Section 45

Section 45 — the law in short

What the courts have decided on section 45, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Jindal Equipment Leasing Consultancy Services Ltd v CIT Supreme CourtCuts both ways
  My client held shares of the amalgamating company as stock-in-trade and received shares of the amalgamated company under the court-sanctioned scheme. Is there business income at that point, or only when those shares are sold?
  It depends. Section 28 does not require a sale, an exchange or a transfer - business profit can be realised in kind - so the substitution of shares on an amalgamation can be charged as business income where shares held as stock-in-trade are replaced by shares that are freely realisable and capable of definite valuation. It is not automatic: the Court laid down a fact-sensitive test of commercial realisability, put the burden of establishing it on the Revenue, and held that the charge is attracted only on allotment of the new shares and not on the appointed date or the date the scheme is sanctioned. The Delhi High Court's judgment was affirmed and the matter remitted to the Tribunal to decide, on the facts, whether the shares were stock-in-trade at all and whether what was received was freely realisable.
• PCIT v Jupiter Capital P Ltd Supreme CourtHelps taxpayer
  The company reduced its capital and my shareholding fell. I got a small payout and a large loss. Is that a transfer at all?
  Yes. A reduction of share capital extinguishes part of the shareholder's rights in the shares, and that is a transfer within s.2(47) even though the face value per share is unchanged and the shareholder still holds shares. The resulting long-term capital loss of Rs 164.48 crores was allowed and the Revenue's petition was dismissed.
• Shiv Raj Gupta v CIT Supreme CourtHelps taxpayer
  I sold my controlling stake and separately took a large non-compete fee. Can the department call the covenant a sham and tax the fee?
  Not on these facts, and not for the year in question. The Supreme Court allowed the assessee's appeal and set aside the Delhi High Court's judgment. It held the High Court had gone outside the substantial question of law it framed, contrary to section 260A(4), by taxing the Rs 6.6 crore as capital gain when the only question framed was taxability under section 28(ii)(a). On the merits, the revenue has no business to second guess the commercial expediency of what parties at arm's length decide, and following Guffic Chem, a receipt under a negative covenant was a capital receipt not taxable before section 28(va) took effect on 1 April 2003.
• CIT v Balbir Singh Maini Supreme CourtHelps taxpayer
  Our JDA was never registered and the project collapsed. Am I still taxed on capital gains?
  No. After the 2001 amendment to the Transfer of Property Act, a s.53A contract has no effect in law unless registered, so an unregistered JDA is not a transfer under s.2(47)(v); s.2(47)(vi) was not attracted either because the owners kept ownership. Independently, with the permissions never obtained, no enforceable right to receive income accrued and the gain was hypothetical.
• Sanjeev Lal v CIT Supreme CourtHelps taxpayer
  A court order delayed my sale deed. Does my s.54 exemption run from the agreement to sell?
  Yes. Executing the agreement to sell itself extinguished rights in the property and created rights in the vendee, which answers the definition of transfer in s.2(47), so that date governs. Section 54 relief could not be denied where a court restraint the assessee could not violate delayed the registered deed, and the new house had been bought within a year of the agreement.
• PNB Finance Ltd v CIT Supreme CourtHelps taxpayer
  My whole business was taken over for one lump sum with no item-wise breakup and I cannot work out what the undertaking cost me. Can the Department still tax me on capital gains?
  No, not on those facts and not for years before section 50B. The Supreme Court held that where a business undertaking is transferred as a going concern for a composite price, the capital asset transferred is the undertaking itself, which includes intangibles such as goodwill, tenancy rights, manpower and the value of a banking licence whose cost is not determinable. Since the consideration could not be earmarked item-wise and no cost of acquisition could be found, the computation provisions failed, and on B.C. Srinivasa Setty the case fell outside section 45 altogether. Compensation of Rs 10.20 crore was not taxable.
• CIT v D.P. Sandu Bros. Chembur (P) Ltd Supreme CourtHelps taxpayerSuperseded by amendment
  The landlord paid my company to give up its tenancy. Is that taxable, and if it cannot be computed as a capital gain can the officer tax it as a casual receipt instead?
  No — he cannot move it to another head. A tenancy right is a capital asset and its surrender is a transfer, so s.45 is the only head that can reach the consideration. For assessment year 1987-88 the Court held the receipt escaped tax altogether because the cost of acquiring the tenancy could not be ascertained and s.48 therefore could not be worked, and it refused to let the department bring the same receipt back under s.10(3) read with s.56. Section 55(2) was amended with effect from 1 April 1995 to supply a cost of acquisition for a tenancy right, so the computation gap this case turned on is closed for later years — the head-of-income holding is what survives.
• CIT v Attili N. Rao Supreme CourtHelps department
  My mortgaged property was auctioned and the department kept what I owed it out of the proceeds. Do I pay capital gains on the whole price or only on what reached me?
  On the whole price. The Supreme Court allowed the Revenue's appeal and set aside the High Court and the Tribunal. What the State sold at the auction was the immovable property belonging to the assessee, so the price realised belonged to him. Out of that price the State deducted the dues owed to it and paid over the balance. The capital gain is therefore computed on the full price realised, less the admitted deductions. The Tribunal's view - that the sale price had two components and that the part answering the mortgage debt reached the Government by overriding title and never reached the assessee - was held to be wrong.
• CIT v Grace Collis Supreme CourtHelps department
  My shares in the amalgamating company simply ceased to exist on the merger. Is that a transfer at all?
  Yes. The words 'extinguishment of any rights therein' in s.2(47) are not confined to an extinguishment brought about by a transfer; they cover extinguishment of rights in a capital asset independently of and otherwise than on account of a transfer. On amalgamation the shareholder's rights in his shares in the amalgamating company stand extinguished, and that is a transfer.
• Travancore Rubber and Tea Co Ltd v CIT Supreme CourtHelps taxpayerSuperseded by amendment
  A buyer defaulted and I forfeited his earnest money and advance on a sale of a capital asset that never went through. Is the forfeited money taxable income?
  No, on the law as it then stood. The Supreme Court held that money received as advance or earnest on the proposed sale of a capital asset is a capital receipt, and the cancellation of the sale is not a subsequent event that changes its character. Section 51 confirms this: advance or other money received and retained on an earlier negotiation for transfer is deducted from the cost of acquisition when the asset is eventually sold. The distinction between earnest money and advance loses its significance, because section 51 covers 'other money' as well. The appeals were allowed.
• CIT v G. Narasimhan Supreme CourtCuts both ways
  My company reduced its share capital and paid me cash and property for the reduction. Is that dividend, capital gains, or both?
  Both, in that order. The Supreme Court held that what a company distributes on a reduction of capital splits into two components. So much as can be correlated with its accumulated profits, capitalised or not, is deemed dividend under section 2(22)(d) and is taxed as income. Only the excess over accumulated profits is a capital receipt, from which the cost of acquiring the extinguished portion of the shareholding is deducted to find any capital gain. The Court also held that a loan already taxed as deemed dividend under section 2(22)(e) reduces the company's accumulated profits.
• Kartikeya V. Sarabhai v CIT Supreme CourtHelps department
  The company reduced the face value of my preference shares and paid me the difference in cash. I still hold the shares, so is there any transfer to tax?
  Yes. The Supreme Court held that reducing the face value of a share and paying the holder off extinguishes part of his rights as a shareholder, and extinguishment of any rights in a capital asset is a transfer under section 2(47). It does not matter that he continues to hold the shares, and it does not matter that there was no sale: sale is only one of the modes of transfer the definition covers. His right to dividend, his right to share in the net assets on liquidation, and the weight of his vote on a poll all fell proportionately. The capital gain was chargeable under section 45.
• V.S.M.R. Jagadishchandran v CIT Supreme CourtHelps department
  I sold a property and the buyer paid off my mortgage out of the price. Can I deduct that repayment as cost of acquisition, or is it a diversion at source?
  Neither. The Supreme Court held that where the assessee created the mortgage himself, discharging it out of the sale proceeds is not cost of acquisition, not cost of improvement and not a diversion of income by overriding title. The owner mortgaged what was already his, so he acquires nothing by paying the mortgagee off. The Court distinguished the case of a mortgage created by a previous owner, where the successor takes only the mortgagor's interest and by clearing the debt acquires the mortgagee's interest, which is deductible under section 48. The appeal was dismissed.
• CIT v Artex Manufacturing Co Supreme CourtCuts both ways
  I sold my firm's business to a company as a going concern for one lump sum. Is the surplus on plant and machinery still taxable as a balancing charge?
  Yes, on these facts. The Supreme Court held that a slump sale does not by itself keep section 41(2) out. What matters is whether a price can be attributed to the depreciable assets. Here the assessee had told the Income-tax Officer that the consideration was arrived at by taking the plant, machinery and dead stock at a valuer's figure of Rs 15,87,296, so a value was attributable even though the agreement did not mention one. But the balancing charge is capped at the difference between written down value and actual cost; any excess is capital gain. That computation went back to the Tribunal.
• CIT v Electric Control Gear Mfg Co Supreme CourtCuts both waysSuperseded by amendment
  We sold our entire business to a company as a going concern for one lump sum — can the Assessing Officer bring the depreciation allowed earlier to tax under section 41(2)?
  No, not on these facts. The Supreme Court held that where a firm transfers the entire assets of its business with liabilities as a going concern for a lump sum, and nothing indicates the price attributable to machinery, plant or building out of that consideration, section 41(2) cannot be applied. The fact that a given sum had been allowed as depreciation does not show that it is the excess of price over written down value. The Court affirmed the High Court on that question and on the assessee's status as a registered firm, but reversed it on the circulars question, which was answered for the Revenue. The appeal was partly allowed.
• Anarkali Sarabhai v CIT Supreme CourtHelps department
  The company redeemed my preference shares and paid me the face value. Is that a transfer, or just a repayment?
  It is a transfer. When a company redeems its preference shares the shareholder has to give up, abandon or surrender the shares in order to get the money, which is a relinquishment; and in substance the shareholder sells the shares to the company. The gain is chargeable under s.45.
• Vania Silk Mills (P) Ltd v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  My machinery was destroyed in a fire and I received an insurance settlement larger than what the machinery cost me. Is the excess taxable as capital gains?
  No, on the law as it then stood. The Supreme Court held that money received under an insurance claim for the destruction of a capital asset is not received on a transfer, so section 45 was not attracted. A transfer, in any of the modes then listed in section 2(47), presupposes that the asset exists; unless the asset exists in fact there can be no transfer of it. Destruction ends the owner's rights, but by the disappearance of the asset, not by transfer. An extinguishment of rights not brought about by a transfer falls outside section 45. The appeal was allowed.
• CIT v H. Holck Larsen Supreme CourtHelps taxpayer
  I subscribed to rights issues in my own company and sold shares often to fund the calls. Does the frequency make me a dealer in shares rather than an investor?
  Not on these facts. The Supreme Court upheld the High Court's conclusion that the assessee remained an investor. Whether a man is a dealer or an investor is a mixed question of law and fact: the Tribunal's primary findings bind, but its inference can be reviewed if it misdirected itself in law or failed to consider relevant factors in their proper perspective. Here the Tribunal noted, but did not weigh, that rights shares depreciate the original holding, that the assessee was Chairman and his non-subscription would have hurt the market, and that he needed money for an overdraft and a house in Denmark. His conduct was that of a prudent investor, not a plunge into the waters of trade.
• Sunil Siddharthbhai v CIT Supreme CourtCuts both waysSuperseded by amendment
  I brought my shares into a partnership firm as my capital contribution and the firm credited my account at market value. Am I taxable on capital gains on the appreciation?
  No, on the law as it then stood, though for a reason narrower than the taxpayer wanted. The Supreme Court held there was a transfer: the definition in section 2(47) is inclusive, and a partner who brings a personal asset into the firm reduces his exclusive interest to a shared interest, which is a transfer of interest even though it is not a sale. But no capital gain arose. The consideration is only the right to a share of profits and, on dissolution or retirement, to the value of a share in the net assets; the credit in the capital account is a notional figure, not the true consideration. As it cannot be valued under section 48, the case falls outside section 45 altogether.
• K.P. Varghese v ITO Supreme CourtHelps taxpayerSuperseded by amendment
  The AO says I sold below market value and wants to tax the difference. Can he do that?
  Not on the gap alone. Section 52(2) applied only where the consideration had actually been understated; a difference of more than fifteen per cent between fair market value and the declared price was not by itself enough, and the burden of establishing actual understatement lay on the Revenue.
• CIT v B.C. Srinivasa Setty Supreme CourtHelps taxpayerSuperseded by amendment
  We sold the goodwill our own firm built up over the years. It cost us nothing to acquire. Is the price taxable as a capital gain?
  No, on the law as it stood. The Supreme Court held that the goodwill generated in a newly commenced business is not an asset within section 45, so its transfer is not chargeable under capital gains. Section 48 contemplates an asset in whose acquisition a cost can be envisaged, and no cost element can be identified in self-generated goodwill; nor can the date of its acquisition be fixed, which the computation provisions also require. Charge and computation form an integrated code, and where the computation provisions cannot apply at all, the case was never intended to fall within the charge.
• H H Maharaja Rana Hemant Singhji v CIT Supreme CourtHelps department
  We sold gold sovereigns and silver coins that the family used at puja. Were they personal effects, outside capital gains?
  No. The exclusion for personal effects requires an intimate connection between the article and the person of the assessee - articles meant for personal use. Sovereigns and silver coins customarily used for puja and other ritual purposes are not effects meant for personal use, so they were capital assets and the gain on them could not be excluded.
• Kale v Deputy Director of Consolidation Supreme CourtHelps taxpayer
  Our family settled a property dispute orally and only filed a memorandum with the authorities. Someone now says the settlement is void because it was never registered. Is it?
  No. The Supreme Court upheld an oral family arrangement of 1956 that had been acted on for seven years. Because the settlement itself was oral and the petition later filed before the Assistant Commissioner was only a memorandum for the information of the court, it created no rights in immovable property and did not require registration under section 17(1)(b) of the Registration Act. A party who took benefit under the arrangement cannot afterwards resile from it. The Court also held that a party with no subsisting legal title can still be a party, because antecedent title is assumed where the others relinquish in his favour.
• CIT v Gillanders Arbuthnot & Co Ltd Supreme CourtCuts both ways
  I sold shares to a company I control for an agreed price and took the company's own shares, at face value, in satisfaction. Can the officer compute my capital gain on what those shares were really worth?
  No, on these facts. The Supreme Court held that where the transaction is a sale for a price, the full value of the consideration is the price bargained for, not the market value of what was received in satisfaction of it. The agreement said the partners would sell and the company would purchase for Rs 75 lakhs; the clause allotting shares merely provided the mode of satisfying that price. That the firm gained by taking shares issued at face value did not turn the sale into an exchange. Market value can be substituted only where the first proviso applies, and it did not.
• Sevantilal Maneklal Sheth v CIT Supreme CourtHelps department
  I gifted shares to my wife years ago. She has now sold them at a profit. Is that capital gain clubbed with my income, or is it only the dividends that come back to me?
  It is clubbed. The Supreme Court held that the capital gain of Rs 70,860 made by the wife on selling shares her husband had gifted her was income arising to her from assets transferred by him, and fell within section 16(3)(a)(iii) of the 1922 Act. There is no logical distinction between income arising from the transferred asset and income arising from its sale: the gain springs from the asset, the operation that produces it being sale rather than investment. Although capital gains were not within the definition of income when the clubbing provision was enacted in 1937, they were brought in later and the word must be read as amended.
• CIT v Dewas Cine Corporation Supreme CourtHelps taxpayer
  Our firm dissolved and each partner took back the building he had brought in. The officer says the firm sold it to him and wants to tax the depreciation back. Is that a sale?
  No. The Supreme Court held that the return of the two cinema theatres to the partners who had brought them in was not a sale, so the balancing charge under the second proviso to section 10(2)(vii) of the 1922 Act did not apply. Property brought into a firm becomes the firm's property, and on dissolution a partner is entitled to have it applied in paying the firm's debts and to share in the surplus. The distribution of that surplus adjusts the rights of the partners; it is not a transfer. Sale in its ordinary sense is a transfer of property for a price, and this was neither.
• CIT v George Henderson & Co Ltd Supreme CourtCuts both ways
  I sold shares well below market value. Can the officer compute my capital gain on the market price instead of the price I actually received?
  Not under the general computation provision. The Supreme Court held that the consideration for a transfer is what the transferor receives in lieu of the asset he parts with, so the asset transferred cannot itself be the consideration. Full value of the consideration therefore means the whole price bargained for, without deduction, and has no necessary reference to the market value of the asset or to the adequacy of the price. Market value can be substituted only where a deeming provision says so - here a proviso requiring both a connection between the parties and an object of avoiding liability, conditions the Revenue conceded were not met.
• Miss Dhun Dadabhoy Kapadia v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  I sold my rights entitlement in a rights issue and my old shares fell in value the same week. Must I pay capital gains tax on the whole sale price of the rights?
  No. The Supreme Court held that the net capital gain on renouncing a right to take new shares is the amount realised less the depreciation in the value of the original holding caused by the issue. The assessee sold rights over 710 Tata Iron and Steel shares for Rs 45,262.50 while her old shares fell from Rs 253 to Rs 198.75, a fall of Rs 54.25 a share. That fall, of a little over Rs 37,630, had to be deducted. The High Court's view that principles of accountancy do not apply to a tax computation was rejected.
• CIT v Mugneeram Bangur & Co Supreme CourtHelps taxpayerValidity unconfirmed
  We sold our land development business as a going concern for a lump sum, and the schedule to the agreement showed a figure for land. Can the officer tax a profit on the land as stock-in-trade?
  No. The Supreme Court held that the sale was of the whole concern and that no part of the slump price was attributable to the cost of the land, so no part of it was taxable. The firm was not carrying on a business of purely buying and selling land; it bought land, developed it and sold it, and the agreement itself recorded liabilities for roads, drains, sanitation, electricity and a school. The figure for land in the schedule was the cost price as it stood in the books, and there was no evidence of any attempt to value the land at the date of sale.
• Alapati Venkataramiah v CIT Supreme CourtHelps taxpayerValidity unconfirmed
  I handed over possession of my factory and the buyer credited me with the price, but the sale deed came much later. In which year did I make the capital gain?
  In the year the conveyance was executed and registered, not the year possession changed hands. The Supreme Court held that title to the machinery, electrical fittings, buildings and site could not pass to the company until a conveyance was executed and registered, and none was before 1 April 1948. Transfer in the capital gains provision means an effective conveyance of the asset; delivery of possession of immovable property is not by itself equivalent to a conveyance. Entries in the books of the assessee and the company were irrelevant to fixing the date. Only the furniture, title to which passes by delivery, was transferred in time.
• CIT v Dalmia Investment Co Ltd Supreme CourtCuts both waysPartly overruled — read this first
  I received bonus shares and later sold my holding. What is the cost of the bonus shares: face value, nil, or something else?
  Something else. By a majority the Supreme Court rejected both extremes. Face value is wrong, because a bonus share is not a voucher for the amount on its face and nothing was paid for it. Nil is also wrong, because on the issue of bonus shares there is an instant loss in the value of the original holding: the earning capacity of the capital is unchanged, dividends per share fall, and the market price moves accordingly. The correct course, where the bonus shares rank pari passu with the old, is to spread the cost of the original shares over the old and the new taken together. On that basis the cost of Rs 5,84,283 was spread over 31,909 old and 31,909 bonus shares.
• Krishnagopal B Nangpal v DCIT High CourtHelps taxpayerSuperseded by amendment
  I put the whole capital gain from one flat into several houses. For years before assessment year 2015-16, does s.54 allow that?
  Yes. The Bombay High Court held that the words 'a residential house' in s.54(1) as it stood before 1 April 2015 were descriptive of the nature of the asset and did not restrict the number of houses that could be bought. The assessee sold a flat in Mumbai and invested the proceeds in seven row houses at Pune under a joint venture agreement, and the exemption was allowed against the entire capital gain of Rs. 1,08,30,625. The Court agreed with the Karnataka High Court in Arun K. Thiagarajan and the Madras High Court in Tilokchand and Sons, and reasoned that if the restriction to one house had already been in the unamended provision there would have been no need for the 2014 amendment to insert the word 'one'. That amendment took effect from 1 April 2015, and from assessment year 2015-16 the position is the opposite.
• Manjeet Singh Chawla v Dy CIT (TDS) High CourtHelps taxpayerValidity unconfirmed
  If the payment for the fall in option value is not salary, is it capital gains?
  On this decision, neither. The Karnataka High Court held that compensation for the diminution in value of stock options that were never exercised is a capital receipt not chargeable under any head, and quashed the order rejecting the employee's application for a nil withholding certificate.
• Gopal Vazirani v Principal Commissioner of Income Tax High CourtHelps taxpayerUnder appeal
  The Commissioner says the proviso to section 240 shows that returned income is sacrosanct, so he cannot give my client a refund below what he himself returned. Is that right?
  No. The proviso to section 240 bites only in the two situations it describes — an assessment set aside or cancelled with a fresh assessment directed, and an assessment annulled — and says nothing about a case where neither has happened. There is no provision in the Act denying a refund of excess tax where the income ultimately assessable is less than the returned income; an assessee can be asked to pay only such tax as is legally due and nothing more.
• PCIT v Redington (India) Ltd High CourtHelps department
  Our company transferred shares to a group entity without consideration. Is that a gift outside capital gains under s.47(iii)?
  No, not on these facts. A transfer without a price is not automatically a gift. The Court applied s.122 of the Transfer of Property Act and found neither of the two essentials - the transfer was not voluntary, and it was made for consideration in the shape of the private equity investment the restructuring was built around. The transfer therefore attracted s.45 and was chargeable as capital gains.
• CIT v Vummudi Amarendran High CourtHelps taxpayer
  The circle rate rose between our agreement and the sale deed, and my year is earlier than the proviso. Is there a High Court holding on the agreement-date proviso?
  Yes. The Madras High Court dismissed the department's appeal where the agreement fixing the price at Rs. 19 crores was dated 4 August 2012 and the sale deed was registered on 2 May 2013, by which time the guideline value stood at Rs. 27 crores. It held two things: an Assessing Officer cannot rest a capital gains computation on the State guideline value alone, that value being only a prima facie indication of market value; and the proviso to s.50C(1), inserted to relieve an assessee from undue hardship, is to be taken as retrospective, so it governs a transfer completed before 1 April 2017.
• Navin Jolly v ITO High CourtHelps taxpayer
  The officer says I already owned more than one residential house on the date of transfer, so s.54F is out. Some of those flats are let out for commercial use. Does that count?
  Usage decides it, not the sanction plan. The Karnataka High Court held that in applying the condition in the proviso to s.54F(1) the use to which a property is actually put has to be considered in deciding whether it is residential or commercial. The assessee owned nine flats; the Revenue conceded that seven were sanctioned for commercial purposes, and the remaining two, though sanctioned as residential, were being run as serviced apartments. Those two could not be treated as residential apartments. The Court also held, as an alternative ground, that two apartments of 500 square feet in the same building have to be treated as one residential unit.
• Humayun Suleman Merchant v CCIT High CourtHelps departmentValidity unconfirmed
  I never deposited the unspent sale proceeds in a capital gains account. Can I still claim 54F?
  No, not for the unspent part. Section 54F(4) requires the amount not utilised towards the new house to be deposited in the notified account before the due date under section 139(1), and failure to do so confines the exemption to what was actually spent.
• CIT v Nitish Rameshchandra Chordia High CourtHelps taxpayer
  My land is more than eight kilometres from the municipal limit by road but within eight kilometres as the crow flies. For years before 2014, was it a capital asset?
  No. The Bombay High Court, Nagpur Bench, held that for assessment years before the amendment took effect the distance under section 2(14)(iii)(b) is to be measured by the shortest road distance and not aerially. The amendment prescribing aerial measurement came into force on 1 April 2014 and, as the CBDT circular itself says, applies prospectively from assessment year 2014-15; the very need for the amendment shows there was confusion earlier, and the benefit of that must go to the assessee. Section 11 of the General Clauses Act therefore had no application to assessment year 2009-10. The Revenue's appeals were dismissed.
• Kishorebhai Bhikhabhai Virani v ACIT High CourtHelps departmentValidity unconfirmed
  My client sold two lots of long-term shares in the same year — one at a loss on shares whose gain would have been exempt under s.10(38), the other at a taxable gain. Can the loss be set off against the gain?
  On this Gujarat High Court decision, no. Because s.10(38) keeps the income arising from such a capital asset out of the computation of total income altogether, the loss arising on the same class of asset is likewise not includable, and is therefore not available for set-off under s.70(3) or for carry forward under s.74. The Court rejected the argument that 'income' in s.10(38) does not include 'loss'.
• Gouli Mahadevappa v ITO High CourtCuts both waysSuperseded by amendment
  If the gain is computed on the stamp duty value, can I at least claim s.54F on everything I actually put into the new house?
  Yes, on this authority. Where the capital gain had been assessed on the notional consideration of Rs 36,00,000 substituted under s.50C in place of the Rs 20,00,000 actually received, the Karnataka High Court held that the Rs 24,00,000 the assessee invested in constructing a residential house was available for exemption under s.54F.
• CIT v Manjula J. Shah High CourtHelps taxpayer
  I sold a flat that was gifted to me. Do I index from the gift date or the original purchase?
  From the previous owner's purchase. Under Explanation 1(i)(b) to s.2(42A) the previous owner's holding period is included, and the Bombay High Court held that the same fiction applies to clause (iii) of the Explanation to s.48, so the indexed cost of acquisition is computed from the year the previous owner first held the asset, not the year of the gift.
• Balmukund Acharya v DCIT High CourtHelps taxpayerValidity unconfirmed
  I offered a receipt to tax in my return by mistake and it was never chargeable. Can I still appeal, or am I stuck with what I declared?
  You can still appeal. The Bombay High Court held that the appeal against the intimation was maintainable and restored it to the Commissioner (Appeals) to decide on merits. There is no estoppel against the statute: Article 265 permits tax only by authority of law, and acquiescence cannot deprive a party of relief where tax has been collected without authority. The Assessing Officer was obliged to apply his mind to the facts disclosed in the return and to assess in accordance with the law holding the field, not simply to accept an erroneous offer. For the year in question an intimation under section 143(1) was itself a deemed appealable order.
• CIT v Sardarmal Kothari High CourtHelps taxpayerValidity unconfirmed
  I put the whole sale consideration into land and started building, but the house was not finished when the officer inspected. Do I lose section 54F?
  No. The Madras High Court dismissed the Revenue's appeals and upheld the exemption. The assessees had invested the entire net consideration in the land and then spent large sums on construction, and neither the cost of the land nor the construction expenditure was disputed. The only ground for refusing the exemption was that the houses were not complete when the Assessing Officer visited. That is not the test. The Court held that Circular No. 667 does not support the Revenue's reading that construction must be completed, and it approved the Tribunal's consistent view that it is enough if the assessee establishes that the entire net consideration was invested within the stipulated period.
• CIT v Kay Arr Enterprises High CourtHelps taxpayer
  Our family rearranged shareholdings among ourselves to head off a dispute. Is that a transfer attracting capital gains tax?
  No. The Madras High Court dismissed the Revenue's appeals and held that a realignment of interest by way of a family arrangement is not a transfer, so no capital gains tax arises. The Tribunal had found the rearrangement of shareholdings was a prudent arrangement to avoid possible litigation among family members and to let the major shareholders control the company effectively, and that it was voluntary and not induced by fraud or coercion. The Court held such an arrangement, made to compromise doubtful or disputed rights or to preserve family property, peace and honour, cannot be treated like a dealing between strangers. No substantial question of law arose.
• Chaturbhuj Dwarkadas Kapadia v CIT High CourtCuts both ways
  I signed a development agreement years ago but the builder only got the approvals and paid the last instalment later. Which year do I pay capital gains tax in?
  The year the contract was entered into, if the contract read as a whole passes complete control of the property to the developer. The Bombay High Court held that section 2(47)(v) exists precisely because a development agreement transfers no interest under the general law, so capital gains can fall due before conveyance and even before physical possession. Where the agreement itself contemplates a limited power of attorney letting the developer deal with the property, the date of that agreement fixes the year of chargeability, and what the developer did afterwards is beside the point. On the facts the assessee's appeal was allowed, because the transfer did not fall in assessment year 1996-97.
• CIT v Veekaylal Investment Co P Ltd High CourtHelps department
  My company made a long term capital gain on selling land. Does that gain go into book profit for minimum alternate tax, or can I keep it out as a capital item?
  It goes in. The Bombay High Court held that capital gains must be included in computing book profits under section 115J. Total income under the Act itself includes capital gains under section 45, so there is no reason to leave them out of the book profit computation. Schedule VI to the Companies Act requires a company to disclose in its profit and loss account credits and receipts from non-recurring or exceptional transactions, whatever their character, and profits on transactions not usually undertaken. A capital surplus cannot simply be routed to a capital reserve to keep it out. The Department's appeal was allowed.
• CIT v A.L. Ramanathan High CourtHelps taxpayer
  Our family settled a long-running property dispute by realigning who holds what, with cash passing between the branches. Is that a transfer that attracts capital gains?
  No. The Madras High Court held that a bona fide family arrangement, which merely realigns existing interests among members of the same family, is not a transfer and gives rise to no chargeable capital gain. The arrangement here was reached before panchayatdars to end a family dispute, and the Tribunal had found it voluntary and free of fraud or collusion. The Court applied the principle that family arrangements are governed by rules that do not apply to dealings between strangers. The question referred at the Revenue's instance was answered in favour of the assessee.
• CIT v Siddharth J. Desai High CourtHelps taxpayer
  I sold farmland to a housing society after taking permission to sell it for residential use. Was it still agricultural land, so that no capital gains arise?
  Yes, on these facts. The Gujarat High Court held the land remained agricultural on the date of sale, so the surplus was not chargeable as capital gains. It set out thirteen factors that bear on the question and held that not all will appear in any case and the decision must be reached on a balanced consideration of the totality of circumstances. Here the land was in the revenue records and bore land revenue, had been cultivated for three of the years the assessee held it, lay outside municipal limits in an undeveloped area, and the assessee never obtained permission for non-agricultural use. Both questions were answered for the assessee.
• Pramod Kumar Jain v DCIT ITATHelps taxpayerValidity unconfirmed
  The company bought back my vested options before I exercised them. Salary or capital gains?
  Capital gains, on this order, and on a fact that does real work. The shares of the Singapore parent were not listed, so the assessee could never exercise his options. Section 17(2)(vi) charges the value of a specified security allotted or transferred to the employee and values it on the date the option is exercised; with no exercise and no allotment there was no specified security and no way to value one, so the salary charge failed. The vested option was itself a capital asset - a right to subscribe to shares - and its repurchase was a relinquishment, so the consideration fell under s.45. The Tribunal said in terms that this leaves the ordinary case alone: exercise the option and the perquisite charge applies as usual.
• Ramesh Jaisinghani v DCIT ITATHelps taxpayerSuperseded by amendment
  The officer has taken the cost of my bonus shares as nil and taxed the whole sale price under s.112A. Does the grandfathered value as on 31 January 2018 not apply to bonus shares?
  The Mumbai Tribunal held that it does. Bonus shares on which securities transaction tax has been paid fall within s.55(2)(ac), which is a special computation code for shares eligible under s.112A, and it prevails over the general rule in s.55(2)(aa) that takes the cost of bonus shares as nil. Taking the cost as nil inside the s.112A regime would tax appreciation up to 31 January 2018 and defeat the grandfathering the section was enacted to preserve. On the facts the fair market value as on 31 January 2018, taken at Rs. 500 per share from the assessee's valuation report, was adopted as the cost of acquisition. Read all of this against the amendment the order turns on: the Finance (No. 2) Act, 2024 inserted clause (AA) into Explanation (a)(iii) of s.55(2)(ac), supplying a fair market value for exactly this class of shares - equity shares not listed on 31 January 2018 but listed afterwards, on a sale of unlisted shares under an offer for sale in an initial public offering - and Parliament expressed it to take effect from 1 April 2018, that is retrospectively, from assessment year 2018-19 onwards, which covers the assessment year decided here. Parliament has therefore already legislated over the gap the principal ground relies on. The Tribunal held that insertion substantive rather than clarificatory and so incapable of reaching a transaction already completed; if that characterisation is wrong, the principal ground does not survive. This is a Tribunal decision from October 2025 on a very large sum and its final fate is not known.
• Gokulakrishna v DCIT (ITAT Chennai) ITATHelps taxpayerValidity unconfirmed
  A new partner came into an LLP, my profit share fell and an amount was credited to my current account. Am I taxable on it?
  On this order, for a pre-2021 year, no. The Chennai Tribunal held that where an existing partner does not retire but simply sees his profit-sharing ratio reduced on the admission of a new partner, there is no transfer under s.2(47), because during the subsistence of the firm a partner has no defined share in its assets and nothing is relinquished. The Tribunal also held that the revaluation of the LLP's assets, credited to partners' accounts before the new partner came in, did not by itself give rise to capital gains. It recorded expressly that s.9B and the substituted s.45(4) are prospective and had no application to assessment year 2017-18.
• Raunaq Prakash Jain v ITO ITATHelps taxpayerValidity unconfirmed
  I sold Bitcoin in FY 2020-21, before the VDA regime — capital gains or income from other sources?
  Capital gains, for that year. For AY 2021-22 Bitcoin was a capital asset under s.2(14), so the gain fell under the capital gains head and not s.56, and a holding period of more than three years made it long-term and eligible for s.54F relief on reinvestment in property. This decides only years before the virtual digital asset regime took effect on 1 April 2022; for years inside that regime s.115BBH governs and this answer does not carry across.
• Aditya Balkrishna Shroff v ITO ITATHelps taxpayerValidity unconfirmed
  I lent a relative dollars and the rupee moved. Is the extra rupee amount I got back taxable?
  No, on these facts. The Tribunal held the rupee surplus on repayment of an interest-free loan advanced in foreign currency was a capital receipt: the loan was a transaction in the capital field, exactly the same number of dollars came back, the accretion was on account of exchange fluctuation and not interest, and a capital receipt is outside the charge unless a provision brings it in. It also held that whether the loan was permissible under the exchange control law is not for the income-tax authorities to adjudicate. The addition of Rs 22,04,568 made under income from other sources was deleted.
• Naina Saluja v DCIT ITATHelps taxpayerValidity unconfirmed
  The officer sent my property to the Valuation Officer. Does that give him extra time to finish the assessment?
  No, not where the reference is under s.50C. The extension in clause (iv) of Explanation 1 to s.153 is given only where the Assessing Officer makes a reference to the Valuation Officer under s.142A(1); a reference under s.50C or s.55A does not stop the clock. The assessment, completed after the ordinary period had run out, was quashed as barred by limitation.
• Girdhari Lal v ITO ITATHelps departmentSuperseded by amendment
  The land is recorded as agricultural in the revenue records. Is that enough to keep it outside s.2(14)?
  No. The Tribunal upheld the addition. The land lay within eight kilometres of municipal limits, no crop had been grown on it in the years before sale, and the sale deed itself described it as residential land with structures on it, so it was a capital asset under s.2(14) and s.50C applied to the consideration.
• Amartara Pvt Ltd v DCIT (ITAT Mumbai) ITATHelps taxpayerValidity unconfirmed
  I put land into an LLP as capital. The stamp value is higher than the value the firm recorded. Can the Assessing Officer apply s.50C?
  On this order, no. Section 45(3) itself supplies the deemed full value of consideration for a capital contribution, namely the amount recorded in the books of the firm. The Mumbai Tribunal held that one deeming fiction cannot be extended by importing another, so s.50C cannot be used to replace the book figure with the stamp duty value. The addition made by substituting a stamp value of Rs. 9,41,78,500 for the recorded Rs. 5.60 crores was deleted.
• ITO v Raj Kumar Parashar ITATHelps taxpayer
  The AO substituted the circle rate under s.50C. Does that higher figure also become the net consideration I have to reinvest for s.54F?
  No, on this line of authority. The Jaipur Bench held that the deeming fiction in s.50C is confined to computing capital gains under s.48 and does not carry into s.54F, so 'net consideration' in the Explanation to s.54F is the consideration actually received under the sale deed. The assessee had reinvested the whole of the actual consideration and got the whole gain exempted, even though the gain itself had been computed on the stamp duty value.
• In re Vanenburg Group B.V. Advance RulingHelps taxpayerValidity unconfirmed
  Our Dutch company is moving its Indian subsidiary's shares to another group company in the Netherlands. If the gain is exempt under the treaty, do we still have to withhold, file a return and do a transfer pricing study?
  No, on all four counts. The Authority ruled that no taxable capital gain arose in India on Vanenburg Group B.V.'s proposed transfer of its shares in Cordys R&D (India) Pvt Ltd to Cordys Holding B.V., because article 13(5) of the India-Netherlands agreement leaves such gains taxable in the Netherlands where the transfer is part of a corporate reorganisation and the alienator holds at least ten per cent of the transferee. It followed that the transferee need not withhold under section 195, that no return was required under section 139, and that the transfer pricing provisions in sections 92 to 92F did not apply. The ruling binds only Vanenburg.
• In re Morgan Stanley and Co. International Limited Advance RulingHelps taxpayerSuperseded by amendment
  We are a UK company registered as an FII, trading index and stock futures and options on Indian exchanges through brokers and custodians. Is that income taxable in India?
  No. The Authority ruled that the income derived by Morgan Stanley and Co. International Limited, a UK resident, from trading in exchange-traded derivative instruments in India would not be taxable in India under the India-UK agreement. It held first that income from derivative trading is business income and not capital gains, derivative contracts being excluded from the definition of capital asset. Business profits are taxable in India only through a permanent establishment, and the brokers, custodians and bankers the applicant used were independent agents acting for many clients in the ordinary course of their business, so no permanent establishment arose under article 5. The ruling binds only that applicant.
• In re Fidelity Advisor Series VIII Advance RulingHelps taxpayerSuperseded by amendment
  Our US fund buys and sells Indian shares through local brokers and a custodian bank. Are our gains business profits or capital gains, and does the custodian give us a permanent establishment?
  Business profits, and no permanent establishment - so the fund won. The Authority ruled that the gains arising to Fidelity Advisor Series VIII from sales of its portfolio investments in India were its business profits covered by article 7 of the India-US convention, the shares and securities being held as business assets. It further ruled that the fund had no permanent establishment in India under article 5: it had no branch, office, employee or dependent agent here, and Standard Chartered Bank, its domestic custodian, was an independent agent within paragraph 5 of article 5. Without a permanent establishment the fund was not taxable in India under the convention. The ruling binds only that applicant.
• CBDT Circular 471 CBDT Circulars & InstructionsHelps taxpayer
  Is a flat allotted under a self-financing scheme a purchase or a construction for s.54 and s.54F?
  Construction. The Board decided that allotment of a flat under the Self-Financing Scheme of the D.D.A. is to be treated as a case of construction, not purchase, so the three-year window applies rather than the one-year-before or two-years-after window. In reaching that view the Board recorded that the allottee gets title on the issue of the allotment letter and that paying the instalments and taking possession come afterwards — a sentence that has since done a great deal of work outside s.54 and s.54F.
• Noida Cyber park P Ltd v ITO ITATHelps taxpayerOverruled
  I assigned my leasehold plot for less than the circle rate. Can the officer substitute the stamp duty value under s.50C?
  No, on this Tribunal's reasoning. Section 50C(1) is worded 'land or building or both' and not 'any right in land or building', and the Delhi Tribunal held the two expressions are distinct, so a transfer of leasehold rights in land or building falls outside the section and the stamp duty value cannot be substituted. Read this together with the Bombay High Court decision in Vidarbha Veneere Industries, which has since taken the opposite view.

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.