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University Question Papers
Income Tax/Taxation
Capital Gain
A. Theory Questions

Q.1 What is capital gain? (Nannaya, 2017, Krishna June, 2018)

Ans.:
Capital Gain – Meaning

Any gain arising from the transfer of a capital asset during a previous year is chargeable to tax
under the head “Capital Gains”. Income from Capital gains is computed in accordance with the
provisions of sections 45 to 55A of the Act. The expression “Capital Gains” means any profits or
gains arising from the sale of a capital asset affected in the previous year.
Meaning of Capital gain : Any profits arising from the transfer of a capital asset is called capital gain.
The following are the essential conditions for taxing capital gains.
1. There must be a capital asset.
2. The capital asset must have been transferred.
3. There must be profit or gain on such Transfer, which will be known as Capital Gain.
4. Such capital gain should not be exempt u/s 54, 54B, 54D, 54EC, 54ED, 54F or 54G of the Act.

Q.2 What is capital asset? State the assets which are not included in the term capital
asset. (Krishna March, 2017)

Meaning of Capital Asset :

Capital asset means property of any kind held by assessee, whether or not connected with his
business or profession. It includes plant and machinery, building – whether business premises or
residential, all assets of business, goodwill, patent rights etc.

Non-Capital assets : However, the following assets are not capital assets. They are excluded from the
definition of capital assets.

1. Stock-in-trade, raw materials and consumable stores held for the purposes of business or
profession.
2. Personal effects of movable nature, such as furniture, utensils, and vehicles held for personal use
by the assessee or any dependent member of his family. However, jewellery is a capital asset. The
personal effects like archaeological collections, drawings, paintings, sculptures or any other work
of art has been excluded from the definition of capital assets.
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3. Rural Agricultural Land : Rural Agricultural Land in India i.e., the Agricultural land situated in
India except the following.
(a) in any area within the territorial jurisdiction of a municipality or a cantonment board, having
a population of 10,000 or more; or
(b) In any area within the distance measured aerially
(i) Upto 2 kms., from the local limits of any municipality or cantonment board and which
has a population ranging between 10,001 and 1,00,000;
(ii) Upto 6 kms., from the local limits of any municipality or cantonment board and which
has a population ranging between 1,00,001 and 10,00,000; or
(iii) Upto 8 kms., from the local limits of any municipality or cantonment board and which
has a population of more than 10,00,000.
4. 6½ per cent Gold bonds, 1977 or 7 per cent Gold bonds, 1980 or National Defense Gold Bonds,
1980 issued by the Central Government.

5. Gold Bonds issued by Government of India including gold deposit bonds issued under the gold
deposit scheme, 1999 notified by the central Government.

6. Special Bearer Bonds, 1991 issued by the Government of India.

7. Deposit Certificates issued under the Gold Monetization Scheme, 2016 w.e.f. Assessment year
2017-18.

Q.3 What are the transactions not regarded as ‘transfer’?

(Acharya Nagarjuna November, 2017)

Transaction not regarded as Transfers [Sec.47]

The following transfers are not regarded as transfers as per Sec.47 of Income Tax Act, 1961.

1. Partition of HUF : Transfer of a capital asset in total or partial partition of a HUF

2. Gift or Will : Transfer of a capital asset by way of gift or under a will or an irrevocable trust.
3. Transfer of capital asset at the time of Liquidation [Sec.46(1)] : If the capital assets are
distributed – (a) in kind (b) by a company (c) to its shareholders and (d) on its liquidation, then
such a distribution is not treated as `transfer’
4. Holding Company to Subsidiary and vice versa : Transfer of a capital asset by holding
company to its subsidiary company or vice versa.
5. Scheme of Amalgamation : Transfer of a capital asset in a scheme of amalgamation, if the
amalgamated company is an Indian company.
6. Demerger : Transfer of a capital asset, in a demerger, by the demerged company to the resulting
company, if the resulting company is an Indian company.
7. Transfer of shares of amalgamating Company : Transfer of capital asset being shares held by
the shareholder of the amalgamating company in lieu of the shares issued by the amalgamated
company.
8. Bonds and GDR’s : Transfer of capital asset, being bonds and Global depository Receipts
referred to in Sec.115AC, made outside India by a non-resident to another non-resident.
9. Archaeological or Scientific Works : Transfer of capital asset being any work of art,
archaeological or scientific or art collection, any book manuscript, painting, drawing etc., to the
Government or University or Notified Museums, Art Gallery or approved Institutions.
10. Conversion into stock : Conversion of debentures, debentures stock, deposit certificates of a
company into shares or debentures of that company
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11. Stock Exchange : Transfer of a capital asset being membership of a recognized stock exchange
by a person (not being a company) to a company in exchange of shares allotted shall not be
regarded as transfer and therefore not liable to tax.
12. Sick Industrial undertakings : Transfer of land of a sick industrial company under a scheme
sanctioned under section 18 of the sick industrial companies (Special Provisions) Act, 1985,
where such sick industrial company is being managed by its workers’ co-operative.
13. Transfer of a capital asset by firm to a company : Any transfer of a capital asset or intangible
asset by a firm to a company as a result of succession of the firm by a company in the business
carried n by the firm, provided certain conditions are satisfied.
14. Succession of a sale proprietary concern by a company : Where a sole proprietary concern is
succeeded by a company in the business carried on by it as a result of which the sole proprietary
concerns sells or otherwise transfers any capital asset or intangible asset to the company provided
certain conditions are satisfied.
15. Amalgamation of Banking Companies : [Section 47(viaa)] : Any transfer, in a scheme of
amalgamation of a banking company with a banking institution sanctioned and brought into force
by the Central Government.
16. Capital gains on purchase by company of its own shares or other specified securities
[Section 46A] : Where a company purchases its own shares and other specified securities, the
difference between the cost of acquisition and the value of consideration received by the
shareholders or the holder of such other specified securities shall be deemed to be the capital gains
arising to such shareholder or the holder of such other specified securities.
17. Transfer in case of Reverse Mortgage [Sec.47(xa)] Any transfer of capital asset in a transaction
of reverse mortgage shall not be regarded as transfer and hence shall not attract capital gain tax.
18. Capital Gains on Transfer in the Context of Foreign Currency Exchangeable Bonds (FCEB)
: With a view to providing a level playing field to FCEB it is proposed to provide that the
conversion of FCEB into shares or debentures of any company shall not be treated as a
``transfer.’’
19. Withdrawal of exemption [Sec.47A] : Where the capital gain arising on the transfer of a capital
asset from the holding company to the subsidiary company or vice versa.

Q.4 Write various capital gains exempted from tax? (Nannaya, 2017)
Exempted capital gains. (Yogivemana, November, 2018)

Ans.:
Capital gains exempted from Tax

The following capital gains are exempted from income tax subject to certain conditions specified
in the specific section.

1. Capital Gains from Transfer of a Residential House: [Sec.54]

2. Capital Gains from Transfer of Agricultural Land : [Sec.54B]
3. Capital Gains from Compulsory Acquisition of Industrial Undertaking: [Sec. 54D]
4. Capital Gains invested in Certain Bonds: [Sec.54EC]
5. Capital Gains invested in Units of a Notified Fund for Financing Start-Ups: [Sec.54EE]
6. Capital Gains from an Asset other than Residential House: [Sec. 54F]
7. Capital Gains from Shifting of an Industrial Undertaking from Urban Area to Rural
Area [Sec.54G]
8. Capital Gains from Shifting of an Industrial Undertaking from Urban Area to SEZ
[Sec.54GA]:
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9. Capital Gain from Transfer of a Residential Property invested in a manufacturing small or

medium enterprise: [Sec. 54GB]
10. Capital Gain on Compulsory Acquisition of Agricultural Land: [Sec. 10(37)]

Q.5 Capital assets and its types (Krishna November, 2018)

What is Capital asset. (Krishna March, 2018; Yogivemana, November, 2018)
Types of Capital Assets. (Sri Krishnadevarya March, 2019)
Short term capital assets. (Acharya Nagarjuna November, 2017)

Type of Capital Assets and Capital Gains

For classification of capital asset as short-term or long-term, its period of holding by the assessee
becomes important. Generally speaking, period of holding a capital asset is the duration from the date of
its acquisition on the date of its transfer.

1. Short Term assets and short term capital gain : A capital asset held by the assessee for not
more than the specified period immediately preceding the date of its transfer is called as ‘short
term capital asset’, and capital gain arising on its transfer is called ‘short term capital gain.’ The
specified period is as under:

(i) Shares in a company, Securities (other than units) 12 months

(a) Listed securities on stock exchange
(b) Unlisted securities 36 months
(ii) Units of
(a) Equity-oriented mutual fund 12 months
(b) Other than equity-oriented mutual fund
- transferred after 10.7.2014 36 months
(iii) Zero Coupon Bond 12 months
(iv) An immovable property, being land or building or both -
- transferred on or after 1.4.2017 24 months
(v) Other capital assets 36 months

2. Long Term asset and Long term capital gain : The gain resulted in the transfer of capital
asset is known as short term capital gain. A capital asset held by the assessee for more than the
specified period (as above) is called ‘long-term capital asset’ and capital gain arising on its
transfer is called ‘long-term capital gain’.

Q.6 Long term capital assets. Long term capital gain.

(Acharya Nagarjuna March, 2018)
Long term capital gain. (Krishna March, 2017)

Long Term asset and Long term capital gain

The gain resulted in the transfer of capital asset is known as short term capital gain. A capital
asset held by the assessee for more than the specified period (as above) is called ‘long-term capital asset’
and capital gain arising on its transfer is called ‘long-term capital gain’.
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Q.7 Define capital gain and explain method of computing the income under this head.
(Acharya Nagarjuna March, 2017)
Ans:

Any gain arising from the transfer of a capital asset during a previous year is chargeable to tax under
the head “Capital Gains”. Income from Capital gains is computed in accordance with the provisions
of sections 45 to 55A of the Act. The expression “Capital Gains” means any profits or gains arising
from the sale of a capital asset affected in the previous year.
Meaning of Capital gain : Any profits arising from the transfer of a capital asset is called capital gain.
The following are the essential conditions for taxing capital gains.
5. There must be a capital asset.
6. The capital asset must have been transferred.
7. There must be profit or gain on such Transfer, which will be known as Capital Gain.
8. Such capital gain should not be exempt u/s 54, 54B, 54D, 54EC, 54ED, 54F or 54G of the Act.

Method of Computation of Capital gain :

The income chargeable under the head “Capital gain’’ is to be computed by calculating gain
or loss from short-term and long-term capital gain separately. (Sec.48)

1. Calculation of Short-term Capital Gain

` `
1. Sale Price Xxx
2. Less : (i) Transfer expenses Xxx
(ii) Cost of acquisition Xxx
(iii) Cost of improvement Xxx Xxx
3. Gross Capital gain/Loss Xxx
4. Less : Deductions : Sec.54B, 54D, 54G, 54GA Xxx
5. Taxable Capital Gain/Loss Xxx

2. Calculation of Long-term Capital Gain

` `
1. Sale Price Xxx
2. Less : (i) Transfer expenses Xxx
(ii) Indexed Cost of acquisition Xxx
(iii) Indexed Cost of improvement Xxx Xxx
3. Gross Capital gain/Loss Xxx
4. Less : Deductions :
Sec. 54, 54B, 54D, 54EC, 54ED, 54F, 54G, 54GA, 54GB Xxx
5. Taxable Long-term Capital Gain/Loss Xxx

Steps to be followed :
1. Ascertain the full value of consideration received or accruing as a result of the transfer.
2. Deduct from the full value of consideration –
(a) Transfer expenditure like brokerage, legal expenses, etc.,
(b) Cost of acquisition of the capital asset/indexed cost of acquisition in case of long-term
capital asset; and
(c) Cost of improvement to the capital asset/indexed cost of improvement in case of long-
term capital asset.
3. The balance left-over is the gross capital gain/loss.
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4. Deduct the amount of permissible exemptions u/s 54, 54B, 54D, 54EC, 54EE, 54F, 54G, 54GA,
54GB and 54H, etc.
5. The balance is the net capital gain/loss, chargeable to tax.

Q.8 What is Cost of Acquisition?

Cost of Acquisition

Cost of acquisition is the amount for which the capital asset was originally purchased by the
assessee. Expenditure incurred in connection with such purchase, exchange or other transaction e.g.
brokerage paid, registration charges and legal expense, is added to price or value of consideration for the
acquisition of the asset. Interest paid on moneys borrowed for purchasing the asset is also part of
its cost of acquisition. In case of depreciable asset of an undertaking engaged in generation or
generation and distribution of power, its written down value shall be taken as its cost of acquisition.

1. Cost of Acquisition in case of Capital Asset acquired before 1.4.2001: Where capital
asset became the property of the assessee before 1.4.2001, he has an option to adopt the fair
market value of the asset as on 1.4.2001, as its cost of acquisition. For example, Mr. Koti
purchased a house on 10.1.1980 for ` 2,00,000. Its fair market value as on 1.4.2001 is
determined at ` 10,00,000. He sells the house during 2018-19 for ` 25,00,000. Mr. Koti
may opt for its fair market value as on 1.4.2001 (` 10 lakhs) as the cost of acquisition of the
house for the purpose of computation of capital gains.

2. Cost of Acquisition of Previous Owner: Where the asset was not originally purchased by
the assessee but it passed on to him under any of the following circumstances, the cost of
acquisition in the hands of the assessee shall be the cost for which the previous owner acquired it
:
(i) Distribution of assets on total or partial partition of an H.U.F.;
(ii) Transfer under a gift or will or by succession, inheritance or devolution;
(iii) Distribution of assets on dissolution, before 1.4.1987, of a firm, AOP/BOI or on liquidation
of a company;
(iv) Under a transfer to a revocable or an irrevocable trust;
(v) Under a transfer referred to in Section in certain cases.
(vi) Conversion after 31.12.1969, of separate property of its member of an H.U.F. into the
H.U.F’s property or transfer of any such separate property of the family otherwise than for
adequate consideration.
3. Cost of Acquisition of Long-term Equity Shares/Units of Equity–oriented Mutual Fund
Acquired before 1.2.2018: The cost of acquisition of equity shares in a company or units of an
equity-oriented mutual fund or of a business trust (referred to u/s 112A), acquired before
1.2.2018 and held for long-term (i.e. more than 12 months) shall be higher of following amounts
–
(i) Actual cost of acquisition : (a) Where the shares/units were acquired before 1.4.2001, their
fair market value on that date may be deemed as their actual cost. (b) Cost of acquisition of
previous owner shall be taken where the shares/units passed on to the assessee in
circumstances mentioned in section 49(1).
(ii) Fair market value (as on 31.1.2018 or the immediately preceding day on which last traded) or
full value of consideration for the shares/units, whichever is lower.
(iii) ‘Fair market value’ means : (a) In case of listed shares/units, the highest price quoted on the
stock exchange where listed, (b) In case of unlisted units the net assets value (NAV), (c) In
case of equity shares not listed as on 31.1.2018 or acquired in consideration of shares not
listed as on 31.1.2018 in a transaction not deemed as transfer u/s 47, but listed as on the date
of transfer, then an amount equal to –
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CII for the year

× Cost of Acquisition.
CIIfor the year or for 2001-02
4. Forfeiture of Advance Money Received: Where there were any negotiations for transfer of an
asset, and any advance or other money was received by the vendor under those negotiations, and the
same was retained and forfeited by him on the negotiation becoming infructuous, for any reasons, the
amount so forfeited shall be deducted from the ‘cost of acquisition’ (i.e. the actual cost of the fair
market value as on 1.4.2001, at the option of the assesses and the written down value in case of
depreciable assets), of that asset, in computing the capital gains arising on the effective transfer of
that asset. However, where such forfeited amount of advance has been subjected to tax as
income from other sources u/s 56(2)(ix), then this amount shall not be deducted from the ‘cost
of acquisition’ of the capital asset.

Q.9 What is Indexed cost of acquisition?

Indexed Cost of Acquisition

For computing long-term capital gains, ‘Indexed Cost of Acquisition’ and ‘Indexed Cost of
Improvement’ are required to be deducted from the full value of consideration of the capital asset. Both
these costs are required to be indexed with respect to the Cost Inflation Index pertaining to the year of
transfer. Accordingly, ‘Indexed Cost of Acquisition’ and ‘Indexed Cost of Improvement’ is to be
computed as under:

Indexed Cost of Acquisition =

Cost Inflation Index for the year of transfer

Cost of acquisition ×
Cost Inflation index for the year of acquisition
or 2001-02 whichever is later

Indexed cost of Improvement =

Cost Inflation Index for the year of transfer

Cost of improvement ×
Cost Inflation index for the year of improvement

Q.10 What is Cost Inflation Index? Is Cost Inflation Index necessary in all cases?
Explain

Cost Inflation Index

The Government has notified the following Cost Inflation Index w.e.f. 1.4.2018 :
Cost Inflation Index
S. No. Financial Year C.I.I. S. No. Financial Year C.I.I.
1. 2001-02 100 10. 2010-11 167
2. 2002-03 105 11. 2011-12 184
3. 2003-04 109 12. 2012-13 200
4. 2004-05 113 13. 2013-14 220
5. 2005-06 117 14. 2014-15 240
6. 2006-07 122 15. 2015-16 254
7. 2007-08 129 16. 2016-17 264
8. 2008-09 137 17. 2017-18 272
9. 2009-10 148 18. 2018-19 280
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No Indexation : Cost of acquisition and cost of improvement shall not be indexed, in case of :
(a) Shares in, or debentures of, an Indian company acquired by a non-resident in foreign currency.
(b) Equity shares or units of an equity –oriented mutual fund/a business trust,
(c) Bonds and debentures, except (i) capital indexed bonds issued by the Govt. and (ii) Sovereign
Gold Bonds issued under the Sovereign Gold Bonds Scheme, 2015.

B. Problems
1. Compute capital gain/loss from the following information.
Land was purchased on 22-5-2001 for Rs.7,20,000
First floor was constructed 2004-05 Rs.8,00,000
Second floor was constructed 2013-14 Rs.15,00,000
Entire building was sold on 20-2-19 for Rs.98,00,000
Commission on sale 2%

Year CII
2001-02 100
2004-05 113
2013-14 220
2018-19 280
(Acharya Nagarjuna March, 2018)
Solution :
Computation of Income from Capital gain
(Assessment year 2019-20)

Rs. Rs.
Sale consideration 98,00,000
Less : Commission @ 2% 1,96,000
96,04,000
Less : Cost of acquisition (Rs.7,20,000 x 280/100) 20,16,000
Cost of Improvement
1st Floor (Rs.8,00,000 x 280/113) 19,82,300
2nd Floor (Rs.15,00,000 x 280/220) 19,09,090 59,07,390
Long term capital gain 36,96,610

2. From the following information, compute capital gain/loss for the year ended 31st March
2019.
Land Shares
Date of purchase 20.12.2002 20.6.2018
Cost of purchase Rs.3,80,000 Rs.2,60,000
Date of sale 11.3.2019 11.3.2019
Sale value Rs.40,00,000 Rs.3,20,000
Commission sale 2% 1%

Year CII
2002-2003 105
2014-2015 240
2018-2019 280
(Acharya Nagarjuna November, 2017)
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Solution :
Computation of Income from Capital gain
(Assessment year 2019-20)
Rs. Rs.
Land
Sale consideration 40,00,000
Less : Commission (Rs.40,00,000 x 2/100) 80,000
Net Sale proceeds 39,20,000
Less : Cost of acquisition (Rs.3,80,000 x 280/105) 10,13,333
Long Term capital gain 29,06,667
Shares :
Sale Proceeds 3,20,000
Less : Commission (Rs.3,20,000 x 1/100) 3,200
Net Sale proceeds 3,16,800
Less : Cost of acquisition 2,60,000
Short term capital gain 56,800

3. Mr. RK acquired land and building for Rs.2,50,000 on 1-8-2001. These lands were acquired
compulsory by the Government of A.P paid a compensation of Rs.8,00,000. What is the
capital gain if half the proceeds are reinvested in similar asset? CII for the year 2001-02 =
100, 2018-19 = 280
(Adikavi Nannaya, November, 2018)
Solution :
Computation of Income from Capital gain
(Assessment year 2019-20)

Rs.
Net Sale consideration 8,00,000
Indexed cost of acquisition (Rs.2,50,000 x 280/100) 7,00,000
1,00,000
Reinvested in another house
Exemption u/s 54D :
Reinvested in an other house (Rs.4,00,000) 1,00,000
Long term capital gain Nil

4. From the following particulars furnished by Mr. Vivek (resident) compute his income from
capital gains for the A.Y. 2019-20.
Date of purchase of house property 1-12-1980.
Cost of acquisition Rs.2,50,000.
Cost of addition in 1980 Rs.2,50,000.
Fair market value as on 1-4-2001 Rs.3,50,000.
Cost of additions in 2004-05 Rs.77,700.
Sale consideration Rs.30,00,000 in 1-1-2019.
(CII: 2001-02 = 100; 2004-05 = 117, 2018-19 : 280)
(Yogivemana, November, 2018)
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Solution :
Computation of Income from Capital gain of Mr. Vivek
(Assessment year 2019-20)

Rs.
Net Sale consideration 30,00,000
Less : (1) Indexed Cost of acquisition
3,50,000 x 280/100 9,80,000
(2) Cost of addition : Rs.77,700 x 280/117 1,85,949 11,65,949
Long term capital gain 18,34,051

Note :
1. Cost of acquisition will be the value on date of purchase i.e., Rs.2,50,000 or fair market
value on 1-4-2001 i.e., Rs.3,50,000 whichever is higher.
2. Costs of improvements are to be considered after 1-4-2001 only. The improvements
prior to this date are not be considered.

5. From the following calculate capital gain of Mr. Arun.

Sale of residential house on 31st December 2018 for Rs.20,00,000. Purchase of
another residential house in March 2015 – Rs.2,00,000. Investment in bond on 15th Jan. 2019
which qualifies for U/s 54 EC – Rs.50,000. House, which was purchased in the year 2007-08
for Rs.3,00,000 was sold on December 31, 2018.
(CII: 2007-08 = 129, 2018-19 = 280).
(Sri Krishnadevarya March, 2019)

Solution :
Computation of Income from Capital gain of Mr. Arun
(Assessment year 2019-20)

Rs.
Sale consideration 20,00,000
Less : Indexed cost of acquisition (Rs.3,00,000 x 280/129) 6,51,163
13,48,837
Less : Exemption u/s 54EC : 50,000
Long term capital gain 12,98,837

Note : Deduction u/s 54 will not be available as the assessee fails to purchase another house
within one year prior to the sale of the present house.

6. From the following information compute capital gain for the assessment year 2019-20.
Land was purchased on 10-10-1999 for Rs.6,50,000
First floor was constructed in 2000-01 and spent Rs.10,00,000
Fair market value of land and building on 1-4-2001 Rs.20,00,000
Second floor was constructed in 2010-11 and spend Rs.35,00,000
The building was sold for Rs.1,20,00,000 on 5-12-2018.
Commission on sale consideration incurred Rs.1,80,000
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Year CII
2001-02 100
2010-11 167
2018-19 280
(Acharya Nagarjuna March, 2019)
Solution :
Computation of Income from Capital gain
(Assessment year 2019-20)
Rs. Rs.
Sale consideration 1,20,00,000
Less : Expenses of Transfer 1,80,000
1,18,20,000
Less : Cost of Acquisition
(Rs.20,00,000 x 280/100) 56,00,000
Cost of Improvement – Second Floor
(Rs.35,00,000 x 280/167) 58,68,263 1,14,68,263
Long term capital gain 3,51,737

Working Notes : Costs of improvements are to be considered after 1-4-2001 only. The
improvements prior to this date are not be considered.

7. From the following information compute capital gain and loss for the assessment year
2019-20.
Land was purchased in 1978-1979 Rs.1,50,000
Fair market value of land on 1.4.2001 Rs.2,25,000
First floor was constructed in 2007-2008 Rs.20,00,000
Second floor was constructed in 2012-2013 Rs.16,00,000
2018-2019 entire building was sold for Rs.90,00,000
Commission on sale of buildings Rs.60,000
Year CII
2001-2002 100
2007-2008 129
2012-2013 200
2018-19 280
(Acharya Nagarjuna March, 2018)

Solution :
Computation of Income from Capital gain
(Assessment year 2019-20)
Rs. Rs.
Sale consideration 90,00,000
Less : Cost of Acquisition
(Rs.2,25,000 x 280/100) 6,30,000
Cost of Improvement (Rs.20,00,000 x 280/129) 43,41,085
Cost of Improvement (Rs.16,00,000 x 280/200) 22,40,000 72,11,085
Long term capital gain 17,88,915

8. Mr. Stalin purchased a residential house for Rs.14,50,000 in Chennai on 1.9.2006 (C.I.I.
122). On 14th December 2015 he entered into a contract of sale of the house with Sri U.L.
Raja for 40,00,000 and received Rs.2,00,000 to complete the contract of sale within 3
months period. As Raja failed to purchase the house on 2.1.2016 he sold the house to Mr.
 -12-

Subba Reddy for Rs.51,00,000 and after two days he purchased a flat for Rs.12,50,000 in
Jafna city Srilanka. If income from other heads is Rs.7,20,000. Selling expenses 3%.
Calculate tax liability.
(Krishna March, 2017)
Solution :
Computation of Income from Capital gain of Mr. Stalin
(Assessment year 2019-20)
Rs.
Sale consideration 51,00,000
Less : Selling expenses 1,53,000
49,47,000
Less : Cost of Acquisition
(Rs.14,50,000 x 280/122) 33,27,869
Long term capital gain 16,19,131

Calculation of Total Income of Mr. Stalin

(Assessment year 2019-20)
Rs.
1. Capital Gain
Long term capital gain 16,19,131
2. Income from other sources 7,20,000
Total Income 23,39,131

Calculation of Tax Liability

Rs.
1. Tax on Long term capital gain
Rs.16,19,131 x 20/100 3,23,826
2. Tax on Rs.7,20,000
First Rs.2,50,000 – Nil
Next Rs.2,50,000 – 5% 12,500
Balance Rs.2,20,000 x 20% 44,000 56,500
3,80,326
Add : Education cess @ 4% 15,213
Tax payable 3,95,539
Tax payable (Rounded off) 3,95,540
Notes :
(a) As per Sec.51, any Advance Money or any other sum received and retained by the Assessee
will be treated as Income from other Sources. The Cost of Acquisition shall not be reduced
by that amount. However, in this case it is assumed that Mr. Stalin returned money to Mr.
U.L. Raja and no amount was forfeited.
(b) The exemption for the long term capital gain from the transfer of a residential house u/s 54
is to be given only when the assessee purchases another residential house within India. Since
the Assessee purchased a flat in Jafna city, Srilanka he won’t get exemption u/s 54.

9. Mr. Prasad submits the following particulars about sale of asset during the year 2018-2019.
Particulars Jewellery (Rs.) Plot (Rs.) Gold (Rs.)
Sales price 6,50,000 38,80,000 5,20,000
Expenses on sales 2,000 36,000 Nil
Cost of acquisition 90,000 4,20,000 1,30,000
Year of acquisition 2001-02 2002-03 2008-09
CII 100 105 137
 -13-

(Krishna March, 2017)

Solution :
Computation of Income from Capital gain of Mr. Prasad
(Assessment year 2019-20)
Rs. Rs.
Jewellery
Sale Price 6,50,000
Less : Expenses on Sales 2,000
6,48,000
Less : Cost of Acquisition
(Rs.90,000 x 280/100) 2,52,000 3,96,000
Plot
Sale Price 38,80,000
Less : Expenses for sales 36,000
38,44,000
Less : Cost of acquisition
(Rs.4,20,000 x 280/105) 11,20,000 27,24,000
Gold
Sales Price 5,20,000
Less : Expenses on Sales Nil
5,20,000
Less : Cost of acquisition
(Rs.1,30,000 x 280/137) 2,65,693 2,54,307
Total Income 33,74,307
10. Mr. Sudheer sold the following assets during the year 2018-19.
(a) Land purchased in 2001-02 Rs.1,00,000 at Hyderabad, sold for Rs.12,00,000.
(b) Household furniture purchased in April 2008 for Rs.24,000, sold for Rs.34,000.
(c) Plant purchased for Rs.60,000 in 1996 and whose written down value on 1.4.2018 was
Rs.30,000, sold for Rs.50,000.
(d) Shares of A Ltd. acquired on 1.7.2017 for Rs.1,00,000, sold on 1.5.2018 for Rs.3,20,000.
(e) Residential house purchased in 1998-99 for Rs.1,00,000, and its fair market value was
Rs.8,00,000 on 1-4-2001. It was sold on 15.4.2018 for Rs.20,00,000.
CII – 2001-02 = 100; 2009-10 = 148; 2012-13 = 200, 2018-19 = 280.
(Krishna March, 2018)
Solution :
Computation of Income from Capital gain of Mr. Sudheer
(Assessment year 2019-20)
Rs.
Land
Sale consideration 12,00,000
Less : Cost of acquisition (Rs.1,00,000 x 280/100) 2,80,000
Long term capital gain 9,20,000
Plant
Sale consideration 50,000
Less : Written Down Value 1-4-2015 30,000
Balancing charge/Deemed profit 20,000
Shares :
Sale consideration 3,20,000
Less : Cost of acquisition 1,00,000
Short term capital gain 2,20,000
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Residential house :
Sale consideration 20,00,000
Less : Cost of acquisition (Rs.8,00,000 x 280/100) 22,40,000
Long term capital Loss (-) 2,40,000
Long term capital gain : 9,20,000
Less : Set off of Long term capital loss (-) 2,40,000
Long term capital gain 6,80,000

Notes :
1. Household furniture is not a capital asset and hence no capital gain.
2. Plant is a depreciable asset and the profit on sale of the plant is a deemed income
chargeable to tax under the head Profits and gains from business or profession.
3. Shares were held by the assessee for less than one year and hence the profit on the sale
of shares is to be taken as short term capital gain.
4. The long term capital gain on the sale of land was set off the long term capital loss on
the sale of Residential house.

11. On 15th July 2004 Sri. Aya Ram & Gaya Ram purchased 16%, 500 debentures of Rs.100 each
@ Rs.90. On 2nd January 2006 the company converted 50% of the holding into equity shares
of Rs.10 each. These shares were sold @ Rs.75 each on 10th October, 2018. Compute income
from capital gain of C.I.I. for 2004-05 is 113 and for 2018-19 is 281.
(Krishna March, 2018)

Solution :
Computation of Income from Capital gain of Mr. Stalin
(Assessment year 2019-20)
Rs.
Equity Share :
Sale consideration (2,500 x Rs.75) 1,87,500
Less : Cost of Acquisition
(2,500 x Rs.10 x 280/113) 61,947
Long term capital gain 1,25,553

Note : Assessee received 2,500 equity shares @ Rs.10 each on 2nd January, 2006 when the company
converted 50% of debentures into equity shares.