Capital Asset S.

2(14) –

Cap. Asset means property of any kind held by an

‘A’ whether or not connected with his business or
profession but does not include –
(d) any stock in trade, consumable stores or raw
materials held for the purposes of bus. or prof.,
(e) Personal effects i.e. movable property other than
jewellery, archeological collections, drawings,
paintings, sculptures or any work of art.
(c) Agricultural land other than the one
situated in –
(ii) any area comprised within the jurisdiction
of a municipality or cantonment board
having population of 10,000 or more, or
(iii) any area within 8 kms. from the local
limits of such municipality or cantonment
board notified by the Government.
(d) 6 ½% Gold Bonds, 1977 or 7% Gold
Bonds, 1980 or National Defence Gold
Bonds, 1980 issued by the Central
Government.
(e) Special Bearer Bonds, 1991 issued by
the Central Government.
(f) Gold Deposit Bonds issued under the
Gold Deposit Scheme, 1999 notified by
the Central Government.
Property includes movable and
immovable assets, tangible & intangible
assets, non-corporeal assets like route
permits for buses, tenancy rights, etc.
Personal effects –
Personal effect means articles privately
owned for intimate use by an individual.
Some decisions –
(4) Gold & Silver bars used for puja not
personal effects.
Maharaja Rana Hemant Singhji v. CIT
103 ITR 61 (S.C.)
(2) Asset intended for personal use for
ceremonial occasions held as personal
effects.
CIT v. H.H. Maharani Usha Devi 231 ITR
793 (S.C.)
(3) Silver utensils used on certain occasions
are personal effects.
Jayantilal A. Shah v. K.N. Anantharam
Aiyar, CIT 156 ITR 448 (Bom.)
(4) If land is situated in industrial area and
vegetables were grown on land for some
years prior to its sale, the land would be
non-agricultural land.
CIT v. Gemini Pictures Circuit Pvt. Ltd. 220
ITR 43 (S.C.)
(5) If any person other than the ‘A’ uses the
land for agricultural purposes and derives
agricultural income from it, it will be
agricultural land.
CIT v. All India Tea & Trading Co. Ltd. 117
ITR 525 (Cal.)
(6) If land was used by seller for agricultural
purposes, purpose for which buyer wants
to use it is irrelevant.
CIT v. Manilal Somnath 106 ITR 917 (Guj.)
(7) Gujarat High Court in CIT v. Siddharth J.
Desai 139 ITR 628 held that the following
points would be relevant on the issue of
agricultural land –
(a) Classification in revenue record
(b) Use of agricultural land at the relevant
time & whether such user was temporary or
long-term.
(c) Whether operations like ploughing or
tilling took place.
(d) Use of the land in surrounding vicinity.
(e) whether land was developed by plotting
and providing roads & other facilities.
(f) any previous sales of portions of land for
non agricultural purposes.
(g) sale of land on acreage, footage, yardage
basis.
(h) whether an agriculturist would purchase
the land for agriculture at such price.
Demerger S. 2(19AA) –
Demerger in relation to companies, means the
transfer, pursuant to a scheme of arrangement
under sections 391 to 394 of the Companies Act,
1956, by a demerged company of its one or more
undertakings to any resulting company in such a
manner that –
(viii) all the property of the undertaking, being
transferred become the prop. of the resulting
co.
(ix) all the liabilities relatable to the undertaking
being transferred become the liabilities of the
(iii) the prop. and the liabilities are transferred
to resulting co. at book values.
(iv) the resulting co. issues its shares, in
consideration of demerger, to the
shareholders of the demerged co. on a
proportionate basis.
(v) shareholders holding not less than 3/4ths in
value of the shares in the demerged co.
become shareholders of the resulting co.
(vi) transfer of the undertaking is on a going
concern basis.
(vii) the demerger is in accordance with the
conditions notified u/s. 72A(5) by the Central
Govt.
Undertaking shall include any part of an
undertaking, or a unit or division of an
undertaking or a bus. activity taken as a
whole, but does not include individual assets
or liabilities not constituting a bus. activity.
Demerged Company S.2(19AA) -
Demerged co. means the co. whose
undertaking is transferred pursuant to a
demerger to a resulting co.
Resulting Company S. 2(41A) –
Resulting co. means one or more cos.
(including its wholly owned subsidiary) to
which the undertaking of the demerged co.
is transferred in a demerger and the
resulting co. in consideration of such
transfer of undertaking, issues shares to
the shareholders of the demerged co. and
includes any authority or body or local
authority or pub. sector co. or a co.
established as a result of demerger.
Short-term Capital Asset S. 2(42A) –
S.T.C.A. means a cap. asset held by an ‘A’
for not more than thirty six months
immediately preceding the date of its
transfer. In the case of a share held in a
co. or any other security listed in a
recognised stock exchange in India or a
unit of the U.T.I. or a unit of a Mutual Fund
specified in S. 10(23D), the asset shall be
held by the ‘A’ for not more than twelve
months immediately before the date of its
transfer.
As per Expln. 1 to S. 2(42A), in computing the
period of holding of a capital asset by an
assessee.
(iv) in the case of a share held in a company
in liquidation, the period subsequent to
the date on which the company goes into
liquidation shall be excluded.
(v) in the case of a capital asset becoming
the property of the assessee in any one of
the modes specified in S. 49(1), the
period for which the previous owner held
the asset should be included.
(iii) if the assessee acquires share or shares
in amalgamated company which is an
Indian company by virtue of his holding
shares in amalgamating company under a
scheme of amalgamation referred to in S.
47(vii), the period for which the share or
shares were held by the assessee in
amalgamating company shall be included.
(iv) In the case of right shares, whether
subscribed by the assessee entitled to it by
virtue of his existing shareholding in the
company or where the rights are renounced
to him by an existing shareholder, the
period of holding shall be reckoned from the
date of allotment of right shares.
(v) in the case of rights, where the assessee
renounces his rights in favour of any other
person, the period of holding of the rights
shall be reckoned from the date of offer of
such right by the company.
(vi) in the case of bonus shares, the period
shall be reckoned from the date of allotment
of the bonus shares.
(vii) in the case of a capital asset, being a
share or shares in an Indian company,
which becomes the property of the
assessee in consideration of a demerger,
there shall be included the period for which
the share or shares held in the demerged
company were held by the assessee.
Decisions –
(2) Where the ‘A’ held certain shares in a co.
by virtue of which a right of occupancy in
a flat is conferred on him, these shares
cannot be treated as a share referred to
in S. 2(42A). The period applicable for
S.T.C.A. shall be 36 months.
ITO v. Nayana K. Shah 74 ITR
419(Mum.)
(2) On conversion of debentures into shares,
the period of holding of shares
commences from the date of conversion.
Mrs. A. Ghosh v. CIT 141 ITR 45 (Cal.)
Consider the position after insertion of clause
(x) in S.47 and sub-section 2A to S.49.
(3) The ‘A’ agreed to purchase an immovable
prop. on 18.4.81 - agreement executed.
Another agreement dated 30.3.’91- it
agreed to give up its right to purchase the
prop. for a consideration of Rs. 1.70 crores.
The gain – L.T.C.G.
Ponds (India) Ltd. v. CIT 59 TTJ 560 (Mum.)
(4) Land acquired and build. constructed
subsequently. The period of holding of land
to be computed from the date of its
acquisition and that of build. from the date
of completion of construction.
CIT v. Vimal Chand Golecha 201 ITR 442
(Raj.)
ACIT v. Sekhar Gupta 79 ITD 192 (Cal.)
(5) Gold received on maturity of Gold Bonds.
The period of holding of such gold to be
computed from the date of acquisition of
gold on maturity of bonds.
Circular No. 415 dated 14.3.’85.
Slump Sale S. 2(42C) –
“Slump sale” means the transfer of one or
more undertakings as a result of the sale for
a lump sum consideration without values
being assigned to the individual assets and
liabilities in such sales.
For the purposes of this clause, “undertaking”
shall have the meaning assigned to it in
Explanation 1 to S. 2(19AA).
For the removal of doubts, it is hereby
declared that the determination of the value
of an asset or liability for the sole purpose of
payment of stamp duty, registration fees or
other similar taxes or fees shall not be
regarded as assignment of values to
Individual assets or liabilities.
Transfer S. 2(47) –
Transfer in relation to a capital asset, includes
(i) the sale, exchange or relinquishment of the
asset or
(ii) the exstinguishment of any rights therein
or
(iii) the compulsory acquisition of the capital
asset under any law or
(iv) where the asset is converted by the owner
of the asset into or is treated by him as
stock-in-trade of a business carried on by
him, such conversion or treatment, or
(v) any transaction involving the allowing of
the possession of any immovable property
to be taken or retained in part performance
of a contract of the nature referred to in S.
53A of the Transfer of Property Act, 1882,
(vi) any transaction, by way of becoming a
member of or acquiring shares in a co-
operative society, company or other A.O.P.
or by way of any agreement or any
arrangement or in any other manner which
has the effect of transferring or enabling the
enjoyment of any immovable property.
Realignment of interest by way of effecting
family arrangement among the family
members would not amount to transfer.
CIT v. Al. Ramanathan 245 ITR 494 (Mad.)

Transactions not regarded as Transfer S. 47

–
(vii) Any distribution of capital assets on the
total or partial partition of a Hindu
Undivided Family
(iii) any transfer of a capital asset under a gift,
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 the
Employees’ stock Option Plan or Scheme.
(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 its holding company
if (i) the whole of the share capital of the
subsidiary company is held by the holding
company and (ii) the holding company is
an Indian company
(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, of a capital asset being a
share or shares held in an Indian company,
under a scheme of amalgamation, by the
amalgamating foreign company to the
amalgamated foreign company, if
(a) atleast 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 gain 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 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 op.
bank to a successor co op. 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 op. bank if the transfer is made
in consideration of the allotment to him of any
share or shares in the successor co op. bank,
(vid) any transfer or issue by the resulting co.,
in a scheme of demerger to the
shareholders of the demerged co. 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 co., in consideration of
the allotment of any share or shares to him
in the amalgamated co., if the amalgamated
co. is an Indian co..
 (a) the transfer is made in consideration of
the allotment to him of any share or shares
in the amalgamated company; and
(b) the amalgamated company is an Indian
company;
(viia) any transfer of a capital asset being
bonds or shares referred to in sub-section
(1) of section 115AC made outside India by
a non-resident to another non-resident.
(viii) Any transfer of agricultural land in India,
effected before 1st March, 1970;
(ix) any transfer of a capital asset, being work
of art, archeological, scientific or art
collection, book, manuscript, drawing,
painting, photograph or print, to the
Government, University, 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) any transfer by way of conversion of
bonds, debentures, debenture-stock or
deposit certificates in any form, of a
company into shares or debentures of that
company.
(xi) Any transfer made on or before 31st
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.
However, if the shares allotted to the
transferor are transferred by him within 3
years from the date of transfer of a capital
asset being membership of a recognised
stock exchange, the profits and gains not
charged to tax u/s. 45 by virtue of this
clause shall be deemed to be the income
chargeable under the head Capital Gains of
the previous year in which such shares are
transferred S. 47A(2).
(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 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 10 of that Act and ending with the
P.Y. 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.
(xiii) any transfer of 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
succession.
(b) 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 succession.
 (e) the 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 SEBI.
(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
SEBI.
(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 transfers any
capital asset or intangible asset to the
company :
Provided that –
(a) all the assets and liabilities of sole
proprietary concern relating to the business
immediately before 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 be such for a
period of five years from the date of
succession; and
(c) the sole proprietor does not receive any
consideration or benefit directly or indirectly
in any manner other than by allotment of
shares in the company.
If any of the conditions laid down in the
proviso to clause (xiii) or clause (xiv) above
are not complied with, the profit or gain from
the transfer of such capital asset or
intangible asset not charged to tax u/s. 45
by virtue of clause (xiii) or (xiv) above shall
be deemed to be the profits and gains
chargeable to tax of the successor company
for the Previous year in which the conditions
of the proviso to clause (xiii) or (xiv) are not
complied with 47A(3).
(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.
Some Decisions –
(2) When cap. Assets are mortgaged, transfer
does not take place.
Ghanshyamdas Kishan Chander v. CIT
121 ITR 121 (A.P.)
(2) Consideration received for foregoing right
to sue is not transfer of a cap. asset.
Bharat Forge Co. Ltd. v. CIT 205 ITR 339
(Bom.)
(3) Where the ‘A’ has obtained decree from
the court for recovery of advance and he
wrote off a part of the debt. remaining
unrecovered, it was held that w/o. was not
under an agreement and the decree had not
become time barred. Therefore, loss arising
on such write off cannot be set off as cap.
loss against any cap. gain.
C.A. Natarajan v. CIT 92 ITR 347 (Mad.)
(4) The ‘A’ who obtained lease of Govt. plot of
land and import licence, but abandoned the
project as the cost of the project shot up
steeply, relinquished his rights in lease
agreement and industrial licence. It was
held that lease and industrial licence, both
were cap. assets and hence the cost of
cancelled licence was allowed as cap. Loss.
CIT v. A. R. Damodar Mudaliar & Co. 119
ITR 583 (Mad.)
(5) Reduction of share cap. amounts to transfer.
Kartikeya v. Sarabhai v. CIT 228 ITR 163
(S.C.)
(6) Redemption of pref. share cap. amounts to
transfer.
Anarkali Sarabhai v. CIT 224 ITR 422 (S.C.)
(7) Liquidated damages received by the ‘A’ from the
co. not having marketable title was held not to be
cap. gain as the ‘A’ had right to sue which is not a
cap asset & is not transferable.
CIT v Ashoka Marketing Ltd. 164 ITR 664 (Cal)
(8) Shares given to wife consequent upon
agreement to live apart is transfer. However, no
cap gain arises as no consideration in terms of
monetary benefit is received by the ‘A’.
CIT v Manekraje Pawar (H. H.) Maharani 219
ITR 577 (M.P.)
(9) Date of transfer of shares- Circular No. 704
dated 28th Apr.,1995.
(10) Transfer of Immovable & Movable Property-
when compete?
Alapati Venkataramaiah v CIT 57 ITR 185 (S.C.)