Section 45(1) — the law in short
What the courts have decided on section 45(1), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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CIT v Ghanshyam (HUF)
Supreme CourtHelps department
The court enhanced my acquisition compensation with interest. Which year is it taxed, and is the interest capital?
Interest awarded under s.28 of the Land Acquisition Act, 1894 is part of the amount of compensation; interest under s.34 is not, because it is only compensation for delay in paying a sum already determined. The additional amount under s.23(1A) and the solatium under s.23(2) are likewise part of enhanced compensation, and the whole of it — including s.28 interest — is taxed under s.45(5) in the year of receipt, even where the claimant has withdrawn it against security while the Revenue's or the State's appeal is pending.
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CIT v Texspin Engg & Mfg Works
High CourtHelps taxpayer
My partnership firm became a limited company under Part IX of the Companies Act. The Assessing Officer wants capital gains tax on the market value of the assets. Is that right?
No, on the law as it stood for assessment year 1996-97. The Bombay High Court held that section 45(4) needs a transfer by way of distribution of capital assets, and statutory vesting on a Part IX conversion is not distribution: vesting takes the properties across as they stand, while distribution presupposes division, realisation and appropriation. Section 45(1) also failed, both because a firm treated as a company is a case of transmission with no counterparty and no incoming consideration, and because even if there were a transfer, full value of consideration in section 48 means what the transferor gets, not the market value of what he parts with.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.
