Capital Gains

Capital Gains — the law in short

Every authority in this library on capital gains, with what each one decided.

• AAR v Tiger Global International II Holdings Supreme CourtHelps departmentNo later treatment found
  I hold a Mauritius TRC. Can the department still deny me treaty relief on the capital gains?
  Yes. A Tax Residency Certificate is a necessary eligibility requirement under s.90(4) but is not sufficient or conclusive evidence of residence, beneficial ownership or entitlement to treaty benefits, and the authorities may examine the substance of the arrangement. The Supreme Court set aside the High Court's judgment, restored the AAR's rejection and held the gains taxable in India.
• 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.
• CIT v Paville Projects Pvt Ltd Supreme CourtHelps department
  The Assessing Officer allowed a deduction. Does the fact that a view was taken protect the assessment from section 263?
  Only if the view taken is one of two views genuinely open on the law. Where the Supreme Court is satisfied the assessment is both erroneous and prejudicial, the Commissioner's revision stands and the Tribunal and High Court orders setting it aside go.
• CIT v Mansukh Dyeing and Printing Mills Supreme CourtHelps departmentSuperseded by amendment
  The firm revalued its land and credited the surplus to the partners' capital accounts. Is that taxable?
  Under the old s.45(4), yes. The Supreme Court held that crediting a revaluation surplus to partners' capital accounts on a reconstitution is in effect a distribution of the assets to the partners and a transfer chargeable to capital gains, because the enhanced balances were immediately available for withdrawal — and two partners did withdraw.
• DCGT v BPL Ltd Supreme CourtHelps taxpayer
  The shares are listed but locked in. Do I value them at the market quotation?
  No. Shares that cannot be traded because they are under a lock-in are not 'quoted' shares, whatever the exchange certifies, because there are no current transactions in the ordinary course of business on which a quotation could be based. The valuation has to be made in accordance with the restriction and not by ignoring it, and the Revenue's appeal 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.
• Seshasayee Steels P Ltd v ACIT Supreme CourtHelps department
  I signed a development agreement and a power of attorney years ago and let the builder start construction. The Department says my capital gain arose only later, when the settlement money came in. Which year is right?
  The later year. The Supreme Court dismissed the assessee's appeal and held the transfer took place in assessment year 2004-05. Permission to a builder to enter and construct is a licence, not possession under section 53A of the Transfer of Property Act, so section 2(47)(v) was not attracted on the 1998 agreement to sell. Nor was section 2(47)(vi), because on that date the owner's rights were intact both in ownership and in possession. What effected the transfer was the memorandum of compromise of July 2003, under which the whole consideration was received and the owner's rights were extinguished on encashment of the last cheque.
• 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.
• CIT v Chet Ram (HUF) Supreme CourtHelps department
  I withdrew enhanced land acquisition compensation under an interim High Court order while the appeal is still pending. Is it taxable now?
  Yes. The Supreme Court held that assessees who received enhanced compensation and interest on it under an interim order of the High Court in pending land acquisition appeals are liable to tax on those amounts in the year of receipt. It followed its earlier decision in CIT, Faridabad v Ghanshyam (HUF), where it had held that section 45(5) treats enhanced compensation as deemed income taxed on receipt, so that even where the court permits withdrawal against security pending appeal the amount is taxable. The orders of the High Court and the Tribunal were set aside and the Revenue's appeals allowed, parties bearing their own costs.
• CIT v Equinox Solution P Ltd Supreme CourtHelps taxpayer
  I sold my whole business for one lump sum. Can the AO tax it as short-term gain?
  No. Where an undertaking is sold as a running business on a going-concern basis, with all assets and liabilities, for a single slump price, no part of the consideration can be attributed to any particular depreciable asset, so s.50(2) has no application. The undertaking itself is the capital asset, and having been held for more than the prescribed period the gain is long-term.
• 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.
• 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.
• M/s Fibre Boards (P) Ltd. v CIT, Bangalore Supreme CourtHelps taxpayer
  I am shifting my factory out of an urban area. I have paid advances for the new land, building and machinery but nothing is bought yet, and I have not deposited anything in the capital gains scheme. Is s.54G lost?
  No. The Supreme Court held that advances paid towards the purchase or acquisition of new machinery, plant, land or building amount to 'utilisation' of the capital gain for the purposes of s.54G, so the deposit machinery in s.54G(2) is not attracted and the assessee has the full three-year window in s.54G(1) in which to complete the purchases. The Court also held that the 1967 notification declaring Thane an urban area survived the omission of s.280ZA, so the section was workable.
• CIT v Govindbhai Mamaiya Supreme CourtCuts both ways
  The court enhanced the compensation for my acquired land and awarded interest running back many years — can I spread that interest over those years, and are my brothers and I an AoP because we inherited the land together?
  No to the spreading, yes to being taxed as individuals. The Supreme Court held on 4 September 2014 that interest awarded under section 28 of the Land Acquisition Act 1894 is an accretion to the value of the land, so it forms part of the enhanced compensation under section 45(5)(b) and is taxable in the year it is received, not spread over the years from dispossession. Interest under section 34, which compensates undue delay in making the award, stands differently. On status, three brothers who inherit land by operation of law and receive compensation on compulsory acquisition form no association of persons, because volition to produce income is absent.
• 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.
• Vodafone International Holdings BV v Union of India Supreme CourtHelps taxpayerSuperseded by amendment
  I am buying the shares of a foreign holding company from another non-resident, and that company's subsidiaries hold shares in an Indian company — must I withhold tax under section 195?
  No, on the law as it stood. The Supreme Court held on 20 January 2012 that what was sold was a single share in a Cayman Islands company, which is property situated outside India, in an outright sale between two non-residents on a principal to principal basis. Shares are a bundle of rights and a transfer lock, stock and barrel cannot be broken into components — control premium, non-compete, brand licence, call options — and taxed piecemeal, particularly where the parties fixed one lump sum of US$11.08 billion with no split. The Revenue established no connection with section 9(1)(i), so section 195 did not apply.
• Suraj Lamp & Industries (P) Ltd v State of Haryana Supreme CourtCuts both waysNo later treatment found
  I bought a property on an agreement to sell plus a general power of attorney and a will, with possession and full payment. Do I own it?
  No. A three-judge bench of the Supreme Court held that a sale agreement, a general power of attorney and a will - singly or together - convey no title and create no interest in immovable property. Immovable property can be transferred only by a registered deed of conveyance. A power of attorney creates an agency, not a transfer, and even an irrevocable one does not pass title; a will operates only on death and is revocable until then. The purchaser is left with the agreement, which can support specific performance and the limited protection of section 53A of the Transfer of Property Act.
• CIT v Saurashtra Cement Ltd Supreme CourtHelps taxpayer
  My supplier paid me liquidated damages for delivering the plant late. Is that taxable as a trading receipt?
  No. The Supreme Court held that liquidated damages received from the supplier of a cement plant for delay in delivery are a capital receipt. The damages were fixed by the contract at 0.5 per cent of the price of the machinery delivered late for each month of delay, payable without proof of actual loss and capped at 5 per cent of the total price. That measure was tied to the price of the asset, not to any calculation of lost profit. The payment was directly and intimately linked with the procurement of a capital asset and compensated the assessee for sterilisation of the profit earning source, not for anything arising in the course of earning profits.
• CIT v Ghanshyam (HUF) Supreme CourtHelps department
  The court enhanced my acquisition compensation with interest. Which year is it taxed, and is the interest capital?
  Interest awarded under s.28 of the Land Acquisition Act, 1894 is part of the amount of compensation; interest under s.34 is not, because it is only compensation for delay in paying a sum already determined. The additional amount under s.23(1A) and the solatium under s.23(2) are likewise part of enhanced compensation, and the whole of it — including s.28 interest — is taxed under s.45(5) in the year of receipt, even where the claimant has withdrawn it against security while the Revenue's or the State's appeal is pending.
• Nectar Beverages Pvt Ltd v DCIT Supreme CourtHelps taxpayer
  I wrote off my bottles and crates at 100% under the old proviso to section 32(1)(ii). Years later I sold them as scrap - is the sale money taxable under section 41(1)?
  No, for the years when section 41(2) was off the statute book. The Supreme Court held that the balancing charge in section 41(2) cannot be read into section 41(1). Depreciation is by its nature neither a loss nor an expenditure nor a trading liability, which is all section 41(1) reaches. Section 41(2), which taxed the balancing charge, was deleted from assessment year 1988-89 when the block of assets concept came in, so between then and its restoration the profit on sale of such assets was not taxable. Items costing under Rs.5,000 bought before 31 March 1995 also stayed outside the block, so section 50 did not catch them either.
• PNB Finance Ltd v CIT Supreme CourtHelps taxpayer
  My whole business was taken over for one lump sum with no item-wise breakup and I cannot work out what the undertaking cost me. Can the Department still tax me on capital gains?
  No, not on those facts and not for years before section 50B. The Supreme Court held that where a business undertaking is transferred as a going concern for a composite price, the capital asset transferred is the undertaking itself, which includes intangibles such as goodwill, tenancy rights, manpower and the value of a banking licence whose cost is not determinable. Since the consideration could not be earmarked item-wise and no cost of acquisition could be found, the computation provisions failed, and on B.C. Srinivasa Setty the case fell outside section 45 altogether. Compensation of Rs 10.20 crore was not taxable.
• CIT v D.P. Sandu Bros. Chembur (P) Ltd Supreme CourtHelps taxpayerSuperseded by amendment
  The landlord paid my company to give up its tenancy. Is that taxable, and if it cannot be computed as a capital gain can the officer tax it as a casual receipt instead?
  No — he cannot move it to another head. A tenancy right is a capital asset and its surrender is a transfer, so s.45 is the only head that can reach the consideration. For assessment year 1987-88 the Court held the receipt escaped tax altogether because the cost of acquiring the tenancy could not be ascertained and s.48 therefore could not be worked, and it refused to let the department bring the same receipt back under s.10(3) read with s.56. Section 55(2) was amended with effect from 1 April 1995 to supply a cost of acquisition for a tenancy right, so the computation gap this case turned on is closed for later years — the head-of-income holding is what survives.
• CIT v P.V.A.L. Kulandagan Chettiar Supreme CourtHelps taxpayer
  I am resident in India but my rubber estate and my business are in Malaysia. The treaty says that income may be taxed there. Can India tax it as well?
  No, on this treaty. The Supreme Court dismissed the Revenue's appeals and held that neither the business income from the Malaysian rubber plantations nor the capital gain on the sale of the Malaysian property could be taxed in India. The property was in Malaysia, the permanent establishment was in Malaysia and there was none in India, so the closer personal and economic relations determined fiscal domicile and residence in India became irrelevant. Capital gains is income arising out of immovable property for the purposes of the Act, so Article 6 covered it. The Court declined to decide the semantic question whether may be taxed allocates the taxing power or merely permits it.
• 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 Hindustan Housing and Land Development Trust Ltd Supreme CourtHelps taxpayer
  An arbitrator enhanced the compensation for my land, the State has appealed against the whole of it, and I have taken the money out of court against a security bond. Has that enhanced amount accrued to me?
  Not while the whole of it is in dispute. The Supreme Court held that the extra compensation awarded by the arbitrator had not accrued in the year of the award, because the State Government's appeal put the entire amount in issue and the dispute was real and substantial - a point the Court underlined by the fact that the assessee could only withdraw the deposit on a security bond to refund it if the appeal succeeded. The right to compensation of that kind is inchoate until the amount is finally determined; there is no liability in praesenti, and so no enforceable right to any particular amount, and nothing accrues. The line the Court drew is between a case where the right to receive payment is itself in dispute and a case where the right is admitted and only quantification is left.
• 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.
• Malabar Fisheries Co v CIT Supreme CourtHelps taxpayerSuperseded by amendment
  Our firm dissolved and the assets went to the partners. Has the firm transferred those assets, so that allowances it claimed on them can be withdrawn?
  No, on the law as it then stood. The Supreme Court held that a partnership firm under the Indian Partnership Act 1932 is not a distinct legal entity apart from its partners, and the firm as such has no separate rights of its own in the partnership assets. What follows dissolution - the distribution, division or allotment of assets after liabilities are discharged - is nothing but a mutual adjustment of rights between the partners, so there is no extinguishment of any right of the firm and no transfer within section 2(47). The Court added a second reason: dissolution precedes distribution, so the distribution is not made by the firm at all.
• Sutlej Cotton Mills Ltd v CIT Supreme CourtCuts both ways
  The rupee moved and I have a gain on foreign currency. Is that trading income or a capital receipt?
  It depends on what the currency was doing in the business, not on the size or direction of the currency movement. If the foreign currency was held on revenue account, as a trading asset or as part of the circulating capital of the business, the profit or loss is a trading profit or loss. If it was held as a capital asset or as fixed capital, the profit or loss is of a capital nature.
• 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.
• Goli Eswariah v. CGT — throwing self-acquired property into the common stock is a unilateral act and no transfer at all (Gift-tax Act, 1958) Supreme CourtHelps taxpayer
  My client impressed his self-acquired property with the character of joint family property by a declaration. The department says he has made a gift to the family. Is a declaration of blending a transfer?
  No. The Supreme Court held that the declaration by which the assessee impressed the character of joint Hindu family property on his self-acquired properties did not amount to a transfer, and so did not attract the Gift-tax Act, 1958. The act by which a coparcener throws his separate property into the common stock is a unilateral act: there is no question of the family rejecting or accepting it, no donor and no donee, and no gift under Chapter VII of the Transfer of Property Act. "Transaction entered into" in s.2(xxiv)(d) of the Gift-tax Act contemplates an act to which two or more persons are parties and cannot apply to a unilateral act, and "disposition" in the opening words of s.2(xxiv), read with the company it keeps, refers to a bilateral or multilateral act. THE ACT CONSTRUED IS THE GIFT-TAX ACT, 1958.
• 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.
• Janki Ram Bahadur Ram v CIT Supreme CourtHelps taxpayer
  I bought a factory that had nothing to do with my line of business, never ran it, and sold it within months at a large profit. Is that profit business income?
  No, not on these facts. The Supreme Court held the purchase was an isolated transaction unrelated to the assessee's business in iron scrap and hardware, and that a profit motive is not decisive, since an accretion to capital does not become taxable income merely because the asset was bought in the expectation of selling it at a profit. It is for the Revenue to bring the profit within the charge. Even accepting that the assessee got a good bargain and would have sold on a favourable offer, that alone could not support an inference of an adventure in the nature of trade. The High Court's answer was discharged and a negative answer recorded.
• 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.
• CIT v Bai Shirinbai K Kooka Supreme CourtHelps taxpayer
  I held shares as an investment for years and then started dealing in them. When I sell, is my profit measured from what I originally paid or from the market value on the day I began trading?
  From the market value on the day the trading began. A seven-judge bench of the Supreme Court held, by six to one, that where an investor converts shares into stock-in-trade and then sells them in the course of business, the profits must be computed on ordinary commercial principles: the difference between what the article cost the business and what it fetched on sale. What the shares cost this business was their market value on 1 April 1945, the day the trading activity started. There is no notional sale involved; the sale that produced the profit was a real one, and the only question was how to measure it.

The 60 strongest entries are summarised here. The other 229 entries are listed in full below, and each has its own page.

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.