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 Pvt Ltd Supreme CourtHelps taxpayerNo later treatment found
  My client's shareholding was cut down in a court-approved reduction of capital but the face value stayed the same and his percentage did not change. Can he claim the capital loss?
  Yes. The Supreme Court held that a reduction of share capital of a subsidiary, with a proportionate reduction in the assessee's shareholding, falls squarely within 'sale, exchange or relinquishment of the asset' in s.2(47), so the resulting capital loss is allowable. It is no answer that the face value per share was unchanged or that the percentage of shareholding stayed the same.
• 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.
• Additional Commissioner of Income Tax v Bharat V. Patel Supreme CourtHelps taxpayerSuperseded by amendment
  The Assessing Officer wants to tax what my client received on redemption of stock appreciation rights granted by the foreign parent as a perquisite. Is there Supreme Court authority on this?
  There is, but read the year carefully. For a redemption before 1 April 2000 the Supreme Court held the amount was not taxable: it fell within clause (iiia) of s.17(2), which was inserted by the Finance Act 1999 with effect from 1 April 2000 and was not retrospective, and it could not be forced into s.17(2)(iii) or s.28(iv). The Court held that a receipt must be made taxable before it can be treated as income.
• 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.
• Balakrishnan v Union of India Supreme CourtHelps taxpayer
  My land was notified and an award was made under the Land Acquisition Act, but I thought the award was too low, negotiated a higher figure and executed a sale deed. The Assessing Officer now says that was a voluntary sale and denies s.10(37). Is he right?
  No. Where the whole procedure under the Land Acquisition Act has been followed — notification under s.4, declaration under s.6 and an award under s.9 — the acquisition is a compulsory acquisition, and the fact that the amount of compensation was afterwards settled by negotiation and a sale deed executed does not convert it into a voluntary sale. The Supreme Court allowed the appeal and quashed the s.148 proceedings, and overruled the Kerala High Court's contrary decision in Info Park Kerala.
• 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.
• N. Bagavathy Ammal v CIT Supreme CourtHelps department
  My client received agricultural land from a company in liquidation. Agricultural land is not a capital asset, so is there anything to tax under s.46(2)?
  Yes. The Supreme Court held that the word 'assets' in s.46(2) is not to be read as 'capital assets' as defined in s.2(14). A shareholder who receives assets of any kind on liquidation is chargeable on the market value of those assets on the date of distribution, and the exclusion of agricultural land from the definition of capital asset does not help him.
• 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 ways
  The Assessing Officer says that because depreciation of a known amount was allowed on the assets over the years, that figure must be the excess over written down value and can be taxed. Nothing in our documents allocates the price. Can he do that?
  No. The Supreme Court held that where there is nothing to indicate the price attributable to the machinery, plant or building out of the total consideration, the balancing charge cannot be applied, and the mere fact that a particular sum had been allowed as depreciation does not make that sum the excess between price and written down value. The Revenue's appeal on that question failed.
• 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.
• Smt. Sarifabibi Mohmed Ibrahim v CIT, Gujarat Supreme CourtHelps department
  My land is still entered as agricultural in the revenue records and I have paid land revenue on it right up to the sale. The Assessing Officer says it stopped being agricultural land years ago. Can he do that?
  Yes. Whether land is agricultural land is a question of fact to be decided on a cumulative consideration of all the circumstances, and the revenue entry is only one relevant fact, not a conclusive one. Where the land had not been cultivated for four years, was agreed to be sold to a housing society for building, and permission to sell it for a non-agricultural purpose had been applied for and obtained, the Supreme Court held it was not agricultural land on the date of sale even though it was still recorded as agricultural and land revenue was still being paid.
• Vijay Kumar Budhia v CIT (Supreme Court) — assets received on a company's liquidation are chargeable as capital gains under s.46(2) even though nothing was transferred, and the only deduction the sub-section allows is the s.2(22)(c) dividend Supreme CourtHelps department
  My client received assets, not money, when the company he held shares in was wound up. He says there was no transfer, so there can be no capital gain. Is that argument open to him?
  No — and note at the outset that this is a liquidation case, not a buy-back case, so nothing in it is affected by the 1 October 2024 changeover. The Supreme Court held that even though the money or assets received by a shareholder in liquidation proceedings are not received on account of any transfer of property, Parliament has chosen by s.46(2) to treat the receipt as capital gains, and the value of the assets received was rightly brought to capital gains tax. The Court also fixed the mechanism: the only deduction expressly provided by the sub-section is the amount assessed as dividend within s.2(22)(c), and the sum arrived at after that deduction is deemed to be the full value of the consideration for s.48, which is where the cost of acquisition and the other permissible deductions then come in.
• Vania Silk Mills (P) Ltd v CIT Supreme CourtHelps taxpayerPartly overruled — read this first
  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.
• CIT, Gujarat-II v R.M. Amin (Supreme Court) — a distribution on liquidation is not a transfer within s.2(47), and s.46(2) is itself the charging provision without which no capital gain could be charged at all Supreme CourtHelps taxpayerSuperseded by amendment
  Is a receipt by a shareholder on the winding up of a company a "transfer" that can be charged under section 45 on its own, or does the charge depend entirely on section 46(2)?
  It depends entirely on s.46(2), and this decision — which is about liquidation and not about buy-backs, so the 1 October 2024 changeover does not touch it — is why. The Supreme Court held that when a shareholder receives money or assets on the liquidation of a company he receives them in satisfaction of a right that already belonged to him by virtue of holding the shares, not by any transaction amounting to sale, exchange, relinquishment or transfer, and that this reasoning covers extinguishment of rights in a capital asset as well. It then held that s.46(2) "was enacted both with a view to make shareholders liable for payment of tax on capital gains as well as to prescribe the mode of calculating the capital gains", and that but for that sub-section it would not have been possible to charge capital gains on a liquidation distribution at all. Because s.46(2) then applied only to companies within the s.2(17) definition, and the company in liquidation was a Uganda company outside it, no charge could be sustained and the Revenue's appeal was dismissed with costs.
• 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 taxpayerNo later treatment found
  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 taxpayer
  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 taxpayer
  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 taxpayerHigh Courts differ
  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.
• Pankaj Kumar v CIT (Patna High Court) — section 45(5A) is prospective; a joint development agreement signed before 1 April 2018 is taxed in the year of transfer under section 2(47)(v) High CourtHelps department
  I signed a joint development agreement before April 2018 and the project completion certificate came much later. Can I claim the benefit of section 45(5A) and defer my capital gain to the completion year?
  No. The Patna High Court held that sub-section (5A) of section 45, inserted by the Finance Act 2017 and expressly made effective from 1 April 2018, cannot be treated as retrospective — neither by its express words nor by any necessary intendment. A joint development agreement entered into by an individual or HUF before 1 April 2018 continues to be governed by the pre-amendment law, that is by section 2(47)(v) read with sections 45 and 48, so the gain falls in the previous year in which the transfer was effected.
• 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.
• Mahender Pal Narang v Central Board of Direct Taxes High CourtHelps departmentHigh Courts differ
  For a year after 2010, is the interest I received under s.28 of the Land Acquisition Act still capital gains following Ghanshyam, or has s.56(2)(viii) changed that?
  The Punjab and Haryana High Court held that the insertion of s.56(2)(viii) and s.57(iv) has changed the position, and that interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains. It said in terms that Ghanshyam does not come to the rescue of a claimant seeking to have s.28 interest treated as compensation, and it expressly recorded its disagreement with the Gujarat High Court in Movaliya Bhikhubhai Balabhai.
• CIT v Prakash Electric Company High CourtHelps departmentNo later treatment found
  My firm was converted into a company and the shares were allotted to the partners in phases over three years. Has the s.47(xiii) exemption gone, and if so who pays — the firm or the company?
  Yes, on this High Court's view the exemption goes, and the company pays. Clause (b) of the proviso to s.47(xiii) prescribes no time limit, but the Karnataka High Court held that the allotment must be completed before the end of the previous year in which the succession takes place; a delay of three and a half years is not a 'reasonable period'. Because a condition in the proviso was not complied with, s.47A(3) fixes the capital gains liability on the successor company, not on the erstwhile firm.
• PCIT v Mobisoft Tele Solutions P Ltd High CourtHelps taxpayerNo later treatment found
  My proprietary concern was taken over by a company and the proprietor took some cash as well as shares. The AO is invoking s.47A(3) against the company. Can he, when we never claimed s.47(xiv)?
  No. The Punjab and Haryana High Court held that s.47A applies only if it is established that s.47 was pressed into service; in the absence of any finding that s.47 was invoked to claim exemption from capital gains on the succession, the deeming provision in s.47A(3) cannot be invoked. On the facts, s.47(xiv) had no application at all because the proprietor had received cash consideration of Rs.5,81,231, contrary to proviso (c), and had not received shares as consideration for the brand name.
• PCIT v Ramniwas Ramjivan Kasat — Circular 6/2016 binds the officer on listed shares held over twelve months High CourtHelps taxpayer
  The assessing officer says my client's share gains are business income because he traded frequently. My client held the listed shares for more than twelve months and has always shown them as investment. Does the CBDT circular stop the officer?
  Yes, on the Gujarat High Court's reading it does. Where listed shares and securities have been held for more than twelve months immediately preceding the transfer and the assessee desires to treat the gain as capital gain, clause (b) of the CBDT circular dated 29 February 2016 means the Assessing Officer shall not put that to dispute — the only rider being that the stand taken in one assessment year must be followed in later years.
• Humayun Suleman Merchant v CCIT High CourtHelps departmentNo later treatment found
  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 Sri Vijay Singh Kadan High CourtHelps taxpayerSuperseded by amendment
  The Assessing Officer has measured the 8 km from the municipal limit to the edge of my village, not to my field, and has measured it as the crow flies. Which is right?
  For a year before assessment year 2014-15, neither. The Delhi High Court held that the distance under s.2(14)(iii)(b) had to be measured from the agricultural land itself to the outer limit of the municipality, by road and not by the straight line or aerial route, and dismissed the Revenue's appeal. The measuring-point holding — from the land, not from the village in which the land lies — still stands; the road-versus-aerial holding does not, because the Finance Act 2013 substituted item (b) with effect from assessment year 2014-15 so that the distance is now measured aerially.
• 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.
• ITO v Parikh Transport Co. High CourtHelps taxpayerNo later treatment found
  I sold a building on which depreciation had been claimed in earlier years. The Assessing Officer applies s.50, calls the gain short-term and refuses the bond exemption. Can he?
  Not on this Gujarat decision, for two independent reasons. Section 50 applies only where the asset both is depreciable and forms part of a block of assets, so an asset withdrawn from business use before the block-of-assets scheme began never entered a block and s.50 does not reach it. And in any event the legal fiction in s.50 is confined to the computation of capital gains and cannot cut down s.54EC, which exempts the gain where the assessee invests in the specified asset.
• Kishorebhai Bhikhabhai Virani v ACIT High CourtHelps departmentNo later treatment found
  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'.
• CIT v Avinash Jain — Circular 4/2007 and the assessee who keeps two portfolios High CourtHelps taxpayer
  My client keeps a separate investment portfolio and a separate trading portfolio in shares. The officer says the whole activity is business. Can he do that?
  Not where the two portfolios are genuinely kept and the department has accepted the split in earlier years. The Delhi High Court held that the intent and purport of CBDT Circular 4/2007 is to demonstrate that a taxpayer could have two portfolios, so that gains out of the investment account are capital gains and gains out of the trading account are business profits.
• 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 taxpayer
  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 Rungamatee Trexim — the assessee chooses the order of set-off between STT-paid and non-STT short-term gains High CourtHelps taxpayer
  My client has a short-term capital loss on STT-paid shares and short-term gains of both kinds. The officer set the loss off against the concessionally taxed gains first. Can he insist on that order?
  No. Section 70 prescribes no chronology for set-off, and where the Act gives the assessee an option, the option that favours the assessee is the one to be exercised — so the assessee may set the short-term capital loss off against the gains taxed at the normal rate first and keep the concessionally taxed section 111A gains intact. The Calcutta High Court dismissed the Revenue's appeal against that view, finding no substantial question of law.
• CIT v Sardarmal Kothari High CourtHelps taxpayer
  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.
• CIT v Suresh Chand Goyal High CourtHelps taxpayer
  I inherited agricultural land, got it converted, carved it into plots, laid roads and drains and sold the plots over three years. The Assessing Officer says it is an adventure in the nature of trade. Must the gain be business income?
  Not on these facts. The Madhya Pradesh High Court held that selling one's own land after plotting it out in order to secure a better price is not an adventure in the nature of trade or business, that an isolated transaction can be business only where there is regular activity of purchasing and selling, and that nothing showed the land had been acquired for the purpose of selling it in plots. The Revenue's appeals were dismissed, on that ground and also because the tax effect fell below the CBDT's monetary limit for filing an appeal.
• Premier Automobiles Ltd v ITO High CourtHelps taxpayer
  The Assessing Officer has broken our lump sum into building, plant and paint shop and charged short-term capital gains, relying on the values the buyer later put in its own books. Can he apportion a slump price like that?
  No. The Bombay High Court held that the basic test for a slump sale is continuity of business — whether there was a transfer of a business as a whole — and that on the facts the lump sum of Rs.210 crores was not apportionable to different assets and the individual values were not ascertainable. The buyer's later accounting entries could not be used, and the matter went back for a fresh computation on the footing of a slump sale.
• 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.
• Muniswamappa Ananda v. ITO, Ward 6(1)(1), Bengaluru (ITAT Bangalore) — population and aerial-distance certificates admitted as additional evidence under Rule 29, and the section 2(14)(iii) exclusion applied to delete a Rs 1.28 crore addition ITATHelps taxpayerNo later treatment found
  My client sold inherited farm land, filed no return because he thought it was exempt, and an ex parte assessment has taxed the whole sale consideration. He now has the population and distance certificates. Can he still produce them?
  Yes, and it worked. The Tribunal admitted the population certificate and the distance certificate as additional evidence under Rule 29 of the ITAT Rules because they related to the core issue contested and had not been available before the revenue authorities, condoned a 180-day delay, and held on those documents that the land sold was agricultural land situated beyond the prescribed municipal limits and distance in section 2(14)(iii), so that it did not constitute a "capital asset" and the gain was not chargeable as capital gains under section 45. The addition of Rs 1,28,00,000 made ex parte under section 144 as undisclosed short-term capital gain, and sustained by the Commissioner (Appeals), was deleted and the appeal allowed.
• Pramod Kumar Jain v DCIT ITATHelps taxpayerNo later treatment found
  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.
• ACIT v Lakkanna Durgappa (ITAT Bangalore) — the Revenue cannot use section 45(5A) either: a pre-2018 JDA gain cannot be shifted to the completion-certificate year ITATHelps taxpayerNo later treatment found
  My joint development agreement was signed in 2012 and the completion certificate came in the year under assessment. The Assessing Officer has taxed the whole capital gain in this later year by invoking section 45(5A). Can he?
  No. The Tribunal held that where the JDA was executed and possession handed over in FY 2012-13, the transfer within the meaning of section 2(47)(v) occurred in that year and the gain was chargeable in AY 2013-14 under the law then in force. Section 45(5A), inserted with effect from 1 April 2018, is prospective, so the gain cannot be shifted to AY 2020-21 merely because the completion certificate was received in that year. All four of the Revenue's appeals were dismissed.
• ACIT v Manikandan (ITAT Chennai) — money credited to a continuing partner for his 'sacrificing ratio' is not his capital gain, for years before AY 2021-22 ITATHelps taxpayerSuperseded by amendment
  A new partner came into our LLP and paid in a large sum, part of which was credited to the existing partners' accounts in their sacrificing ratio. The AO has taxed my share of it as short-term capital gain for an old year. Is that right?
  Not for a year before assessment year 2021-22. The Tribunal held that where the existing partners do not retire and merely their profit-sharing ratios are realigned on the admission of a new partner, there is no relinquishment of any share in the firm's assets, no transfer within section 2(47), and therefore no capital gain in the continuing partner's hands. It added that the amendments made by the Finance Act 2021 — the substitution of section 45(4) and the insertion of section 9B — take effect only from assessment year 2021-22 and had no application to the year before it, which was AY 2017-18.
• 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.
• DCIT v Sathyabama Ramachandran — money taken for giving up profit share, and why the 2021 scheme did not reach it ITATHelps taxpayerNo later treatment found
  A partner was paid a large sum when a new partner came in and her profit share fell. The officer has taxed it as goodwill. Is it taxable, and does section 9B or the new section 45(4) apply?
  Not on these facts, and not for a year before AY 2021-22. The Tribunal held that where a new partner is admitted and the existing partners simply realign their profit-sharing ratios, the assets remain with the firm, no partner has any defined share in those assets during the subsistence of the partnership, and there is therefore no relinquishment and no transfer within s.2(47) — so nothing is chargeable under s.45 in the partner's hands, and the receipt is not 'goodwill'. It then recorded expressly that s.9B and the substituted s.45(4) came into force on 1 April 2021 and had no application to the year before it, which was AY 2017-18.
• Gokulakrishna v DCIT (ITAT Chennai) ITATHelps taxpayerNo later treatment found
  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.
• Reckitt Benckiser Healthcare India Pvt Ltd v DCIT ITATHelps department
  Our demerger was sanctioned by the High Court. The AO now says it is not a demerger under s.2(19AA) and has taxed capital gains and dividend distribution tax. Can he go behind the sanctioned scheme?
  Yes, on the tax conditions. The Tribunal held that the legal obligation of the revenue authorities to examine taxability under ss.2(22) and 2(19AA) is not pre-empted by the High Court's sanction of the scheme, and that the assessee had failed to comply with s.2(19AA)(ii) and (iii). A segment whose liabilities were knocked off against its assets, so that only assets and nil liabilities passed to the resulting company, does not satisfy the requirement that all liabilities relatable to the undertaking be transferred.
• Raunaq Prakash Jain v ITO ITATHelps taxpayerNo later treatment found
  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.
• DCIT v Business Excellance Trust — shares that were unlisted when bought fall in the main part of the section 10(38) notification ITATCuts both waysNo later treatment found
  My client bought shares off-market when the company was unlisted, sold them on the exchange after listing and paid STT on the sale. The officer denies section 10(38) because no STT was paid on purchase. Is he right?
  No, on this Tribunal's reasoning. All three carve-out clauses of the notification issued under the third proviso to section 10(38) are about listed equity shares, so a purchase of shares that were unlisted at the time of acquisition falls in the main part of the notification, and the exemption survives even though no STT was paid on acquisition.
• ITO v Bhushan Dharamdas Karia (ITAT Mumbai) — the excess a retiring partner receives is taxed in the firm's hands, not his ITATHelps taxpayerSuperseded by amendment
  I retired from a firm and received a lump sum well above the balance in my capital account. The AO has assessed it as long-term capital gain in my hands and applied section 50C. Is that correct for a pre-2021 year?
  No. The Tribunal held that the amount received by a retiring partner on the reconstitution of a firm is taxable in the hands of the partnership firm and not in the hands of the partner. The partner was never the owner of the firm's assets; on a reconstitution there is simply a revaluation of assets and liabilities so that the retiring partner's capital account can be settled. The revenue's appeal was dismissed and the deletion of the addition in the partner's hands was upheld.
• Aditya Balkrishna Shroff v ITO ITATHelps taxpayerNo later treatment found
  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.
• Trincas Vinimay (P) Ltd v ITO (ITAT Kolkata) — section 50D does not apply where the consideration can be ascertained, even if the transfer document is silent on price ITATHelps taxpayerNo later treatment found
  The transfer documents for my flat booking rights did not state a price, so the Assessing Officer says the consideration is not ascertainable and has substituted fair market value under section 50D. Is silence in the document enough for him to do that?
  No. The Tribunal deleted the section 50D addition because, although the affidavits evidencing the transfer did not mention the consideration, the assessee produced copies of the transferees' accounts showing the amounts agreed, and the same amounts had been used to compute the capital gain declared in the return. Section 50D is engaged only where the consideration is genuinely not ascertainable or cannot be determined, and the authorities could not reach that conclusion without making any enquiry of the transferees.
• Noida Cyber park P Ltd v ITO ITATHelps taxpayerUnder appeal
  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.
• Naina Saluja v DCIT ITATHelps taxpayerNo later treatment found
  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.
• ACIT v Celerity Power LLP ITATHelps taxpayerNo later treatment found
  My company converted into an LLP and never met all the s.47(xiiib) conditions. The AO has taxed the capital gain in the LLP's hands under s.47A(4). Can he do that in the very year of conversion?
  No. s.47A(4) is a withdrawal provision: it operates only to take back an exemption that was actually availed under s.47(xiiib), and cannot be used to test eligibility in the year of the conversion itself. Where the conditions were never satisfied there is a transfer, but the gain is chargeable under s.45 read with s.5 in the hands of the transferor company, not deemed into the successor LLP by s.47A(4) — though the LLP remains exposed as a successor under s.170.
• 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 taxpayerNo later treatment found
  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.
• Deivanayagam Maruthini v. DDIT (International Taxation), Chennai (ITAT Chennai) — bonus shares issued on original shares subscribed to in convertible foreign exchange are themselves a 'foreign exchange asset', so the s.115E concessional rate applies to the gain on selling them ITATHelps taxpayer
  My NRI client subscribed to shares of an Indian company in convertible foreign exchange, later received bonus shares on them, and has now sold only the bonus shares. The assessing officer says bonus shares were not acquired with foreign exchange, so they are not a foreign exchange asset and the concessional rate under section 115E is not available. Is he right?
  No, on this Tribunal's reasoning. It held that there can be no differentiation between the definition of 'foreign exchange asset' as applied to section 115E and as applied to section 115F, and that bonus shares issued on original shares acquired in convertible foreign exchange are covered by section 115C(b) — so the long-term capital gain on selling the bonus shares takes the concessional rate under section 115E. The orders of the lower authorities were set aside and the Assessing Officer was directed to give the assessees the benefit of the concessional rate.
• Bharat Bijlee Ltd v Addl CIT ITATHelps taxpayerSuperseded by amendment
  For an old year still under appeal, my client transferred a division under a scheme and was paid in preference shares and bonds, not money. The Assessing Officer has applied s.50B. Was that right for a pre-2021 year?
  For a year before AY 2021-22, no. The Mumbai Tribunal held that s.2(42C) as it then stood required a transfer 'as a result of the sale', that a sale needs money consideration, and that a transfer of an undertaking in exchange for preference shares and bonds was an exchange and not a sale, so s.2(42C) and s.50B did not apply and the computation provisions failed. For AY 2021-22 onwards this is no longer the law, because s.2(42C) now covers transfer 'by any means'.
• Smt. Trishla Jain v. Dy. CIT (ITAT Delhi) — short-term capital gains derived from a foreign exchange asset fall within 'investment income' in s.115C(c) and take the concessional rate, notwithstanding that s.115E names only long-term capital gains ITATHelps taxpayerNo later treatment found
  My NRI client bought equity shares of an Indian company in convertible foreign exchange and sold them within a year. The assessing officer says section 115E mentions only long-term capital gains, so the short-term gain goes at ordinary rates. Is there any authority the other way?
  Yes. The Tribunal held that a short-term capital gain derived from a foreign exchange asset is income derived from that asset and therefore falls within the definition of 'investment income' in section 115C(c), so the assessee is entitled to the concessional rate under section 115E. It rejected the Revenue's argument that the express mention of long-term capital gains in section 115E excludes short-term gains by necessary implication.
• In re Vanenburg Group B.V. Advance RulingHelps taxpayerNo later treatment found
  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.
• Statutory position — s.47A: the four withdrawals of exemption, the year each is charged and in whose hands, and the amalgamation and demerger clauses it does not touch CBDT Circulars & InstructionsCuts both ways
  Our amalgamation stopped satisfying a condition after the event. Can the department invoke section 47A to take back the section 47(vi) exemption, and if it can, in which year and on whom?
  Section 47A does not reach the amalgamation and demerger clauses at all. It withdraws the exemption in exactly four situations: sub-section (1), where a capital asset transferred under s.47(iv) or (v) — the holding company to wholly-owned subsidiary transfers — is converted into or treated as stock-in-trade, or the whole of the share capital ceases to be held, within eight years; sub-section (2), where shares allotted on a s.47(xi) conversion of a stock exchange membership are transferred within three years; sub-section (3), where a condition in the proviso to s.47(xiii) or (xiv) is broken; and sub-section (4), where a condition in the proviso to s.47(xiiib) is broken. Clauses (vi), (via), (vib), (vic), (vicc), (vid) and (vii) — the amalgamation and demerger exemptions — appear nowhere in section 47A.
• Statutory position — s.2(1B): the three conditions of an "amalgamation", and why a scheme sanctioned by a court or tribunal does not by itself produce one CBDT Circulars & InstructionsCuts both ways
  The NCLT has sanctioned our scheme and the order calls it an amalgamation. The Assessing Officer says it is not an amalgamation for income-tax and has refused section 47 and section 72A. Can he do that?
  Yes, he can. "Amalgamation" for the Income-tax Act is defined by s.2(1B) and by nothing else: the merger must be in such a manner that all the property and all the liabilities of the amalgamating company become those of the amalgamated company, and that shareholders holding not less than three-fourths in value of the shares of the amalgamating company — leaving out shares already held by the amalgamated company, its nominee or its subsidiary — become shareholders of the amalgamated company. A tribunal or court order sanctioning a scheme is what makes the merger effective as a matter of company law; it is not a finding that these three conditions are satisfied, and s.2(1B) nowhere requires such an order.
• Statutory position — s.47(vi), (via), (vib), (vic), (vicc), (vid) and (vii): the amalgamation and demerger transfers that are not transfers, with the cost rules in s.49(2), (2C) and (2D) CBDT Circulars & InstructionsCuts both waysNo later treatment found
  Which transfers in an amalgamation or a demerger are outside section 45, and what cost and holding period do the shares in the transferee company carry afterwards?
  Seven clauses of section 47 take reorganisation transfers out of section 45. At company level: (vi) a 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; (vib) a transfer in a demerger of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company; (via) a transfer in a scheme of amalgamation of shares held in an Indian company by an amalgamating foreign company to an amalgamated foreign company, on two conditions; and (vic) and (vicc), the corresponding foreign demerger cases. At shareholder level: (vid) any transfer or issue of shares by the resulting company in a demerger to the shareholders of the demerged company in consideration of the demerger; and (vii) a transfer by a shareholder in a scheme of amalgamation of shares in the amalgamating company, if made in consideration of the allotment of shares in the amalgamated company except where the shareholder is itself the amalgamated company, and the amalgamated company is an Indian company. Clause (vi) is the central one: 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 — this is what takes the transfer of the undertaking itself out of section 45. On cost, s.49(2) gives the shareholder who receives shares in an amalgamated Indian company on a s.47(vii) transfer the cost of his shares in the amalgamating company; s.49(2C) splits the cost of the demerged company's shares to the resulting company's shares in the ratio the net book value of the assets transferred bears to the net worth of the demerged company immediately before the demerger; and s.49(2D) reduces the cost of the original shares by the amount so arrived at.
• Statutory position — section 47(viiab): a non-resident's trade on a recognised exchange in an IFSC is not a transfer at all CBDT Circulars & InstructionsCuts both ways
  A non-resident client sold derivatives on the exchange in GIFT City and was paid in dollars. Is there any capital gains charge in India?
  No, if the transaction is within section 47(viiab). That clause provides that any transfer of a capital asset being a bond or Global Depository Receipt referred to in section 115AC(1), or a rupee denominated bond of an Indian company, or a derivative, or such other securities as may be notified by the Central Government, made by a NON-RESIDENT on a recognised stock exchange located in any International Financial Services Centre, and where the consideration for the transaction is paid or payable in foreign currency, is not regarded as a transfer for the purposes of section 45. Nothing being regarded as a transfer, no capital gain arises to be computed.
• Statutory position — section 47(viiac) and (viiad): relocating an offshore fund into an IFSC is not a transfer, if it is done by 31 March 2030 CBDT Circulars & InstructionsCuts both ways
  We want to move an offshore fund's assets into a GIFT City vehicle and issue units in the new fund to the existing investors. Does that trigger capital gains, either for the fund or for the investors?
  Not if it is a 'relocation' as the Act defines it. Section 47(viiac) provides that any transfer, in a relocation, of a capital asset by the original fund to the resulting fund is not regarded as a transfer for the purposes of section 45; section 47(viiad) does the same for any transfer by a shareholder, unit holder or interest holder, in a relocation, of a capital asset being a share, unit or interest held by him in the original fund in consideration for a share, unit or interest in the resultant fund. The two clauses therefore cover both legs — the fund's transfer of its assets and the investors' exchange of their holdings.
• Statutory position — s.115E: twenty per cent on investment income throughout, and long-term capital gains at ten per cent before 23 July 2024 and twelve and one-half per cent on or after it CBDT Circulars & InstructionsCuts both ways
  My NRI client sold shares of an Indian company that he had subscribed to in foreign exchange. The transfer was in September 2024. My software has computed the tax at ten per cent under section 115E. Which rate applies, and from when did it change?
  Twelve and one-half per cent, because the transfer took place on or after 23 July 2024. Section 115E(ii) now splits the long-term capital gains rate — ten per cent for any transfer which takes place before the 23rd day of July, 2024, and twelve and one-half per cent for any transfer on or after that date — while the rate on investment income under s.115E(i) remains twenty per cent and has done since 1 April 1998.
• Statutory position — s.2(19AA): the seven conditions of a "demerger", the going-concern requirement, transfer at book value and the Indian Accounting Standards proviso CBDT Circulars & InstructionsCuts both ways
  We hived off a division under a court-sanctioned scheme and claimed section 47(vib) and section 72A(4). The Assessing Officer says it is not a "demerger". What exactly does section 2(19AA) require, and what is the position where Ind AS forced us to record the assets at a different value?
  Section 2(19AA) requires a transfer pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, by a demerged company of one or more of its undertakings to a resulting company, AND seven further conditions: all the property of the undertaking passes; all the liabilities relatable to it pass; the property and liabilities are transferred at values appearing in the demerged company's books immediately before the demerger; the resulting company issues its shares to the demerged company's shareholders on a proportionate basis; shareholders holding not less than three-fourths in value of the shares of the demerged company become shareholders of the resulting company; the transfer of the undertaking is on a going-concern basis; and the demerger accords with any conditions notified under s.72A(5). The book-value condition now carries a proviso which disapplies it where the resulting company records a different value in compliance with the Indian Accounting Standards specified in the Annexure to the Companies (Indian Accounting Standards) Rules, 2015.
• Statutory position — section 47(xvii) with section 49(2AC): swapping SPV shares for business trust units is not a transfer, and the gain is deferred to the sale of the units CBDT Circulars & InstructionsCuts both ways
  My client is contributing his shares in a project company to a REIT and taking units in exchange. Is that a taxable transfer now?
  No. Section 47(xvii) takes out of section 45 any transfer of a capital asset, being a share of a special purpose vehicle, to a business trust in exchange for units allotted by that trust to the transferor, so no capital gain arises on the swap itself. The charge is deferred rather than forgiven: section 49(2AC) provides that where a unit of a business trust became the property of the assessee in consideration of a transfer referred to in section 47(xvii), the cost of acquisition of the unit is deemed to be the cost of acquisition to him of the share, so the whole of the accumulated gain surfaces when the units are sold.
• Statutory position — s.2(14)(iii): when agricultural land is NOT a capital asset, and the aerially measured distance test substituted by the Finance Act, 2013 with effect from 1 April 2014 CBDT Circulars & InstructionsCuts both ways
  My client sold ancestral farm land near a town and the Assessing Officer has charged capital gains. What are the exact population and distance limits in section 2(14)(iii), and from when is the distance measured aerially rather than by road?
  Agricultural land in India is not a "capital asset" at all unless it falls inside one of the two areas described in s.2(14)(iii), so a sale of land outside them produces no capital gain to charge. Item (a) catches land within the jurisdiction of a municipality (however described) or a cantonment board having a population of not less than ten thousand. Item (b) catches land within an aerially measured distance of the local limits of such a municipality or cantonment board: not more than two kilometres where its population is more than ten thousand but not exceeding one lakh; not more than six kilometres where it is more than one lakh but not exceeding ten lakh; and not more than eight kilometres where it is more than ten lakh. Item (b) in that aerially measured form was substituted for the earlier item (b) by the Finance Act, 2013, with effect from 1 April 2014.
• Statutory position — s.10(37): the four cumulative conditions for exempting capital gain on the compulsory acquisition of urban agricultural land CBDT Circulars & InstructionsCuts both waysNo later treatment found
  My client's agricultural land inside the municipal limits has been compulsorily acquired. Section 2(14)(iii) does not help because the land is urban. What exactly must he prove under section 10(37)?
  Section 10(37) exempts capital gain on the transfer of agricultural land where four conditions are ALL satisfied. The assessee must be an individual or a Hindu undivided family. The land must be situated in an area referred to in item (a) or item (b) of s.2(14)(iii) — that is, it must be the urban agricultural land which IS a capital asset. The land must, during the period of TWO YEARS immediately preceding the date of transfer, have been used for agricultural purposes by that Hindu undivided family or individual, or by a parent of his. The transfer must be by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India. And the income must have arisen from compensation or consideration received on or after 1 April 2004. An Explanation provides that "compensation or consideration" includes compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority.
• Statutory position — s.115F: the six-month rollover of net consideration into a specified asset, the proportionate formula where only part is reinvested, and the three-year lock-in CBDT Circulars & InstructionsCuts both ways
  My NRI client sold debentures of an Indian public company that he had subscribed to in foreign exchange, and put most but not all of the money into fresh shares of an Indian company within four months. How much of the gain escapes tax, and what happens if he sells the new shares in two years' time?
  The exempt part is the same proportion of the capital gain as the cost of the new asset bears to the NET CONSIDERATION — not to the gain — so a partial reinvestment shelters a strictly proportionate slice. If he transfers or converts the new asset into money within three years of acquiring it, the amount not charged under section 45 is deemed to be his long-term capital gains of the previous year in which that happens.
• 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.
• Statutory position — s.2(1A): the three limbs of "agricultural income", the two conditions a farm building must satisfy, and Explanations 1 to 4 CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer says my client's receipt is not agricultural income even though it comes off farm land. What exactly does section 2(1A) require, limb by limb, and where do the farm building and nursery cases sit?
  Section 2(1A) has three limbs and every one of them is anchored to land "situated in India and used for agricultural purposes". Limb (a) is rent or revenue derived from such land; limb (b) is income derived from such land by agriculture, or by a cultivator's or rent-in-kind receiver's performance of a process ordinarily employed to render the produce fit to be taken to market, or by his sale of that produce with no process beyond that one; limb (c) is income from a farm building, and it is allowed only if BOTH conditions in the proviso are met. Explanation 1 keeps capital gains on urban agricultural land out of "revenue derived from land", Explanation 2 keeps a farm building's non-agricultural use out, Explanation 3 deems nursery income in, and Explanation 4 defines "population" for the proviso.
• Statutory position — s.2(22)(a), (b), (c) and (d): release of assets, debentures and bonus to preference shareholders, distribution on liquidation, and distribution on a reduction of capital CBDT Circulars & InstructionsCuts both ways
  The Assessing Officer has treated a company payment as a deemed dividend but the order does not say which limb of section 2(22) he is using, and it plainly is not a loan to a shareholder. What do limbs (a) to (d) actually cover?
  These four limbs have nothing to do with buy-backs and are unaffected by the 1 October 2024 changeover, which operates through sub-clause (f). Each of them turns on "accumulated profits": (a) catches any distribution of accumulated profits, whether capitalised or not, if it entails the release by the company to its shareholders of all or any part of the company's assets; (b) catches any distribution to shareholders of debentures, debenture-stock or deposit certificates in any form, with or without interest, and any distribution to PREFERENCE shareholders of shares by way of bonus, to the extent of accumulated profits whether capitalised or not; (c) catches any distribution on liquidation, to the extent attributable to accumulated profits immediately before liquidation, whether capitalised or not; and (d) catches any distribution on a reduction of capital, to the extent the company possesses accumulated profits which arose after the end of the previous year ending next before 1 April 1933, whether capitalised or not.
• Statutory position — s.46(1) and s.46(2): the company is not charged on a liquidation distribution, the shareholder is, and the s.2(22)(c) deemed dividend is deducted before capital gains are computed CBDT Circulars & InstructionsCuts both ways
  My client's company has gone into liquidation and the liquidator has distributed cash and one immovable property to the shareholders. Who is charged to capital gains — the company or the shareholder — and what exactly is the figure the shareholder is taxed on?
  Neither limb of section 46 concerns a buy-back, so the 1 October 2024 buy-back changeover does not touch it; section 46 governs liquidation only, and it has read in identical words on departmental pages stamped Year 1966, Year 1973, Year 2009 and Year 2024 (No. 2). Section 46(1) says that where the assets of a company are distributed to its shareholders on its liquidation, that distribution "shall not be regarded as a transfer by the company for the purposes of section 45" — so the company is not charged on the distribution. Section 46(2) then charges the shareholder: he is chargeable under the head "Capital gains" on the money received plus 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 is deemed to be the full value of the consideration for section 48.
• Statutory position — s.49(2AA) and s.2(42A) Explanation 1(i)(hb): stage two of the employee share charge, the cost of acquisition on sale and the holding period that runs from allotment CBDT Circulars & InstructionsCuts both ways
  I paid tax on my ESOP perquisite when I exercised. Now I have sold the shares. What is my cost of acquisition, and from what date does my holding period run?
  This is stage two. When you sell, the capital gain is the sale consideration MINUS the fair market value that was already taxed as your perquisite at stage one: s.49(2AA) fixes the cost of acquisition of a specified security or sweat equity share as "the fair market value which has been taken into account" for the purposes of s.17(2)(vi). The amount you actually paid for the shares is NOT your cost — the statute deliberately links the cost to the value already charged to salary, so that the same appreciation is not taxed twice. For the holding period, s.2(42A) Explanation 1(i)(hb) says it is reckoned from the DATE OF ALLOTMENT OR TRANSFER of the specified security or sweat equity shares, not from the date of grant and not from the date of vesting.

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.