Chargeability
Exemptions
Capital assets
& its types
Capital
Gains
Computation of capital gain
Transfer includes and excludes

1.
There should be a
2.
The capital asset is
by the assessee
3.
Such transfer takes place during the
4.
5.

Means Property of any kind held by an assessee, whether or not connected with his business or profession. But it excludes
Any stock – in – trade
Personal effects
Agricultural land in India
6 ½ % God Bonds,1977 or 7% Gold Bonds, 1980 or
National Defense Gold Bonds, 1980 issued by the
CG.
Special Bearer Bonds, 1991
Gold Deposit Bonds issued under Gold Deposit
Scheme, 1999


Arun Sunny V. CIT(2009) Property transferred must be a capital asset on the date of transfer . It is not necessary that it should have been capital asset also on the date of its acquisition by the assessee.

Stock in trade is not a capital assets - This is because of the fact that any surplus arising on sale or transfer of stock in trade etc., is chargeable to tax as business income under sec. 28

Personal effects does not include jewellery, archaeological collections, drawings, paintings, sculptures, or any work of art.


Rana Hemant Singhji V. CIT – Personal effects must be intended for personal and household use. If not those are treated as capital assets.

Agricultural land is a capital asset if it situated in any area within the jurisdiction of a municipality or a cantonment board having a population of 10000 or more
OR in any notified area

Capital assets
Short Term
Capital asset
Long Term
Capital Asset
Capital assets held by
Assessee for not more
Than 36 months prior to
Its date of transfer
Capital assets held by
Assessee for more
Than 36 months prior to
Its date of transfer
For certain Capital assets
36 months Is replaced with 12 months

Those assets are
Equity or preference shares in a company
Securities (Debentures, Govt.
Securities)
Units in UTI
Shares may or may not be quoted
Should be quoted in a recognized stock exchange in India
May or May not be quoted
Units of Mutual Funds
Zero Coupon Bonds
May or May not be quoted
May or May not be quoted

IF those assets are held for more than 12 months immediately prior to its transfer then it is a long term capital asset


Perod of Holding : - Normally Period of holding is calculated from the date of acquisition of capital asset to the date of transfer. However, in certain cases period of holding is
When capital asset is acquired by way of gift, will, inheritance etc.,
Right Shares
Bonus shares
The period for which asset was held by Previous owner should be included
From the date of Allotment of Right shares
From the date of Allotment of Bonus shares
Flat in co operative society
Sweat equity shares
From the date of allotment of shares in the society
From the date of allotment of shares to employees

CIT Vs. Sri Sekhar Gupta : - Calcutta bench of the tribunal held that the land is an independent and identifiable capital asset and it continues to remain as an identifiable capital asset even after construction of the building.
Capital gain can be separately calculated for land and building after splitting up the sale consideration for the land and building.
Transfer of Depreciable Asset : - In the case of , capital gain (if any) is taken as short term capital gain, irrespective of period of holding.

Transfer, in relation to a capital asset, includes

Includes Sale of Capital asset : - Essentials of a sale are
1. Mutual agreement
2. Competent parties
3. a money consideration
4. Transfer of absolute or general property
If aforesaid conditions are not satisfied there is no sale.

Includes Exchange : - CIT V. Rasiklal
Maneklal(HUF)(1989) It was held that there must be a mutual transfer of ownership of one thing for ownership of another.


Include Compulsory acquisition of asset : Taxable when the compensation is received for the first time not on the date of transfer.
 Include Conversion of capital asset into stock in trade
 Include Redemption of zero coupon bonds
 Transfer includes giving possession of immovable possession of immovable properties under part performance of a contract
 Transfer includes any transaction which has the effect of transferring an immovable property :
Conditions
1. The transferor is a member of co operative society/member/AOP
2. By virtue of membership he has been allotted an immovable property or he will be allotted an immovable property.
3.The membership right is transferred

Sec Transactions not treated as transfer
(Subject to certain conditions)
What is the cost in the hands of transferee
If the transferee subsequently transfer the asset, whether period of holding by the previous owner should be included
Yes 46(1) Distribution of assets in kind by company to its shareholders at the time of liquidation
47(i) Distribution of capital asset on total or partial partition of HUF
47(ii) Transfer of Capital asset under a gift or will
47(v) Transfer of CA by a 100% subsidiary company to its Holding company
47(vi) Transfer of CA in the scheme of amalgamation
47(vib) Transfer in a demerger of a CA by the demerged company to resulting company
47(vii) Allotment of shares in amalgamated company in lieu of shares held in amalgamating company
Market value of he asset on the date of distribution
Cost to previous owner
Cost to previous owner
Cost to previous owner
Cost to previous owner
Cost to previous owner
Cost of shares in the amalgamating company
Yes
Yes
Yes
Yes
Yes
Yes

47(viia) Transfer of a capital asset (being foreign currency convertible bonds or GDR) by a non – resident to another Non – resident
47(x)
47(xa)
Transfer by way of conversion of bonds or debentures into shares
Transfer by way of conversion of bonds into shares or debentures of any company
47(xii) Transfer of land by a sick industrial company which is managed by its workers co operative
47(xiii) Transfer of a capital asset by a firm to a company in the case of conversion of firm into company
47(xiv) Transfer of a capital asset to a company in the case of conversion of Proprietary concern into company
47(xv) Transfer involved in a scheme of lending of securities
47(xvi) Transfer of capital asset in a transaction of reverse mortgage made under a scheme notified by the Government.

No
Cost of shares would be cost of bonds/debentures
Cost of shares/debentures would be cost of original bonds
No
No
No
No
No
No


The aforesaid transactions are not recognized as transfer for the purpose of Sec.45. Therefore any profit or gain arising there from cannot be recognized as income or any loss arising there from cannot be set off against the other income of assessee.

The aforesaid transactions are not recognized as transfer for the purpose of Sec.45. Therefore any profit or gain arising there from cannot be recognized as income or any loss arising there from cannot be set off against the other income of assessee.
Computation of CG depends upon the nature of capital asset transferred. If short term capital Asset is transferred Short term capital gain will arise. If Long term asset is transferred Long term capital gain will arise

Computation of Short term CG Computation of Long term CG
1. Find out full value of consideration 1. Find out full value of consideration
2. Deduct the following
A. Expenditure incurred in respect of that transfer
B. Cost of acquisition
C. Cost of Improvement
3. From the result sum deduct the exemption provided U/s 54B, 54D, 54G and 54GA
The Balance is Short term Capital Gain
2. Deduct the following
A. Expenditure incurred in respect of that transfer
B. Indexed Cost of acquisition
C. Indexed Cost of Improvement
3. From the result sum deduct the exemption provided U/s 54, 54B, 54D, 54EC, 54F, 54G and 54GA
The Balance is Long term Capital Gain


Capital Gains exempt from tax under Sec.10
A. CG on compulsory acquisition of urban agriculture land : - For individuals and HUF s and if it used by the assessee for agriculture purpose for at least 2 years immediately prior to date of transfer.
B. Long term CG on Transfer of securities not chargeable to tax in cases covered by Transaction Tax. : a. For all taxpayers, only long term capital asset b. At the time of transfer, the transaction is chargeable to . securities transaction tax


Cost of acquisition : - Cost of acquisition is the value for which it was acquired by the assessee. Expenses of capital nature of completing or acquiring the title to the property are includible in the cost of acquisition.
Meccane Industries Ltd. V. CIT : - Conversion of agriculture land into non-agriculture land : - Where when land was acquired for agriculture purpose but later it was converted into non agriculture purpose. The cost of acquisition is to be taken as cost of acquisition of the agricultural land not the notional cost as on the date the land is put to Non agricultural use.

Notional Cost of acquisition : - In the cases below cost of acquisition is taken at a notional figure

Different situations Notional cost of acquisition
1. Asset received by a member on liquidation of the company
2. Allotment of shares in an amalgamated Indian company to the Shareholders of amalgamating company In a scheme of amalgamation of the two companies
3. Depreciable assets covered by
Sec. 50
FMV of such asset on the date of distribution
Cost of acquisition of shares in the amalgamating company
OB of the block of assets on the first of the previous year + actual cost of the assets acquired during the year which fall within the same block
Net worth of such undertaking 4.Undertaking/division acquired by way of slump sale as covered under sec.50B
5. New asset acquired for claiming exemption U/S 54, 54B,54D,54G or
54GA if it is transferred within 3
Years
Actual cost of acquisition (-) Exemption claimed under these sections

Different situations
6. Right shares
7. Right Entitlement
8. Bonus shares
Notional cost of acquisition
Amount actually paid by assessee
Nil
If allotted before April 1 1981 : FMV
Otherwise : Nil
Cost of acquisition to the previous owner or FMV as on Apr 1 1981, whichever is more
9. Any other Capital Asset
A.
If it became the property of the assessee before Apr 1 st
1981 by gift, will, etc.,
B.
A. If it became the property of the assessee before Apr 1 st
1981
C.
If it became the property of the assessee after Apr 1 st
1981 by gift, will, etc
D.
If it became the property of the assessee after Apr 1 st
1981
Cost of acquisition or FMV as on Apr 1
1981, whichever is more
Cost of acquisition to the previous owner
Cost of acquisition


Conversion of Capital asset in to stock in trade Sec.45(2 ).
1. The notional profit arising from transfer by way of conversion of capital asset into sock in trade is chargeable to tax in the year in which stock in trade is sold.

CIT V. Crest Hotels Ltd. (2001)(mum.) : - If stock in trade is sold in parts in different years, tax on conversion of capital asset into stock in trade as per sec. 45(2), can be said to arise in parts in different years and not in one year in which last of stock in trade is sold.

For the purpose of computing the CG in such cases, the FMV of the Capital asset on the date on which it was converted or treated as stock in trade shall be deemed to be the full value of the consideration received.


Transfer of capital asset by a partner to a firm : -
Conditions : -
1. A person is a partner in a firm or he becomes a partner in a firm
2. He transfers a capital asset
3. The transfer may be by way of his capital contribution or . otherwise
If above conditions are satisfied then

Chargeable to tax in the previous year in which such transfer takes place.

Full consideration is the amount recorded in the books as value of capital asset.


Transfer of capital asset on compulsory acquisition of an asset :
-
What is the sale consideration : -
Initial compensation is taken as full value of sale consideration
In which year it is chargeable to tax : -
In the previous year in which initial compensation or part thereof is received.

CG when insurance Claim is received : -
Vania Sild Mills(p.) Ltd. V.CIT(1991) SC held that insurance claim received on account of destruction of asset is not chargeable to tax as
“destruction” does not amount to transfer. However, judgment has been nullified to some extent by inserting Sec.45(1A)
SEC 45(1A) : - Conditions
1.
Compensation is received because of destruction of any Capital asset.
2.
The damage or destruction is a result of four categories of circumstances a. Flood etc., b. Riot or civil disturbances. (iii) Accidental fire explosion (iv) Action by an enemy.


Then Any profit or gain araised from such receipt then it is chargeable to CG.

In the Previous year in which such money or asset is received

Capital Gain in the case of Land and Building Sec. 50C.
Conditions
A. There is a transfer of land and building
B. The sale consideration is less than the value adopted by any authority of state government for the purpose of payment of stamp duty.
Navneet Kumar Thakkar V. ITO(2008) The Jodhpur Bench of the ITAT held that unless property transferred has been registered by a sale deed and for that purpose value has been assessed and stamp duty has been paid by parties, sec. 50C can not come into operation.
If a property is transferred under a power of attorney transaction and value has not been assessed for the purpose of stamp duty, Sec. 50C has no application.


If above conditions are satisfied then
Where the assessee accepts the value adopted by stamp duty authority
Value adopted by stamp duty authority is taken as full value of consideration
Where the assessee has disputed value adopted by stamp duty authority under the stamp
Act.
Where the assessee claims that value adopted by stamp duty authority is more than the fair market value
The Stamp duty valuation as finally accepted for stamp duty purpose is taken as full value of consideration

FMV determined by the department VO
(if it is less than the stamp duty valuation) is taken as full value of consideration

Stamp duty valuation (If the FMV determined by the department VO. Is more then the stamp duty valuation) is taken as Full value of consideration.


Reference to Valuation officer : - Sec. 55A
With a view to ascertain FMV of the CA, AO may refer the mater to VO, in the following grounds : -
1. Where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered valuer, but the AO is of the opinion that the value so claimed is less than its FMV
2. Where the AO is of the opinion that FMV of the asset exceeds the value of the asset by more than 25000 or 15% of value claimed by assessee, which ever is more.
3. Where AO is of the opinion that, having regard to nature of an asset, it is necessary to make a reference to the VO.

Different Questions Sec 54 Sec 54B Sec 54D
Who can claim exemption Individual/HUF
Which Capital Asset
Which specific asset is eligible for Exemption
Long Term
Individual
Short term/
Long Term
A Residential house property
Agricultural land if it was used by the individual or his parents for agricultural purpose for at lease 2 years immediately prior to transfer
Residential house property Agricultural Land Which asset the tax
Payer should acquire
To get the benefit of
Exemption
Time Limit
Time limit for acquiring
From the date of transfer/ in case of Compulsory acquisition from the date of receipt of compensation
From the date of transfer of agricultural land
Purchasing 1 year backward or 2 years forward. Construction :
3 years forward
2 years forward
How much is exempt Investment in the new asset
OR CG Which ever is lower
Investment in the new asset
OR CG
Whether the scheme of deposit is available
Yes Yes
Any persons
Long Term
Land or Building forming part of an industrial undertaking which is compulsory acquired by the
Govt.
Land or building for
Industrial purpose
From the date of receipt of compensation
3 years forward
Investment in the new asset
OR CG
Yes

Different Questions
Who can claim exemption
Which Capital Asset
Sec 54EC
Any person
Long Term
Which specific asset is eligible for
Exemption
Any Long term Capital
Asset
Sec 54F
Individual/
HUF
Long Term
Any LTCA (other than a residential house
Property) provided on the date of transfer the taxpayer does not own more than one residential house property
Which asset the tax Payer should acquire to get the benefit of
Exemption
Time Limit
Bonds of NHAI or REC
Time limit for acquiring
From the date of transfer of
LTCA but in the case of
Compulsory acquisition from the date of receipt of compensation
6 Months forward
A Residential house property
From the date of transfer of CA but in the case of Compulsory acquisition from the date of receipt of compensation
Purchasing 1 year backward or 2 years forward. Construction : 3 years forward
Investment in the new asset/net SC*CG How much is exempt
Whether the scheme of deposit is available
Investment in the new asset
OR CG Which ever is lower
No Yes

Different Questions
Who can claim exemption
Which Capital Asset
Which specific asset is eligible for
Exemption
Which asset the tax Payer should acquire To get the benefit of
Exemption
Time Limit
Time limit for acquiring
54G
Any person
Sec 54GA
Any person
Short term/
Long Term
Land, Building, Plant or Machinery in order to shift an industrial undertaking from urban area to rural area
Land, Building, plant or machinery in order to shift an undertaking to rural area
Short term/
Long Term
Land, Building, Plant or
Machinery in order to shift an industrial undertaking from urban area to any SEZ
Land, Building, plant or machinery in order to shift an undertaking to SEZ
From the date of transfer
1 Year backward or 3 years forward
From the date of Transfer
1 Year backward or 3 years forward
How much is exempt
Whether the scheme of deposit is available
Investment in the new asset OR CG
Which ever is lower
Yes
Investment in the new asset OR
CG Which ever is lower
Yes

Capital asset
US – 64
Units( Equity
Oriented)
Units(others)

INCOME TAX RATES
If transaction is covered by STT at the time of transfer
If it is not covered by STT
Long Short
Term - Term
Long term ST
Without With
Indexa Indexa
Tion tion
0% 0%
0% 15%
0% 0% 0%
10% 20%
Normal
NA NA 10% 20%
Norma l

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