Computing the gain: what counts as a transfer and when, stamp duty value against stated consideration, indexation, and depreciable assets. 203 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.
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.
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.
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.
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.
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.
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? 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.
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 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.
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.
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.
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 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.
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.
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.
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.
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.
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.
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.
The e-filing utility forces my client's STT-paid short-term loss against STT-paid gains first and will not let him claim the sequence he wants. Is his only option to file the return the utility's way and argue later? No. The Bombay High Court held that the procedure of filing a return cannot bar an assessee from making a claim under the Act which he feels he is entitled to, and directed the CBDT to modify the utility so that the petitioner could set off the STT-paid short-term capital loss against the non-STT short-term capital gains first, failing which the Assessing Officer was to accept a revised return for AY 2025-26 in paper mode.
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.
The Tribunal split my client's land acquisition interest into 9 per cent as capital gains and 15 per cent as income from other sources. Is that right? The Kerala High Court says no. It held that interest amounts received in respect of delayed payment of compensation under the Land Acquisition Act are treated as accruals to the principal compensation amount and are classified as capital gains, so that where the land compulsorily acquired is agricultural land the interest also gets the benefit of s.10(37). Because such interest is not interest as defined in s.2(28A), s.56 is not attracted at all.
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.
My client's auditor could not upload Form 3CEA with the return and the Assessing Officer has disallowed the whole slump sale loss for that reason alone. Is the report a condition precedent? No. The Calcutta High Court dismissed the Revenue's appeal and answered the question against it: furnishing Form 3CEA within the due date for the return is not a mandatory condition, and a report produced during the assessment proceedings before the final order is sufficient compliance. It applied the Supreme Court's decision in CIT v. G.M. Knitting Industries Private Limited.
My client received interest on enhanced compensation for compulsorily acquired land. Ghanshyam says it is part of compensation. Does that still hold? Not in the Delhi High Court. It held that on a conjoint reading of s.56(2)(viii) and s.145B, interest received on compensation or on enhanced compensation is chargeable under the head 'income from other sources', and that the conclusions drawn from CIT v Ghanshyam (HUF), decided in 2009, are unsustainable because the position as it exists today came into being only in 2010. The Tribunal was held to have erred in following Ghanshyam and ignoring the changes made by the Finance (No.2) Act 2009 with effect from 1 April 2010.
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.
I signed a joint development agreement before April 2018 and the project completion certificate came much later. Can I claim the benefit of section 45(5A) and defer my capital gain to the completion year? No. The Patna High Court held that sub-section (5A) of section 45, inserted by the Finance Act 2017 and expressly made effective from 1 April 2018, cannot be treated as retrospective — neither by its express words nor by any necessary intendment. A joint development agreement entered into by an individual or HUF before 1 April 2018 continues to be governed by the pre-amendment law, that is by section 2(47)(v) read with sections 45 and 48, so the gain falls in the previous year in which the transfer was effected.
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.
My client's commercial property was compulsorily acquired for a metro project and tax was deducted at source on the compensation. Section 10(37) does not help because the land is not agricultural. Is there anything else? Yes — section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, which provides that no income tax or stamp duty shall be levied on any award or agreement made under that Act except one under its section 46. The Karnataka High Court held that where the acquisition was initiated after 1 January 2014 the compensation had to be paid under the 2013 Act, and that on a conjoint reading of section 96 of that Act, CBDT Circular No. 36/2016 dated 25 October 2016, the second proviso to section 194LA of the Income-tax Act and section 10(37), such compensation is exempt both from income-tax and from tax deduction at source. The writ petitions were allowed, the awards and endorsements quashed, and a refund of the TDS with interest directed.
I gave up my rights under an agreement to purchase land and the property was conveyed by the owner with me signing as a consenting party. The Assessing Officer has substituted the guidance value under section 50C. Does section 50C reach a right in land at all? The Karnataka High Court held that it does not. Section 50C speaks of 'land or building or both'. Explanation 1 to section 2(47) uses the wider expression 'immovable property', and wherever Parliament meant land to carry rights or interests in land with it, it said so - the Court listed section 35(1)(a), section 54G(1), section 54GA(1), section 269UA(d) and the Explanation to section 155(5A). From the plain and unambiguous language of section 50C the Court held that it does not apply to a case of rights in land, and on these facts that the section applies only to a transferor of land, which was the owner and not the assessee, who was only a consenting party and not a transferor or co-owner. The Bombay High Court has since taken the opposite view.
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.
For a year after 2010, is the interest I received under s.28 of the Land Acquisition Act still capital gains following Ghanshyam, or has s.56(2)(viii) changed that? The Punjab and Haryana High Court held that the insertion of s.56(2)(viii) and s.57(iv) has changed the position, and that interest received on compensation or enhanced compensation is to be treated as income from other sources and not under the head capital gains. It said in terms that Ghanshyam does not come to the rescue of a claimant seeking to have s.28 interest treated as compensation, and it expressly recorded its disagreement with the Gujarat High Court in Movaliya Bhikhubhai Balabhai.
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.
My firm was converted into a company and the shares were allotted to the partners in phases over three years. Has the s.47(xiii) exemption gone, and if so who pays — the firm or the company? Yes, on this High Court's view the exemption goes, and the company pays. Clause (b) of the proviso to s.47(xiii) prescribes no time limit, but the Karnataka High Court held that the allotment must be completed before the end of the previous year in which the succession takes place; a delay of three and a half years is not a 'reasonable period'. Because a condition in the proviso was not complied with, s.47A(3) fixes the capital gains liability on the successor company, not on the erstwhile firm.
My proprietary concern was taken over by a company and the proprietor took some cash as well as shares. The AO is invoking s.47A(3) against the company. Can he, when we never claimed s.47(xiv)? No. The Punjab and Haryana High Court held that s.47A applies only if it is established that s.47 was pressed into service; in the absence of any finding that s.47 was invoked to claim exemption from capital gains on the succession, the deeming provision in s.47A(3) cannot be invoked. On the facts, s.47(xiv) had no application at all because the proprietor had received cash consideration of Rs.5,81,231, contrary to proviso (c), and had not received shares as consideration for the brand name.
The assessing officer says my client's share gains are business income because he traded frequently. My client held the listed shares for more than twelve months and has always shown them as investment. Does the CBDT circular stop the officer? Yes, on the Gujarat High Court's reading it does. Where listed shares and securities have been held for more than twelve months immediately preceding the transfer and the assessee desires to treat the gain as capital gain, clause (b) of the CBDT circular dated 29 February 2016 means the Assessing Officer shall not put that to dispute — the only rider being that the stand taken in one assessment year must be followed in later years.
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.
The Assessing Officer has measured the 8 km from the municipal limit to the edge of my village, not to my field, and has measured it as the crow flies. Which is right? For a year before assessment year 2014-15, neither. The Delhi High Court held that the distance under s.2(14)(iii)(b) had to be measured from the agricultural land itself to the outer limit of the municipality, by road and not by the straight line or aerial route, and dismissed the Revenue's appeal. The measuring-point holding — from the land, not from the village in which the land lies — still stands; the road-versus-aerial holding does not, because the Finance Act 2013 substituted item (b) with effect from assessment year 2014-15 so that the distance is now measured aerially.
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.
The Assessing Officer says s.54B is only for long-term assets, that I cannot show two full years of agricultural use, and that part of the new land is in my wife's name. Where do I actually stand? On this Punjab and Haryana decision you win the first point and lose the third. Section 54B speaks of 'a capital asset being land', not of a long-term capital asset, so the exemption is available even where the land was held for less than three years; but the two-year agricultural use must cover the whole of the two years immediately preceding the transfer, and the exemption is confined to what the assessee himself paid — the part of the price paid by his wife gets no relief.
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 a building on which depreciation had been claimed in earlier years. The Assessing Officer applies s.50, calls the gain short-term and refuses the bond exemption. Can he? Not on this Gujarat decision, for two independent reasons. Section 50 applies only where the asset both is depreciable and forms part of a block of assets, so an asset withdrawn from business use before the block-of-assets scheme began never entered a block and s.50 does not reach it. And in any event the legal fiction in s.50 is confined to the computation of capital gains and cannot cut down s.54EC, which exempts the gain where the assessee invests in the specified asset.
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.
My client keeps a separate investment portfolio and a separate trading portfolio in shares. The officer says the whole activity is business. Can he do that? Not where the two portfolios are genuinely kept and the department has accepted the split in earlier years. The Delhi High Court held that the intent and purport of CBDT Circular 4/2007 is to demonstrate that a taxpayer could have two portfolios, so that gains out of the investment account are capital gains and gains out of the trading account are business profits.
I sold my agricultural land in small plots over several years, leaving roads and drains. The Assessing Officer has taxed part as business income and part as capital gains and invoked s.45(2). Can he split it like that? Yes, on facts like these. The Allahabad High Court upheld a finding that land held in an urban area as a capital asset, carved into 43 plots of 60 to 1,815 sq. mtrs. and sold over seven years with roads and drainage provided, had been converted into stock-in-trade, so that s.45(2) applied and the profits on sale were business income. Both substantial questions were decided in favour of the Revenue and the appeals were dismissed.
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.
I sold my agricultural land and put the replacement land in my son's and daughter-in-law's names. The Assessing Officer says s.54B is gone. Is he right? On this Rajasthan High Court decision, yes. Where the land sold stood in the assessee's name and the replacement land was bought in the names of his son and daughter-in-law, s.54B was refused: the word 'assessee' must be given a legal, not a liberal, interpretation, and a bare reading of s.54B does not extend the exemption to land purchased in another's name.
My client moved its finance division to a subsidiary under a scheme of arrangement sanctioned by the Company Court, not under a sale deed. The Settlement Commission has taxed it under s.50B. Can a statutory scheme be a slump sale at all? Yes. The Delhi High Court held that the word 'sale' inside the expression 'slump sale' does not cut down the wide meaning of 'transfer' in s.2(47), so any transfer of an undertaking for a lump sum without values being assigned to individual assets falls within s.2(42C) and s.50B — including a transfer effected by a scheme sanctioned under ss.391-394 of the Companies Act 1956. The writ petition was dismissed.
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.
My client has a short-term capital loss on STT-paid shares and short-term gains of both kinds. The officer set the loss off against the concessionally taxed gains first. Can he insist on that order? No. Section 70 prescribes no chronology for set-off, and where the Act gives the assessee an option, the option that favours the assessee is the one to be exercised — so the assessee may set the short-term capital loss off against the gains taxed at the normal rate first and keep the concessionally taxed section 111A gains intact. The Calcutta High Court dismissed the Revenue's appeal against that view, finding no substantial question of law.
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 inherited agricultural land, got it converted, carved it into plots, laid roads and drains and sold the plots over three years. The Assessing Officer says it is an adventure in the nature of trade. Must the gain be business income? Not on these facts. The Madhya Pradesh High Court held that selling one's own land after plotting it out in order to secure a better price is not an adventure in the nature of trade or business, that an isolated transaction can be business only where there is regular activity of purchasing and selling, and that nothing showed the land had been acquired for the purpose of selling it in plots. The Revenue's appeals were dismissed, on that ground and also because the tax effect fell below the CBDT's monetary limit for filing an appeal.
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 capital gain arose after 15 March, so I could not have paid advance tax on it in any instalment. The Assessing Officer has charged s.234C interest from the first instalment date. Can he? No. The Rajasthan High Court held that the liability to pay advance tax on a capital gain arises only once the gain has accrued, so interest under s.234C on the shortfall attributable to that gain can run only from the date the advance tax on it became payable, and not from any earlier instalment date. Where the gain arose after 15 March, the proviso required only that the tax be paid by 31 March, and interest ran for that period alone.
The Assessing Officer has broken our lump sum into building, plant and paint shop and charged short-term capital gains, relying on the values the buyer later put in its own books. Can he apportion a slump price like that? No. The Bombay High Court held that the basic test for a slump sale is continuity of business — whether there was a transfer of a business as a whole — and that on the facts the lump sum of Rs.210 crores was not apportionable to different assets and the individual values were not ascertainable. The buyer's later accounting entries could not be used, and the matter went back for a fresh computation on the footing of a slump sale.
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.
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.
The Assessing Officer says my land was not agricultural land at all — it is inside municipal limits, next to a commercial area, and the buyer bought it to build on. Does that defeat s.54B? No. Section 54B gives relief on the transfer of 'a capital asset being land'; it does not confine the benefit to agricultural land as a category. The only question is whether the assessee or his parent actually used that land for agricultural purposes in the two years immediately preceding the sale, and where khasra girdawari, the Patwari's record and agricultural income declared in the returns of the two preceding years all show that use, the land's location and the buyer's intended use are irrelevant.
My industrial land was compulsorily acquired and I put up a new factory on land I took on lease rather than buying. The Assessing Officer says s.54D needs a purchase. Does the lease sink the claim? Not on this Andhra Pradesh decision. Section 54D(1) offers three alternatives — purchase of land or a building, purchase of a right in land or a building, or CONSTRUCTION of another building — and where the assessee constructed a new factory on leased land within three years and installed new machinery there, the Court held the department's reason for refusal, that the land had not been purchased, untenable. It also adopted the wide, popular meaning of 'industrial undertaking' and held it need not be engaged in manufacture or production.
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.
My factory land was compulsorily acquired and I put the money into a lodging house. The department says a lodging house is not an 'industrial undertaking', so s.54D is out. Is that right? No, on this Kerala decision. 'Industrial undertaking' is not defined in the Act and must be given its popular, natural meaning — any project or business a person undertakes that partakes of the character of a business. Running a lodge therefore qualifies, and the exemption in s.54D was allowed.
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.
My client sold inherited farm land, filed no return because he thought it was exempt, and an ex parte assessment has taxed the whole sale consideration. He now has the population and distance certificates. Can he still produce them? Yes, and it worked. The Tribunal admitted the population certificate and the distance certificate as additional evidence under Rule 29 of the ITAT Rules because they related to the core issue contested and had not been available before the revenue authorities, condoned a 180-day delay, and held on those documents that the land sold was agricultural land situated beyond the prescribed municipal limits and distance in section 2(14)(iii), so that it did not constitute a "capital asset" and the gain was not chargeable as capital gains under section 45. The addition of Rs 1,28,00,000 made ex parte under section 144 as undisclosed short-term capital gain, and sustained by the Commissioner (Appeals), was deleted and the appeal allowed.
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.
My joint development agreement was signed in 2012 and the completion certificate came in the year under assessment. The Assessing Officer has taxed the whole capital gain in this later year by invoking section 45(5A). Can he? No. The Tribunal held that where the JDA was executed and possession handed over in FY 2012-13, the transfer within the meaning of section 2(47)(v) occurred in that year and the gain was chargeable in AY 2013-14 under the law then in force. Section 45(5A), inserted with effect from 1 April 2018, is prospective, so the gain cannot be shifted to AY 2020-21 merely because the completion certificate was received in that year. All four of the Revenue's appeals were dismissed.
The Assessing Officer says s.54GB died on 31 March 2017, that the most I can invest is Rs 50 lakh, and that I must invest the whole net consideration. Are any of those right? None of them. The proviso to s.54GB(5) substitutes a later date where the investment is in an eligible start-up — for the year before the Tribunal the substituted date was 31 March 2022 — so a transfer after 31 March 2017 is not automatically out. There is no Rs 50 lakh cap anywhere in s.54GB. And where less than the whole net consideration is invested, clauses (a) and (b) of s.54GB(1) give a proportionate exemption, not nil.
A new partner came into our LLP and paid in a large sum, part of which was credited to the existing partners' accounts in their sacrificing ratio. The AO has taxed my share of it as short-term capital gain for an old year. Is that right? Not for a year before assessment year 2021-22. The Tribunal held that where the existing partners do not retire and merely their profit-sharing ratios are realigned on the admission of a new partner, there is no relinquishment of any share in the firm's assets, no transfer within section 2(47), and therefore no capital gain in the continuing partner's hands. It added that the amendments made by the Finance Act 2021 — the substitution of section 45(4) and the insertion of section 9B — take effect only from assessment year 2021-22 and had no application to the year before it, which was AY 2017-18.
My company sold unquoted shares of group companies below their Rule 11UA value in a year before section 50CA existed. The Assessing Officer has invoked section 50D and substituted fair market value. Can he do that when I have disclosed an actual sale price? On these facts the Tribunal held he could. It upheld the section 50D addition for AY 2015-16 — a year before section 50CA was on the statute book — because the assessee produced no share purchase agreement, no sale deed and no valuation report to show that the price stated in the return had actually been received from the related-party buyers, so the consideration was treated as not ascertainable within section 50D.
I objected to the stamp duty value, the Assessing Officer referred the matter and the Valuation Officer came back with a figure well above my sale price, though below the stamp value. Can I now attack the report and fall back on my declared consideration? Not on a general objection. The Tribunal held that once the assessee herself disputed the stamp valuation and asked for a reference, and the Assessing Officer made it, the procedure under section 50C(2) was duly followed; section 50C(3) then provides that the value determined by the Valuation Officer 'shall' be taken as the full value of consideration, and the word 'shall' makes it mandatory for the officer to adopt it. The assessee cannot request a reference and then ask for the resulting valuation to be rejected because it came out higher than her own figure.
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 - but read the order before citing it, because almost everything it is quoted for is the Commissioner (Appeals) speaking, not the Tribunal. The Tribunal dismissed the Revenue's appeal in a single paragraph: the Revenue had controverted none of the Commissioner (Appeals)'s findings, that order was elaborate, and there was no infirmity in it. The findings themselves - that a certified valuation cannot be displaced without the officer showing a mistake in it, and that Rule 11UAA read with Rule 11UA lets the assessee choose NAV or DCF for each transfer date - are the Commissioner (Appeals)'s, reproduced in the Tribunal's order. The method-choice proposition does not follow from the rules as printed: Rule 11UAA sends a s.50CA valuation to sub-clause (b) or (c) of clause (c) of Rule 11UA(1), and the discounted cash flow method appears only in Rule 11UA(2), which is expressed to serve clause (viib) of s.56(2).
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 partner was paid a large sum when a new partner came in and her profit share fell. The officer has taxed it as goodwill. Is it taxable, and does section 9B or the new section 45(4) apply? Not on these facts, and not for a year before AY 2021-22. The Tribunal held that where a new partner is admitted and the existing partners simply realign their profit-sharing ratios, the assets remain with the firm, no partner has any defined share in those assets during the subsistence of the partnership, and there is therefore no relinquishment and no transfer within s.2(47) — so nothing is chargeable under s.45 in the partner's hands, and the receipt is not 'goodwill'. It then recorded expressly that s.9B and the substituted s.45(4) came into force on 1 April 2021 and had no application to the year before it, which was AY 2017-18.
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.
My foreign portfolio investor client has non-STT short-term gains taxed under section 115AD and STT-paid short-term gains taxed at the section 111A rate, plus an STT-paid short-term loss. The officer re-sequenced the set-off. Can he? No. The Tribunal held that section 70 prescribes no chronology for set-off of losses and that the provisions do not compel an assessee to set the STT-paid short-term loss off against the STT-paid short-term gain first, so the assessee was entitled to exercise the option most beneficial to it. The Assessing Officer was directed to accept the net short-term capital gains as offered in the return and to delete the additional demand.
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.
Our demerger was sanctioned by the High Court. The AO now says it is not a demerger under s.2(19AA) and has taxed capital gains and dividend distribution tax. Can he go behind the sanctioned scheme? Yes, on the tax conditions. The Tribunal held that the legal obligation of the revenue authorities to examine taxability under ss.2(22) and 2(19AA) is not pre-empted by the High Court's sanction of the scheme, and that the assessee had failed to comply with s.2(19AA)(ii) and (iii). A segment whose liabilities were knocked off against its assets, so that only assets and nil liabilities passed to the resulting company, does not satisfy the requirement that all liabilities relatable to the undertaking be transferred.
The DRP has refused my client's alternative plea for the section 49(4) cost step-up because it was not made in the return, citing Goetze. Is that the end of it? No. The Tribunal directed the Assessing Officer to recompute the capital gain in accordance with section 49(4), notwithstanding that the DRP had rejected the same plea on the footing that additional cost of acquisition could only be claimed through the return of income. Where the officer has taken a particular value into account for the section 56(2)(vii)(b) addition, that value is the deemed cost of acquisition and the capital gain must be recomputed on it.
My client's shares were bought back at less than the price the company issued them at, so it made a loss. The Assessing Officer says buy-back income is exempt under section 10(34A), so the loss cannot be carried forward — and he has levied concealment penalty. Is the loss really lost? On a buy-back before 1 October 2024, which is the regime this order is about, the ITAT Delhi held that where the buy-back consideration is lower than the price at which the company issued the shares there is no "distributed income", so s.115QA "per se cannot be applied", and that s.10(34A) — which exempts income on a buy-back "as referred to in section 115QA" — "also consequentially would not have any application". The very basis on which the officer had denied the carry-forward of the long-term capital loss was therefore "legally incorrect". Because the denial of the loss was itself unsustainable, no penalty for furnishing inaccurate particulars could stand on it, and in any event the claim was at worst an incorrect claim on a question of interpretation with all the figures already on the record; the s.271(1)(c) penalty of Rs.57,98,464 was directed to be deleted.
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.
My client bought shares off-market when the company was unlisted, sold them on the exchange after listing and paid STT on the sale. The officer denies section 10(38) because no STT was paid on purchase. Is he right? No, on this Tribunal's reasoning. All three carve-out clauses of the notification issued under the third proviso to section 10(38) are about listed equity shares, so a purchase of shares that were unlisted at the time of acquisition falls in the main part of the notification, and the exemption survives even though no STT was paid on acquisition.
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.
We took over a business under a business transfer agreement and assumed liabilities far in excess of the assets, paying no cash. The Assessing Officer says we paid nothing, so there is no cost and no depreciation on the intangibles. Is that right? No, on these facts. The Mumbai Tribunal held that where the buyer took over liabilities exceeding the assets by about Rs.125 crores and discharged those liabilities in later years, that discharge is consideration for acquiring the intangibles — business and commercial rights and goodwill — and depreciation follows. It also held that the fifth proviso to s.32(1) does not apply to a succession by way of slump sale.
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 agreement to sell was in 2005 and the sale deed was registered in 2009, and I took a small part of the price by account payee cheque on the agreement date. Can I use the 2005 stamp value, and does the ten per cent tolerance band help me for an old year? On the agreement-date point, yes. The Tribunal directed the Assessing Officer to compute the gain on the stamp (DLC) value as at the date of the agreement, 3 January 2005, and not the date of registration, because Rs.35,000 of the consideration had been received by account payee cheque at the time the agreement was executed and the bank statements were on record. On the tolerance band, the order gives you less than it appears to: paragraph 10 records that on the 2005 value the difference between the agreed consideration and the DLC value was 9.34 per cent, "which is less than the prescribed 10 %" band, but that sentence follows a recital of what the assessee's representative demonstrated, and the operative direction at paragraph 10.2 rests on the agreement-date proviso alone and says nothing about the band. Do not cite this order as authority that the ten per cent band reaches back to AY 2010-11.
I retired from a firm and received a lump sum well above the balance in my capital account. The AO has assessed it as long-term capital gain in my hands and applied section 50C. Is that correct for a pre-2021 year? No. The Tribunal held that the amount received by a retiring partner on the reconstitution of a firm is taxable in the hands of the partnership firm and not in the hands of the partner. The partner was never the owner of the firm's assets; on a reconstitution there is simply a revaluation of assets and liabilities so that the retiring partner's capital account can be settled. The revenue's appeal was dismissed and the deletion of the addition in the partner's hands was upheld.
The AO says our amalgamation was a colourable device to move shares tax-free and has taxed their market value under s.56(1). Can he disregard a scheme the High Court sanctioned? Not on these facts. The Mumbai Tribunal reversed the finding that the scheme was a tool for evasion, holding that the High Court had approved the scheme and its terms, the Department had raised no objection at that time before the High Court, and it could not now claim the scheme was a colourable device. The exemption in s.47(vi) was therefore available and the addition of Rs.1,466.60 crore under s.56(1) went.
We gave away a loss-making division at zero consideration; its liabilities exceeded its assets. The Principal Commissioner has revised the assessment under s.263 saying the negative net worth should have been taxed. Is that revision sustainable? Not on those facts. The Chennai Tribunal accepted that a negative net worth is to be taken into account in computing the capital gain, but only where there is a positive consideration; where the slump sale consideration is nil, reducing a negative net worth from nil still produces nil, so no tax was lost. The revision failed the second limb of s.263 — no prejudice to the Revenue — and was quashed.
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 bought flats slightly below the stamp duty value and the Assessing Officer has added the difference in my hands under section 56(2)(vii)(b). There is no tolerance band in that clause. Can I still claim the section 50C margin? The Tribunal held that you can. It read the exception in the third proviso to section 50C(1), and the corresponding exception in section 56(2)(x)(b)(B) and the first proviso to section 43CA, into section 56(2)(vii)(b)(ii), on the reasoning that the buyer and the seller stand on the same footing and there cannot be two different fair market values for the same property. It then applied a ten per cent margin to AY 2015-16, holding the Finance Act 2018 amendments curative and beneficial and therefore retrospective, and deleted the whole addition of Rs.23,30,694.
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.
On amalgamation we issued shares at face value against net assets worth far more. The AO has taxed the excess under s.56(2)(viib). Does that provision apply to a scheme of amalgamation at all? The Ahmedabad Tribunal held it does not. Section 56(2)(viib) contemplates a bilateral transaction in which a company receives consideration from a resident person for the issue of shares to that person; an amalgamation is a tripartite arrangement between the amalgamated company, the amalgamating company and the amalgamating company's shareholders — the vesting comes from one and the shares go to the others — and such arrangements are not contemplated by the deeming clause.
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 transfer documents for my flat booking rights did not state a price, so the Assessing Officer says the consideration is not ascertainable and has substituted fair market value under section 50D. Is silence in the document enough for him to do that? No. The Tribunal deleted the section 50D addition because, although the affidavits evidencing the transfer did not mention the consideration, the assessee produced copies of the transferees' accounts showing the amounts agreed, and the same amounts had been used to compute the capital gain declared in the return. Section 50D is engaged only where the consideration is genuinely not ascertainable or cannot be determined, and the authorities could not reach that conclusion without making any enquiry of the transferees.
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.
I am arguing that a section 56(2)(vii)(b) addition on land my client bought below circle rate produces double taxation. How is the department going to answer that? With section 49(4). The Ahmedabad Bench dismissed the assessee's appeal, holding that section 49(4) clearly provides that the benefit of the inflated cost of acquisition arising from the deeming provision in section 56(2)(vii)(b)(ii) will be available at the time of sale of the asset, so the capital gain will be reduced to that extent. The Bench also held that section 56(2)(vii)(b)(ii) applies from AY 2014-15 and therefore governs transactions of FY 2013-14.
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.
My company converted into an LLP and never met all the s.47(xiiib) conditions. The AO has taxed the capital gain in the LLP's hands under s.47A(4). Can he do that in the very year of conversion? No. s.47A(4) is a withdrawal provision: it operates only to take back an exemption that was actually availed under s.47(xiiib), and cannot be used to test eligibility in the year of the conversion itself. Where the conditions were never satisfied there is a transfer, but the gain is chargeable under s.45 read with s.5 in the hands of the transferor company, not deemed into the successor LLP by s.47A(4) — though the LLP remains exposed as a successor under s.170.
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.
My NRI client subscribed to shares of an Indian company in convertible foreign exchange, later received bonus shares on them, and has now sold only the bonus shares. The assessing officer says bonus shares were not acquired with foreign exchange, so they are not a foreign exchange asset and the concessional rate under section 115E is not available. Is he right? No, on this Tribunal's reasoning. It held that there can be no differentiation between the definition of 'foreign exchange asset' as applied to section 115E and as applied to section 115F, and that bonus shares issued on original shares acquired in convertible foreign exchange are covered by section 115C(b) — so the long-term capital gain on selling the bonus shares takes the concessional rate under section 115E. The orders of the lower authorities were set aside and the Assessing Officer was directed to give the assessees the benefit of the concessional rate.
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.
I sold depreciable assets I had held for over three years and the whole block ceased to exist, so the gain was computed under section 50. The Assessing Officer says the gain is short-term and refuses to set it against my brought-forward long-term capital loss. Is he right? No. The Mumbai Tribunal held that s.50 is a computation provision and a deeming provision, and that the fiction cannot be carried beyond the purpose for which it was enacted: once the capital gain on the depreciable asset has been computed under s.50, the operation of that section is spent and the gain must be dealt with under the other provisions of the Act. The asset having been held for more than thirty-six months, the gain retains the character of long-term capital gain for all other provisions and qualifies for set-off against the brought-forward long-term capital loss under s.74.
For an old year still under appeal, my client transferred a division under a scheme and was paid in preference shares and bonds, not money. The Assessing Officer has applied s.50B. Was that right for a pre-2021 year? For a year before AY 2021-22, no. The Mumbai Tribunal held that s.2(42C) as it then stood required a transfer 'as a result of the sale', that a sale needs money consideration, and that a transfer of an undertaking in exchange for preference shares and bonds was an exchange and not a sale, so s.2(42C) and s.50B did not apply and the computation provisions failed. For AY 2021-22 onwards this is no longer the law, because s.2(42C) now covers transfer 'by any means'.
My NRI client bought equity shares of an Indian company in convertible foreign exchange and sold them within a year. The assessing officer says section 115E mentions only long-term capital gains, so the short-term gain goes at ordinary rates. Is there any authority the other way? Yes. The Tribunal held that a short-term capital gain derived from a foreign exchange asset is income derived from that asset and therefore falls within the definition of 'investment income' in section 115C(c), so the assessee is entitled to the concessional rate under section 115E. It rejected the Revenue's argument that the express mention of long-term capital gains in section 115E excludes short-term gains by necessary implication.
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.
Our amalgamation stopped satisfying a condition after the event. Can the department invoke section 47A to take back the section 47(vi) exemption, and if it can, in which year and on whom? Section 47A does not reach the amalgamation and demerger clauses at all. It withdraws the exemption in exactly four situations: sub-section (1), where a capital asset transferred under s.47(iv) or (v) — the holding company to wholly-owned subsidiary transfers — is converted into or treated as stock-in-trade, or the whole of the share capital ceases to be held, within eight years; sub-section (2), where shares allotted on a s.47(xi) conversion of a stock exchange membership are transferred within three years; sub-section (3), where a condition in the proviso to s.47(xiii) or (xiv) is broken; and sub-section (4), where a condition in the proviso to s.47(xiiib) is broken. Clauses (vi), (via), (vib), (vic), (vicc), (vid) and (vii) — the amalgamation and demerger exemptions — appear nowhere in section 47A.
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.
The NCLT has sanctioned our scheme and the order calls it an amalgamation. The Assessing Officer says it is not an amalgamation for income-tax and has refused section 47 and section 72A. Can he do that? Yes, he can. "Amalgamation" for the Income-tax Act is defined by s.2(1B) and by nothing else: the merger must be in such a manner that all the property and all the liabilities of the amalgamating company become those of the amalgamated company, and that shareholders holding not less than three-fourths in value of the shares of the amalgamating company — leaving out shares already held by the amalgamated company, its nominee or its subsidiary — become shareholders of the amalgamated company. A tribunal or court order sanctioning a scheme is what makes the merger effective as a matter of company law; it is not a finding that these three conditions are satisfied, and s.2(1B) nowhere requires such an order.
Which transfers in an amalgamation or a demerger are outside section 45, and what cost and holding period do the shares in the transferee company carry afterwards? Seven clauses of section 47 take reorganisation transfers out of section 45. At company level: (vi) a transfer in a scheme of amalgamation of a capital asset by the amalgamating company to the amalgamated company, if the amalgamated company is an Indian company; (vib) a transfer in a demerger of a capital asset by the demerged company to the resulting company, if the resulting company is an Indian company; (via) a transfer in a scheme of amalgamation of shares held in an Indian company by an amalgamating foreign company to an amalgamated foreign company, on two conditions; and (vic) and (vicc), the corresponding foreign demerger cases. At shareholder level: (vid) any transfer or issue of shares by the resulting company in a demerger to the shareholders of the demerged company in consideration of the demerger; and (vii) a transfer by a shareholder in a scheme of amalgamation of shares in the amalgamating company, if made in consideration of the allotment of shares in the amalgamated company except where the shareholder is itself the amalgamated company, and the amalgamated company is an Indian company. Clause (vi) is the central one: any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company, if the amalgamated company is an Indian company — this is what takes the transfer of the undertaking itself out of section 45. On cost, s.49(2) gives the shareholder who receives shares in an amalgamated Indian company on a s.47(vii) transfer the cost of his shares in the amalgamating company; s.49(2C) splits the cost of the demerged company's shares to the resulting company's shares in the ratio the net book value of the assets transferred bears to the net worth of the demerged company immediately before the demerger; and s.49(2D) reduces the cost of the original shares by the amount so arrived at.
A non-resident client sold derivatives on the exchange in GIFT City and was paid in dollars. Is there any capital gains charge in India? No, if the transaction is within section 47(viiab). That clause provides that any transfer of a capital asset being a bond or Global Depository Receipt referred to in section 115AC(1), or a rupee denominated bond of an Indian company, or a derivative, or such other securities as may be notified by the Central Government, made by a NON-RESIDENT on a recognised stock exchange located in any International Financial Services Centre, and where the consideration for the transaction is paid or payable in foreign currency, is not regarded as a transfer for the purposes of section 45. Nothing being regarded as a transfer, no capital gain arises to be computed.
We want to move an offshore fund's assets into a GIFT City vehicle and issue units in the new fund to the existing investors. Does that trigger capital gains, either for the fund or for the investors? Not if it is a 'relocation' as the Act defines it. Section 47(viiac) provides that any transfer, in a relocation, of a capital asset by the original fund to the resulting fund is not regarded as a transfer for the purposes of section 45; section 47(viiad) does the same for any transfer by a shareholder, unit holder or interest holder, in a relocation, of a capital asset being a share, unit or interest held by him in the original fund in consideration for a share, unit or interest in the resultant fund. The two clauses therefore cover both legs — the fund's transfer of its assets and the investors' exchange of their holdings.
My client's company bought back its shares in March 2025. Does the company still pay buy-back tax, and what does the selling shareholder put in his return? For a buy-back that takes place on or after 1 October 2024 the company pays nothing: a proviso inserted in s.115QA(1) disapplies the 20 per cent additional tax to such buy-backs, and a proviso inserted in s.10(34A) withdraws the shareholder's exemption. Instead the whole consideration is a dividend in the shareholder's hands under the new s.2(22)(f), and a proviso to s.46A deems the value of the consideration to be nil for capital-gains purposes, so the cost of the shares comes out as a capital loss.
How is "accumulated profits" measured for a deemed dividend, what falls outside the definition of dividend altogether, and what happened to the clause that used to keep buy-back payments out of it? One of these exclusions is the hinge of the 1 October 2024 buy-back changeover: exclusion clause (iv), which had kept a company's payment on purchase of its own shares outside the definition of "dividend" since 1 April 2000, was OMITTED by Act No. 15 of 2024 with effect from 1 October 2024, at the same moment sub-clause (f) was inserted to bring such a payment IN — so a buy-back before 1 October 2024 is not a dividend and a buy-back on or after that date is. The surviving exclusions are: (i) a distribution under (c) or (d) on a share issued for full cash consideration where the holder is not entitled on liquidation to participate in the surplus assets; (ia) a distribution under (c) or (d) attributable to capitalised profits representing bonus shares allotted to equity shareholders after 31 March 1964 and before 1 April 1965; (ii) an advance or loan to a shareholder or concern by a company in the ordinary course of its business where lending money is a substantial part of that business; (iii) a dividend set off against a sum previously treated as a dividend within sub-clause (e); and (v) a distribution of shares by the resulting company to the shareholders of the demerged company pursuant to a demerger, whether or not there is a reduction of capital in the demerged company. "Accumulated profits" is then fixed by Explanation 1 (certain capital gains excluded), Explanation 2 (all profits up to the date of distribution or payment, or up to liquidation for sub-clause (c), with a carve-out for compulsory acquisition) and Explanation 2A (an amalgamated company's accumulated profits are increased by those of the amalgamating company on the date of amalgamation).
My client tendered shares in a buy-back. How is he taxed under section 46A, and does it make a difference that the buy-back closed after 1 October 2024? It makes all the difference, and the dividing line is the date the buy-back takes place: for a buy-back BEFORE 1 October 2024 the main limb of s.46A applies normally, and for a buy-back ON OR AFTER 1 October 2024 the proviso inserted by Act No. 15 of 2024 deems the consideration to be nil. The main limb says that where a shareholder receives any consideration from a company for purchase of its own shares or other specified securities, then, subject to s.48, the difference between the cost of acquisition and the value of consideration received is deemed to be the capital gains of the year in which the company purchased them. The proviso says that where the shareholder receives consideration "of the nature referred to in sub-clause (f) of clause (22) of section 2" in respect of a buy-back "that takes place on or after the 1st day of October, 2024", then "for the purposes of this section, the value of consideration received by the shareholder shall be deemed to be nil".
My client's short-term gains on shares are partly from on-market STT-paid sales and partly from an off-market transfer. Does the concessional rate cover both, and what is the rate now? Section 111A covers only a short-term capital asset that is an equity share, a unit of an equity oriented fund or a unit of a business trust where the sale transaction is chargeable to securities transaction tax. Where STT is not chargeable — an off-market sale, unlisted shares, a transfer outside the exchange — section 111A simply does not apply and the short-term gain goes into total income at the assessee's ordinary rate. The concessional rate itself is fifteen per cent for a transfer before 23 July 2024 and twenty per cent for a transfer on or after that date.
My client sold listed equity shares twice in FY 2024-25 — once in June 2024 and once in September 2024. What rate and what exempt threshold apply to each lot? Two different rates apply inside the same previous year, but only ONE exempt slice. For a transfer BEFORE 23 July 2024 the section 112A rate is ten per cent; for a transfer ON OR AFTER 23 July 2024 it is twelve and a half per cent. The exempt slice is one lakh twenty-five thousand rupees for the whole of the previous year — the proviso to section 112A(2)(i) says in terms that the limit applies on the AGGREGATE of the long-term capital gains under both sub-clauses — so it is not split between the two rate blocks and the pre-23-July lot does not get a separate one lakh rupee slice. The one lakh rupee figure governs transfers up to 31 March 2024 only. Both changes were made by the Finance (No. 2) Act 2024 with effect from 23 July 2024.
My NRI client sold shares of an Indian company that he had subscribed to in foreign exchange. The transfer was in September 2024. My software has computed the tax at ten per cent under section 115E. Which rate applies, and from when did it change? Twelve and one-half per cent, because the transfer took place on or after 23 July 2024. Section 115E(ii) now splits the long-term capital gains rate — ten per cent for any transfer which takes place before the 23rd day of July, 2024, and twelve and one-half per cent for any transfer on or after that date — while the rate on investment income under s.115E(i) remains twenty per cent and has done since 1 April 1998.
Is a listed bond still a long-term asset only after three years, and what about units of a listed business trust? My client transferred both in late 2024. From 23 July 2024 there are only two holding periods: twelve months for all listed securities and twenty-four months for everything else. The thirty-six month period is gone, so units of a listed business trust move from thirty-six months to twelve, and bonds, debentures and gold move from thirty-six months to twenty-four; unlisted shares and immovable property stay at twenty-four.
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.
The firm has been charged under section 45(4) on a payout to a partner on reconstitution. Is that gain short-term or long-term, and how do I work out the split? You look through the charge to the assets the amount has been attributed to. Rule 8AA(5) deems the amount, or a part of it, to be from the transfer of a short-term capital asset where it is attributed to an asset that is short-term at the time of the section 45(4) taxation, to an asset forming part of a block of assets, or to a self-generated asset or self-generated goodwill; and to be from the transfer of a long-term capital asset where it is attributed to any other asset that is long-term at that time. One section 45(4) charge can therefore split into a short-term part and a long-term part.
My firm paid capital gains tax under the substituted section 45(4) on the money we paid a partner on reconstitution. When the firm later sells the land that was revalued, can it deduct that already-taxed amount from the sale consideration? Only if the section 45(4) charge arose out of a revaluation of a capital asset or the valuation of a self-generated asset or self-generated goodwill, and only through Rule 8AB. Section 48(iii) allows the firm to deduct so much of the section 45(4) amount as is attributable to the capital asset being transferred, 'calculated in the prescribed manner', and the prescribed manner is Rule 8AB: the amount is spread over the assets in the same proportion as the increase in the value of each asset on revaluation bears to the total increase, and the attribution must be reported in Form 5C by the section 139(1) due date.
My client is signing a business transfer agreement now. Can I still take the price in the agreement as the full value of consideration for the s.50B computation, the way every reported case does? No. From AY 2021-22 s.50B(2)(ii) deems the fair market value of the capital assets on the date of transfer, calculated in the prescribed manner, to be the full value of the consideration, and Rule 11UAE prescribes that manner: the fair market value is the higher of FMV1, an asset-based value of the undertaking, and FMV2, the fair market value of the consideration actually received. The agreed price is now a floor, not the measure. The same Finance Act also widened s.2(42C) to a transfer 'by any means', so an exchange or a scheme is caught.
We have done a slump sale and the Assessing Officer says the consideration we recorded is not the full value of the consideration. How is the fair market value computed under s.50B, and from when does that apply? Under rule 11UAE two figures are computed and the higher is taken. Sub-rule (1) provides: "For the purpose of clause (ii) of sub-section (2) of section 50B, the fair market value of the capital assets shall be the FMV1 determined under sub-rule (2) or FMV2 determined under sub-rule (3), whichever is higher." FMV1 looks at what was transferred and is computed as A+B+C+D-L, where A is the book value of all assets of the undertaking or division other than jewellery, artistic work, shares, securities and immovable property, reduced by income-tax paid less income-tax refund claimed and by any amount shown as an asset, including unamortised deferred expenditure, which does not represent the value of any asset; B is the open market price of jewellery and artistic work on a registered valuer's report; C is the fair market value of shares and securities determined under rule 11UA(1); D is the stamp duty value adopted or assessed or assessable by any Government authority for immovable property; and L is the book value of the liabilities of the undertaking or division, excluding paid-up equity capital, amounts set apart for dividends on preference or equity shares not declared before the date of transfer, reserves and surplus by whatever name called, provisions for taxation, provisions for meeting liabilities other than ascertained liabilities, and contingent liabilities other than arrears of cumulative preference dividend. FMV2 looks at what was received and is computed as E+F+G+H, where E is the monetary consideration received or accruing, F is the fair market value of non-monetary consideration represented by property referred to in rule 11UA(1), determined under rule 11UA(1), G is the open market price on a registered valuer's report of non-monetary consideration being property other than immovable property and not referred to in rule 11UA(1), and H is the stamp duty value where the non-monetary consideration is immovable property. Sub-rule (4) fixes the valuation date: the fair market value under sub-rules (2) and (3) is determined on the date of slump sale, and the valuation date in rule 11UA also means the date of slump sale. The rule was inserted with effect from 24 May 2021, and the clause it serves, s.50B(2)(ii), was substituted with effect from 1 April 2021.
My firm handed a flat and part of its stock to a retiring partner. Nothing was sold and no money changed hands. Is the FIRM taxable on that? Yes. Section 9B, inserted by the Finance Act 2021 with effect from 1 April 2021 (AY 2021-22), deems the firm to have transferred the capital asset or stock in trade to the partner in the year he receives it, and deems the fair market value on the date of receipt to be the full value of consideration. The charge falls on the FIRM, not the partner, and it arises on both dissolution and mere reconstitution — a partner retiring or a new partner coming in is enough.
My client sold a property in February and paid the whole tax on it with the March instalment. The intimation still charges s.234C interest on the June, September and December instalments. Is there a defence in the section itself? Yes, and it is in the section itself rather than in any circular. The first proviso to s.234C(1) disapplies the sub-section to any shortfall in the payment of tax due on the returned income where the shortfall is on account of under-estimate or failure to estimate (a) the amount of capital gains, (b) income of the nature referred to in s.2(24)(ix) — casual income such as winnings from lotteries, crossword puzzles and races, (c) income under the head 'Profits and gains of business or profession' in cases where the income accrues or arises under that head for the first time, or (d) the amount of dividend income. The relief is conditional: the assessee must have paid the whole of the tax payable in respect of that income, computed as if it were part of the total income, as part of the remaining instalments of advance tax which are due, or where no such instalments are due, by 31 March of the financial year.
A partner retired and we paid him Rs 2 crore, most of it out of a revaluation of the firm's land. He says it is his own capital. Is the FIRM taxable? Yes, on the excess. The substituted s.45(4) charges the FIRM to capital gains on money or a capital asset (or both) received by a partner in connection with a reconstitution, to the extent it exceeds the balance in his capital account — and that balance must be computed WITHOUT the increase caused by revaluation of any asset or by self-generated goodwill or any other self-generated asset. The formula is A = B + C − D, and if A is negative it is deemed to be zero, so a loss cannot be thrown up. Substituted by the Finance Act 2021 with effect from 1 April 2021, i.e. AY 2021-22.
We hived off a division under a court-sanctioned scheme and claimed section 47(vib) and section 72A(4). The Assessing Officer says it is not a "demerger". What exactly does section 2(19AA) require, and what is the position where Ind AS forced us to record the assets at a different value? Section 2(19AA) requires a transfer pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, by a demerged company of one or more of its undertakings to a resulting company, AND seven further conditions: all the property of the undertaking passes; all the liabilities relatable to it pass; the property and liabilities are transferred at values appearing in the demerged company's books immediately before the demerger; the resulting company issues its shares to the demerged company's shareholders on a proportionate basis; shareholders holding not less than three-fourths in value of the shares of the demerged company become shareholders of the resulting company; the transfer of the undertaking is on a going-concern basis; and the demerger accords with any conditions notified under s.72A(5). The book-value condition now carries a proviso which disapplies it where the resulting company records a different value in compliance with the Indian Accounting Standards specified in the Annexure to the Companies (Indian Accounting Standards) Rules, 2015.
My client bought listed shares in 2012 and sold them last year. How exactly do I work out the cost of acquisition under the grandfathering rule, and does the 31 January 2018 price simply replace the cost? No — the 31 January 2018 price does not replace the cost, and it is not a straight 'higher of cost or market' either. The cost is the HIGHER of (i) the actual cost of acquisition and (ii) the LOWER of (A) the fair market value and (B) the full value of consideration; fair market value for a share listed on 31 January 2018 is the highest price quoted on a recognised stock exchange on that date.
The assessing officer says my client's long-term gains on listed shares are not exempt under section 10(38) because no STT was paid when the shares were bought. Is that right, and does section 10(38) even apply to my year? First check the year: section 10(38) does not apply at all to a transfer made on or after 1 April 2018, because the Finance Act 2018 inserted a fourth proviso switching the clause off from that date — so for AY 2019-20 onwards the question is section 112A, not section 10(38). For a transfer up to 31 March 2018, the third proviso (inserted by the Finance Act 2017) does require STT to have been paid on ACQUISITION as well, but only in the cases carved out by the Central Government's Notification No. 43/2017 (S.O. 1789(E)) dated 5 June 2017 — the notification's main part covers all acquisitions of equity shares from 1 October 2004 that were not chargeable to STT, and only its three listed clauses take an acquisition out of the exemption.
The Assessing Officer has charged my client under section 56(2)(x) on the stamp-duty difference. When he sells the property, does he pay capital gains on that same amount all over again? No. Section 49(4) provides that where the capital gain arises from the transfer of a property the value of which has been subjected to income-tax under clause (vii), clause (viia) or clause (x) of section 56(2), the cost of acquisition of that property is deemed to be the value taken into account for the purposes of that clause. The amount already taxed as income from other sources therefore comes back as cost, and is not taxed a second time as capital gain.
The Assessing Officer has computed my client company's buy-back tax by deducting what the tendering shareholder paid for the shares. Which figure does the Act actually require, and where is it laid down? Rule 40BB matters only for buy-backs governed by s.115QA — that is, buy-backs before 1 October 2024, since the second proviso to s.115QA(1) switches that section off from that date. It prescribes, for clause (ii) of the Explanation to s.115QA(1), "the amount received by a company in respect of the share issued by it, being the subject matter of buy-back", and that figure — not the shareholder's cost — is what is deducted from the buy-back consideration to give the "distributed income" charged at twenty per cent. The general rule in sub-rule (2) is the amount actually received on subscription "including any amount actually received by way of premium"; sub-rule (13) makes the face value the amount received in any case the rule does not otherwise cover.
My client is contributing his shares in a project company to a REIT and taking units in exchange. Is that a taxable transfer now? No. Section 47(xvii) takes out of section 45 any transfer of a capital asset, being a share of a special purpose vehicle, to a business trust in exchange for units allotted by that trust to the transferor, so no capital gain arises on the swap itself. The charge is deferred rather than forgiven: section 49(2AC) provides that where a unit of a business trust became the property of the assessee in consideration of a transfer referred to in section 47(xvii), the cost of acquisition of the unit is deemed to be the cost of acquisition to him of the share, so the whole of the accumulated gain surfaces when the units are sold.
My client sold ancestral farm land near a town and the Assessing Officer has charged capital gains. What are the exact population and distance limits in section 2(14)(iii), and from when is the distance measured aerially rather than by road? Agricultural land in India is not a "capital asset" at all unless it falls inside one of the two areas described in s.2(14)(iii), so a sale of land outside them produces no capital gain to charge. Item (a) catches land within the jurisdiction of a municipality (however described) or a cantonment board having a population of not less than ten thousand. Item (b) catches land within an aerially measured distance of the local limits of such a municipality or cantonment board: not more than two kilometres where its population is more than ten thousand but not exceeding one lakh; not more than six kilometres where it is more than one lakh but not exceeding ten lakh; and not more than eight kilometres where it is more than ten lakh. Item (b) in that aerially measured form was substituted for the earlier item (b) by the Finance Act, 2013, with effect from 1 April 2014.
The department has raised a demand on my client company under section 115QA on a buy-back. Which buy-backs does the section actually reach, at what rate, on what figure, and is it still alive? Section 115QA charges the COMPANY, not the shareholder, and it governs buy-backs from 1 June 2013 up to and including 30 September 2024 only: the second proviso to sub-section (1), inserted by Act No. 15 of 2024 with effect from 1 October 2024, provides that the sub-section "shall not apply in respect of any buy-back of shares, that takes place on or after the 1st day of October, 2024". Within that window a domestic company is liable, in addition to the income-tax on its total income, to additional income-tax at twenty per cent on the "distributed income" — defined by the Explanation as the consideration paid on the buy-back reduced by the amount received by the company for issue of those shares, determined in the manner prescribed (Rule 40BB). Two dates cut across the window: until 5 July 2019 the section applied only to shares not listed on a recognised stock exchange, and the first proviso preserves that exclusion for a listed buy-back whose public announcement was made on or before 5 July 2019.
My client's agricultural land inside the municipal limits has been compulsorily acquired. Section 2(14)(iii) does not help because the land is urban. What exactly must he prove under section 10(37)? Section 10(37) exempts capital gain on the transfer of agricultural land where four conditions are ALL satisfied. The assessee must be an individual or a Hindu undivided family. The land must be situated in an area referred to in item (a) or item (b) of s.2(14)(iii) — that is, it must be the urban agricultural land which IS a capital asset. The land must, during the period of TWO YEARS immediately preceding the date of transfer, have been used for agricultural purposes by that Hindu undivided family or individual, or by a parent of his. The transfer must be by way of compulsory acquisition under any law, or a transfer the consideration for which is determined or approved by the Central Government or the Reserve Bank of India. And the income must have arisen from compensation or consideration received on or after 1 April 2004. An Explanation provides that "compensation or consideration" includes compensation or consideration enhanced or further enhanced by any court, Tribunal or other authority.
I have a long-term capital loss and short-term capital gains this year, and also a brought-forward long-term loss. Which loss can go against which gain, and for how long can I carry it? A short-term capital loss can be set off against any capital gain, short-term or long-term; a long-term capital loss can only be set off against a long-term capital gain. That asymmetry holds both within the year, under s.70(2) and s.70(3), and on carry forward, under s.74(1)(a) and s.74(1)(b); the carry forward is limited to eight assessment years by s.74(2). The present form of both sections was put in place by the Finance Act 2002 with effect from 1 April 2003, that is Assessment Year 2003-04.
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.
My NRI client sold debentures of an Indian public company that he had subscribed to in foreign exchange, and put most but not all of the money into fresh shares of an Indian company within four months. How much of the gain escapes tax, and what happens if he sells the new shares in two years' time? The exempt part is the same proportion of the capital gain as the cost of the new asset bears to the NET CONSIDERATION — not to the gain — so a partial reinvestment shelters a strictly proportionate slice. If he transfers or converts the new asset into money within three years of acquiring it, the amount not charged under section 45 is deemed to be his long-term capital gains of the previous year in which that happens.
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.
The Assessing Officer has treated a company payment as a deemed dividend but the order does not say which limb of section 2(22) he is using, and it plainly is not a loan to a shareholder. What do limbs (a) to (d) actually cover? These four limbs have nothing to do with buy-backs and are unaffected by the 1 October 2024 changeover, which operates through sub-clause (f). Each of them turns on "accumulated profits": (a) catches any distribution of accumulated profits, whether capitalised or not, if it entails the release by the company to its shareholders of all or any part of the company's assets; (b) catches any distribution to shareholders of debentures, debenture-stock or deposit certificates in any form, with or without interest, and any distribution to PREFERENCE shareholders of shares by way of bonus, to the extent of accumulated profits whether capitalised or not; (c) catches any distribution on liquidation, to the extent attributable to accumulated profits immediately before liquidation, whether capitalised or not; and (d) catches any distribution on a reduction of capital, to the extent the company possesses accumulated profits which arose after the end of the previous year ending next before 1 April 1933, whether capitalised or not.
My client's company has gone into liquidation and the liquidator has distributed cash and one immovable property to the shareholders. Who is charged to capital gains — the company or the shareholder — and what exactly is the figure the shareholder is taxed on? Neither limb of section 46 concerns a buy-back, so the 1 October 2024 buy-back changeover does not touch it; section 46 governs liquidation only, and it has read in identical words on departmental pages stamped Year 1966, Year 1973, Year 2009 and Year 2024 (No. 2). Section 46(1) says that where the assets of a company are distributed to its shareholders on its liquidation, that distribution "shall not be regarded as a transfer by the company for the purposes of section 45" — so the company is not charged on the distribution. Section 46(2) then charges the shareholder: he is chargeable under the head "Capital gains" on the money received plus the market value of the other assets on the date of distribution, "as reduced by the amount assessed as dividend within the meaning of sub-clause (c) of clause (22) of section 2", and the sum so arrived at is deemed to be the full value of the consideration for section 48.
I paid tax on my ESOP perquisite when I exercised. Now I have sold the shares. What is my cost of acquisition, and from what date does my holding period run? This is stage two. When you sell, the capital gain is the sale consideration MINUS the fair market value that was already taxed as your perquisite at stage one: s.49(2AA) fixes the cost of acquisition of a specified security or sweat equity share as "the fair market value which has been taken into account" for the purposes of s.17(2)(vi). The amount you actually paid for the shares is NOT your cost — the statute deliberately links the cost to the value already charged to salary, so that the same appreciation is not taxed twice. For the holding period, s.2(42A) Explanation 1(i)(hb) says it is reckoned from the DATE OF ALLOTMENT OR TRANSFER of the specified security or sweat equity shares, not from the date of grant and not from the date of vesting.
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.
