Section 49

Section 49 — the law in short

What the courts have decided on section 49, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• 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.
• 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.
• T R Balasubramanium v ACIT High CourtHelps taxpayerValidity unconfirmed
  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.
• 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.
• Rajesh R Hemrajani v ITO ITATHelps taxpayerValidity unconfirmed
  When I sell ESOP shares, is my cost of acquisition under section 49(2AA) the fair market value used for the perquisite even if that perquisite was never actually taxed in India?
  Yes, on this order. The Mumbai Bench read the words of section 49(2AA) - the fair market value which has been taken into account for the purposes of section 17(2)(vi) - and held that the provision nowhere requires that value to have been subjected to tax in India or included in total income. The assessee, a non-resident working at the UK branch of L&T Infotech, exercised 1,540 options at Re 1 a share when the fair market value was Rs 1,753.58. The Assessing Officer had cut the cost of acquisition down to the exercise price and added Rs 29,59,332. The Tribunal held the fair market value was the cost and allowed the appeal.

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.