Section 48

Section 48 — the law in short

What the courts have decided on section 48, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• 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.
• 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.
• CIT v V.S. Dempo Company Ltd Supreme CourtHelps taxpayer
  I sold a depreciable asset held for over three years. Can I still claim the capital gains exemption?
  Yes. Section 50 is only a special mode of computing gains on depreciable assets, and its deeming fiction is limited to the computation under ss.48 and 49. An asset held for more than thirty-six months stays a long-term capital asset, so exemption under s.54E, and on the same reasoning s.54EC, survives even though the gain is computed as short-term.
• 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.
• 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.
• 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.
• 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 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.
• 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 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.
• T R Balasubramanium v ACIT High CourtHelps taxpayerNo later treatment found
  I received a flat when my company was wound up, paid capital gains tax then, and sold it in the same year. What is my cost?
  The fair market value of the asset on the date of distribution. A liquidation produces two transfers, not one — the extinguishment of the shareholder's rights in exchange for the asset, and then the shareholder's own sale of that asset — and where the shareholder has been assessed to capital gains on the first, s.55(2)(b)(iii) gives him the distribution-date value as his cost for the second.
• 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.
• CIT v Gauranginiben S. Shodhan High CourtHelps taxpayer
  The Assessing Officer sent my property to the Departmental Valuation Officer because he thought my sale price and my 1981 cost were both wrong — was he entitled to?
  No, on these facts. The Gujarat High Court held that a section 55A reference to ascertain fair market value on the date of sale is redundant for computing capital gains, because section 48 works on the full value of consideration received, not on market value. As for the 1981 value, where the assessee has supported it with a registered valuer's estimate the reference can only be made under clause (a), and clause (a) as it then stood required the officer to think the claimed value was less than fair market value — not more. The Revenue's appeals were dismissed.
• Cairn UK Holdings Ltd v DIT High CourtHelps taxpayer
  I am a non-resident selling listed shares of an Indian company off market, and I have already used the foreign currency computation under the first proviso to section 48 — can I still pay tax at ten per cent under the proviso to section 112(1)?
  Yes. The Delhi High Court held on 7 October 2013 that the proviso to section 112(1) applies on its own terms to long-term capital gains on listed securities, units and zero coupon bonds computed without indexation. Nothing in it requires the assessee to have been entitled to the second proviso to section 48, and nothing excludes an assessee who has taken the currency-fluctuation benefit under the first proviso. The two provisos to section 48 serve different purposes — exchange rate neutralisation and inflation neutralisation — and are not interchangeable. The Authority for Advance Rulings' contrary ruling was quashed and the ten per cent rate allowed.
• CIT v Dynamic Enterprises (Karnataka Full Bench) High CourtHelps taxpayerSuperseded by amendment
  Three partners retired and took cash for their share. The firm carried on. Is the firm liable to capital gains under s.45(4)?
  On the pre-2021 provision, no. A Full Bench of the Karnataka High Court held that s.45(4) needs an actual distribution of a capital asset by the firm to a partner, so that the firm's interest in that asset is extinguished and the partner acquires it. Where the retiring partners took only money representing the value of their share and the property stayed with the firm, nothing was distributed and nothing was transferred. The Court held that the earlier Division Bench decision in CIT v. Gurunath Talkies did not lay down the correct law. This is authority for assessment years up to 2020-21 only: the Finance Act 2021 rewrote s.45(4) so that money received by a partner on reconstitution is itself the charging event on the firm.
• 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.
• CIT v Ace Builders (P) Ltd High CourtHelps taxpayer
  I sold a building I had held for years and claimed depreciation on. The gain is computed as short-term under section 50. Can I still claim the capital gains exemption for investing the proceeds?
  Yes. The Bombay High Court held that the deeming fiction in section 50 is confined to the mode of computing capital gains under sections 48 and 49. It deems the gain to be short-term; it does not deem the asset to be a short-term capital asset. Section 54E draws no distinction between depreciable and non-depreciable assets, so an assessee who invests the net consideration from a long-term asset in the specified securities within the time allowed gets the exemption, whether the gain was computed under sections 48 and 49 or under section 50.
• CIT v Texspin Engg & Mfg Works High CourtHelps taxpayer
  My partnership firm became a limited company under Part IX of the Companies Act. The Assessing Officer wants capital gains tax on the market value of the assets. Is that right?
  No, on the law as it stood for assessment year 1996-97. The Bombay High Court held that section 45(4) needs a transfer by way of distribution of capital assets, and statutory vesting on a Part IX conversion is not distribution: vesting takes the properties across as they stand, while distribution presupposes division, realisation and appropriation. Section 45(1) also failed, both because a firm treated as a company is a case of transmission with no counterparty and no incoming consideration, and because even if there were a transfer, full value of consideration in section 48 means what the transferor gets, not the market value of what he parts with.
• CIT v Mithlesh Kumari High CourtCuts both ways
  I borrowed to buy a plot, paid interest on the loan for three years, then sold it. Can I add that interest to my cost when I compute capital gains?
  Yes for interest, no for ground rent. The Delhi High Court held that interest of Rs 16,878 paid on money borrowed to buy the plot formed part of the actual cost of the plot for computing capital gains. What the assessee laid out to acquire the asset is its cost, and it makes no difference that the interest went to a different person or was paid after the purchase. Ground rent of Rs 3,793 stood on a different footing: it was paid to keep the asset in her possession, not to acquire it, and could not be added.
• CIT v Daulal Mohta (HUF) High CourtHelps taxpayerSuperseded by amendment
  I used a registered valuer's FMV as my cost of acquisition. Can the AO send it to the DVO?
  Not on the text of s.55A as it then stood. A reference to the DVO could be made only where the value shown by the assessee was less than fair market value, so where the registered valuer's figure was the higher one the reference was without jurisdiction and the DVO's lower value could not displace it.
• 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.
• Brijesh Poddar v ITO ITATHelps taxpayerJudgment not reachable
  I borrowed money to buy crypto. Can I deduct the interest against my 115BBH income?
  That is what a single note reports, and nothing about the order can be checked. The judgment could not be found in a full-text subscription research database on a search of the party name, the appeal number or the section, and there is no decision of any Tribunal or High Court on s.115BBH in that database at all. What the note reports is that interest on funds borrowed exclusively to acquire virtual digital assets, up to the date of acquisition, was treated as part of the cost of acquisition, s.115BBH(2)(a) barring every other deduction but not defining that expression. Treat it as a line of argument, not as authority.
• Edelweiss Crossover Opportunities Fund v ITO — a scheme of a registered Category II AIF does not lose the pass-through because the SEBI certificate is in the trust's name ITATHelps taxpayerNo later treatment found
  The Assessing Officer says my AIF scheme has its own PAN but no SEBI registration of its own, so it is not an 'investment fund' and section 10(23FBA) is gone. Is that right?
  No, on these facts. The Mumbai Tribunal held that exemption under section 10(23FBA) cannot be denied solely because the scheme has a separate PAN while the SEBI registration stands in the name of the trust, where the scheme is floated under a SEBI-registered Category II Alternative Investment Fund trust — and it pointed to Explanation 1 to section 115UB, which itself recognises a 'scheme of the investment fund'. The consequential addition treating the book surplus in excess of the distributed income as business income was also deleted, because once the pass-through applies the premise for that addition disappears, and because the difference was only statutory indexation under section 48.
• Bhikhalal Prahladrai Agarwal (HUF) v ACIT (ITAT Rajkot) — a shareholder's s.10(34A) buy-back exemption cannot be withdrawn because the Assessing Officer thinks the company underpaid s.115QA tax, and "distributed income" is measured from the ISSUE price including premium, not the shareholder's cost ITATHelps taxpayer
  My client claimed the buy-back proceeds as exempt under section 10(34A). The Assessing Officer says the company paid too little buy-back tax, so he has denied the exemption and assessed the whole gain under section 46A. Can he do that?
  No — on a buy-back before 1 October 2024, which is the regime this order is about, the ITAT Rajkot held that neither s.115QA nor s.10(34A) empowers the Assessing Officer to withdraw the shareholder's exemption on the ground that the company paid too little, and that the remedy for short payment lies against the company and its principal officer under s.115QC. The Tribunal also held that the officer had used the wrong base: "distributed income" under the Explanation to s.115QA(1) read with Rule 40BB is the buy-back consideration less the amount the COMPANY received on issue of the shares, including premium — here Rs.26 less Rs.25 — and not the buy-back price less the tendering shareholder's cost of Rs.2. The addition of Rs.46,46,469 was deleted.
• Rukmani Wires Pvt Ltd v DCIT (ITAT Delhi) — where the buy-back price is BELOW the issue price there is no "distributed income", so s.115QA cannot apply and s.10(34A) cannot be used to deny the shareholder's capital loss ITATHelps taxpayer
  My client's shares were bought back at less than the price the company issued them at, so it made a loss. The Assessing Officer says buy-back income is exempt under section 10(34A), so the loss cannot be carried forward — and he has levied concealment penalty. Is the loss really lost?
  On a buy-back before 1 October 2024, which is the regime this order is about, the ITAT Delhi held that where the buy-back consideration is lower than the price at which the company issued the shares there is no "distributed income", so s.115QA "per se cannot be applied", and that s.10(34A) — which exempts income on a buy-back "as referred to in section 115QA" — "also consequentially would not have any application". The very basis on which the officer had denied the carry-forward of the long-term capital loss was therefore "legally incorrect". Because the denial of the loss was itself unsustainable, no penalty for furnishing inaccurate particulars could stand on it, and in any event the claim was at worst an incorrect claim on a question of interpretation with all the figures already on the record; the s.271(1)(c) penalty of Rs.57,98,464 was directed to be deleted.
• Rajesh Saluja v DCIT ITATHelps departmentNo later treatment found
  I am selling the house. Can I add the home loan interest to the cost of acquisition under s.48, with indexation, on top of whatever I claimed under s.24(b)?
  This Tribunal said no. Following the Supreme Court in CIT v. Tata Iron and Steel Co. Ltd., it held that the cost of an asset and the cost of raising money to buy the asset are two different and independent transactions, so interest on borrowed capital has no direct nexus with the property and cannot enlarge the cost of acquisition. The disallowance of Rs 1,16,43,521 claimed as indexed cost referable to interest of Rs 94,17,082 was upheld.
• Latafat Hussain v ITO (ITAT Jaipur) — stamp value taken on the agreement date because part of the price came by account payee cheque, in AY 2010-11 ITATHelps taxpayerNo later treatment found
  My agreement to sell was in 2005 and the sale deed was registered in 2009, and I took a small part of the price by account payee cheque on the agreement date. Can I use the 2005 stamp value, and does the ten per cent tolerance band help me for an old year?
  On the agreement-date point, yes. The Tribunal directed the Assessing Officer to compute the gain on the stamp (DLC) value as at the date of the agreement, 3 January 2005, and not the date of registration, because Rs.35,000 of the consideration had been received by account payee cheque at the time the agreement was executed and the bank statements were on record. On the tolerance band, the order gives you less than it appears to: paragraph 10 records that on the 2005 value the difference between the agreed consideration and the DLC value was 9.34 per cent, "which is less than the prescribed 10 %" band, but that sentence follows a recital of what the assessee's representative demonstrated, and the operative direction at paragraph 10.2 rests on the agreement-date proviso alone and says nothing about the band. Do not cite this order as authority that the ten per cent band reaches back to AY 2010-11.
• Joseph Mudaliar v DCIT (ITAT Mumbai) — the section 50C tolerance band read into the buyer's charge under section 56(2)(vii)(b), and applied to AY 2015-16 ITATHelps taxpayer
  I bought flats slightly below the stamp duty value and the Assessing Officer has added the difference in my hands under section 56(2)(vii)(b). There is no tolerance band in that clause. Can I still claim the section 50C margin?
  The Tribunal held that you can. It read the exception in the third proviso to section 50C(1), and the corresponding exception in section 56(2)(x)(b)(B) and the first proviso to section 43CA, into section 56(2)(vii)(b)(ii), on the reasoning that the buyer and the seller stand on the same footing and there cannot be two different fair market values for the same property. It then applied a ten per cent margin to AY 2015-16, holding the Finance Act 2018 amendments curative and beneficial and therefore retrospective, and deleted the whole addition of Rs.23,30,694.
• 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.
• 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.
• Dharamshibhai Sonani v DCIT ITATHelps taxpayer
  I fixed the price in 2005 but registered the sale in 2007. Which date's stamp duty value applies?
  The agreement date. The Ahmedabad Tribunal held the proviso to s.50C inserted by the Finance Act, 2016 with effect from 1 April 2017, which allows the stamp duty value on the date of the agreement to be adopted, to be curative and therefore retrospective from 1 April 2003, when s.50C was introduced.
• Nand Lal Popli v DCIT ITATCuts both ways
  I return income under 44AD. Can the AO treat the balance of my receipts as expenditure actually incurred?
  No. Once income is estimated at a percentage of gross receipts, the residual percentage is a notional figure, not a finding that expenditure of that amount was in fact incurred. With the declared turnover undisturbed, an addition built on that assumption has no foundation.
• ACIT v C Ramabrahmam ITATHelps taxpayerSuperseded by amendment
  I claimed housing loan interest under s.24(b) every year. When I sell, can the same interest also go into the cost of acquisition?
  Yes, on this Tribunal view - but the point is contested. The Chennai Bench held that a deduction under s.24(b) and the computation of capital gains under s.48 are covered by different heads of income and neither excludes the other, so interest already allowed against house property income may still be included in the cost when capital gains are computed. The Karnataka High Court has taken the opposite view.
• DCIT v Summit Securities Ltd (Special Bench) ITATHelps departmentNo later treatment found
  I sold an undertaking as a slump sale and its net worth worked out to a negative figure. Do I compute capital gain on the price alone, or does the negative net worth get added to it?
  It is added. The Special Bench of the Mumbai Tribunal held that where the net worth computed under section 50B is negative, it cannot be reduced to nil. Section 48 requires the cost of acquisition to be deducted from the full value of consideration, and deducting a negative figure necessarily means adding it. The Bench rejected the argument that capital gain can never exceed the sale consideration, holding that this is true of an ordinary asset but not of an undertaking, which is a bundle of assets net of liabilities. On the facts, the consideration was Rs.143 crore and the net worth minus Rs.157.19 crore.
• Manali Investments v Assistant Commissioner of Income-tax ITATHelps taxpayer
  I sold depreciable assets I had held for over three years and the whole block ceased to exist, so the gain was computed under section 50. The Assessing Officer says the gain is short-term and refuses to set it against my brought-forward long-term capital loss. Is he right?
  No. The Mumbai Tribunal held that s.50 is a computation provision and a deeming provision, and that the fiction cannot be carried beyond the purpose for which it was enacted: once the capital gain on the depreciable asset has been computed under s.50, the operation of that section is spent and the gain must be dealt with under the other provisions of the Act. The asset having been held for more than thirty-six months, the gain retains the character of long-term capital gain for all other provisions and qualifies for set-off against the brought-forward long-term capital loss under s.74.
• 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'.
• CBDT SOP on s.45(5A) joint development CBDT Circulars & InstructionsHelps departmentJudgment not reachable
  I gave my land to a builder under a JDA. When do I have to pay tax on the capital gain?
  In the year the completion certificate is issued. For an individual or HUF transferring land or building under a specified agreement, s.45(5A) charges the gain in the previous year in which the competent authority issues the completion certificate for the whole or part of the project, with consideration taken as the stamp duty value of the landowner's share plus any money received.
• Statutory position — the Finance (No. 2) Act 2024 buy-back regime: s.2(22)(f) deemed dividend from 1 October 2024 CBDT Circulars & InstructionsCuts both ways
  My client's company bought back its shares in March 2025. Does the company still pay buy-back tax, and what does the selling shareholder put in his return?
  For a buy-back that takes place on or after 1 October 2024 the company pays nothing: a proviso inserted in s.115QA(1) disapplies the 20 per cent additional tax to such buy-backs, and a proviso inserted in s.10(34A) withdraws the shareholder's exemption. Instead the whole consideration is a dividend in the shareholder's hands under the new s.2(22)(f), and a proviso to s.46A deems the value of the consideration to be nil for capital-gains purposes, so the cost of the shares comes out as a capital loss.
• Statutory position — s.46A: buy-back in the shareholder's hands, and the proviso that deems the consideration NIL for any buy-back on or after 1 October 2024 CBDT Circulars & InstructionsCuts both ways
  My client tendered shares in a buy-back. How is he taxed under section 46A, and does it make a difference that the buy-back closed after 1 October 2024?
  It makes all the difference, and the dividing line is the date the buy-back takes place: for a buy-back BEFORE 1 October 2024 the main limb of s.46A applies normally, and for a buy-back ON OR AFTER 1 October 2024 the proviso inserted by Act No. 15 of 2024 deems the consideration to be nil. The main limb says that where a shareholder receives any consideration from a company for purchase of its own shares or other specified securities, then, subject to s.48, the difference between the cost of acquisition and the value of consideration received is deemed to be the capital gains of the year in which the company purchased them. The proviso says that where the shareholder receives consideration "of the nature referred to in sub-clause (f) of clause (22) of section 2" in respect of a buy-back "that takes place on or after the 1st day of October, 2024", then "for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil".
• Statutory position — section 112A: the long-term rate and the exempt slice, before and after 23 July 2024 CBDT Circulars & InstructionsCuts both ways
  My client sold listed equity shares twice in FY 2024-25 — once in June 2024 and once in September 2024. What rate and what exempt threshold apply to each lot?
  Two different rates apply inside the same previous year, but only ONE exempt slice. For a transfer BEFORE 23 July 2024 the section 112A rate is ten per cent; for a transfer ON OR AFTER 23 July 2024 it is twelve and a half per cent. The exempt slice is one lakh twenty-five thousand rupees for the whole of the previous year — the proviso to section 112A(2)(i) says in terms that the limit applies on the AGGREGATE of the long-term capital gains under both sub-clauses — so it is not split between the two rate blocks and the pre-23-July lot does not get a separate one lakh rupee slice. The one lakh rupee figure governs transfers up to 31 March 2024 only. Both changes were made by the Finance (No. 2) Act 2024 with effect from 23 July 2024.
• 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 — section 2(42A): only two holding periods from 23 July 2024 CBDT Circulars & InstructionsCuts both ways
  Is a listed bond still a long-term asset only after three years, and what about units of a listed business trust? My client transferred both in late 2024.
  From 23 July 2024 there are only two holding periods: twelve months for all listed securities and twenty-four months for everything else. The thirty-six month period is gone, so units of a listed business trust move from thirty-six months to twelve, and bonds, debentures and gold move from thirty-six months to twenty-four; unlisted shares and immovable property stay at twenty-four.
• CBDT Circular 14/2021 CBDT Circulars & InstructionsCuts both waysNo later treatment found
  A partner retired and took assets out of the firm. How do s.9B and s.45(4) work together?
  Separately, and both can apply to the same reconstitution. Section 9B is applied first, to the deemed transfer of the assets received by the partner at fair market value; s.45(4) is then applied to the money or asset received in excess of the partner's capital account balance, computed without any revaluation increase. There is no set-off between the two.
• Statutory position — Rule 8AB and section 48(iii): how the section 45(4) amount is set off when the firm later sells the asset CBDT Circulars & InstructionsCuts both ways
  My firm paid capital gains tax under the substituted section 45(4) on the money we paid a partner on reconstitution. When the firm later sells the land that was revalued, can it deduct that already-taxed amount from the sale consideration?
  Only if the section 45(4) charge arose out of a revaluation of a capital asset or the valuation of a self-generated asset or self-generated goodwill, and only through Rule 8AB. Section 48(iii) allows the firm to deduct so much of the section 45(4) amount as is attributable to the capital asset being transferred, 'calculated in the prescribed manner', and the prescribed manner is Rule 8AB: the amount is spread over the assets in the same proportion as the increase in the value of each asset on revaluation bears to the total increase, and the attribution must be reported in Form 5C by the section 139(1) due date.
• Statutory position — rule 11UAE: computation of the fair market value of capital assets for s.50B(2)(ii), FMV1 on the assets transferred and FMV2 on the consideration received, the higher of the two being taken, with effect from 24 May 2021 CBDT Circulars & InstructionsCuts both ways
  We have done a slump sale and the Assessing Officer says the consideration we recorded is not the full value of the consideration. How is the fair market value computed under s.50B, and from when does that apply?
  Under rule 11UAE two figures are computed and the higher is taken. Sub-rule (1) provides: "For the purpose of clause (ii) of sub-section (2) of section 50B, the fair market value of the capital assets shall be the FMV1 determined under sub-rule (2) or FMV2 determined under sub-rule (3), whichever is higher." FMV1 looks at what was transferred and is computed as A+B+C+D-L, where A is the book value of all assets of the undertaking or division other than jewellery, artistic work, shares, securities and immovable property, reduced by income-tax paid less income-tax refund claimed and by any amount shown as an asset, including unamortised deferred expenditure, which does not represent the value of any asset; B is the open market price of jewellery and artistic work on a registered valuer's report; C is the fair market value of shares and securities determined under rule 11UA(1); D is the stamp duty value adopted or assessed or assessable by any Government authority for immovable property; and L is the book value of the liabilities of the undertaking or division, excluding paid-up equity capital, amounts set apart for dividends on preference or equity shares not declared before the date of transfer, reserves and surplus by whatever name called, provisions for taxation, provisions for meeting liabilities other than ascertained liabilities, and contingent liabilities other than arrears of cumulative preference dividend. FMV2 looks at what was received and is computed as E+F+G+H, where E is the monetary consideration received or accruing, F is the fair market value of non-monetary consideration represented by property referred to in rule 11UA(1), determined under rule 11UA(1), G is the open market price on a registered valuer's report of non-monetary consideration being property other than immovable property and not referred to in rule 11UA(1), and H is the stamp duty value where the non-monetary consideration is immovable property. Sub-rule (4) fixes the valuation date: the fair market value under sub-rules (2) and (3) is determined on the date of slump sale, and the valuation date in rule 11UA also means the date of slump sale. The rule was inserted with effect from 24 May 2021, and the clause it serves, s.50B(2)(ii), was substituted with effect from 1 April 2021.
• Statutory position — the substituted section 45(4): the firm is taxed on what a partner takes out above his capital account CBDT Circulars & InstructionsCuts both ways
  A partner retired and we paid him Rs 2 crore, most of it out of a revaluation of the firm's land. He says it is his own capital. Is the FIRM taxable?
  Yes, on the excess. The substituted s.45(4) charges the FIRM to capital gains on money or a capital asset (or both) received by a partner in connection with a reconstitution, to the extent it exceeds the balance in his capital account — and that balance must be computed WITHOUT the increase caused by revaluation of any asset or by self-generated goodwill or any other self-generated asset. The formula is A = B + C − D, and if A is negative it is deemed to be zero, so a loss cannot be thrown up. Substituted by the Finance Act 2021 with effect from 1 April 2021, i.e. AY 2021-22.
• Statutory position — section 55(2)(ac): the 31 January 2018 grandfathered cost, limb by limb CBDT Circulars & InstructionsCuts both ways
  My client bought listed shares in 2012 and sold them last year. How exactly do I work out the cost of acquisition under the grandfathering rule, and does the 31 January 2018 price simply replace the cost?
  No — the 31 January 2018 price does not replace the cost, and it is not a straight 'higher of cost or market' either. The cost is the HIGHER of (i) the actual cost of acquisition and (ii) the LOWER of (A) the fair market value and (B) the full value of consideration; fair market value for a share listed on 31 January 2018 is the highest price quoted on a recognised stock exchange on that date.
• Statutory position — s.10(34A): the shareholder's exemption for buy-back proceeds, what it covered from AY 2014-15, why it stopped mattering for buy-backs on or after 1 October 2024, and the one thing it does not do CBDT Circulars & InstructionsCuts both waysSuperseded by amendment
  For a buy-back completed before 1 October 2024 my client claimed the whole receipt as exempt under section 10(34A). The officer says the company got its section 115QA computation wrong, so the exemption goes. Is that right — and does the exemption still exist for a buy-back done now?
  Section 10(34A) is a provision about buy-backs BEFORE 1 October 2024: it exempts in the shareholder's hands "any income arising to an assessee, being a shareholder, on account of buy back of shares by the company as referred to in section 115QA", and because the second proviso to s.115QA(1) switches that section off for any buy-back taking place on or after 1 October 2024, a buy-back from that date is no longer one "referred to in section 115QA" and the exemption has nothing to attach to — the proceeds are instead a deemed dividend under s.2(22)(f). The clause was inserted by the Finance Act, 2013 with effect from 1 April 2014, that is from AY 2014-15, and as originally enacted it was confined to buy-back of shares "(not being listed on a recognised stock exchange)"; the words of limitation had gone by the time the Tribunal reproduced the clause in 2024 and 2025, matching the parallel deletion of the same words from s.115QA with retrospective effect from 5 July 2019.
• Statutory position — s.115D: no expenditure or allowance against investment income, no Chapter VI-A deduction, and the disapplication of the SECOND proviso to s.48 only CBDT Circulars & InstructionsCuts both ways
  My NRI client has interest income from debentures of an Indian public company acquired in foreign exchange, taxed under section 115E. The assessing officer has disallowed his collection charges, his section 80C deduction and his indexation. Is all of that correct, and what exactly is he allowed to lose?
  Broadly yes, but the third disallowance needs care. Section 115D(1) denies any deduction for expenditure or allowance under any provision of the Act in computing investment income; s.115D(2)(a) denies Chapter VI-A deductions altogether where the gross total income consists ONLY of investment income or long-term capital gains or both, and in that case also disapplies the second proviso to s.48, which is the indexation proviso. The section does NOT disapply the FIRST proviso to s.48, and it has not referred to that proviso since 1 April 1993.
• 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.