The reinvestment reliefs — a new house, agricultural land, bonds — and the conditions that decide whether the claim survives. 33 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 Exemptions hub cross-lists everything that touches this area, including entries filed under another subject.
I am a Sikkimese woman who married a non-Sikkimese after April 2008, and the department says the Sikkim exemption is no longer available to me — is that right? No. The Supreme Court, hearing writ petitions under Article 32 on 13 January 2023, dealt with two exclusions from the section 10(26AAA) exemption: old Indian settlers left out of the Register of Sikkim Subjects, and Sikkimese women marrying a non-Sikkimese on or after 1 April 2008. On the second, Nagarathna J's concurring opinion holds the proviso inherently arbitrary and discriminatory, an unconstitutional distinction based on sex and race, and liable to be struck down; the Explanation's reference to "an individual" covers all genders. The harvested text stops before the operative order, so the directions on the first limb could not be read.
We pool advertising contributions from our franchisees in a group company that runs at no profit. Is the surplus exempt on the principle of mutuality? No, not on these facts. The Supreme Court dismissed the appeal and held the company was not a mutual concern, so the excess of income over expenditure for assessment year 2001-02 was taxable. Contributions were taken from Pepsi Foods Ltd, which was not a franchisee and had no franchise agreement, so members and non-members were dealt with in the same activity. The parent company had a sole and absolute discretion whether to contribute at all, controlled the board, and could take royalty benefit from the pooled funds. The franchisees had no right to a refund of surplus. Each limb of mutuality failed.
Sixty per cent of my tea company's income is agricultural and outside income tax. When I distribute dividend, is the distribution tax payable on the whole dividend or only on the taxable forty per cent? On the whole dividend. The Supreme Court upheld section 115-O as within Parliament's competence under Entry 82 of List I and set aside the Calcutta High Court's rider that additional tax could be charged only on 40 per cent of the dividend. Dividend declared and distributed is not impressed with the character of the profits out of which it is paid, so it does not become agricultural income in the shareholder's hands merely because the company's income was largely agricultural. Reading a 40 per cent limit into section 115-O would alter the provision, for which there is no warrant. The tea company's appeal was dismissed.
Our members' club keeps its surplus in fixed deposits with banks that are themselves corporate members — is the interest exempt on the principle of mutuality? No. The Supreme Court held on 14 January 2013 that interest earned by a members' club on fixed deposits with banks that happen to be corporate members is taxable. Once the money goes into a bank deposit the closed circuit breaks: the bank lends it on to outsiders at a higher rate, so the funds are expended on non-members before they come back. All three conditions of mutuality fail — complete identity of contributors and participators, application of the surplus in furtherance of the club's objects, and the impossibility of members profiting from their own contributions. The club deals with the bank as a customer, not as a member.
I grow mulberry, feed the leaves to silkworms and sell the cocoons. Is the whole income agricultural income and exempt? No. The Supreme Court held that income from rearing silkworms and selling cocoons is not agricultural income. The definition requires that what is taken to market and sold be the produce raised by the cultivator, processed only so far as to make it marketable. Mulberry leaves are the agricultural produce here; silkworms are not, and cocoons certainly are not. A process that alters the character of the produce into a different commodity takes the income outside the definition. That the leaves themselves had no market did not help the assessee. The appeals were dismissed.
My members' club charges for drinks, rooms and subscriptions and ends the year with a surplus. Is that surplus taxable income? No, where the receipts come from members. The Supreme Court held that amounts realised from members for drinks, refreshments, letting of buildings, admission fees and periodical subscriptions were charges for the privileges, conveniences and amenities the members were entitled to under the club's rules, offered without profit motive and untainted with commerciality. That is not a trading activity, and the excess of receipts over expenditure arising from a mutual arrangement is not income under the Act. Income from extending facilities to non-members was not in issue in these appeals.
How is an exemption notification read when it is doubtful whether I am covered by it at all? Strictly at the entry, liberally afterwards. The Supreme Court held that whether a subject falls within an exemption is a question to be construed strictly and against the subject, because an exemption is in the nature of an exception. But once the doubt about applicability is lifted and the subject is found to be within the notification, full play is given to it and it is construed widely and liberally. Applying that, an existing paper factory that switched to packing and wrapping paper had not commenced production within the notification, and was exempt only to the extent attributable to its enlarged capacity.
I am a Scheduled Tribe member living in a Sixth Schedule area but my salary is earned from an office outside it — is that income exempt under section 10(26)? No. The Supreme Court held that section 10(26) exempts a Scheduled Tribe member only on income accruing or arising from a source inside the specified area (or from dividends and interest on securities). Residence in the specified area alone is not enough; the source test in sub-clause (a) is a separate, mandatory condition. The Court reversed the Gauhati High Court, which had struck the sub-clause down under Article 14, and held the classification by source of income to be based on intelligible differentia and constitutionally valid.
My company lends and takes deposits only from its own shareholders and shares the surplus among them. Is that mutual trading, so that the surplus is not taxable? No. The Supreme Court held that mutuality requires complete identity between contributors and participators: every contributor to the common fund must be entitled to share in the surplus, and every participator in the surplus must be a contributor. Here a shareholder could take his dividend without ever making a deposit or taking a loan, so the surplus came back to him as a shareholder on his shares, not as a person who had put money in. That is a company making a profit out of its members as customers, which is taxable. The Madras High Court's test, that the right to contribute and the right to participate need only be open to an identical body, was held unsound.
I sell timber from forest land that we prune, weed and replant. Is that agricultural income? Only so far as basic operations were performed. Income is agricultural where operations on the land itself prior to germination — tilling, sowing, planting — have been carried out; subsequent operations such as weeding, pruning, tending and harvesting qualify only when performed as part of an integrated activity with those basic operations. Produce of spontaneous growth is not agricultural income, so a part-replanted forest has to be apportioned.
I hold shares in a tea company and 60 per cent of its income is exempt as agricultural income. Is 60 per cent of my dividend exempt too? No. The Supreme Court held that dividend from a tea company is not agricultural income in the shareholder's hands. Agricultural income means revenue received by direct association with land used for agricultural purposes; it does not extend to revenue that changes hands by way of distribution of dividends. In fact and truth the dividend is derived from the investment in shares and rests on the contractual relation between the company and the shareholder. The shareholder has no interest in the property of the company, which is a juristic person distinct from him, only a right to participate in profits.
The new agricultural land is registered in my wife's name. Can the AO deny 54B? No, on this view. The statute contains no requirement that the new agricultural land be registered in the assessee's own name; what controls is that the funds applied to the purchase belonged to the assessee.
I never deposited the unspent sale proceeds in a capital gains account. Can I still claim 54F? No, not for the unspent part. Section 54F(4) requires the amount not utilised towards the new house to be deposited in the notified account before the due date under section 139(1), and failure to do so confines the exemption to what was actually spent.
I got two independent floors from the builder. Is that one residential house for 54? Yes, for the years this decision governs. So long as the assessee acquires a building of several units that can conveniently and independently be used as residences, section 54 and 54F are satisfied and the exemption is not restricted to a single unit.
I put the entire sale consideration into a house bought in my wife's name. Do I get 54F? Yes, on this view. Where the whole consideration came from the assessee and the spouse contributed nothing, section 54F does not require the new residential house to be bought in the assessee's own name or exclusively in his name.
The 54EC bonds weren't on sale before my six months ran out. Have I lost the exemption? No. Where the specified bonds were genuinely unavailable on the last date of the six-month window, the time limit stands effectively extended and an investment made as soon as the bonds became available qualifies under section 54EC.
I invested the sale proceeds in construction but the house isn't finished. Do I lose 54F? No. What section 54F requires is that the consideration be invested within the prescribed period. Completion of construction, execution of the sale deed, or occupation of the new house within that period is not a requirement of the section.
I give farmers my foundation seed, supervise their fields and buy back the hybrid seed at a fixed rate per quintal. Is what I earn agricultural income exempt under section 10(1)? No. The Karnataka High Court held the whole of the income was business income. Under the contract farming arrangement the farmer used his own land and his own labour and carried out the basic operations - preparing the bed, sowing, cultivating and harvesting. The company only supplied foundation seed, gave technical advice and supervision, and paid a fixed rate per quintal for seed meeting its specification. Because the assessee did not itself carry out the basic agricultural operations, cleaning, grading and converting foundation seed into certified seed could not be treated as part of an integrated agricultural activity. The Commissioner (Appeals) was wrong to exempt all of it and the Tribunal wrong to split it 90:10.
I paid for the new house but it's in my son's name. Can I still claim 54F? No, on this view. The court held that ownership and domain over the new asset must run to the assessee from the sale of the original asset through to the purchase or construction; where the son became the owner, the assessee had no right over the property and section 54F was refused.
My client resigned; he did not superannuate. The officer says s.10(10AA) is only for retirement, so his leave encashment is fully taxable. Is that right? No. Resignation is a mode of retirement, and s.10(10AA) applies to leave encashment received on resignation just as it does on superannuation. The clause says 'at the time of his retirement whether on superannuation or otherwise', and the Bombay High Court held that how the retirement came about is immaterial.
For the s.10(10) gratuity and s.10(10AA) leave encashment limits, can I compute 'salary' on the pay my employer actually used — basic plus all the allowances that went into provident fund pay? No. The Explanation to s.10(10) fixes 'salary' for both s.10(10) and s.10(10AA) as the meaning in clause (h) of rule 2 of Part A of the Fourth Schedule — basic pay plus dearness allowance if the terms of employment so provide, and nothing else. The Madras High Court held there is no ambiguity in that definition and it must be applied; it also upheld the differential treatment of government and non-government employees in both clauses against Article 14.
CPC denied my leave encashment exemption under s.10(10AA) because Form 26AS shows the gross salary, and the Department says I resigned and joined another employer in the same year. Can I still get it? Yes on both points. Leave encashment received on resignation is exempt under s.10(10AA), and nothing in the statute disentitles an employee who takes up fresh employment in the same year; what matters is that the receipt was on cessation of employment. A Form 26AS mismatch thrown up in s.143(1) processing is not a sustainable ground to tax the amount where the claim is supported by the employer's Form 16.
My client took the package when HMT's Tractor Division was closed. CPC allowed only Rs 5 lakh under s.10(10C) and then refused s.89 relief because of it. Is the whole package exempt? On these facts yes. Where the Central Government approves a scheme for extending special protection to workmen of an undertaking being closed down, the second proviso to s.10(10B) displaces the monetary ceiling and the whole of the compensation is exempt. The Chandigarh Bench held the HMT Tractor Division package fell under s.10(10B) and not s.10(10C), and separately directed that s.89 relief be allowed on the net gratuity.
My company paid dividend distribution tax on dividend to a French shareholder. Can I pay at the lower treaty rate on dividends instead of the section 115-O rate? No, on the reasoning of this Special Bench. It treated dividend distribution tax under section 115-O as a charge on the domestic company on its own distributed profits, not a tax paid on behalf of the shareholder, following the Bombay High Court in Godrej & Boyce that the company does not act as the shareholder's agent and the charge is not on dividend in the shareholder's hands. It held that Tata Tea, which upheld the constitutional validity of section 115-O, does not support the taxpayer, a precedent being an authority only for what it actually decides. On that footing the shareholder's treaty rate does not limit the section 115-O rate.
I filed a belated return and only invested after 31 July. Can the AO deny my 54 exemption? Not on that ground, if the investment came before the belated return was filed. The Tribunal read sub-section (4) of section 139 as in substance a proviso to sub-section (1), so the section 54 reinvestment period runs to the extended filing date, and booking a flat with a builder counts as purchase even without possession or a registered deed.
My client took the State Bank's exit option and claimed Rs 5 lakh under s.10(10C). The officer says the scheme does not meet rule 2BA. Is partial compliance enough? No. Compliance with s.10(10C) and rule 2BA is cumulative, and satisfying some of the six requirements does not entitle the employee to the exemption. Where the employer's own certificate described the payment as ex gratia under an 'Exit Option Scheme', said the amount would be added to income and tax deducted at source, and said nothing about rule 2BA, the Cochin Bench held the exemption was not available.
I own a half share in one flat and a whole house. Does that block 54F? Yes. The proviso to section 54F denies the deduction where the assessee owns more than one residential house other than the new asset on the date of transfer, and a fractional or joint share counts as ownership for that purpose.
I am a geologist running production at three oil and gas fields in India for a foreign oil company. Am I a technician in mining, or in constructional operations, for the section 10(5B) exemption? No, on both routes. The Authority held that mining in the Explanation to s.10(5B) is not used in a broad sense that takes in prospecting for or extraction of mineral oil, because the Income-tax Act consistently treats mineral oil as something separate from minerals and makes its own special provision for it in ss.42, 44BB and 293A. It also rejected the alternative case that the applicant was a technician in constructional or manufacturing operations: he had a degree in geology and no shown special knowledge of construction, and he was employed to run oil and gas field production, not to build. It did accept the applicant's answer to the Commissioner's threshold objection - the second category of technician, one employed in any business carried on in India, need not be in government or public employment. The ruling binds only the applicant.
I am a foreign technician deputed to India by my overseas employer, who pays my Indian tax. The Indian factory slits, perforates and spools imported film. Am I a technician in manufacturing operations, and does it matter that my employer is foreign? Yes on both. The Authority ruled that Mr Newell, a production operations manager employed by Kodak Limited in the United Kingdom and deputed to the Goa factory of Kodak India Limited, was a technician within the Explanation to s.10(5B) and entitled to the exemption. Slitting, perforating, notching and spooling imported jumbo rolls of film into 35mm cassettes and motion picture film was held to be manufacture, because what emerged was a different commercial commodity even though the original article remained identifiable. On the second point, the Authority read s.10(5B) as placing no restriction on who the employer is: a technician employed in a business in India qualifies whether the employer is Indian or foreign. The ruling binds only Mr Newell.
A foreign non-profit runs hospitality courses in India through a branch and charges licence fees and course fees to Indian institutes. Is that income exempt as an educational institution, and does a surplus destroy the exemption? Yes, on the law as it then stood. The Authority ruled that the Educational Institute of American Hotel and Motel Association, a US non-profit working in India under a memorandum of understanding with the National Council of Hotel Management and Catering Technology, was entitled to exemption under s.10(22) on income from conducting courses and certification programmes, providing educational and training materials, conducting seminars and workshops, and training in-house faculty. Its objects barred any distribution of earnings to members or directors even on dissolution, and the activities under its licence agreements and memoranda were purely educational or ancillary to education. Because the first question was answered in the applicant's favour, the question on s.11 became academic. Section 10(22) has since been omitted from the Act.
I have become resident in India by the time I want an advance ruling, and I have filed my return in the meantime because the due date came round. Can the Authority still hear my application? Yes, on both objections. The Authority held that residential status for Chapter XIX-B is tested by the financial year immediately preceding the year in which the application is made, so an American software manager who had become resident in 1994-95 was still a non-resident applicant when he applied on 31 March 1995. It also held that the bar in clause (a) of the proviso to s.245R(2) bites only where the question was already pending on the date of the application, so a return filed afterwards does not defeat it. On the merits it ruled that he was a technician in information technology within the notified field and entitled to exemption under s.10(5B). The ruling binds only Monte Harris.
My client holds four life policies with different premiums and different maturity dates. How do I work out which of them still come out exempt under s.10(10D)? The circular is the Board's own worked answer to that question. It lays down that the Rs 5,00,000 test is applied afresh in each year in which a sum is received, by aggregating the premium payable on the policy being tested with the premium on every other eligible policy on which exemption has already been claimed, and it tells the assessee he may choose which combination of policies to claim on. It also settles two points the section does not: premium is taken exclusive of GST, and a pure term policy is outside the sixth and seventh provisos altogether and does not count towards the aggregate.
Our company assigned its keyman policy to the director before maturity and he paid the surrender value. Is the maturity money still exempt in his hands? No, not where the assignment falls in assessment year 2014-15 or later. The Board's explanatory notes to the Finance Act 2013 record that keyman policies were being assigned to the keyman before maturity so that the proceeds could be claimed exempt under s.10(10D), and state that the clause was amended so that a policy assigned during its term, with or without consideration, continues to be treated as a keyman insurance policy. The change applies from 1 April 2014, that is, for assessment year 2014-15 onwards.
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.