by the assessee in favour of any person, shall be taken to
be nil in the case of such assessee ;
(iii) in relation to the financial asset, to which the assessee has subscribed on the basis of the said
entitlement, means the amount actually paid by him for acquiring such asset ;
(iiia) in relation to the financial asset allotted to the assessee without any payment and on the basis
of holding of any other financial asset, shall be taken to be nil in the case of such assessee ;
and
(iv) in relation to any financial asset purchased by any person in whose favour the right to
subscribe to such asset has been renounced, means the aggregate of the amount of the
purchase price paid by him to the person renouncing such right and the amount paid by him to
the company or institution, as the case may be, for acquiring such financial asset ;
(ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised
stock exchange in India under a scheme for demutualisation or corporatisation approved by the
Securities and Exchange Board of India established under section 3 of the Securities and Exchange
Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of
the exchange:
Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock
exchange acquired by a shareholder who has been allotted equity share or shares under such scheme
of demutualisation or corporatisation, shall be deemed to be nil;
(b) in relation to any other capital asset,
(i) where the capital asset became the property of the assessee before the 1st day of April, 1981,
means the cost of acquisition of the asset to the assessee or the fair market value of the asset
on the 1st day of April, 1981, at the option of the assessee ;
(ii) where the capital asset became the property of the assessee by any of the modes specified in
sub-section (1) of section 49, and the capital asset became the property of the previous owner
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10.105
before the 1st day of April, 1981, means the cost of the capital asset to the previous owner or
the fair market value of the asset on the 1st day of April, 1981, at the option of the assessee ;
(iii) where the capital asset became the property of the assessee on the distribution of the capital
assets of a company on its liquidation and the assessee has been assessed to income-tax under
the head "Capital gains" in respect of that asset undersection 46, means the fair market value
of the asset on the date of distribution ;
(iv) [***]
(v) where the capital asset, being a share or a stock of a company, became the property of the
assessee on
(a) the consolidation and division of all or any of the share capital of the company into
shares of larger amount than its existing shares,
(b) the conversion of any shares of the company into stock,
(c) the re-conversion of any stock of the company into shares,
(d) the sub-division of any of the shares of the company into shares of smaller amount, or
(e) the conversion of one kind of shares of the company into another kind,
means the cost of acquisition of the asset calculated with reference to the cost of acquisition
of the shares or stock from which such asset is derived.
(3) Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition
to the previous owner means the fair market value on the date on which the capital asset became the property of the
previous owner.
Reference to Valuation Officer.
55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the
Assessing Officer may refer the valuation of capital asset to a Valuation Officer
(a) in a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a
registered valuer, if the Assessing Officer is of opinion that the value so claimed is at variance with its fair
market value;
(b) in any other case, if the Assessing Officer is of opinion
(i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by
more than such percentage6 of the value of the asset as so claimed or by more than such amount 6 as
may be prescribed in this behalf ; or
(ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do,
7
and where any such reference is made, the provisions of sub-sections (2), (3), (4), (5) and (6) of section 16A,
clauses (ha) and (i) of sub-section (1) and sub-sections (3A) and (4) of section 23, sub-section (5) of section 24,
section 34AA, section 35 and section 37 of the Wealth-tax Act, 1957 (27 of 1957), shall with the necessary
modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing
Officer under sub-section (1) of section 16A of that Act.
Explanation.In this section, "Valuation Officer" has the same meaning, as in clause (r) of section 2 of the Wealthtax Act, 1957 (27 of 1957).
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