DU cd Suna ae OM | 98851 25025 / 26 4, CAPITAL GAINS 2 2 Ey Fd 6 cR1 CR2 CAINTER | INCOME TAX | 44E 4aAS AS? ASS AS4 ASS ASE AST ASS ASO AS 10 Ast AS 12 AS 13 AS 14 ASS, AS 16 Asi AS 18 AS 19 AS20 AS21 ASD ASZ3 AS 24 AS25 AS26 ASZT AS28 AS AS30 PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony ie PO? : EXAMPLE EXAMPLE 1s nS: i183 ie POT m2 i 026 Pa32 = POs e POS . O30 POs Pa37 TLL 25 (40%) PO35, - PO 29 (100%) LL 7 (90%) Pat - PO 8 (90%) O40 (100%) NiS8M WL POat - Pat M17-6M, M1620 POT - Na7- 5M CAPITAL GAINS | 44E 42Fe Naas WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 CHAPTER OVERVIEW ] STARTING SECTION TOPIC PAGE NO. 1 THEORY FOR CLASSROOM DISCUSSION 43 — PRACTICAL QUESTIONS FOR CLASSROOM DISCUSSION 4.28 a PRINTED SOLUTIONS FOR CLASSROOM DISCUSSION 4.34 4. ASSIGNMENT PROBLEMS 4.46 a ADDITIONAL PROBLEMS STUDENTS SELF PRACTICE 4.52 6. INTERESTING PAST EXAM QUESTIONS 4.55 7 ADVANCED CONCEPTS STUDENTS SELF STUDY 4.55 ‘SECTION 1: THEORY FOR CLASSROOM DISCUSSION ‘Sec.’s to be Remembered: Sec.48 Computation of C.G. - Non depreciable capital assets. Sec.49(1) Concept of Previous owner. Sec.51 Forfeiture of advance. Sec.45(2) Conversion of a capital Asset ingySIT Sec.45(5) Compulsory Acquisition. <6) Sec.111A, Taxation of STCG Sec.112 Taxation of LCG S/O” Sec.50 Computation of C.G. ie le capital assets. Sec.50A Computation of C. fable C.A's (SLM) Sec.50B Slump Sale oe Sec.50C Computation case of Land & Buildings Sec.55A Reference, Fall ‘Sec.54 Series Exempt se Gains (1) - CHARGING SECTION 1) Any profit or gain arising from the transfer of a capital asset is chargeable under the head “Capital gains” in the previous year in which transfer takes place (ie., the date of accrual of capital gain is the date when the transfer takes place) unless such capital gains are exempt from tax under Sec.54/54B/54D/54EC/S4EE/54F In other words, “Year of chargeability = Year of Transfer’ Exceptions: Sec 45(1A),45(2),45(5),45(5A), 2) Receipt of consideration in installments: Even in that case also the entire consideration has to be taken into account for computing the capital gains, Note: 2. CAPITAL ASSET - Sec. 2(14) Includes: Excludes Itmeans i) Stock in Trade (other than securities held by a) Property of any kind whether movable or| foreign institutional investor(Fil)) immovable, tangible or _intangible,|ii)_ Personal Effects CAINTER | INCOME TAX | 44E 43PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony connected to business or not. iii) Rural agricultural land in India. b) Any securities held by _foreign|iv) Specified gold bonds (*) issued by the CG. institutional investor (Fl) which has|v) Special Bearer Bonds, 1991 (Not in existence now). invested in such securities _in|vi) Gold Bonds issued under Gold Deposit Scheme, accordance with the regulations made| 1999. under the SEBI Act, 1992. vil) Deposit certificates issued under Gold Monetization Scheme, 2015 notified by C.G (*) 6.5% Gold bonds, 1977 or 7% Gold bonds, 1980 or National Defence Gold bonds, 1980, MEANINGS FOR ABOVE PURPOSE: 1) Stock in trade means: Raw material (or) consumable stores used by assessee in his business or profession. Eg.: X is a dealer in house property. For him, house property is stock-in-trade. Any profit eared by him on sale of stock-in-trade (.e., house property) would be taxable as Business income. It is the nature of business of the assessee that will decide whether an asset is held as stock in trade or not, Examples: i) In case of an assessee who deals in vehicles that were held by him for trading purposes, shall be treated as stock in trade. Hence it is not a capital asset ii) If an assessee uses vehicle for carrying out its trading activities, then such vehicles shall be treated as used for business purposes. Hence, itis a capital asset. 2) Personal effects mean: Movable property, (including 19 apparel and furniture) held for personal Use by the assessee or any member of his family degefent on him. To be treated as personal effect following two ’) Asset must be movable in nature; and RY ii) It must be held for personal use. tong ist be satisfied But excludes: ma g a) Jewellery (even held for persone ee d) Paintings b) Archaeological collections €). Sculptures (or) c) Drawings f) Any work of art NOTE: > An immovable property and aforesaid assets held for personal use are not personal effect and hence are capital assets. E.g. a house property even though used for personal purpose cannot be treated as personal effect and shall fall within the definition of capital assets. > Securities are not personal effect. Rural agricultural land in india ie. agricultural land in India which is not situated in any specified area Meaning of Specified area: nortest aerial distance from the i) $2 kilometers > 10,000 s 1,00,000 ii) 6 kilometers. > 4,00,000 = 10,00,000 iii) <8 kilometers > 10,00,000 The transfer of an agricultural land situated in the above specified limits attracts the tax liability under the head capital gains and the income arising from such was not exempted as agricultural income (Sec.10(1)). CAPITAL GAINS | 44E 44DU cd Suna ae ‘WWW.MASTERMINDSINDI OM | 98851 25025 / 26 3) In order to levy capital gain on transfer of an asset, the important criteria is that whether such asset is a capital asset as on the date of transfer or not. It is not material whether such asset was a capital asset as on the date of its acquisition Tit Bit 2: State whether the following statements are correct with respect to the defi Capital asset under Sec.2 (14). a) Land situated in rural area is capital asset -T/F- True b) Agricultural land situated in urban area is capital asset - T/F- True ¢) Agricultural land situated outside India in a rural area is treated as capital asset- T/F- True ) Rolls royals car held for personal purpose is treated as capital asset - T/F- False e) Benz car held for business purpose is treated as capital asset- T/F- True f) Nano car held by Tata Motors Ltd. Is treated as capital asset - T/F- False 4) Gold held for personal use is treated as capital asset - T/F- True hh) Shares held as investments is treated as capital asset - T/F- True i) Shares held as stock in trade is treated as capital asset - T/F- False J) Ravi Varma paintings purchased for personal use for Rs.1 Crore and sold for Rs.10000 is treated as capital asset - T/F- True (SOLVE PROBLEM NO.1 OF ASSIGNMENT PROBLEMS AS REWORK) ‘3. WHATIS A TRANSFER? jon of TRANSFER INCLUDES: 41) Sale, Exchange (Must be of two capital assets) (See Note) 2). Relinquishment of an Asset. 3) Extinguishment of right in an Asset. 4) Compulsory acquisition by Govemment, 5) Conversion of capital asset into Stock-in-trade 6) Any transfer covered by Sec.53 A of the transfer of, 7) The maturity or redemption of zero coupon by SS 8) Acquire share in co-operative society, com@phy, AGP for enjoyment of immovable property. 9) “Transfer’ includes [Explanation 2 to (By a) disposing of or parting with an asset or any interest therein, or b) creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily by way of an agreement (whether entered into in India or outside India), notwithstanding that transfer is flowing from transfer of shares of co. incorporated outside. “Sec.53A contract: Refer to House property chapter. When Transfer Completed: When transfer should be complete and effective q y Immovable property Movable property t 4 When property delivered] Document registered _] [Document not registered ] | pursuant to a contract to| Y v sell Date of registration Apply Section 53A’ of Transfer of Property Act Provisions CAINTER | INCOME TAX | 44 45PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony Mlustration 1: R owns a plot of land acquired for consideration of Rs.2 lakhs. He enters into an agreement to sell the property on 15-03-2021 for a consideration of Rs.5 lakhs. In part performance of the contract, he handed over the possession of land on 21-03-2021 on which date he received the full consideration. As on 31-03-2021, the sale was not registered. Discuss the tax liability. ‘Solution: According to Sec.2 (47) read with Sec.53A of the transfer of property Act, it amounts to transfer. (Registration was not affected). So it attracts capital gain in the year of transfer ie., P.Y. 2020-21 NOTE: Exchange means a voluntary deed of ‘property’ in goods by one person to another for Consideration in kind whereas the term sale demands the consideration in money, 4. Sec.47 - EXCEPTIONS TO TRANSFER 1) TOTAL OR PARTIAL PARTITION OF A HUF: Any distribution of capital assets on the total or partial partition of a HUF [Section 47(i)} 2) AGIFT OR WILL OR AN IRREVOCABLE TRUST: Any transfer of a capital asset under a gift or will or an irrevocable trust [Section 47(ii)]; However, this clause shall not include transfer under a gift or an irrevocable trust of a capital asset being shares, debentures or warrants allotted by a company directly or indirectly to its employees under the Employees’ Stock Option Plan or Scheme offered to its employees in accordance with the guidelines issued in this behalf by the Central Government, 3) TRANSFER OF CAPITAL ASSET BY HOLDING COMPANY TO ITS WHOLLY OWNED INDIAN SUBSIDIARY COMPANY: Any transfer of capital asset by a company to its subsidiary company [Section 47(iv] CONDITIONS: {i) The parent company or its nominee must hold the whole of the shares of the subsidiary ‘company; (ii) The subsidiary company must be an Indian company. 4) TRANSFER OF CAPITAL ASSET BY A SUBSIDIARY "ANY TO ITS 100% HOLDING the holding company [Section 47(v)] CONDITIONS: coon ioe a) The whole of shares of the subsidiary company ifdést (@Neld by the holding company; b) The holding company must be an Indian coffpan@? Exception - The exemption mentioned in, er ‘ax will not apply if a capital asset is transferred as stock-in-trade. 5) TRANSFER OF CAPITAL ASSET BY AMALGAMATING COMPANY TO AMALGAMATED INDIAN COMPANY, IN A SCHEME OF AMALGAMATION: 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 (Section 47(vi)} 6) TRANSFER OF CAPITAL ASSET BY THE DEMERGED COMPANY TO THE RESULTING INDIAN COMPANY, IN A SCHEME OF DEMERGER: Any transfer in a demerger, of a capital asset by the emerged company to the resulting company, if the resulting company is an Indian company [Section 47(vib) 7) TRANSFER OR ISSUE OF SHARES BY A RESULTING COMPANY, IN A SCHEME OF DEMERGER: Any transfer or issue of shares by the resulting company, in a scheme of demerger to the shareholders of the demerged company, if the transfer is made in consideration of the demerger of the undertaking [Section 47(vid)] 8) TRANSFER OF SHARES BY A SHAREHOLDER IN A SCHEME OF AMALGAMATION: Any transfer by a shareholder, in a scheme of amalgamation, of shares held by him in the amalgamating company [Section 47(vi)] CONDITIONS: a) The transfer is made in consideration of the allotment to him of any sharels in the amalgamated ‘company, except where the shareholder itself is the amalgamated company; COMPANY, BEING AN INDIAN COMPANY: Any transfer RS at by a subsidiary company to CAPITAL GAINS | 44E 46DU cd Suna ae ‘WWW.MASTERMINDSINDI OM | 98851 25025 / 26 b) The amalgamated company is an Indian company. 9) TRANSFER OF RUPEE DENOMINATED BOND OUTSIDE INDIA BY A NON-RESIDENT TO ANOTHER NON-RESIDENT: Any transfer, made outside India, of @ capital asset being rupee denominated bond of an Indian company issued outside India, by a non-resident to another non- resident [Section 47(viiaa)] 10) TRANSFER OF GOVERNMENT SECURITY OUTSIDE INDIA BY A NON-RESIDENT TO ANOTHER NON-RESIDENT: Any transfer of a capital asset, being a Government Security carrying a periodic Payment of interest, made outside India through an intermediary dealing in settlement of securities, by a non-resident to another non-resident [Section 47(vilb)] 11) REDEMPTION OF SOVEREIGN GOLD BONDS BY AN INDIVIDUAL: Redemption by an individual of sovereign gold bonds issued by RBI under the Sovereign Gold Bond Scheme, 2015 [Section 47(viic)] 12) TRANSFER OF SPECIFIED CAPITAL ASSET TO THE GOVERNMENT OR UNIVERSITY ETC.: Any transfer of any of the following capital asset to the Government or to the University or the National Museum, National Art Gallery, National Archives or any other public museum or institution notified by the Central Government to be of national importance or to be of renown throughout any State [Section 47(ix)] i) work of art iv) drawing vii) print. li) archaeological, sci- v) painting entific or art collection vi) photograph or iii) book manuscript 13) TRANSFER ON CONVERSION OF BONDS OR DEBENTURES ETC. INTO SHARES OR DEBENTURES: Any transfer by way of conversion of bonds or debentures, debenture stock or deposit Certificates in any form, of a company into shares or debentures of that company [Section 47(x)] 14) CONVERSION OF PREFERENCE SHARES INTO EQUITYZSHARES: Any transfer by way of ‘conversion of preference shares of a company into equity she@S of that company [Section 47(xb)] 15) TRANSFER OF CAPITAL ASSET UNDER REVERSE MORTGAGE: Any transfer of a capital asset in a transaction of reverse mortgage under a scheme, notified by the Central Government [Section 47(xvi)] s. TEs op sHPTa ASSETS ‘Type of capital asset "[STCA[SEC.2 (42A)] | LTCA[SEC.2 (29a)] | a) Securities (Other Than Unit) listed it reoGgpized stock exchange in India b) Unit of UTI ) Units of Equity oriented fund units d) Zero coupon bonds fa) Unlisted shares of a company b) an immovable property, being land! building! both Held for not more | Held for more than 12 than 12 months months Held for not more | Held for more than 24 than 24 months months Held for not more | Held for more than 36 Any other asset than 36 months months _Type of Capital Assets _ _Date of Acquisition | Date of Sale | Solutions | 1._ [House property (01.10.2015 (02.10.2020 LTCA 2, | Equity shares held in Reliance Indusires| 95.94 2920 aa eet ara Listed debentures in a recognized stock 3. | exchange of India 06.17.2019 04.12.2020 LTCA 4, |Unlisted debentures 01.01.2018 02.01.2021 LTCA (Solve Problem No.2 of Assignment problems as rework) CAINTER | INCOME TAX | 44 472 PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony - PERIOD OF HOLDING 1) FOR NORMAL CASES: From the date of acquisition to the date of transfer. NOTE: For calculation of period of holding, the date of transfer of the asset shall be excluded, FOR SPECIAL CASES: a) ‘Asset acquired by any modes specified u/s 49(1)[Refer P.No.4.8] Includes the holding period Previous owner b) ‘Amalgamation - shares Period of holding (P.0.H) of an asset of the transferor shall also be considered. 9) Demerger- shares Period of holding of an asset of the transferor shall also be considered. ‘a Where inventory of business is converted into or treated as a capital asset by the assessee Period from the date of conversion or treatment as a capital asset shall be considered. e) Shares acquired in Primary market in case the assessee purchased any shares etc. in primary market, the period of holding shall be calculate| from the date of allotment of such shares etc. and not] from the date of apply for shares etc. was made. Where the share or any other security is subscribed by the assessee on the basis of right to subscribe to any share or security or by the person in whose favour such right is renounced by the assessee. Period from the date of allotment of such share or security shall be reckoned 9) Right Renouncement TF the right to subscribe to shares is renounced to any] other person the perigd of holding of the asset (Right! Renouncement) calculated from the date of the offer of such riga€P¥ the company up to the date of| renouncement. 2 h) Allotment of a financial asset without! consideration and on the basis of| holding any other financial asset If a financi AWas allotted without consideration because idiag;8ny other financial asset, the P.O.H. shall from the date of allotment of such finan ion See ‘company in which shares are held by the Jets liquidated, while computing the period of| aes such shares, the period of holding subsequent] to the’ date of liquidation shall not be taken into account| Le. excluded) i) ‘Aequisition of equity shares upon conversion of preference shares into equity shares The P.O.H. shall Include the period for which the| preference shares were held by the assessee k) Specified Security / Sweat equity shares The period of holding for any specified security or sweat| equity shares allotted or transferred, by the employer free| of cost or at concessional rate to his employees shall be| reckoned from the date of allotment or transfer of such specified security or sweat equity shares. Mlustration 2: Amin is the holder of 1,000 debentures of Amin Ltd. having a face value of Rs. 1,000 each. The company has offered an option to the debenture-holders either to redeem the debentures at RS.1,200 each or to convert the debentures into equity shares of equivalent value. The market value of the shares on the date of exercising the option is Rs.1,200 per share (face value Rs.1,000). What will be the tax consequences of the two options in the hands of the debenture-holder Amin? Solution: Conversion of debentures into shares: Nothing| Redemption by payment: Redemption of debentures is taxable in hands of debenture holder as this transaction is specifically exempted w/s 47 to be amounts to extinguishment of an asset treated as! transfer w/s.2 (47). Therefore, it is subject to taxation’ CAPITAL GAINS | 44E 48‘WWW.MASTERMINDSINDI Fe Naas OM | 98851 25025 / 26 called as transfer. under the head capital gains. Consideration 1,200 () Cost of acquisition (1,000) LTCG 200 Note: indexation is not available in case of| debentures under proviso 3 to Sec. 48. Mlustration 3: Determine whether the asset held was short term or long-term capital asset. 1) R holds 1000 shares in G Itd., which goes into liquidation on.31-10-2020 R purchased these shares 0n.31-01-2020. The company made the payment to R on 31-03-2021 ‘Solution: Period of holding = 31-01-2020 to 31-10-2020=9 months (<12 months) so, it is STCA Note: holding period after liquidation is to be excluded 2) R got a diamond ring by way of gift from his uncle on 1-1-2019. This ring was purchased by his uncle on 29-12-2017. R sold this ring on. 31-12-2020, ‘Solution: Period of holding = 29-12-2017 o31-12-2020= 3 years 2 days (> 36 months) so, it is LTCA Note: Gift is covered by sec 49(1). In such case the holding period of the previous owner should also be included, 3) R acquires 1000 shares in G Ltd., on 28-02-2020 He surrenders these shares to the company on 31- 08-2020 in pursuance of scheme of amalgamation. He is allotted 500 shares in S Ltd, the amalgamated company in lieu of such shares surrendered. R sells these shares on 31-03-2021 Solution: Period of holding = 28/02/2020 to 31/03/2021 =13 months (appropriate) > 12 months so, it is LTCA 4) R acquires 1000 shares in G Lid. on 29-03-2020. He is allotted 500 shares of a resulting company S Ltd. 0n1-04-2020. He transferred these on 31-03-2021. ‘Solution: Period of holding = 29.03.2020 to 30.03.2021 = 1 day>12 months so, it is LTCA Full value of Consideration XxX] [Less: Transfer Expenses XXX Net Consideration Xxx] Less: Cost of Acquisition XXX) Cost of Improvement XX) XxX Gross Capital Gains/Loss xX] [Less: Exemption U/s.54B,54D XXX) Net STCG/L, XX) LTCG: Capital gains arising on transfer of a Long-term capital asset are called LTCG. MANNER OF COMPUTATION OF LTCG: Replace Indexed Cost of acquisition and Indexed Cost of Improvement for Cost of Acquisition and Cost of Improvement. NOTE: No deduction shall be allowed in respect of any sum paid on account of Securities Transaction Tax. 8. SEC.48 - PROVISO'S Proviso 1: Capital gain in case of non resident: In case of: = _ Assesse who is a non resident (including foreign company) = Asset should be share or debentures of Indian company, & CAINTER | INCOME TAX | 44 49PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony - Such asset was acquired in foreign currency by way of purchase or re-investment then capital gain shall be calculated in foreign currency & after that it shall be reconverted into Indian currency NOTE: 1) Assessee should be NR in the year of sale 2) Index benefit not available where first proviso applies Proviso 2: Indexation facility is available in computation of LTCG. It is not available to Non- resident. Proviso 3: First and second proviso NOT applicable for computation of LTCG in case of Equity shares, Equity oriented units, units of Business Trust referred under section 112A, Proviso 4: indexation is not available to bonds or debentures. But itis available to capital indexed bonds issued by the Government Benefit of indexation would be available in respect of long-term capital gains arising from transfer of such sovereign gold bonds. Proviso 5: In case of non-resident assessees, any gains arising on account of rupee appreciation against foreign currency at the time of redemption of rupee denominated bond of an Indian company held by him shall not be included in computation of full value of consideration. This would provide relief to the non- resident investor who bears the risk of currency fluctuation. NOTE: In the case of non-residents, capital gains arising from the transfer of shares or debentures of an Indian company shall be computed as follows: a) Convert the cost of acquisition, expenditure incurred in relation to such transfer and full value of consideration in to the same currency in which the asset was purchased, b) Compute and convert the resultant capital gains in step (a) into Indian currency. 4) It includes any expenditure incurred wholly and exclusively Jaf@the purpose of transfer of capital assets. It means the expenditure, which is necessary to aff ster. Examples: Brokerage, Stamp duty, Registration fees, > 2) Expenses on transfer are different from expenses o1 actual cost of the asset whereas transfer expenses, GGhEG from sale consideration. 3) STT paid on sale / purchase of shares/unit shall rx i under capital gain (Proviso 7 to Sec 48): If itis paid at the time of sale - not treated as tafetec Sfpense If itis paid atthe time of purchase - not aay tq@g_*cost of acquisition 10. COST OF ACQUISITION 1) FOR NORMAL CASES: The cost incurred by the assessee for acquisition of the asset and includes the expenses incurred in connection with the acquisition of the asset 2) DEEMED COST OF ACQUISITION: Where the capital asset became the|Cost for which previous owner of the property acquired property of the assesse under modes|it, as increased by cost of any improvement of the| specified in Sec 49(1). (Note:1) assets incurred or borne by the previous owner or the assesse. (Note:2) OTHER CASES: Cost of acquisition to the assesse of the shares in the a) Where shares of an amalgamated indian | amalgamating company company became the property of the assesse in consideration of transfer in the scheme of amalgamation, b) Where the shares of the resulting] Refer Note 3 company became the property of the assessee in scheme of demerger CAPITAL GAINS | 44E 4.10DU cd Suna ae ‘WWW.MASTERMINDSINDI OM | 98851 25025 / 26 ©) Shares issued by way of ESOP/ sweat equity and subsequently transferred FMV adopted for the purpose of calculation of| perquisites U/S.17 (salaries) Conversion of shares/ debentures: into bonds d) ‘Cost of that part of the debenture, bond debenture stock or deposit certificate, FCEBs, which is so converted, e) Equity shares acquired upon the: conversion of preference shares Cost of the convertible preference shares to the transferor 'f) Capital asset, being share in the project specified under Sec.45(5A), in the form of land or building or both was transferred AFTER the date of issuing of) the completion certificate ‘Sum of SDV of his share in the project as on the date of| issuing of the completion certificate AND Consideration received in cash, if any. Consolidation, division conversion from’ shares to stock or vice versa., reconversion ete. 9) The cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived h) Where capital gain arises in the transfer of a capital asset referred to in section 28 (via) ‘cost of acquisition of the asset shall be deemed to be fair market value which has been taken into account for the: purpose of Sec 28 (via) (Inserted by Finance act 2018) Transfer of property, the value of which has been subject to tax under section 56(2)(x) (Le. taxable gifts of movable / immovable property) (Sec 49(4)) Value of which has been taken into account for the purpose of computing taxable gifts under section 56(2)(x), NOTE: a) Section 49(4): i) fi) under a gift or will ili) by succession, inheritance or devolution iv) on any distribution of assets on the liquid vi) under any transfer of capital asset, company or by a subsidiary section 47{iv) and 47(v) resp on any distribution of assets on the total or partition S vil) under any transfer referred to in section 47(vi) of a capital asset by amalgamating company to the amalgamated Indian company, in a scheme of amalgamation vill) under any transfer referred to in section 47(vib), of a capital asset by the demerged company to the resulting Indian company, in a scheme of demerger: ix) by conversion by an individual of his separate property into a HUF property, by the mode referred to in section 64(2) Previous owner means the last previous owner of the capital asset, who acquired it by a mode of acquisition other than the mode referred in Sec.49 (1) ¢) Demerger - Share i) Cost of acquisition of the shares in the resulting company: Cost of acquisition of shares held by the assessee in the Demerged company b) Networth transferredina demerger Networth of the demergedCo.immediatey before demerger ii) Net Worth = Paid up share capital + General Reserves. CAINTER | INCOME TAX | 44 4a13) PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony Cost of acquisition of the shares in demerged co. (Post demerger): Cost of acquisition of the original shares (in demerged co.) Minus cost of shares as obtained in ‘a’ above (resulting co.) Mustration 4: R acquired 1000 shares in G Ltd. @ Rs.30 per share. G Ltd. was demerged on 19- 11-2020 and the net book value of the assets transferred to X Ltd,, (the resulting company) was Rs.25 lakhs. Compute the cost of acquisition of shares of R in demerged company as well as resulting company assuming the paid up capital & general reserves of G Ltd before demerger were RS.1 crore Solut Demerged Co. (Post Demerger) —4 30,000 7,500= Rs.22,500 R-Assessee- |] ———<$<$<$<$<————~ Res.30,000 i Resulting Co. — 30,000x 25L/ f.cr= Rs.7,500 Recetas a d) In case the C.O.A. to the previous owner is not ascertainable, then C.O.A. = FMV on the date conversion. SHARES (ORIGINAL & RIGHTS) (1.E. FINANCIAL ASSETS): a) The cost of acquisition (C.0.A.) of original shares - Amount actually paid. b) The C.O.A. of the right shares - Amount actually paid. ¢) Right Renouncements - While computing capital gains C.0.A. to be taken as NIL. ) Cost to the purchaser of right shares: Amount paid to the company for acquiring the shares + the amount paid to the owner towards rights renouncement, e) Bonus shares: If the bonus shares were allotted before 01,0 2001, then the C.O.A. will be FMV Mustration 5: Mr. R holds 1000 shares in Star Minus Ltd, agi any, acquired in the year 2001- any in the month of August, 2020 at ° of the rights and renounces the balance right shares in favour of Mr. Q for Rs.25 per share ip 2020. All the shares are sold by Mr. R for Rs.300 per share in January 2021 and Mr. Q sells “in December 2020 at Rs.280 per share. What are the capita gains taxable in the hands of Mi. 5A 4 (NEW SM, OLD SM) Solution: Computation of capital gains in the hands of Mr. R for the A.Y. 2021-22 1000 Original shares: ‘Sale proceeds (1000 * Rs.300) 3,00,000 Less: Indexed cost of acquisition [Rs.25,000 x 301/100] 75,250 Long term capital Gain (A) 2,24,750 200 Right shares: Sale proceeds (200 x Rs.300) 60,000 Less: Cost of acquisition [Rs.140 x 200] [Note 1] 28,000 ‘Short term capital gain (B) 32,000 200 Right shares renounced in favour of Mr. @ Sale proceeds (200 Rs.25) 5,000 Less: Cost of acquisition [Note 2] - ‘Short term capital gain (C) 5,000 Note 4: Since the holding period of these shares is less than 2 years, they are short term capital assets and hence cost of acquisition will not be indexed, Note 2: The cost of the rights renounced in favour of another person for a consideration is taken to be nil. The consideration so received is taxed as short-term capital gains in full. The period of holding is taken from the date of the rights offer to the date of the renouncement. CAPITAL GAINS | 44E 412DU cd Suna ae ‘WWW.MASTERMINDSINDI OM | 98851 25025 / 26 ‘Computation of capital gains in the hands of Mr. Q for the A.Y.2021-22 Ina case where the capital asset is listed on any recognized stock exchange as on 31.01.2018 w If there is trading in such asset on such exchange on 31.01.2018, then ‘The highest price of the capital asset quoted on such exchange on the said date If there is no trading in such asset on such exchange on 31.01.2018, then The highest price of such asset on such exchange on a date immediately preceding 31.01.2018 when such asset was traded on such exchange. In @ case where the capital asset is a unit which is not listed on any recognized stock exchange as on 31.01.2018 i) The net asset value of such unit as on the said date Ina case where the capital asset is an equity share in a company which is = not listed on a recognized stock exchange | as on 31.01.2018 but listed on such An amount which bears to the cost of acquisition the same proportion as Cil for the financial year 2017-18 bears to the Cll for the first year in which the asset was held by the| exchange on the date of transfer assessee or on 01.04.2001, whichever is later. + listed on a recognized stock exchange on the date of transfer and which became the| property of the assessee in consideration of share which is not listed on such exchange as on 31.01.2018 by way of transaction not regarded as transfer under section 47 (iii) | Amount (Rs.)_ 200 shares: OF DP Sale proceeds (200 x Rs.280) ee 56,000 Less: Cost of acquisition [200 shares « (Rs. $y} [Note] 33.000 Short term capital gain 23,000 NOTE: The cost of the rights is the a 140 Mr. R as well as the amount paid to the company. Since the holding period of these share’ is lé8S than 2 years, they are short term capital assets and hence, cost of acquisition should not be indexed. 4) COST OF ACQUISITION OF LONG-TERM CAPITAL ASSETS REFERRED TO IN SECTION 112A: ‘Meaning of Fair Market value Cost of Acquisition FMV of such asset Full value of Consideration received or accruing as a result of the transfer of ‘such capital asset Cost of Acquisition of such asset Lower of CAINTER | INCOME TAX | 44 4.13PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony Determination of FAIR MARKET VALUE SEC.5912! COST OF ACQUISITION IN CASE OF SPECIAL CATEGORY ASSETS ‘Supreme Court held (CIT Vs. B.C.Srinivasa Setty) that only if an asset costs something to the assessee in terms of money the provisions relating to levy of capital gains tax are applicable. To overcome/nullify this decision an amendment to Sec.55 has been brought. Case 1: Self-generated goodwill of a business (not of a ‘Case 2: Self-generated tenancy rights, profession), right to manufacture / produce / process any|route permits, loom hours, trademarks, article or right to carry on any business or profession brand name related with business, Sale consideration (Actual amount) X00 200K Less: Expenses of transfer (Actual amount) (x) (0%) Net consideration X00 00KK| Less: Cost of acquisition Nil Nil Less: Cost of improvement Nil Nil xxx Nil Taxable capital gains XXX, XXX, NOTE: For the purpose of Case 2 above, the actual cost improvement will be allowed. Further, if the assets are purchased the actual cost of those assets shall be allowed as COA. However, transfer of self- generated goodwill of profession is not taxable because the cost of acquisition and its improvement is not ascertainable, Mlustration 6: Compute the capital gain in the following cases: SS 1) P commenced a business on15-04-2003. The said busigg> Spo by P on 18-04-2020 and he received Rs.6,00,000 towards goodwill a Solution: Yo Consideration Aw 6,00,000 Less: Cost of Acquisition 6,00,000| 2) What will be your answer in the above case, if P had acquired the goodwill for this business for a consideration of Rs.2,00,000? Solutio Consideration 6,00,000| Less: Indexed Cost of Acquisition (2,00,000X 301/109) 552,204 LTCG 47,706 3)_R has been living in a rented accommodation since May, 2006 and he is paying a rent of Rs.500 per month. The landlord got the house vacated from R on 16-07-2020 and paid a sum of RS.5,00,000 for vacating the house. ‘Solution: Consideration 5,00,000| Less: Cost of Acquisition 9 LTCG 5,00,000| 4) Sis a CA. practicing in Delhi since January 1993. He transfers the practice to another Chartered Accountant Y on 15-07-2020 and charges Rs.5,00,000 towards goodwill CAPITAL GAINS | 44 4.14‘WWW.MASTERMINDSINDI Fe Naas OM | 98851 25025 / 26 Solution: As per CBDT Circular, it is exempted. 5) purchased tenancy right on 01-04-2000 for Rs.1,60,000. The same was sold by him on 14-08-2020 for Rs.15,00,000. FMV of tenancy right as on 01-04-2001 was Rs.2,50,000 Solution: Consideration 15,00,000) Less: Indexed Cost of Acquisition (1,60,000X 301/100) (4,81,600) LTCG 10,18,400| FMV as on 14.2001 if the assessee / previous owner (refer e.g. below) acquired the asset before 01.04.2001, then the fair market value as on 01-04-2001 may be adopted as the cost of acquisition, However, in ind or Building or both the FMV of such Asset as on 1.4.2001 shall not exceed the SDV of such asset as on 1.4.2001 wherever available.(F. Act.2020) NoTE 1) This facility is not available in case of depreciable capital assets. 2) This facility is not available in case of Sec.55 assets, Ex: From the following information calculate Cost of acquisition. Purchase of Building for @ 2,00,000 on 1.6.1995 FMV as on 1.4.2001 is 210,00,000 SDV as on 1.4.2001 is ® 8,00,000 Solution: OR o 8,00,000 B. FMV as on 1.4.2001 Se fo SDV as on 1.4.2001 8,00,00 oS 11. COST MENT 4) It is the Capital Expenditure reureg 9 pg Srovemen of capital asset such as additions / alterations to the capital asset - a) made by the assessee after it became his property or b) made by the previous owner (in case of C.A. acquired by any modes specified in Sec.49(1)). However, cost of improvement does not include any expenditure which was deductible under the head house property, PGBP / Other sources. 2) Any cost of improvement incurred by the assessee or by the previous owner, before 01-04-2001, shall be NIL, 3) In relation to Sec.55 assets, _CAPITAL ASSET COST OF IMPROVEMENT '* Good will of business ‘+ Right to manufacture, produce or process any article or thing Nil ‘+ Right to carry on any business ‘Any other capital asset like tenancy rights, route permits, loom hours, trademarks, brand names etc., Actual capital expenditure Tit Bit 3: Mr. X & sons, HUF, purchased a land for Rs. 40,000 in 2001-02. In 2005-06 a partition takes lace when Mr. A, a coparcener, is allotted this plot valued at Rs. 80,000. In 2006-07 he had incurred expenses of Rs. 1,85,000 towards fencing of the plot. Mr. A sells this plot of land for Rs. 15,00,000 in CAINTER | INCOME TAX | 44 4.35PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony 2020-21 after incurring expenses to the extent of Rs. 20,000. You are required to compute the capital gain for the A.Y.2021-22. 2001-02 2005-06 2006-07 2020-21 12. INDEXATION COST INFLATION INDEX: 2001-02 100 2007-08 129 2013-14 220 2002-03 4105 2008-09 4137 2014-15 240 2003-04 109 2009-40 148 2015-16 254 2004-05 4113 2010-44 167 2016-17 264 2005-06 4117 2011-42 184 2017-18 272 2006-07 122 2012-43, 200 2018-49, 280 2019-20 289 2020-21 301 This benefit is available either from the year of acquisition of the asset by the Assessee or from the base year 2001-02, whichever is later. 13. INDEXED COST OF ACO! smo 41 = Cost of Acquistion for] FMV as on 01/04/2001 as the caS@ 2 = Indexed factor for the base year 2001-02 or for, assessee, whichever is later. * indexation factor for the year of transfer. @ ir in which the asset was held by the * The previous owner holding period is to)* The previous owner holding period is to be considered| be ignored for computing indexed cost of for computing indexed cost of acquisition. (Bombay) acquisition. High Court in CIT Vs. Manjula J. Shah) We are waiting for the ICAI clarification with regard to the treatment to be followed. As of now we are following the 1™ treatment. Issue: B inherited a property from A on 01-07-2008. The property was acquired by A on 1-7-91. This was sold in the current year by B. Is it a Long Term Asset or Short Term Asset? From which year B can get the benefit of indexation? 14. INDEXED COST OF IMPROVEMENT =} x3 1= Cost of Improvement incurred on or after 01/04/2001 indexation factor in the year such cost of Improvement was incurred 3 = Indexation factor for the year of transfer. NOTE: In case of Cost of improvement made by the previous owner, Indexation will starts from the year of acquisition by the previous owner. (No alternative treatment). {TEACH PROBLEM NO 1,4 OF CLASSROOM DISCUSSION) CAPITAL GAINS | 44 4.16DU cd Suna ae 15, CAPITAL GAINS EXEMPT FROM TAX - U/S 10 EXEMPTION OF C.G. ON TRANSFER OF A UNIT OF UNIT SCHEME, 1964 (US 64) - SEC.10 (33): Any income arising from the transfer (made on/ after 01.04.2002) of a capital asset being a unit of Unit ‘Scheme 1964 of UTI, shall be exempt. EXEMPTION OF C.G. ON COMPULSORY ACQUISITION OF URBAN AGRICULTURAL LAND - SEC.10(37): Eligible assess ‘WWW.MASTERMINDSINDI OM | 98851 25025 / 26 Individual or @ HUF Asset transferred: | Agricultural land situated in specified area Nature of transfer: | Compulsory acquisition by the CG Consideration: | Compensation or enhanced compensation approved / determined by the CG and received on or after 01.04.2004. Conditions: The agricultural land should be - a) used by the assessee/ his parents at least 2 years prior to the date of transfer b)_a long term capital asset or short term capital asset (SOLVE PROBLEM NO. 3 OF ASSIGNMENT PROBLEMS AS REWORK) Mustration 7: Mr. Kumar has an agricultural Land (costing Rs.6 Lakh) in Lucknow and has been using it for agricultural purposes since 01.04.2000 till 01-08-2012 when the Government took over compulsory acquisition of this Land. A compensation of Rs.10 Lakh was settled. The compensation was received by ‘Mr. Kumar on 01-07-2020, (NEW SM) 41) Compute the amount of capital gains taxable in the hands of Mr. Kumar. 2) Will your answer be same if - @ a)_Mr. Kumar had by his own will sold this Land to his nee Sharma? b) Mr. Kumar had not used this Land for agricultural aig’ ¢) Ifthe Land belonged to ABC Ltd. and not Mr. piferarafg¥compensation on compulsory acquisition was received by the company? Solution: Section 10(37) exempts the capital axing to an individual or a Hindu Undivided Family from transfer of agricultural land by way of 6étiputegty acquisition, or a transfer, the consideration for hich is determined or approved by the RBG thegentral Government. 1) Mr. Kumar is entitled to exemption under section 10(37) of the entire capital gains arising on sale of agricultural land, since compulsory acquisition of an urban agricultural land has taken place and the compensation is received after 01.04.2004 and this land had also been used for at least 2 years by the assessee himself for agricultural purposes. 2) Mr. Kumar is not entitled to exemption under section 10(37) - a) Since the sale was made out of his own will, the provisions of this section are not attracted and the capital gains arising on such compulsory acquisition will be taxable in the hands of Mr. Kumar. b) Since the assessee has not used it for agricultural activities, the provisions of this section are not attracted and the capital gains arising on such compulsory acquisition will be taxable in the hands of Mr. Kumar. ¢) Since the land belongs to ABC Ltd., a company, the provisions of this section are not attracted and the capital gains arising on such compulsory acquisition will be taxable in the hands of ABC Ltd. 16. RATES OF TAX ON CAPITAL GAINS RATE OF TAX ON SHORT-TERM CAPITAL GAINS 411A a) Short-term capital gains arising on transfer of listed equity shares, units of equity oriented fund and unit of business trust - 15%, if STT has been paid on such sale. CAINTER | INCOME TAX | 44 437PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony b) Short-term capital gains arising from transaction undertaken in foreign currency on a recognized stock exchange located in an International Financial Services Centre (IFSC) would be taxable at a concessional rate of 15%, even though STT is not paid in respect of such transaction. Note: Short-term capital gains arising on transfer of other Short-term Capital Assets would be chargeable at normal rates of tax RATES OF TAX ON LONG-TERM CAPITAL GAINS Section _ Rate of tax_ | 112A | Tax @10% on long-term capital gains exceeding Rs. 1,00,000 on the transfer of following long-term capital assets - - listed equity shares, if STT has been paid on acquisition and transfer of such shares ~ units of equity oriented fund and unit of business trust, if STT has been paid on transfer of| such units If such transaction undertaken on a recognized stock exchangelocated in an Intemational Financial Services Centre (IFSC), LTCG would be taxable at a concessional rate of 10% ]where theconsideration for transfer is received or receivable in foreign currency, even though STT is not paid in respect of such transaction + Benefit of indexation and currency fluctuation would not be available. 112 Long-term capital asset Rate of tax Unlisted securities, or shares of a Non-corporate non-resident/foreign company - 10%, without closely held company the benefit of indexation and currency fluctuation Other Assesses - 20%, with indexation benefit, Listed securities (other than a|10%, without the benefit of indexation Unit) or a zero-coupon bond (or) (dante to assessoe on 20%, avalng the ce of indexation Note Y a) In case of a resident individual or a Hindu Undivdk ily (YF), the long-term capital gain taxable ls 112 or 112A or short-term capital gain taxable, all be reduced by the unexhausted basic exemption limit and the balance shall be subje 6 'b) No deduction under Chapter VI-A can be cla(ad inyeSpect of such long-term capital gain chargeable to tax uls 112 or uls 112A or short-term ge thargeable to tax wis 171A, ¢) Rebate uls 874 is not available in respect of tax payable @ 10% on Long-term Capital Gains u/s 112A. d) The Finance (No. 2) Act, 2019 has levied an enhanced surcharge of 25% and 37%, where the total income of individuals/HUF/AOPS/BOls exceeds Rs. 2 crores and Rs. 5 crores, respectively. However, the enhanced surcharge has been withdrawn on tax payable at special rates under section 111A and 112A on short-term and long-term capital gains arising from the transfer of equity share in a company or unit of an equity-oriented fund/ business trust, which has been subject to securities transaction tax. Eg.: STCG ws 111A Rs. 60 lakhs; LTCG U/S 112A Rs. 65 lakhs Other income Rs. 6 crore Surcharge @ 15% would be levied on income-tax on: + STCG of Rs. 50 lakhs chargeable to tax u/s 111A; and ‘+ LTCG of Rs. 65 lakhs chargeable to tax u/s 112A, Surcharge @37% would be levied on the income-tax computed on other income of Rs. 6 Crores included in total income. CAPITAL GAINS | 44E 4.18DU cd Suna ae ‘WWW.MASTERMINDSINDI OM | 98851 25025 / 26 IN GENERAL CASES: Taxable at normal siab rates at which the other income is chargeable to tax Meaning: _|If the total income exceeds the basic exemption limit only because of the capital gains, then the difference between the basic exemption limit and other income (i.e. income excluding LTCG and STCG (Sec.111A) is called as the unexhausted limit Applicability: | Resident assessees. Total income other than LTCG under Sec 112, 112A and STCG under Sec.111A shall be! less than the Basic Exemption Limit Treatment: _ |The unexhausted limit can be adjusted against LTCG and STCG (Sec. 111A) NoT! 1) W.EF. 01.04.2016, where a transaction is undertaken on a Recognised Stock Exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in foreign currency, even though STT not paid, the resulting LTCG are taxable u/s 112A (benefit of indexation is not available) and STCG are taxable at the rate of 15% under Sec. 111A 2) Chapter VIA deductions are not available in computation of taxable LTCG and STCG u/s 111A. Example: Case 1: EXAMPLE U/S112A GEESSEESEEN 7 MSUSUSU SEEDS REE oP FEED ERLSTAY 7° SEUSEED ESRI EEE 1.__ [Investment Date January 2,2017| January 2,2017_| March 1, 2018 ._ | Sale Date April 1, 2020 | March 31, 2021 | March 20, 2021 Cost of Acquisition (CoA) (in 3 |Rs) 2 a) Actual Cost of Acquisition 7,50,000, 7,50,000| 8,50,000| b)_ FMV as on January 31% 2018 8,50,0f $Q)° 10,50,000] actual Cost of ¢) Amount of Sale Consideration 10, 995080 8,50,000| Acquisition to be d) Lower of (b) and (C) PBS. 008 '8,50,000| taken since, shares ‘Acquired after 1 Cost of Acquisition [Higher of (a) and (O)] g -aafoso 8,50,000| February, 2018 4. _ [Sale Value (in Rs.) 49900,000 8,50,000 46,00,000 5. [LTCG (ns) 2,50,000) 0 7,50,000 (TEACH PROBLEM NO.20 OF CLASSROOM DISCUSSION) Mlustration 8; Ms. Paulomi has transferred 1,000 shares of Hetal Ltd., (which she acquired at a cost of Rs, 10,000 in the financial year 2002-03 to Dhaval, her brother, at a consideration of RS. 3,12,934 on 15- 05-2020 privately (unlisted shares). During the financial year 2020-21 she has paid through e-banking Rs. 15,000 towards medical premium, Rs, 50,000 towards iife insurance premium and Rs. 25,000 towards PPF. Assuming she has no other source of income, compute her total income and tax payable for the Assessment Year 2021-22 Cost inflation Index: for F.¥.2002- 03: 105, F.¥ 2020-21: 301 (OLD PM) Solution: Computation of Total Income and tax liability of Ms. Paulomi for A.Y. 2020-21 ‘Sale consideration 3,12,934 Less: Indexed cost of acquisition (Rs. 10,000 x 301/105) (28.667) Long term capital gain (Total Income) 2,84,267 Tax liability Income-tax @ 20% on RS. 34,267 (RS. 2,84,267 - Rs. 2,50,000) 6853, CAINTER | INCOME TAX | 44E 4.19PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony Less: Rebate under section 87A 12,500) ° |Add: Health and Education cess @ 4% o Total tax payable oO Tax payable (rounded off) ° NOTES: 1) As per section 112, deductions under Chapter VI-A are not allowable against long term capital gain. Therefore, Paulomi is not entitled to deduction under section 80C in respect of payment of life insurance premium and contribution to PPF. She is also not entitled to deduction under section 80D in respect of medical insurance premium paid by her. 2) However, she is entitled to reduce the long-term capital gain by the unexhausted basic exemption limit and pay tax on the balance @ 20% as per section 112. in this case, since she has no other source of income, the entire basic exemption limit of Rs. 2,50,000 to the extent of long-term capital gain can be reduced from the long-term capital gain. Note: T1SEC.AS - SERIES 47.1. Sec. 45(1): Refer to first page 17.2. Sec. 45(1A): Taxable event Damage or Destruction of any capital Asset as a result of - la) Typhoon, Hurricane, Cyclone, Earth Quake etc. b) Riot, Civil disturbances. ¢) Accidental Fire or Explosion. ) Action by an enemy (or) Action weg ‘combating an enemy (with/ without declaration of war) Taxable Amount Value of money received (or) Eyl Set received on the date of the receipt Period of holding FROM the date of Acauieng Ay TO the date prior to the, of struction Year of Transfer P.Y. of destruction, Year of Chargeability_|P.Y. in which the coMpentsétion (or) asset was received NOT! 1) This section is an exception to Sec.45(1) (i.e. Year of chargeability = Year of Transfer) 2) If the compensation was received in respect of destroyed plant & machinery, the same will be taxed in the hands of the recipient U/S.45(1A). if the compensation has been received on account of destroyed stock, then the same shall be taxed U/S.28 (PGBP) (N12-4M) Period of Holding From the Date of Acquisition up to the date prior to the Date of Conversion [Year of Chargeability: | Previous year in which Stock in trade is sold. Year of Transfer Year of Conversion Consideration FMV on the Date of Conversion Indexation Facility upto the year of Conversion NOTE: Both Capital Gains and Business income are chargeable to tax in the year in which stock-in-trade dS oe or cuenta Copyrights Reserved To MASTER ‘MINDS COMMERCE INSTITUTE PVTATD. CAPITAL GAINS | 44E 4.20‘WWW.MASTERMINDSINDI Fe Naas OM | 98851 25025 / 26 17.4, SEC.45 (3) -TRANSFER OF A CAPITAL ASSET INTO CAPITAL CONTRIBUTION: Period of Holding From the Date of Acquisition up to th ior to the Date of Trar Year of Chargeability: | Year of Transfer Consideration [The value of the Asset recorded in the books of the firm or AOP or BO! Indexation Facility up to the year of Transfer Tit Bit 4: A is the owner of a foreign car. He starts a firm in which he and his two sons are partners. As his, capital contribution, he transfers the above car to the firm. The car had cost him Rs.2,00,000. The same is being introduced in the firm at a recorded value of Rs.3,50,000. Discuss. (ANS.: CAR IS NOT CAPITAL ASSET BUT IS A PERSONAL EFFECT) (TEACH PROBLEM NO. 4 OF CLASSROOM DISCUSSION) 47.5. Sec. 45(4) - DISTRIBUTION ON DISSOLUTION: Period of Hold From the Date of Acquisition up to the date prior to the Date of Distribution [Year of Chargeability: | Year of Transfer Consideration: FMV as on date of Distribution. Indexation Facility: | up to the year of Distribution. EXCEPTION TO ABOVE: Conversion of a partnership firm in to a LLP (Limited Liability Partnership) provided that there is no change in rights and obligations of partners or transfer of asset or liability after conversion. (TEACH PROBLEM NO.5 OF CLASSROOM DISCUSSION) 47.6. SEC. 45(5) - COMPULSORY ACQUISITION: Period of Holding From the Date of Acquisition upto the date prior to the Date of| Compulsory Acé n o Year of Chargeability: Year of Initial Compensation* Consideration’ FMV as on date of Initial Ceipensapion Indexation Facility up to the year of Compyisery Acquisition Enhanced Compensation _| Taxable in the PY in th ji@ inal order of the court is made.** Reduction of Compensation _|Re-Computation pffnoe fave “If Compensation is received in Installments, rexigXable in the year of receipt of First Installment for the total Amount. o “No deductions are allowed from enhanced compensation except legal Expenses Nor 1) Compensation received in pursuance of an interim order deemed as income chargeable to tax in the year of final order 2) In the case of death of the transferor, the enhanced compensation/ consideration shall be taxable in the hands of the recipient of such sum. (TEACH PROBLEM NO.6 OF CLASSROOM DISCUSSION} COPYRIGHTS RESERVED TO MASTERMINDS COMMERCE INSTITUTE PVT. LTD., GUNTUR. UNAUTHORISED COPYING OF ANY PORTION OF THIS MATERIAL BY USING PHOTOCOPYING OR ANY OTHER MEANS OR UNAUTHORISED USAGE OF THIS MATERIAL IS A PUNISHABLE OFFENSE (MAY ATTRACT IMPRISONMENT OR PENALTY OR BOTH) CAINTER | INCOME TAX | 44 421PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony 47.7 SEC. 45(5A) - TAXABILITY OF CAPITAL GAINS IN CASE OF SPECIFIED AGREEMENT: Individual/HUF entering into specified agreement for development of project Is individualHUF transferring his share in the project on or before the date of issue of completion certificate Is individual/HUF transferring his share in the project after the date of issue of completion certificate Capital gains tax liability would arise in the P.Y. in which certificate of completion for whole or part of the project is issued by the competent authority Capital gains tax liability would arise in the P.Y. in which the property is handed over to the developer Stamp duty value on the date of issue of certificate of completion (+) Cash consideration = Full value of consideration as per sec 45(5A) Full value of consideration deemed to be the cost of acquisition for determining capital gains on subsequent sale of share of developed property On Sale of Non-Depreciable Asset WH Sec.48 } Capital Gains On Sale of DepreciableAsset — Sec.50 CONDITIONS FOR CLAIMING DEPRECIATION: Depreciation U/s. 32 can be claimed provided as on the last day of the Previous Year, the following two requirements are fulfilled: 1) There must be at least one asset in the block & 2) There must be some value for the block on which prescribed percentage can be applied. ‘SEC.50 COMES INTO PICTURE: 1) Where any one or both of the above mentioned requirements are not satisfied, Sec.32 will not apply and automatically the provisions of Sec.50 become applicable resulting in the STCG or STCL. 2) Sec. 50 thus gets attracted under the following circumstances: a) When one or some of the assets in the block were sold for a consideration which is more than the value of the block (STCG). b) When all the assets are transferred for a consideration which is more than (STCG) or less than the value of the block (STCL), CAPITAL GAINS | 44E 422EQ Cae AA WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 19, SEC.50 A - SALE OF ASSETS BY POWER SECTOR CO's WHERE ANY ASSET IS SOLD IN SUCH A CASE, THE FOLLOWING THREE PROVISIONS EXCLUSIVELY APPLY. 1) Where sale value or money payable is less than WDV: a) If SV < WDV then the difference is allowed as terminal depreciation under PGBP. b) Ifthe asset is sold in the same PY in which it is purchased the difference will be treated as STCG. or STCL. 2) Where sale value or money realisable is more than WDV: a) If SV > WDV but SV < Cost then the difference will be treated as balancing charge under PGBP- b) If SV > Cost, then the difference between the Cost & WDV will be treated as balancing charge under PGBP & c) The amount over and above the cost will be treated as STCG. 3) Capital Gains: For the computation of capital gains in respect of the above mentioned depreciable assets, the actual cost shall be taken as cost of acquisition, Iustration 9: A Ltd., engaged in the business of generation and distribution of power has claimed depreciation on straight-line method for income-tax purposes. You are informed that Diesel Electric and Gas Plant was acquired for Rs.60,00,000 and depreciation at 8.24% was claimed for 2 years on straight line method. Assuming that the said Plant is sold for a consideration of (i) Rs.48,00,000; or (ii) RS.58,00,000; or (ii) RS.62,00,000 during the previous year 2020-21 examine the treatment under tax law. ‘Solution: Le Particulars Case! CS mo Case Sale consideration "48,00,000 @io0 {62,00,000 Less: WOViNote ) 50.11,200 1.200 _S ern FornnarsopreciGp) (@hSB° income] —z* aes | zone oS PGEP income || Capital Gain NOTE: Caloulation of WOV Actual cost = 60,00,000 Less: Depreciation @ 8.24% for 2 years = 9.88800 wov = 50,11,200 20. SEC.50B - SLUMP SALE MEANING: Transfer of one or more undertaking as a result of lump sum consideration without values being assigned to assets and liabilities and if any value is assigned, then it is only for determining the payment for stamp duty. SECTION 50B: 4) Capital gain is taxable when slump sale is affected 2) Nature of capital gain depends on period of holding of undertaking transferred. If undertaking held for more than 36 months, capital gain is LTCG, else STCG. 3) Nothing shall be taxable under head PGBP. 4) COA and COI = Net worth of Undertaking. 5) Net worth = Value of total assets ("*) (-) Value of total liabilities 6) Revaluation of assets shall not be considered while computing Net Worth CAINTER | INCOME TAX | 44 4.23PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony 7) Benefit of Indexation is not possible. 8) Value of non-depreciable asset shall be taken at book value 9) Value of depreciable asset shall be taken at WDV as per Sec.43(6) 10) Transferor can carry forward unabsorbed depreciation and losses. ("*) The Value of the assets on which 100% deduction was allowed under Sec.35AD is NIL. NOTE: In the case of slump sale, every assessee shall furnish a report of a chartered accountant indicating the computation of Net worth which was certified by the assessee, along with the ROI. 71.1. SEC.50€ - SPECIAL PROVISIONS FOR COMPUTATION OF CONSIDERATION 1) When sales consideration is less than stamp duty value (SDV) of land and building, SDV shall be deemed as Sales Consideration for the purpose of computation of capital gain. 2) Assessee claims SDV exceeds FMV and value is not disputed, AO may refer computation of value to Valuation Officer. Where value ascertained by Valuation Officer = —_ Exceeds the stamp duty value Is lower than stamp duty value + ¥ ‘Stamp duty value shall be taken as Value ascertained by Valuation sales price officer shall be taken as sales price FIRST PROVISO TO SEC 50C(1): Where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not4ae same, the stamp duty value on the date of the agreement may be taken for the purposes of compp¥éig the full value of consideration (Subject to condition- refer below point) SECOND PROVISO TO SEC 50C(1): Normally SDV consi @E of registration is considered but ls 50C if date of agreement and registration are not the sa¥fiS> thémassessee can take SDV on the date of agreement if he received consideration or part theygs & ‘the date of agreement in Alc payee ‘cheque/DD , use of electronic clearing system through@vw sunt or any other electronic modes as may be considered Z THIRD PROVISO TO SEC 50C(1): where t aby value does not exceed 110% of the sale ‘consideration received or accruing as a resuB! thefansfer, the consideration so received or accruing shall be deemed to be the full value of the consideration. (F.Act 2020) (TEACH PROBLEM NO.10 OF CLASSROOM DISCUSSION} 21.2. SEC SOCA - FMV TO BE FULL VALUE OF CONSIDERATION IN RESPECT OF UNQUOTED SHARES 1) CAPITAL ASSET TO BE TRANSFERRED: Unlisted/ unquoted shares 2) APPLICABILITY: an assessee being a transferor of the unlisted shares, transfers such asset for a consideration received or to be received as a result of such transfer which is less than the FMV of such share determined in the prescribed manner. EXCEPTIONS: [w.e.f. AY 2020-21] The provisions of this section would not, however, be applicable to any consideration received or accruing as a result of transfer by such class of persons and subject to such conditions as may be prescribed 3) DEEMED VALUE OF CONSIDERATION: FMV of such share determined in the prescribed manner. 22. SEC.500 -FMV TO BE FULL WALUE OF CONSIDERATION In a case where consideration received cannot be determined, then FMV of the said asset shall be deemed as consideration received for the purpose of computation of capital gains. CAPITAL GAINS | 44E 4.24Cg AAU WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 23, SEC.51 - FORFEITURE OF ADVANCE (NOT APPLICABLE FROM 01.04.2014) 1) In the due course of negotiations for the transfer of a capital asset, the assessee may receive an advance which was forfeited later due to negotiations. In such cases, the advance amount so received shall be reduced from the cost of acquisition or FMV as on-01.04.2001 where FMV is taken as COA or WDV while computing the capital gains and such capital gains shall be taxable in the year of actual transfer of the capital asset, (Forfeiture up to 31.03.2014 shall be deducted from cost of acquisition) 2) For forfeiture on or after 01.04.2014, Then such amount shall not be deducted from the cost of acquisition or the FMV or the WDV as the case may be for the purpose of computation of capital gains ‘when such asset is transferred and this will be taxed as income from other sources (Sec. 56(2)(ix)) in the year of forfeiture of advance. (Teach problem No.12 of classroom discussion] 24, SEC.S5A - REFERENCE TO VALUATIONER For the purpose of ascertaining the FMV, the Assessing Officer may refer the valuation of a Capital Asset to a valuation officer under the following circumstances: 4) Already valued: Where the assessee already referred the matter to a registered valuer and the value as claimed by him is as per that valuation report - if the Assessing Officer is of the opinion that the value so claimed is at variance with its FMV / FMV as on 01.04.2001 if itis taken as cost 2) If not so, if the Assessing Officer is of the opinion: a) That the FMV of the asset exceeds the value of the asset as claimed by the Assessee by more than 15 % of the value claimed Or by more than 25,000 Or 2 b) That having regard to the nature of the Asset & rlevegt mstances it is necessary to make the reference. > ehh hon ter. The valuation report of the Valuation Officer shall be 25. SEC. 25.1 EXEMPTIONS FROAPCAPST GAINS (54 SERIES) [Asset Transferred [Residential House Soper” |Uiben Agicuturl Land [Compulsory acauistion of land 8 bung feoming pat of edustal undertaking 2_[Avallabie Travia HOF Travia HOF Soe a LTCA CTCASTCA TCAISTCA i It should be used for ‘Such land & building should Income from such propery | agreuture by im orby his [be used for bushess purpose Eee eel Ug gy eles Property immediately prior to the DOT the DOT 3 |New Asset tobe Aafculural Land [Land & bulking for aca Boauirea ‘UroenvRura. [purpose Rs.2 Crore, Here Assessee | Residential House Property| eee ceeantuaae © [Amount botnvested [TCG on ansier C6 on vansir 7 [Amount of TF GG < Arourt Invested = Full Anourt | Cee ee CAINTER | INCOME TAX | 44 4.25PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony & | Time timit + For Purchase - within 1]Within 2 years from the DOT ]3 years from the DOT year before or 2 years| ater the DOT + For Construction - within 3 years after DOT 9 |if Amount not utilized tl filing of Deposit in Nationalized Bank under the Capital Gains Deposit Account Scheme return Uls 139(1) 10 |If deposit not Taxable as LTOG in the PY] Taxable as LTOG or STOG in] Taxable as LTCG or STOG in utilized in which the 3 years from the |the PY in which the 2 years|the PY in which the 3 years Gate of transfer of original|from the date of transfer of|from the date of transfer of assets expres. original assets expires, original assets exmires, "1 3 years from the date of 3 years from the Date of Acquisition egustion or construction 12 |Sale of new asset | Sold With in 2 years Short term Capital Gain computed as follows: Sale consideration of new Asset XXX Less: COA (-) Previously exempted CG XXX STCG XXX 12 : LTCG computed as follows: Sale consideration of new Asset 20 Less: Indexation {COA (-) Previously exempted CG} > LTce ox 1. [Asset Transferred |LTCA (being land. (or)|AnyLTCA ‘Any LTCA other than Residential buailing (or) both) house property 2 [Available to ANY ASSESSEE ANY ASSESSEE ses or HUF 3_ [Nature of asset [LTCA UTCA TCA 4 [Condition No jan 7 advance onthe | LTCA tanstoreGSr aR, He dao of artorAssesoo basis of secutty of these! after 14-20) A ould not own more than one| unis shal be taken residential House property. 5 [Now Assot tobe | NGAI Bends (sated on bf |Notfg2> | One residential House property acquired ater (01,04 2018| redeemable after 5 years) @ RECL BONDS) spectied 5 bonds any other bond as”, may be notified by the S| G' 6 [Amount tobe |LTCG on transfer subject|LTCG on _transfer| Net Consideration Invested toa max of SOL subjectto amax. of SOL 7 [Amount of Least of Least of If the cost of new asset < Net sale Exemption + Amount invested in|« Amount invested in| Consideration ~ bonds or bonds or LTCG X amount invested + Capital gains + Capital gains Net consideration Otherwise the total amount invested is exempt from tax 8 | Time timit Within 6 months from| Within 6 months from|« For Purchase - within 1 year before bor bor ‘r2 years after the DOT + For Construction - within 3 years after DOT, 9 JifAmount not [NA NA Deposit in Nationalized Bank under the Utilized tl filing of Capital Gains Deposit Account Scheme return Uls 139(%) 10 |ifdepositnot NA NA Taxable as LTCG in the PY in which utilized the 3 years from the date of transfer of orginal assets expires 41 [Holding period of | 5 years from the Date of 3 years from the Date|3 years from the date of acquisition or Now assot Acquisition fof Acquisition Construction CAPITAL GAINS | 44 4.26DU cd Suna ae ‘WWW.MASTERMINDSINDI OM | 98851 25025 / 26 12 [Sale ofnewasset |LTCG already exempted|LTCG ‘already a) STCG on new asset shall be taxed shall be charged as LTCG |exempted shall_be| separately, in the year of sale or|charged as LTCG in|b)LTCG exempted Uls S4Fshall be creation of charge on new|the year of sale or| chargeable to tax as LCG in the asset creation of charge on) year of ranser 1 SECTION 54H EXTENSION OF TIME FOR REINVESTMENT IN CASE OF COMPULSORY ACQUISITION - SEC 54H: 4) INITIAL COMPENSATION: Capital gain is chargeable to tax in the previous year in which the ‘compensation (or part thereof) is first received. For availing the benefit of exemption under sections 54, 54B, 54D, 54EC and 54F, the new asset should be acquired within the time limit specified for this purpose. But the specified time-limit shall be determined from the date of receipt of compensation. If initial compensation is received in parts, then the entire initial compensation is taxable in the year in which a part is first received, but the time-limit for acquiring the new asset under sections 54, 54B, 54D, 54EC and 54F shall be determined on the basis of dates of receipt of different parts of initial compensation. 2) ENHANCED COMPENSATION: If any enhanced compensation is received, itis taxable in the year in ‘which such compensation is received and for acquiring the new asset under sections 54, 54B, 54D, S4EC and S4F, the time-limit shall be determined from the date of receipt of additional compensation. 3) EXTENSION OF TIME FOR REINVESTMENT IN CASE OF CONVERSION INTO STOCK IN TRADE: Where a capital asset is Converted into stock-in-trade, the provisions of sec. 45(2) shall apply and the capital gains arising there from is chargeable to tax in the year in which the stock-in-trade is sold or transferred. For the purpose of making investment u/s. 54EC in such a case the period of six months shall be reckoned not from the date of conversion but from the.date on which such stock-in-trade is sold or otherwise transferred-CBDT Circular No.791 dated 02,0000 4) FOR THE PURPOSE OF SEC.54F: the assessee should pdiSpdrchase / construct any other residential house within a period of 2 years /3 years, respectively front} SF transfer of the original asset COMMON POINT FOR SEC 54 SERIES: YS Capital Gains Accounts scheme (cGas): <2 gv a) The return of income shall be accompaniG)by £@0f of such deposit b) The amount deposited can be wit! Gs lization in accordance with the scheme, for the specified purpose. > ‘TREATMENT FOR UNUTILIZED AMOUNT IN C. The unutiized amount will become chargeable to tax in the previous year in which the specified time limit expires. Chargeable amount shall be - For sec. $4, 548, 54D Unutilised amount AmountnotutilisedxLongTerm Capital Gain Net Consideration ‘SOME CLARIFICATIONS FOR SEC 54 SERIES 1) For the purpose of Sec.54 and 54F, cost of land acquired by the assessee will also be eligible for ‘exemption along with the cost of construction or acquisition 2) For Sec.54/54F, the word house property means building or land appurtenant there to. 3) Conversion of joint ownership into single ownership by payment being made to other joint owners amounts to purchase. 4) House property does not mean an independent house property only. It includes flats in apartment & joint ownership as well 5) Purchase of the house property which is already in occupation of the assessee in the capacity of the tenant is taken as an eligible purchase. 6) Sale of > 1 house property & purchase/construction of a single property is permissible. For sec. 54F CAINTER | INCOME TAX | 44 4.27PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony 7) Construction of 2” floor on existing property is valid. 8) For the purpose Sec.54B & 54D usage as a tenant is also to be considered, 9) Incase of Sec.54D, the assets to be sold are depreciable assets, the resulting C.G. can only be either STCG or STCL. 10) Expenses incurred for registration of property will be considered as investment. 11) Expenditure incurred for construction before the date of transfer of the asset becomes eligible for exemption uls.54 or 54F. 12) The construction of the new house may start before the date of transfer, but it should be completed after the date of transfer of the original house. 13) Construction need not be completed in ful. 14) Where a person who sold the house property has died, even if his legal representatives futfils the condition as to purchase or construction of a new residential house within the stipulated period, the benefit of Sec.54 can be taken by such representatives. However, the un-utilised amount in the CGA scheme is not taxable in the hands of the legal heirs of the deceased 15) If the assessee complies with the conditions given in Sec.53A of the transfer of property act within given time, he is eligible for exemption even if the sale deed was not registered. 16) The cost of the bonds purchased under eligible issue of capital for which exemption under Sec.54EC is claimed, will not qualify for deduction under Sec. 80C. 26. SALE OF LAND AND BUILDINGS PURCHASED SEPARATELY Land and building are two separate capital assets for the purpose of computation of capital gains. So, the composite consideration received for land and building should be apportioned between the land and superstructure. SECTION 2: PROBLEMS FOR CLASSROOM DISCUSSI Mr. C purchases a house property for Rs.1,08800 on May 15, 1975. The following expenses are incurred by him for making additionvaltemation 1G property: S.NO. ARTICULARS ‘@) _ [Cost of construction of first floor in 1982-83 a 3,10,000 b) _ [Cost of construction of the second floor in08s. Cia 7,35,000) ¢)__| Reconstruction of the property in 201368" ao 5,50,000 Pn Fair market value of the property on April 2060's Rs 8,60,000 and SDV as on 1.4.2001 is Rs. 10,00,000. The house property is sold by Mr. C on August 10, 2020 for Rs.68,00,000 (expenses incurred on transfer: Rs. 50,000). Compute the capital gain for the assessment year 2021-22. (ANS:LTCL-14,09,321) (SOLVE PROBLEM NO.22, OF ASSIGNMENT PROBLEMS AS REWORK) PROBLEM NO. Note: PROBLEM NO.2: MrA, is an individual carrying on business. His stock and machinery were damaged and destroyed in a fire accident. The value of stock lost (totally damaged) was Rs.6,50,000. The opening WDV of the block as on 1-4-2020 was Rs. 10,80,000. During the process of safeguarding machinery and in the firefighting operations, Mr. A lost his gold chain and a diamond ring, which he had purchased in April, 2005 for Rs.1,20,000. The market value of these two items as on the date of fire accident was Rs.1,80,000 Mr. A received the following amount from the insurance company: a) Towards loss of stock Rs.4,80,000 b) Towards damage of Machinery Rs.6,00,000 ¢) Towards gold chain and diamond ring Rs.1,80,000 CAPITAL GAINS | 44E 4.28Cg AAU WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 You are requested to briefly comment on the tax treatment of the above three items under the provisions of the income-tax Act, 1961 (NEW SM, OLD PM) (ANS: 1) BUSINESS LOSS: (RS.1,70,000),l) STCL: RS. (,80,000) AND MIJLTCL: (RS. 1,28,718)) (SOLVE PROBLEM NO.5, OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM NO.3: ABC Lid., converts its capital asset acquired for an amount of Rs.50,000 in June, 2003 into stock - in - trade in the month of November, 2015 .The fair market value of the asset on the date of conversion is Rs.4,50,000. The stock - in - trade was sold for an amount of Rs.6,50,000 in the month of ‘September, 2020. What will be the tax treatment? (ANS: GROSSTOTAL INCOME: 5,33,486) (NEW SM, OLD SM) (SOLVE PROBLEM NO.23, OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM NO.4: R acquired a Land by way of gift from his father in the previous year 1999-00. The father had acquired the property in the previous year 1991-92 for 1,00,000. and Fair Market Value on 01/04/2001 is 2,00,000 and SDV as on 1.4.2001 is Rs. 2,50,000. This property was introduced as capital contribution to a firm in which R became a partner in the previous year 2020-21. The market value of the asset in 2020-21 was Rs.10,00,000, but it was recorded in the books of account of the firm at Rs.7,00,000. Comment. What is your answer if the property introduced as capital contribution is a personal car used by R? (Ans: LTCG: 98,000) (SOLVE PROBLEM NO OF ASSIGNMENT PROBLEMS AS REWORK) Note: < 5 SS, eres rom ne mon 15-10-2020, Hi at 's.15,00,000. The firm transferred its land to S in settlement of his account. The market value, ‘as on that date was Rs.25,00,000. The land ite capital gain in the hands of the firm. 6 epptrema crssoman oN PROBLEM NO.S: A firm consists of 3 partners namely R, Note: PROBLEM NO.6: X acquired a house for Rs.20,000 in 1980-81. On his death in October 1995, the house was acquired by his son Y. The market value of the house as on 1-4-2001 was Rs, 80,000, and SDV as on 1.4.2001 is Rs. 7,00,000. This house was acquired by the Government on 15-3-2016 for Rs.3,00,000 and a compensation of Rs. 2,20,000 is paid to him on 25-03-2020 and the balance Rs. 80,000 on 15-04- 2020. Y filed a suit against the Government challenging the quantum of compensation and the court ordered for giving of additional compensation of Rs.1,00,000. He incurred an expenditure of Rs. 2,000 in connection with the suit The additional compensation is received on 14-03-2021 Compute the capital gains chargeable to tax. (ANS: LTCG: 1,22,200, 98,000) (SOLVE PROBLEM NO.26, OF ASSIGNMENT PROBLEMS ASREWORK) Note: PROBLEM NO.7: Mr. X purchased a residential plot on 01.01.1998 for Rs.60,00,000. FMV of plot as on 01.04.2001 is Rs.65,00,000 and SDV as on 1.4.2001 is Rs. 68,00,000. Alpha builder enters into a Development Agreement with Mr. X on 01.05.2020 on the following terms and conditions: a) Mr. X will hand over the possession of plot to Alpha Builders on 01.05.2020. b) Alpha builders will pay a cheque of Rs.60,00,000 to Mr. X on 01.05.2020. CAINTER | INCOME TAX | 44 4.29PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony ¢) Alpha builders will construct 10 residential units on the plot of land and will give 6 units to Mr. X. The 10 units shall be completed by 30.06.2021 and on that date 6 units will be handed over to Mr. X. d) The stamp duty value of plot as on 01.05.2020 in Rs.2 Crores. e) The stamp duty value of each flat on 30.06.2021 is Rs.45 Lakhs CASE I: The project completion certificate is issued by competent authority on 30.06.2021. 6 units are handed over to Mr. X on 30.08.2021 CASE II: The project completion certificate is issued by competent authority on 30.04.2022 and on that date the stamp Duty Value of each flat is Rs.50 Lakh. 6 units are handed over to Mr, X on 30.04.2022. (ANS: CASE:11,94,98,000; CASE:21,64, 36,000) Note: PROBLEM NO.8: Singhania & Co. own six machines, put in use for business in March, 2020. The depreciation on these machines is charged @ 15%. The written down value of these machines as on 1* April, 2020 was Rs, 8,50,000. Three of the old machines were sold on 10" June 2020 for Rs. 11,00,000. A new plant was bought for Rs. 8,50,000 on 30" November 2020. You are required to: a) Determine the claim of depreciation for Assessment Year 2021-22, b) Compute the capital gains liable to tax for Assessment Year 2021-22 ¢) If Singhania & Co. had sold the three machines in June, 2020 for Rs. 21,00,000, will there be any difference in your above workings? Explain (NEW SM, OLD PM) (ANS: a) Rs. 6,00,000, 6) CAPITAL GAIN DOES NOT ARISE c) STCG: Rs. 4,00,000) (SOLVE PROBLEM NO. 7 OF ASSIGNMENT PROBLEMS AS REWORK) Note: @ Soy ig ZGyiifs. He transferred on 01.04.2020 his pit was started in the year 2005-06. The t as on 31.03.2021 is as under: Unit 4 (Rs) | Unit2 (Rs) | Total (Rs) 12,00,000| _2,00,000| _14,00,000) 3,00,000] | 1,00,000]—4,00,000 PROBLEM NO.9: Mr. A is a proprietor of Akash Enterprises Unit 1 by way of slump sale for a total consideration of Rs, expenses incurred for this transfer were Rs.28,000. His Liabilities | Own Capital Revaluation Reserve (for building of unit 1) Bank loan (70% for unit 1) 2,00,000| Debtors 7,00,000) '40,000[ _4,40,000 Trade creditors (25% for unit 1) 7,50,000| Other assets 1,50,000) 60,000[ _2,10,000 Total] _21,50,000 Totall 17,50,000[ 4,00,000| —_21,50,000) Other information: a) Revaluation reserve is created by revising upward the value of the building of Unit 4 b) No individual value of any asset is considered in the transfer deed. ¢) Other assets of Unit 1 include patents acquired on 1.7.2018 for Rs.50,000 on which no depreciation hhas been charged. Compute the capital gain for the assessment year 2021-22. (NEW SM, OLD PM, RTP.N16, SIMILAR: M18 (N)- 10M) (ANS: LTCG: Rs, 12,21,375) (SOLVE PROBLEM NO.27, OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM NO.10: Ms. Mohini transferred a house to her friend Ms. Ragini for Rs.35,00,000 on 1-10- 2020. The Sub Registrar valued the land at Rs.48,00,000. Ms. Mohini contested the valuation and the matter was referred to Divisional Revenue Officer, who valued the house at Rs.41,00,000. Accepting the said value, differential stamp duty was also paid and the transfer was completed CAPITAL GAINS | 44E 4.30DU cd Suna ae ‘WWW.MASTERMINDSINDI OM | 98851 25025 / 26 The total income of Mohini and Ragini for the assessment year 2021-22, before considering the transfer of said house are Rs. 2,80,000 and Rs. 3,45,000, respectively. Ms. Mohini had purchased the house on 15” May 2012 for Rs. 25,00,000 and registration expenses were RS. 1,50,000. You are required to explain provisions of Income-tax Act, 1961 applicable to present case and also determine the total income of both Ms. Mohini and Ms. Ragini taking into account the above said transactions. Cost inflation indices for: i) Financial Year 2012-13 : 200 and ii) Financial Year 2020-21 : 301 (OLD Pl) (SOLVE PROBLEM NO.8, 9 OF ASSIGNMENT PROBLEMS AS REWORK) (Ans: Mohini: 2,91,760, Ragin: 9,46,000) Note: PROBLEM NO.14: Mr. Raj kumar sold a house to his friend Mr. Dhuruv on 1% November, 2020 for a ‘consideration of Rs.25,00,000. The sub-registrar refused to register the document for the said value, as according to him, stamp duty had to be paid on Rs.45,00,000, which was the Goverment guideline value. Mr. Raj kumar referred an appeal to the revenue divisional officer, who fixed the value of the house as Rs.32,00,000 (Rs.22,00,000 for land and the balance for building portion). The differential stamp duty was paid, accepting the said value determined. What are the tax implications in the hands of Mr. Raj kumar and Mr. Dhuruv for the assessment year 2021-227 Mr. Raj kumar had purchased the land on 1* June, 2011 for Rs.5,19,000 and completed the construction of house on 1 October, 2019 for Rs. 14,00,000. Cost inflation indices may be taken as 184 for the financial year 2011-12, 289 for the financial year 2019- 20, and 301 for the financial year 2020-21 (ANS:STCL: (4,00,000) (OLD PM, RTP-M16) (SOLVE PROBLEM NO.20 OF ASSIGNMENT PROBLEMS AS REWORK) Note: S PROBLEM NO.12: Mr. Rakesh purchased a house property on@8 Ap 4979 for Rs.1,05,000. He entered into an agreement with Mr. B for the sale of house on 15” Septe received an advance of Rs 25,000 However, since Mr. B did not remit the balance amount, feted the advance. Later on, he gifted the house property to his Rey 5° June, 2007. Following renovations were carried out by Mr. Raat I A to the house property: By Mr. Rakesh during FY 1979-80 10,000| By Mr, Rakesh during FY 2004-05 50,000| By Mr. A during FY 2014-15 7,90,000) The fair market value of the property as on 1-4-2001 is Rs.1,50,000 Mr. A entered into an agreement with Mr. C for sale of the house on 1* June, 2016 and received an advance of Rs.80,000. The said amount was forfeited by Mr. A, since Mr. C could not fulfil the terms of the agreement Finally, the house was sold by Mr. A to Mr. Sanjay on 2™ January, 2021 for a consideration of Rs.12,00,000. Compute the capital gains chargeable to tax in the hands of Mr. A for the assessment year 2021-22, (ANS: 4,78,602/(OLD PM) (SOLVE PROBLEM NO. 10 OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM NO.13: G sold a residential house on 28-6-2020 for Rs.10,00,000. He had purchased this house on 1-10-2003 for Rs.1,20,000 and he spend Rs. 70,000 on improvement of the house during the year 2005-06. He purchased a new house on 21-10-2020 for Rs. 3,00,000. This house was also sold by him on 16-7-2021 for Rs. 6,00,000. He purchased another house on 21-01-2022 for Rs.8,00,000. Compute the C.G’s for the AY. 21-22 and 22-23. (ANS: 1,88,539) (OLD SM) (SOLVE PROBLEM NO 12 OF ASSIGNMENT PROBLEMS AS REWORK) CAINTER | INCOME TAX | 44 431PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony PROBLEM NO.14: R owned 5 acres of agricultural land within the city limits of Guntur which he had Purchased on October 1, 1993 for Rs.3,00,000. Fair market value on 01/04/2001 is §,00,000.On October 1, 2020 he sold the land for Rs.50,00,000. On January 1, 2021, he purchased a coffee estate for Rs.20,00,000. This estate is situated in a remote village and the nearest town is about 20 kilometers away from the estate. On February 28, 2022, he sold the estate for Rs.35,00,000. Compute the Capital Gains for the assessment years 2021-22 and 2022-23. (ANS:14,95,000) (SOLVE PROBLEM NO.28, OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM 15: ABC Ltd. purchased a building for an industrial undertaking on 01-01-2019 for Rs. 4,00,000. Prior to this the company had taken this building on rent for the last two years and was using it for its industrial activities. There is no other building in the block. This property was compulsorily acquired by the State Government on 14-08-2020 and a compensation of Rs. 5,00,000 was given to the company on 21-03-2021. The company purchased another building for shifting its industrial undertaking for 3,00,000 on 15-09-2021. Compute the capital gains for the AY. 2021-22. (Assume dep. Rate - 15%). (ANS: NIL) (SOLVE PROBLEM NO.13 OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM NO.16: Mr. Chandu transferred a vacant site on 28-10-2020 for Rs.100 lakhs. The site was acquired for Rs.9,99,300 on 30-06-2001. He invested Rs.50 lakhs in eligible bonds issued by Rural Electrification Corporation Ltd. (RECL) on 20-03-2021 Again, he invested Rs.20 lakhs in eligible bonds issued by National Highways Authority of India (NHAI) on 16-04-2021 ‘Compute the chargeable capital gain in the hands of Chandu mugen Y, 2021-22 (Ans: LTCG: 19,92,107) (OLD PM) (SOLVE PROBLEM NO,2#(GP ASSIGNMENT PROBLEMS AS REWORK) Note: S PROBLEM NO.17: M sold gold omaments on 16-7-20 fo (3B. This gold was purchased in 2000 for Rs.60,000 by his father. The FMV of the gold as on 1-4-24 1,00,000. His father gifted the gold to M on 14-7-20. He spent Rs. 2,00,000 til $1-7-21(the due ing of the retum) on construction of a house property and deposited Rs. 5,00,000 before 317 ‘capital gain scheme and a further sum of Rs. 7,50,000 on 31-8-21. He withdrew a sum of Rs @d-D99 for construction of the house property til the stipulated (ANS: () 270,000 90,000) (SOLVE PROBLEM NO.17 OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM NO.18: Mr. °X’ furnishes the following data for the previous year ending 31.3.2021 a) Unlisted Equity Shares of AB Ltd., 10,000 in number were sold on 31.5.2020, at Rs. 500 for each share. 'b) The above shares of 10,000 were acquired by °X’ in the following manner: i) Received as gift from his father 1.6.2000 (5,000 shares) the market price on 01.04.2001 Rs.50 per share. Bonus shares received from AB Ltd. on 21.7.2009 (2,000 shares) iii) Purchased on 1.2,2012 at the price of Rs.125 per share (3,000 shares) ©) Purchased one residential house at Rs.25 lakhs, on 1.5.2021 from the sale proceeds of shares. d) *’is already owning a residential house, even before the purchase of above house. You are required to compute the taxable capital gain. He has no other source of income chargeable to tax. (ANS: LCG: 18,17,025) (SOLVE PROBLEM NO.18 OF ASSIGNMENT PROBLEMS AS REWORK) Note: CAPITAL GAINS | 44E 4.32Cg AAU WWW.MASTERMINDSINDIA.COM | 98851 25025 / 26 PROBLEM NO.19: Ashwin owns a residential house which is self-occupied and also a house plot. He sells the house on 31.01.2021 and the house plot on 15.02.2021 for Rs.7,50,000 and Rs.5,00,000 respectively. The house was purchased on 15.01.2011 for Rs.4,00,000 and the plot on 30.03.2011 for Rs.2,00,000. Ashwin has purchased a new residential house on 25.04.2021 for Rs.10,00,000. Compute the income under “Capital Gain’ (ANS: CAPITAL GAIN : NIL IN BOTH CASES) (SOLVE PROBLEM NO.11 OF ASSIGNMENT PROBLEMS AS REWORK) PROBLEM NO.20: Mr. C inherited from his father 8 plots of land in 2001. His father had purchased the plots in 1981 for Rs. 5 lakhs. The fair market value of the plots as on 1.4.2001 was Rs. 8 lakhs (Rs.1 lakh for each plot) On ‘4st June 2002, C started a business of dealer in plots and converted the 8 plots as stock in- trade of his business, He recorded the plots in his books at Rs. 45 lakhs being the fair market value on that date. In June 2007, C sold the 8 plots for Rs. 50 lakhs. In the same year, he acquired a residential house property for Rs. 35 lakhs. He invested an amount of Rs. 5 lakhs in construction of one more floor in his house in June 2008. The house was sold by him in June 2020 for Rs.75,00,000. The valuation adopted by the registration authorities for charge of stamp duty was Rs. 98,00,000. As per the assessee's request, the Assessing Officer made a reference to a Valuation Officer. The value determined by the Valuation Officer was Rs. 1,05,00,000. Brokerage of 1 % of sale consideration was paid by C. Give the total income & tax computation for the Assessment Year 2021-22. (ANS: 28,280)(OLD PM, RTP M17) (SOLVE PROBLEM NO.29, OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM NO.21: Ms. Gunjan purchased a land at a cost of Rs. SBakh in the financial year 2002-03 and held the same as her capital asset till 31st August, 2013. Shg@}arted her real estate business on ‘st ‘September, 2013 and converted the said land into stock-in- er business on the said date, when the fair market value of the land was Rs. 320 lakh. ‘She constructed 8 flats of equal size, quality and dime Construction of each flat is Rs. 36 lakh Construction was completed in January, 2021. She sok ‘90 lakh per fiat in February, 2021 ‘She invested Rs. 70 lakh in bonds issued by Natiggs) Higifivays Authority of India on 31st March, 2021 Compute the capital gains and business i ‘aris from the above transactions in the hands of Ms. Gunjan for Assessment Year 2021-22 indic@hg ¢pfly the reasons for treatment for each item, (ANS:GAIN 06,52,281)RTP N14, SINILAR: MTP M19(NBO) (SOLVE PROBLEM NO.30, OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM NO.22: Mr. Sunil entered into an agreement with Mr. Dhaval to sell his residential house located at Mumbai on 16.08.2020 for Rs. 80,00,000, The sale proceeds was to be paid in the following manner; a) 20% through account payee bank draft on the date of agreement. 'b) 60% on the date of the possession of the property. ¢) Balance after the completion of the registration of the title of the property. Mr. Dhaval was handed over the possession of the property on 15.12.2020 and the registration process, was completed on 14.01.2021, He paid the sale proceeds as per the sale agreement The value determined by the Stamp Duty Authority on 16.08.2020 was Rs. 90,00.000 whereas, on 14.01.2021, it was R8.91,50,000. Mr. Sunil had acquired the property on 01.04.2001 for Rs.20,00,000. After recovering the sale proceeds from Dhaval, he purchased another residential house property for Rs.35,00,000. Compute the income under the head "Capital Gains’ for the assessment year 2021-2022. (017-5) (ANS.:LTCG- NIL) CAINTER | INCOME TAX | 44 4.33PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony PROBLEM NO.23: Mr. Roy, aged 55 years owned a Residential House in Ghaziabad. It was acquired by Mr. Roy on 10-10-2008 for Rs.24,00,000. He sold it for Rs.65,00,000 on 04-11-2020. The stamp valuation authority of the State fixed value of the property at Rs.72,00,000. The assessee paid 2% of the sale consideration as brokerage on the sale of the said property. Mr. Roy acquired a residential house property at Kolkata on 10-12-2020 for Rs.7,00,000 and deposited Rs.3,00,000 on 10-04-2021 and Rs.5,00,000 on 15-06-2021 in the capital gains bonds of Rural Electrification Corporation Ltd. He deposited Rs.4,00,000 on 06-07-2021 and Rs.9,00,000 on 01-11-2021 in the capital gain deposit scheme in a Nationalized Bank for construction of an additional floor on the residential house property in Kolkata Compute the Capital Gain chargeable to tax for the Assessment Year 2021-22 and income-tax chargeable thereon assuming Mr. Roy has no other income Cost Inflation Index for Financial Year 2008-09: 137 and Financial Year 2020-2021: 301. (ANS: LTCG: 3,97,007; TOTAL INCOME: 17,680) (OLD PM) (SOLVE PROBLEM NO.20 OF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM NO.24: R bought 500 listed shares in 1979 for Rs.15 per share. The market value of these shares on 01.04.2001 was Rs.20 per share. a) Compute the tax payable by R if the above shares were sold 15.11.2020 to the relatives without routing through the stock exchange, for Rs. 1,00,000. b) What shall be your answer if these shares have been sold through a recognised stock exchange and it is subject to Securities transaction tax? {FMV as on 31.01.2018 is Rs.100 per share} (SIMILAR: MTP2 M18 (N&O), N19 (N) - 6M) (ANS: A) TAX LIABILITY -RS.9,360, ag ELIGIBLE FOR EXEMPTION U/S 112A) (SOLVE PROBLEM NO@)DF ASSIGNMENT PROBLEMS AS REWORK) Note: PROBLEM NO.25: Mr. Pranav, a Resident Individual a@eu Sirs, had purchased a Plot of Land at a cost of Rs. 9,00,000 in June, 2007. He constructed adptise fr his residence on that Land at a cost of Rs. 18,00,000 in August, 2009. He sold that house (@Ma¥2020 at Rs. 1,50,00,000 and purchased Two Residential Houses in June, 2020 for Rs. 75, ‘andy September, 2020 for Rs. 20,00,000. Cl for Financial Year 2007-2008, 2009-2010Sh 2648:2021 are 129, 148, and 301 respectively. You are required to compute Capital Gain for the AY 2021-2022, (ANS: LTCG: 349,324) Note: SECTION 3: PRINTED SOLUTIONS FOR CLASSROOM DISCUSS! PROBLEM Ni Computation of capital gain of Mr. C for the A.Y. 2021-22 Particulars Gross sale consideration 68,00,000 Less: Expenses on transfer 50,000| Net sale consideration 67,50,000 Less: Indexed cost of acquisition (Rs. 6,50,000 x 301 /100) 25,58,500 Less: Indexed cost of improvement (Note 1) 27,82,179 Long-term capital loss 14,09,321 CAPITAL GAINS | 44E 4.34DU cd Suna ae NOTE: 4) In case of Immovable property, if Asset was acquired before 1.4.2001, then FMV as on 1.4.2001 may be consider as COA, but such FMV can not exceed SDV as on that date. OM | 98851 25025 / 26 2) Indexed cost of improvement is determined as undé ‘Construction of first floor in 1982-83, (expenses incurred prior to April 1, 2001 are not considered) ‘Construction of second floor in 2003-04 (i,e.,Rs.7,35,000 x 301 / 109) [__20,29,679 [Aiternation/reconstruction in 2013-14 (Le., Rs. 6,50,000 x301 / 220) [7.52.50 Indexed cost of improvement. L__27,82,179 PROBLEM NO.2 1) TREATMENT OF COMPENSATION FOR LOSS OF STOCK: As the insurance compensation {(Rs.4,80,000) is less than the value of the stock lost (Rs.6,50,000), there is a business loss of Rs.1,70,000 (RS6,50,000 - Rs 4,80,000). 2) TREATMENT OF COMPENSATION FOR DAMAGE TO MACHINERY: Sec.45(1A) clearly states that the value of money received towards any such damage/destruction shall be treated as sale consideration. Particulars: ‘Opening W.D.V of the Machinery 10,80,000 Less: Insurance Compensation received (6,00, 000) STCL 4,80.000 3) TREATMENT OF COMPENSATION FOR LOSS OF JEWELERY: Any Jewellery, except those held €as Stook-in-trade shall be treated as capital asset. By virt 360, 45(1A) any compensation received towards loss or damage to the capital asset shall be tr 9)? consideration as Particulars _ ‘Compensation received > Less: Indexed cost of acquisition - 1,20,000 1 Long Term G$pit 5s 4.28.78) N03 Computation of Gross Total Income of ABC Ltd for the A.Y. 2021-22 Profits and Gains from Business or Profession ‘Sale proceeds of the stock-in-trade 650,000 Less: Cost of the stock-in-trade (FMV on the date of conversion) 4,50,000| _2,00,000 Long Term Capital Gains Full value of the consideration (FMV on the date of the conversion) 4,50,000 Less: Indexed cost of acquisition (Rs.50,000 x 254/109) 4.16,514| —_3,93,486) Gross Total Income 5,33,486) Note: For the purpose of indexation, the cost inflation index of the year in which the asset is converted into stock-in-trade should be considered. PROBLEM NO. a) Computation of capital gain in the hands of Mr. R for the A.Y. 2021-22 Sale consideration 700,000 Less: indexed cost of acquisition (2,00,000x304 /100) (6,02,000) Lice 98,000 b) No capital gain, since itis a personal car. CAINTER | INCOME TAX | 44 4.35PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony NOT! a) In case of Immovable property, if Asset was acquired before 1.4.2001, then FMV as on 1.4.2001 may be consider as COA, but such FMV can not exceed SDV as on that date. b) As per Sec 45(3) value recorded in the books of accounts to be taken as consideration irm for the A.Y. 2024-22 Computation of capital gai FMV on date of transfer 25,00,000 Less: Indexed cost of acquisition (5,00,000x 301 / 105) (14,33,333) Tce 10,868,667 PROBLEM NO.6 ‘Computation of capital gains of Mr. Y for the A.Y. 2020-24 Compensation granted 3,00,000 less: indexed cost of acquisition (ICOA) (70,000 x 254/100) (1,77,800) 1,22,200 Long term capital gain Note: In case of Immovable property, if Asset was acquired before 1.4.2001, then FMV as on 1.4.2001 may be consider as COA, but such FMV can not exceed SDV as on that date. Computation of cay of Mr. ¥ for the 6.Y. 2021-22, Adgitional compensation 1,00,000 (2,000) Less: Expenses Long term Cay a 98,000 CASE I: Computation of Capital G; Consideration (45,00,000x6) + 60,00,000 Less: Indexed cost of acquisition (65,00,000 x 301/100) 1.95,85,000} 1,34,35,000| CASE 2: Computation of Capital Gain In the hands of Mr, X for the A.Y. 2023-24, [Consideration (60,00,000x6) + 60,00,000 3,60,00,000 Less: Indexed cost of acquisition (65,00,000 x 301/100) 7. 95,65,000 7,64,35,000 a) The holding period of residential plot shall be taken from 01.01.1998 to 30.04.2020 i.e. long term, b) As per section 55, COA of plot is '50,00,000 OR 65,00,000 FMV as on 1.4.2001(65L) or SDV as on 1.4.2001 (68L) | 65,00,000 CAPITAL GAINS | 44 4.36‘WWW.MASTERMINDSINDI Fe Naas OM | 98851 25025 / 26 6) The sale consideration of plot shall be worked out as under as per section 45(5A), SDV on the date of issue of completion certificate of his share it consideration received in cash. a) Computation of depreciation for A.Y. 2021-22 |W.D.V. of the block as on 1.4.2020 8,50,000 [Add: Purchase of new plant during the year 8.50,000 47,.00,000 Less: Sale consideration of old machinery during the year, (44,00,000)) [W.D.V of the block as on 31.03.2021 6,00,000 NOTE: Since the value of the block as on 31.3.2021 comprises of a new asset which has been put to use for less than 180 days, depreciation is restricted to 50% of the prescribed percentage of 15% ie. depreciation is restricted to 714%. Therefore, the depreciation allowable for the year is Rs. 45,000, being 77% Of RS. 600,000. 'b) The provisions under section 50 for computation of capital gains in the case of depreciable assets can be invoked only under the following circumstances: i) When one or some of the assets in the block are sold for consideration more than the value of the block ii) When all the assets are transferred for a consideration more than the value of the block. iii) When all the assets are transferred for a consideration less gn the value of the block, Since in the first two cases, the sale consideration is more the written down value of the block, the computation would resutin shot term capil gains CS” Gye in the thin cane, snes the wrt down value exe a le consideration, the resultant figure ‘would be a short term capital loss. In the given case, capital gains will not ase me of asset continues to exist, and some of the assets are sold for a price which is lessee n ae Written down value of the block ¢) If the three machines are sold in sung $Y¥s. 21,00,000, then short term capital gains would arise, since the sale consideration is mis nd@le aggregate ofthe writen down value of the Block at the beginning of the year and the additions made during the year. 3S ‘Sale consideration 21,00,000 Less: W.D.V. of the machines as on 1.4.2020 8,50,000 Purchase of new plant during the year 8,50,000| (17,00,000) ‘Short term capital gains 4,00,000 PROBLEM NO.9 ‘Computation of capital gains on slump sale of Unit 4 for the A.Y 2021-22 Sale value 25,00,000 Less: Expenses on sale (28,000) Net sale consideration 24,72,000 Less: Net worth (See Note 1 below) 12,50,625) Long term capital gain 12,21 ,375| CAINTER | INCOME TAX | 44 437PIONEER FOR MEC / CEC TO CA/ CMA FINAL Cony NOTES: a) Computation of net worth of Unit 1 of Akash Enterprises Building (excluding Rs. 3 lakhs on account of revaluation) 9,00,000 Machinery 3,00,000 Debtors 1,00,000 Patents (See Note 2 below) 28,125 Other assets (Rs. 1,50,000 - Rs.50,000) 1,00,000) Total assets 14,28,125 Less: Creditors 37,500) Bank Loan 1,40,000| (1.77.50) Net worth 12,50,625 b) Written down value of patents as on 1.4.2020 Cost as on 1.7.2018 50,000 Less: Depreciation @ 25% for Financial Year 2018-19 12,500 WDV as on 1.4.2019 37,600 Less: Depreciation for Financial Year 2019-20 (9.375) WDV as on 1.4.2020 28,125 For the purposes of computation of net worth, the written down ytd determined as per section 43(6) has to be considered in the case of depreciable assets. The pisblem has been solved assuming that the Balance Sheet values of Rs.3 lakh and Rs.9 lakh (Rat >RS.3 lakh) represent the written down value of machinery and building, respectively, of Uni. faten ‘would be long term capital gain. le. ¢) Since the Unit is held for more than 36 months, However, indexation benefit is not available in cag0F4 4) Revaluation figures should not be considered, @ 10 ‘Computation of total income of Ms. Mohini for A.Y. 2021-22 Capital Gai Full value of consideration 41,00,000 Less: Indexed cost of acquisition [Rs. 26,50,000 x 301/ 200] 30,8 4,11,750 Other Income Total Income 3,91,750. NOTE: (As per section 50C read with Section 155(15), in case the actual sale consideration is less than the stamp duty value fixed by the stamp valuation authority (Sub-registrar, in this case), the stamp duty value shall be deemed as the full value of consideration. Where the assessee contests the stamp valuation, and the value is reduced by the Divisional Revenue Officer, such reduced value will be regarded as the full value of consideration accruing as a result of transfer. Hence, in this case, Rs.41,00,000, being the valuation by Divisional Revenue Officer on which stamp duty is paid, would be deemed as full value of consideration, since the same is lower than the valuation by the ‘Sub-registrar) NOTE: Cost of acquisition includes purchase price plus registration expenses i.e., RS. 26,00,000 + Rs. 1,50,000 =26,50,0000 CAPITAL GAINS | 44 4.38DU cd Suna ae ‘WWW.MASTERMINDSINDI OM | 98851 25025 / 26 ‘Computation of total income of Ms. Ragini for A.Y. 2021-22 Income from other sources Taxable value of Gift (41L-36L) 6,00,000 Other Income 3.45,000) Total Income 9,485,000 NOTE: Immovable property received for inadequate consideration ‘As per section 56(2)(x), where an individual receives from a non-relative, any immovable property for a consideration which is less than the stamp duty value (or the value reduced by the Divisional Revenue Officer, as in this case) by an amount exceeding Rs. 50,000, then, the difference between such value and actual consideration of such property would be chargeable to tax as income from other sources, Therefore, Rs. 6,00,000 (i¢., Rs. 41,00,000 - Rs. 35,00,000) would be chargeable to tax as income from other sources. PROBLEM NO.11 A. INTHE HANDS OF MR, RAJ KUMAR (SELLER): Computation of capital gains in the hands of Mr. Raj kumar for A.Y. 2021-22 On sale of land Consideration received or accruing as a result of transfer of land 22,00,000 Less: Indexed cost of acquisition Rs.5 19,000 x 01 / 184 (8,49,016) Long-term capital gain (A) 413,50,984| On sale of bt ing Oy Consideration received or accruing from transfer of building’ 10,00,000 Less: Cost of acquisition .S) 44,00,000) Short term capital loss (B) aS (4,00,000) net taxable long-term capital gains would be BSB, 595984(i.e., Rs. 13,50,984 - Rs.4,00,000). As per section 70, short-term capital loss ae {Zinst long-term capital gains. Therefore, the NOTE: In the given problem, land sero ‘a period exceeding 24 months and building for a asset period less than 24 months immediate ifg the date of transfer. So land is a long-term capital asset, while building is a short-term cay B. IN THE HANDS OF MR. DHURUV (BUYER): As per section 56(2)(x), where an individual receives from a non - relative, any immovable property for a consideration which is less than the stamp duty value (or the value reduced by the appellate authority, as in this case) by an amount exceeding Rs. 50,000, then the difference between such value and actual consideration of such property is chargeable to tax as income from other sources. Therefore, RS. 7,00,000 (ie. Rs. 32,00,000 - Rs. 25,00,000) would be charged to tax as income from other sources under section 56(2)(x), LEM NO.12 ‘Computation of capital gain in the hands of Mr. A for the A.Y-2021-22 Sale proceeds 12,00,000) Less: Indexed cost of acquisition [Note 1] (3,50,000) Indexed cost of improvement [Note 2] (3.71398) | (7,24,398) Long term capital gain 4,78,602| Note 4: Indexed cost of acquisition is determined as under: Cost of acquisition: actual cost (or ) FMV as on 1-4-2001 1,50,000] 1,05,000 (or) 1,50,0004 Indexed cost of acquisition: (Rs.1,50,000 x 301/ 129) 3,50000 CAINTER | INCOME TAX | 44 4.39