Computing the gain: what counts as a transfer and when, stamp duty value against stated consideration, indexation, and depreciable assets. 112 entries, strongest first, with what each one decided in a sentence. Read down the list, then open the entry that fits your facts. The Capital Gains hub cross-lists everything that touches this area, including entries filed under another subject.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
The court enhanced my acquisition compensation with interest. Which year is it taxed, and is the interest capital? Enhanced compensation is charged as capital gains under s.45(5)(b) in the year of receipt. Interest awarded by the court under s.28 of the Land Acquisition Act is an accretion to the value of the land and takes the character of compensation; interest under s.34, being purely for delay in paying what was already awarded, does not.
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.
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.
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.
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.
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.
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.
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.
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.
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.
We sold our entire business to a company as a going concern for one lump sum — can the Assessing Officer bring the depreciation allowed earlier to tax under section 41(2)? No, not on these facts. The Supreme Court held that where a firm transfers the entire assets of its business with liabilities as a going concern for a lump sum, and nothing indicates the price attributable to machinery, plant or building out of that consideration, section 41(2) cannot be applied. The fact that a given sum had been allowed as depreciation does not show that it is the excess of price over written down value. The Court affirmed the High Court on that question and on the assessee's status as a registered firm, but reversed it on the circulars question, which was answered for the Revenue. The appeal was partly allowed.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
I put the whole capital gain from one flat into several houses. For years before assessment year 2015-16, does s.54 allow that? Yes. The Bombay High Court held that the words 'a residential house' in s.54(1) as it stood before 1 April 2015 were descriptive of the nature of the asset and did not restrict the number of houses that could be bought. The assessee sold a flat in Mumbai and invested the proceeds in seven row houses at Pune under a joint venture agreement, and the exemption was allowed against the entire capital gain of Rs. 1,08,30,625. The Court agreed with the Karnataka High Court in Arun K. Thiagarajan and the Madras High Court in Tilokchand and Sons, and reasoned that if the restriction to one house had already been in the unamended provision there would have been no need for the 2014 amendment to insert the word 'one'. That amendment took effect from 1 April 2015, and from assessment year 2015-16 the position is the opposite.
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.
I paid the whole price and took possession of a factory under an agreement for sale in December 2016, but the sale deed was only registered in March 2018. Can the department tax the stamp-value difference under section 56(2)(x) in the later year? No. The Calcutta High Court held that where the entire consideration is paid on the date of the agreement for sale, possession of the property is handed over, and the buyer starts running the business on it, the transfer takes place then and not on the later registration of the sale deed. Section 2(47)(ii) covers extinguishment of the vendor's rights, and section 2(47)(vi) covers any transaction that has the effect of enabling the enjoyment of immovable property. So the purchase of the rice mill fell in the previous year relevant to assessment year 2017-18, and the section 56(2)(x) addition made in assessment year 2018-19 could not stand. The Tribunal's order was set aside.
The Tribunal orders say s.50C does not touch leasehold rights. Is that still safe advice? No, not in Bombay. The High Court held that leasehold rights in land are a capital asset, because s.2(14) speaks of property held by an assessee and not of property owned by him, and that s.50C accordingly applies to the transfer or assignment of leasehold rights in land allotted by MIDC. The Court said it was not in agreement with the Mumbai Tribunal's decision in Atul G. Puranik, which cannot be considered good law, and that CIT v. Greenfield Hotels & Estates is of no assistance once that decision goes.
SEBI has found that the broker rigged the price of the scrip I sold. Does that finding by itself make my capital gain bogus? No. The Bombay High Court dismissed the Revenue's appeal where the shares had been bought on the floor of the Kolkata Stock Exchange through a registered broker, paid for by cheque, held in demat for more than a year and sold on the floor of the exchange with contract notes and bills produced and the sale proceeds received from the exchange. The Assessing Officer's case was that the scrip was a penny stock, that the broker had been found by SEBI to have manipulated the price through synchronised cross-deals, and that the price had gone from Rs. 3.12 to Rs. 155.04 in two years. That was held not to be enough, because the price manipulation was the broker's conduct and nothing connected the assessee to it.
My long-term capital gain on a listed share has been treated as bogus because the scrip appears in the investigation wing's penny-stock report — can the department do that when all my paperwork is in order? It depends, and this record cannot tell you which way this batch went. The Calcutta High Court heard the Revenue's appeals under section 260A against a common Tribunal order of 26 June 2019 that had allowed some 90 assessees' appeals on penny-stock long-term capital gains. The questions framed were whether the Tribunal ignored the direct and circumstantial evidence of price manipulation, whether its order was perverse, and whether the exemption and the related commission disallowance were rightly deleted. The harvested text carries the facts and the parties' arguments but stops before the Court's reasoning and order, so the holding is not stated here.
The Assessing Officer has added my long-term capital gain on a share whose price rose 4,849%, relying on the Investigation Wing's penny-stock report. Is the price rise by itself enough? No. The Delhi High Court accepted that the price movement and the company's financials were odd, and still refused to sustain the addition. The assessee had bought online, paid through a bank, held the shares in demat form and sold through the demat account with sale proceeds received by banking channel. The officer issued notices under ss.133(6)/131 to the company and to the entity that had paid for the shares; they produced nothing and came back unserved, and he then went no further. On that record the Court held the finding that there was an arrangement to convert unaccounted money was an assumption based on conjecture, and that suspicion is not proof. Read it with the contrary Calcutta line in PCIT v Swati Bajaj, which the library also carries.
Our company transferred shares to a group entity without consideration. Is that a gift outside capital gains under s.47(iii)? No, not on these facts. A transfer without a price is not automatically a gift. The Court applied s.122 of the Transfer of Property Act and found neither of the two essentials - the transfer was not voluntary, and it was made for consideration in the shape of the private equity investment the restructuring was built around. The transfer therefore attracted s.45 and was chargeable as capital gains.
The circle rate rose between our agreement and the sale deed, and my year is earlier than the proviso. Is there a High Court holding on the agreement-date proviso? Yes. The Madras High Court dismissed the department's appeal where the agreement fixing the price at Rs. 19 crores was dated 4 August 2012 and the sale deed was registered on 2 May 2013, by which time the guideline value stood at Rs. 27 crores. It held two things: an Assessing Officer cannot rest a capital gains computation on the State guideline value alone, that value being only a prima facie indication of market value; and the proviso to s.50C(1), inserted to relieve an assessee from undue hardship, is to be taken as retrospective, so it governs a transfer completed before 1 April 2017.
The officer says I already owned more than one residential house on the date of transfer, so s.54F is out. Some of those flats are let out for commercial use. Does that count? Usage decides it, not the sanction plan. The Karnataka High Court held that in applying the condition in the proviso to s.54F(1) the use to which a property is actually put has to be considered in deciding whether it is residential or commercial. The assessee owned nine flats; the Revenue conceded that seven were sanctioned for commercial purposes, and the remaining two, though sanctioned as residential, were being run as serviced apartments. Those two could not be treated as residential apartments. The Court also held, as an alternative ground, that two apartments of 500 square feet in the same building have to be treated as one residential unit.
The officer refused me cross-examination of the person whose statement he used. Does that alone get the addition deleted? Not by itself, and this case shows why. The assessee's counsel argued in the Madras High Court that she had been denied the opportunity to cross-examine Shri Deepak Patwari, on whose sworn statement before the Investigation Wing the addition rested. The Court did not reject the principle. It dismissed the appeal because she had not co-operated in the assessment, had not appeared before the CIT(A) on any of five hearing dates, and had put no evidence on record to show that the statement was wrong or to explain how she came to identify and sell the scrip. The concurrent findings that the transaction was sham and taxable under s.68 were therefore not perverse.
I booked a flat in 2004 and only signed the agreement in 2008. Does my holding period run from the allotment letter? Yes. Applying CBDT Circulars 471 and 672, the Bombay High Court held that the date of allotment is the date on which the purchaser of a residential unit acquires the property, so the holding period runs from the allotment letter and not from the later agreement. The allottee gets title on the allotment letter; paying the instalments and taking possession come afterwards. The Revenue's appeal was dismissed and the gain stayed long-term.
We left some written-off assets out of the business transfer. Does that stop it being a slump sale? No. The definition of 'undertaking' does not require every asset on the transferor's books to pass. If the business activity taken as a whole moves — live contracts, employees, tangible assets and know-how — leaving out bad debts and assets already written off does not take the transaction outside s.2(42C) read with s.50B.
I bought shares of an Indian company from two Mauritius sellers holding valid tax residency certificates. Must I withhold tax on the price, and can the Authority refuse a ruling by calling the structure tax avoidance? No withholding was required. The Punjab and Haryana High Court quashed the Authority's order declining a ruling under section 245R and, rather than remand, decided the questions itself. It held the Mauritius sellers were residents of Mauritius on their certificates of residence, which the Revenue could not go behind, that 'liable to taxation' in Article 4 does not mean tax actually paid, and that under Article 13(4) of the India-Mauritius treaty gains on alienation of property other than that in paragraphs 1 to 3 — which includes shares, with no limitation by situs — are taxable only in Mauritius. No capital gains tax was payable and the purchaser was not liable to withhold under section 195.
My land is more than eight kilometres from the municipal limit by road but within eight kilometres as the crow flies. For years before 2014, was it a capital asset? No. The Bombay High Court, Nagpur Bench, held that for assessment years before the amendment took effect the distance under section 2(14)(iii)(b) is to be measured by the shortest road distance and not aerially. The amendment prescribing aerial measurement came into force on 1 April 2014 and, as the CBDT circular itself says, applies prospectively from assessment year 2014-15; the very need for the amendment shows there was confusion earlier, and the benefit of that must go to the assessee. Section 11 of the General Clauses Act therefore had no application to assessment year 2009-10. The Revenue's appeals were dismissed.
I sold property in February and put Rs.50 lakh into bonds in March and another Rs.50 lakh in June, both within six months. Can I claim section 54EC on the whole Rs.1 crore? Yes, for transfers before the 2014 amendment. The Madras High Court held that section 54EC(1) fixes a six month window for investment, while the first proviso caps investment at Rs.50 lakh in any financial year. Read together, an assessee who invests Rs.50 lakh in each of two financial years, both within six months of the transfer, gets the exemption on the full Rs.1 crore. The Court declined to read the ceiling into the sub-section itself. Parliament closed the gap by a second proviso inserted by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, so the answer is different from assessment year 2015-16 onwards.
Two non-residents sold shares of a foreign company that draws only part of its value from Indian assets. Does Explanation 5 to section 9(1)(i) make those gains taxable in India, and must the buyer withhold? No. The Delhi High Court dismissed the Revenue's writ petitions and upheld the Authority for Advance Rulings. Explanation 5 to section 9(1)(i) is a legal fiction confined to its purpose, and 'substantially' in it must be read as principally, mainly or at least a majority. Gains on the sale of shares of a company incorporated overseas which derives less than 50 per cent of its value from assets in India are not taxable under section 9(1)(i) read with Explanation 5. The Court also rejected the case that the structure was a device: the transactions had a commercial rationale, and the Mauritian companies were not shell companies whose corporate identity could be ignored.
I put the whole sale consideration into building a house within the section 54F time limit but never opened a Capital Gains Account. Can the officer deny me the exemption on that ground alone? No. The Karnataka High Court held that section 54F(4) is attracted only where the net consideration is not used to purchase or construct the house. If the assessee actually invests within the periods in section 54F(1), the deposit requirement never comes into play and exemption cannot be refused for want of a Capital Gains Account Scheme deposit. The Court also held there is no bar on constructing the new house on a site the assessee already owns; investments in that construction within one year before and three years after the transfer qualify. All four Revenue appeals were dismissed.
The AO adopted the stamp duty value and I never asked for a DVO reference. Can he do that? No. Where the stamp duty valuation exceeds the stated consideration, the Assessing Officer must refer the valuation to the DVO under s.50C(2), and must do so even where the assessee never asked. Recording the Sub-Registrar's value in the deed does not show that the seller accepted it, because the stamp duty burden falls on the purchaser.
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.
My client sold two lots of long-term shares in the same year — one at a loss on shares whose gain would have been exempt under s.10(38), the other at a taxable gain. Can the loss be set off against the gain? On this Gujarat High Court decision, no. Because s.10(38) keeps the income arising from such a capital asset out of the computation of total income altogether, the loss arising on the same class of asset is likewise not includable, and is therefore not available for set-off under s.70(3) or for carry forward under s.74. The Court rejected the argument that 'income' in s.10(38) does not include 'loss'.
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.
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.
A partner took money in full settlement of his share when the firm was dissolved. Is he personally liable to capital gains? No. The Andhra Pradesh High Court held that a partner who receives the money value of his share on dissolution is not making a transfer; he is having his account made up. The Court also held that when Parliament inserted s.45(4) with effect from 1 April 1988 it deliberately placed the charge on the firm and not on the partner. On that second point the position is unchanged after the Finance Act 2021: both s.9B and the substituted s.45(4) charge the specified entity, not the partner.
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.
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.
I sold my house, bought the new one after 31 July but before the end of the assessment year, and never opened a Capital Gains Account — do I lose the section 54 exemption? No. The Punjab and Haryana High Court held on 3 October 2011 that the due date in section 54(2) for furnishing the return under section 139(1) is subject to the extended period allowed by section 139(4). Sub-section (4) is not an independent provision; it operates on the time allowed by sub-section (1) and must be read with it, functioning in effect as a proviso to it. So an assessee who buys or constructs the new house, or deposits the gain, before the section 139(4) date keeps the exemption. Here the sale was on 13 January 2006, the purchase on 2 January 2007, and the return filed on 28 March 2007.
I paid the whole price of the new house but put my wife's name on the deed alongside mine. Will the officer cut my section 54F exemption to half? No. The Delhi High Court held that section 54F requires the assessee to purchase a house; it does not require the house to be purchased in his name only. Where the assessee provided the entire consideration, paid the stamp duty, corporation tax, commission and legal expenses, and the wife contributed nothing, he is the real and constructive owner and the conditions of the section are met. Adding a wife's name is conduct to be encouraged rather than penalised. The section is a beneficial provision to be construed liberally and purposively, and the exemption on the full Rs.3.18 crore was allowed. The Revenue's appeal was dismissed with costs.
I put the whole sale consideration into land and started building, but the house was not finished when the officer inspected. Do I lose section 54F? No. The Madras High Court dismissed the Revenue's appeals and upheld the exemption. The assessees had invested the entire net consideration in the land and then spent large sums on construction, and neither the cost of the land nor the construction expenditure was disputed. The only ground for refusing the exemption was that the houses were not complete when the Assessing Officer visited. That is not the test. The Court held that Circular No. 667 does not support the Revenue's reading that construction must be completed, and it approved the Tribunal's consistent view that it is enough if the assessee establishes that the entire net consideration was invested within the stipulated period.
Our family rearranged shareholdings among ourselves to head off a dispute. Is that a transfer attracting capital gains tax? No. The Madras High Court dismissed the Revenue's appeals and held that a realignment of interest by way of a family arrangement is not a transfer, so no capital gains tax arises. The Tribunal had found the rearrangement of shareholdings was a prudent arrangement to avoid possible litigation among family members and to let the major shareholders control the company effectively, and that it was voluntary and not induced by fraud or coercion. The Court held such an arrangement, made to compromise doubtful or disputed rights or to preserve family property, peace and honour, cannot be treated like a dealing between strangers. No substantial question of law arose.
I did not put the unused capital gain into the capital gains account scheme by the due date under section 139(1). Have I lost the section 54 exemption? Not necessarily. The Gauhati High Court dismissed the Revenue's appeal and upheld the exemption for the whole gain of Rs 29,73,048. Section 54(2) requires the unutilised gain to be deposited before the date of furnishing the return of income under section 139, and section 139 there cannot mean only section 139(1); it means all the sub-sections, including sub-section (4). So an assessee who utilises the gain before the time allowed by section 139(4) has complied. The Court applied the settled rules that a beneficial provision is construed to advance its purpose and that no words are to be added to a plain provision.
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.
Our family split the firms by a settlement and gave assets to the partners who retired. There was no dissolution, so section 45(4) cannot apply, can it? It can. The Bombay High Court held that otherwise in section 45(4) is not to be read ejusdem generis with dissolution. It goes with the words transfer of capital assets by way of distribution of capital assets, so where a subsisting firm hands assets to a retiring partner the firm's right in the property is extinguished and there is a transfer chargeable under section 45(4), with the fair market value on the date of transfer deemed to be the full value of consideration. The Court accepted that there was no dissolution and that the family settlement was genuine and not a device, but allowed the Revenue's appeals and restored the assessments.
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.
Our partnership firm became a limited company under Part IX of the Companies Act. The Assessing Officer wants capital gains 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 neither section 45(4) nor section 45(1) was attracted. Section 45(4) needs a transfer by way of distribution of capital assets, and statutory vesting under Part IX is not distribution, which presupposes division, realisation and appropriation of the proceeds. Section 45(1) fails because there is no party and counterparty and no consideration coming to the firm: the same entity simply exchanges one cloak for another. And even if vesting were a transfer, section 48 allows only the consideration actually received or accrued, not market value, which is deemed only by section 45(4). Depreciation was also allowed.
I signed a development agreement years ago but the builder only got the approvals and paid the last instalment later. Which year do I pay capital gains tax in? The year the contract was entered into, if the contract read as a whole passes complete control of the property to the developer. The Bombay High Court held that section 2(47)(v) exists precisely because a development agreement transfers no interest under the general law, so capital gains can fall due before conveyance and even before physical possession. Where the agreement itself contemplates a limited power of attorney letting the developer deal with the property, the date of that agreement fixes the year of chargeability, and what the developer did afterwards is beside the point. On the facts the assessee's appeal was allowed, because the transfer did not fall in assessment year 1996-97.
My company made a long term capital gain on selling land. Does that gain go into book profit for minimum alternate tax, or can I keep it out as a capital item? It goes in. The Bombay High Court held that capital gains must be included in computing book profits under section 115J. Total income under the Act itself includes capital gains under section 45, so there is no reason to leave them out of the book profit computation. Schedule VI to the Companies Act requires a company to disclose in its profit and loss account credits and receipts from non-recurring or exceptional transactions, whatever their character, and profits on transactions not usually undertaken. A capital surplus cannot simply be routed to a capital reserve to keep it out. The Department's appeal was allowed.
Our family settled a long-running property dispute by realigning who holds what, with cash passing between the branches. Is that a transfer that attracts capital gains? No. The Madras High Court held that a bona fide family arrangement, which merely realigns existing interests among members of the same family, is not a transfer and gives rise to no chargeable capital gain. The arrangement here was reached before panchayatdars to end a family dispute, and the Tribunal had found it voluntary and free of fraud or collusion. The Court applied the principle that family arrangements are governed by rules that do not apply to dealings between strangers. The question referred at the Revenue's instance was answered in favour of the assessee.
I sold my house and put the money into a flat a co-operative society is building. The building is not finished. Have I constructed a house for section 54? Yes, on these facts. The Bombay High Court held that a member who acquires the right to a specific flat in a building being constructed by a co-operative society, and who pays substantially the whole cost of that flat within the statutory period, has constructed a house property for the purposes of section 54. The test is domain over the flat and investment in it. Formation of a society to build flats is simply the way residential tenements are constructed in a city like Bombay, and the section must be read in that context. The reference was answered in favour of the assessee.
I sold farmland to a housing society after taking permission to sell it for residential use. Was it still agricultural land, so that no capital gains arise? Yes, on these facts. The Gujarat High Court held the land remained agricultural on the date of sale, so the surplus was not chargeable as capital gains. It set out thirteen factors that bear on the question and held that not all will appear in any case and the decision must be reached on a balanced consideration of the totality of circumstances. Here the land was in the revenue records and bore land revenue, had been cultivated for three of the years the assessee held it, lay outside municipal limits in an undeveloped area, and the assessee never obtained permission for non-agricultural use. Both questions were answered for the assessee.
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.
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.
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.
I bought shares of a distressed company in an NCLT auction at Rs 3.59 and sold some months later at Rs 2.40. The officer used the balance sheet to value them at Rs 104 under rule 11UA. Can he? Not on that basis. The Chennai Tribunal held that fair market value postulates a realistic and commercially viable valuation, and that rule 11UA cannot be applied mechanically to book figures where about Rs 125 crore of the assets were irrecoverable, belonged beneficially to the company in liquidation under clause 3.2.1 of the share purchase agreement, and had been treated as unrealisable by the resolution professional. Section 50CA is a deeming provision but cannot produce absurd or commercially impossible results. The Tribunal rejected the officer's Rs 104.917 per share, and also declined to accept the declared Rs 2.40, fixing fair market value at the auction price of Rs 3.59 per share.
I sold the same company's unquoted shares twice in one year at very different prices. Can the AO apply s.50CA using the later valuation? No. Section 50CA is not a licence to substitute a later valuation for the price actually charged unless understatement is shown, and a certified valuation report cannot be discarded without the officer identifying what is wrong with it. The reports of the order also record the Tribunal as holding that both the net asset value method and the discounted cash flow method are recognised under Rule 11UA and that the seller may choose either for a particular transfer. That further proposition does not follow from the rules as printed: Rule 11UAA sends a s.50CA valuation to sub-clause (b) or sub-clause (c) of clause (c) of Rule 11UA(1), sub-clause (b) is closed arithmetic with no merchant banker in it, and the discounted cash flow method appears only in Rule 11UA(2), which is expressed to serve clause (viib) of s.56(2). Read the order before relying on the method-choice point.
The officer has taken the cost of my bonus shares as nil and taxed the whole sale price under s.112A. Does the grandfathered value as on 31 January 2018 not apply to bonus shares? The Mumbai Tribunal held that it does. Bonus shares on which securities transaction tax has been paid fall within s.55(2)(ac), which is a special computation code for shares eligible under s.112A, and it prevails over the general rule in s.55(2)(aa) that takes the cost of bonus shares as nil. Taking the cost as nil inside the s.112A regime would tax appreciation up to 31 January 2018 and defeat the grandfathering the section was enacted to preserve. On the facts the fair market value as on 31 January 2018, taken at Rs. 500 per share from the assessee's valuation report, was adopted as the cost of acquisition. Read all of this against the amendment the order turns on: the Finance (No. 2) Act, 2024 inserted clause (AA) into Explanation (a)(iii) of s.55(2)(ac), supplying a fair market value for exactly this class of shares - equity shares not listed on 31 January 2018 but listed afterwards, on a sale of unlisted shares under an offer for sale in an initial public offering - and Parliament expressed it to take effect from 1 April 2018, that is retrospectively, from assessment year 2018-19 onwards, which covers the assessment year decided here. Parliament has therefore already legislated over the gap the principal ground relies on. The Tribunal held that insertion substantive rather than clarificatory and so incapable of reaching a transaction already completed; if that characterisation is wrong, the principal ground does not survive. This is a Tribunal decision from October 2025 on a very large sum and its final fate is not known.
A new partner came into an LLP, my profit share fell and an amount was credited to my current account. Am I taxable on it? On this order, for a pre-2021 year, no. The Chennai Tribunal held that where an existing partner does not retire but simply sees his profit-sharing ratio reduced on the admission of a new partner, there is no transfer under s.2(47), because during the subsistence of the firm a partner has no defined share in its assets and nothing is relinquished. The Tribunal also held that the revaluation of the LLP's assets, credited to partners' accounts before the new partner came in, did not by itself give rise to capital gains. It recorded expressly that s.9B and the substituted s.45(4) are prospective and had no application to assessment year 2017-18.
The stamp value rose between booking and registration and the AO added the difference under 43CA. Is that right? Not where sub-sections (3) and (4) of s.43CA are satisfied. The Pune Tribunal deleted the entire addition because the booking dates preceded registration, the agreement values at booking exceeded the stamp duty values then prevailing, and part of the consideration had come through banking channels, so the agreement-date value governed.
The Assessing Officer has adopted the jantri value for my land sale because a co-owner's assessment used it, even though I objected that the title was defective. Must he refer the valuation to the DVO instead? Yes. The Ahmedabad Tribunal held that once the assessee objects that the stamp duty value exceeds the fair market value, the Assessing Officer is duty bound to refer the valuation to the Departmental Valuation Officer under section 50C(2). He cannot adopt the jantri value simply because the officer assessing a co-owner did so. Here the assessee had raised serious objections about defective and disputed title, and the officer knew of them. The Commissioner (Appeals) was right to delete the addition made by substituting the jantri value of Rs 4,98,83,550 for the DVO's earlier valuation of Rs 3,17,86,000, and the Revenue's appeal was dismissed.
Section 43CA got a 5 per cent tolerance band in 2018 and 10 per cent in 2020. Does the band help an earlier year, as Maria Fernandes Cheryl says it does for s.50C? The Raipur bench said no. It held that the first proviso to s.43CA, inserted by the Finance Act 2018 with effect from 1 April 2019, applies prospectively from assessment year 2019-20, and it refused to read it as curative and retrospective. Its reasons were that before the 2018 amendment no tolerance limit was contemplated at all in s.43CA, that the explanatory notes state the amendment takes effect from 1 April 2019 and applies to assessment year 2019-20 and subsequent years, and, applying the distinction drawn by the Supreme Court in Shree Choudhary Transport Co., that this was a substantive change rather than a curative one. It followed a Mumbai coordinate bench decision in Welfare Properties P. Ltd. The addition was upheld. This entry is included precisely because it cuts against the assessee, and a practitioner should know the argument he is walking into.
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.
My land was compulsorily acquired and the award was made after 1 January 2014 but the proceedings began under the 1894 Act. Is the compensation taxable? No, on the Tribunal's reasoning. The Mumbai Bench held that where the award is made after the Land Acquisition Act, 1894 stood repealed, the acquisition is governed by the RFCTLARR Act, 2013, and section 96 of that Act provides that income-tax shall not be levied on any award or agreement made under it except as provided in section 46. Section 46 was not attracted, so the compensation of Rs. 69,92,42,974 was not chargeable at all. Because the exemption operates at the level of the charge and not through section 10(37), the Revenue's objections that section 10(37) covers only individuals and Hindu undivided families, and only agricultural land, did not arise. The appeal was dismissed.
I lent a relative dollars and the rupee moved. Is the extra rupee amount I got back taxable? No, on these facts. The Tribunal held the rupee surplus on repayment of an interest-free loan advanced in foreign currency was a capital receipt: the loan was a transaction in the capital field, exactly the same number of dollars came back, the accretion was on account of exchange fluctuation and not interest, and a capital receipt is outside the charge unless a provision brings it in. It also held that whether the loan was permissible under the exchange control law is not for the income-tax authorities to adjudicate. The addition of Rs 22,04,568 made under income from other sources was deleted.
Our sale price is a few per cent below the stamp duty value, and the year is before the tolerance band was enacted. Can we still get the benefit of it? Yes, on this reasoning. The Mumbai bench held that the third proviso to s.50C(1) - the tolerance band, 5 per cent when inserted by the Finance Act 2018 and 10 per cent from the Finance Act 2020 - is curative. It was brought in to cure an unintended consequence of an anti-avoidance provision, namely that genuine small variations between the stated consideration and the circle rate were being treated as understatement. A curative amendment relates back, and the Tribunal held that the proviso as it now stands takes effect from 1 April 2003, the date s.50C itself came into force. On a variation of 6.55 per cent the addition was disapproved. The Tribunal also refused, pointedly, the Departmental Representative's request that the relief be recorded as a special case not to be treated as precedent.
The officer says my long-term capital loss on listed shares cannot even be determined, because gains on those shares would have been exempt under s.10(38). Is there authority the other way? Yes. The Kolkata Tribunal held that the judicial concept that 'income' includes 'loss' applies only where the entire source of income falls outside the charging provisions; where the source — capital gains — remains chargeable and s.10(38) exempts only one specie of income arising from it, the concept does not apply. It directed the Assessing Officer to assess the long-term capital loss on the sale of listed shares and to allow its carry forward.
The land is recorded as agricultural in the revenue records. Is that enough to keep it outside s.2(14)? No. The Tribunal upheld the addition. The land lay within eight kilometres of municipal limits, no crop had been grown on it in the years before sale, and the sale deed itself described it as residential land with structures on it, so it was a capital asset under s.2(14) and s.50C applied to the consideration.
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.
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.
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.
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.
I held shares in physical form for years and dematerialised them just before selling. The AO says my holding period runs from the demat date. Is he right? No. The date of purchase is taken from the broker's note or contract note, and the period of holding runs from that date, not from the date of dematerialisation. The Assessing Officer had converted a long-term gain into a short-term one by treating the demat date as the date of acquisition and the market price on that date as cost; the Tribunal rejected both moves.
Our Dutch company is moving its Indian subsidiary's shares to another group company in the Netherlands. If the gain is exempt under the treaty, do we still have to withhold, file a return and do a transfer pricing study? No, on all four counts. The Authority ruled that no taxable capital gain arose in India on Vanenburg Group B.V.'s proposed transfer of its shares in Cordys R&D (India) Pvt Ltd to Cordys Holding B.V., because article 13(5) of the India-Netherlands agreement leaves such gains taxable in the Netherlands where the transfer is part of a corporate reorganisation and the alienator holds at least ten per cent of the transferee. It followed that the transferee need not withhold under section 195, that no return was required under section 139, and that the transfer pricing provisions in sections 92 to 92F did not apply. The ruling binds only Vanenburg.
We are a UK company registered as an FII, trading index and stock futures and options on Indian exchanges through brokers and custodians. Is that income taxable in India? No. The Authority ruled that the income derived by Morgan Stanley and Co. International Limited, a UK resident, from trading in exchange-traded derivative instruments in India would not be taxable in India under the India-UK agreement. It held first that income from derivative trading is business income and not capital gains, derivative contracts being excluded from the definition of capital asset. Business profits are taxable in India only through a permanent establishment, and the brokers, custodians and bankers the applicant used were independent agents acting for many clients in the ordinary course of their business, so no permanent establishment arose under article 5. The ruling binds only that applicant.
Our US fund buys and sells Indian shares through local brokers and a custodian bank. Are our gains business profits or capital gains, and does the custodian give us a permanent establishment? Business profits, and no permanent establishment - so the fund won. The Authority ruled that the gains arising to Fidelity Advisor Series VIII from sales of its portfolio investments in India were its business profits covered by article 7 of the India-US convention, the shares and securities being held as business assets. It further ruled that the fund had no permanent establishment in India under article 5: it had no branch, office, employee or dependent agent here, and Standard Chartered Bank, its domestic custodian, was an independent agent within paragraph 5 of article 5. Without a permanent establishment the fund was not taxable in India under the convention. The ruling binds only that applicant.
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.
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.
My client's flat was allotted by a co-operative society, not the D.D.A. Does Circular 471 still help? It depends — on whether the society's scheme is similar. The Board decided that where the terms of the schemes of allotment and construction of flats or houses by co-operative societies or other institutions are similar to those in para 2 of Circular 471, those cases may also be treated as cases of construction for s.54 and s.54F. The comparison with para 2 is the whole of the test, so the work is in showing the similarity, not in citing the circular.
Is a flat allotted under a self-financing scheme a purchase or a construction for s.54 and s.54F? Construction. The Board decided that allotment of a flat under the Self-Financing Scheme of the D.D.A. is to be treated as a case of construction, not purchase, so the three-year window applies rather than the one-year-before or two-years-after window. In reaching that view the Board recorded that the allottee gets title on the issue of the allotment letter and that paying the instalments and taking possession come afterwards — a sentence that has since done a great deal of work outside s.54 and s.54F.
I assigned my leasehold plot for less than the circle rate. Can the officer substitute the stamp duty value under s.50C? No, on this Tribunal's reasoning. Section 50C(1) is worded 'land or building or both' and not 'any right in land or building', and the Delhi Tribunal held the two expressions are distinct, so a transfer of leasehold rights in land or building falls outside the section and the stamp duty value cannot be substituted. Read this together with the Bombay High Court decision in Vidarbha Veneere Industries, which has since taken the opposite view.
We sold our global beer brand and the Indian trade marks went with it. Is any part of the price taxable in India, and can the split be made on our own valuation? It depends, and the Authority split it. It ruled that the trade marks and the Foster's brand intellectual property were capital assets situated in India when they were transferred in 2006, so that income was deemed to accrue here under section 9(1)(i), article 13(6) of the India-Australia agreement leaving domestic law untouched. The brewing intellectual property was different: the manuals had reverted to the applicant in Australia and were handed over there, so it was not situated in India. On the second question the Authority refused to work from the applicant's own valuation, holding that the entire consideration for the Indian assets is gross income and leaving the assessing officer to apportion.
Nothing here is written from memory. Every entry was found through a search, and the page for it links to where it was found, so you can check it rather than take our word for it. What has not happened yet is the part that matters most: nobody has read the certified copy of each judgment and signed off the summary against it. Until that is done, each page says Not yet CA-verified, and it means exactly what it says. Read the source before you rely on an entry in a reply to an Assessing Officer or in an appeal.