Income under the head “Capital Gain”

1. Chargeability (Sec. 45(1) :

Any profits or gains arising from transfer of capital assets affected in the previous year shall be charged to income tax under head capital gain and shall be deemed to the income of the previous year in which transfer took place unless such capital gain is exempt u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA

Following conditions should be satisfied for capital gain.

1.   There should be transfer of capital assets.

2.   Transfer should be in previous year.

3.   There should be profit on gain on such transfer.

4.   Any profit or gain arise as a result of transfer.

5.   Such profit or gain is not exempt from tax u/s 54, 54B, 54D, 54EC, 54F, 54G, 54GA

2. Capital Assets (Sec. 2(14) :

It means property of any kind held by the assessee whether or not connected with the business or profession but does not include:

(i) Stock in trade held for the purpose of business;

(ii)      Personal effects, that is to say movable property except jewellery; drawing, painting or any work of art.

(iii) Agriculture land in India provided it is not situated in any specified area.

 

(iv)   Notified Bond

         6.5% Gold Bond 7% Gold Bond, National Defence Gold Bonds, Special Bearer Bond issued by C.G.

  (v)    Gold Deposit Bonds.

         For determining the period for which an assets has been held by an assessee before it transfer, the following points must be taken into accounts

• ·       In case of shares in a company under liquidation the period subsequent to the date on which company has gone into liquidation will be excluded.
• ·         If an assets has become the property of an assessee as a result of family partition, Gift or will etc. the
• ·         period for which the assets is held by the previous owner e.g. family, doner, deceased will be included. [i.e. cases u/s 49(1)]
• ·         In the case of right share and the bonus shares the date of acquisition is the date of their issue and not the date of acquisition of original share.
• ·         In case of shares in an Indian Company, which becomes the property of the assessee is consideration of a demerger, that period shall also be included for which the shares held in the emerged company were held by the assessee.
  In case of a capital assets, being trading or clearing rights of a recognised stock exchange in India acquired by a person pursuant to demutualisation or corporation of the recognised stock exchange in India, there shall be included the period for which the person was a member of the recognised stock exchange in India immediately prior to such demutualisation or corporation.
  4. Transfer [Sec. 2(47)] it includes :
  (a)     Sale
  (b)     Exchange
           There must be mutual transfer of ownership of the assets for obtaining the ownership of other assets.
           For Example: transfer of business assets to a company in consideration of allotment of shares.
  (c)     Relinquishment of assets
           It means voluntarily giving up of an assets in favour of another and finally change in ownership. The Property, however continues to exist
           For example : Relinquishment of shares by co-owner of a property.
  (d)     Extinguishment of rights in an assets.
           It means an end to the owner’s right to an assets. It is something that is forced on the owner.
           For example : Reduction of share capital of a company and payment to shareholders.
  (e)     Compulsory Acquisition under any law
  (f)      Conversion of any capital assets into stock-in trade.
  (g)     Allowing possession of immovable property without transferring it.
           Possession of the property is given and sale deed is not executed in favour of buyer but certain other documents like power of attorney/agreement to sell/will have been executed. In this  case buyer will be deemed to be the owner.
  (h)     Membership of Housing Society, company etc.
              In such a case, the person becomes owner of the property without transfer of its title in his favour, such transfer do not require registration and are common feature in large cities. Usually flats in multistoried building & other dwelling units are registered in the name of  co-operative society formed by allottees. Allotttees share in such company. Members/shareholders are deemed owner of flat although the legal ownership is rest-with co-operative society.

 

ii)      No indexation even in case of long term capital gain on Bonds and debentures of a company or government other than capital index bond issued by the Government. [Proviso 3 to section 448]

(iii)  Cost of Acquisition of Assets acquired before 1.4.81

       (1)  Assessee has option to take either :—

          (a)   Actual cost of acquisition of previous owner.

          (b)   Fair market value on 1.4.81.

          obviously assessee will opt value which is more

Important :

1.   Long term capital loss can be set-off against the long-term capital gain only, whereas the short term capital loss can be set off against both long term and short term capital gain.

2.   If the assessee receives any capital assets from a previous owner by way of gift will, partition of HUF etc. then for determining that whether the capital gain is long term or short term will be made after considering the period of holding of assessee and previous owner both. Although the CII shall be considered of that year in which that assets was first held by the assessee (not the previous owner). Indexation shall be done as under :

  

Illustration 1.

Smt. sujata purchased certain jewellery for Rs. 2,00,000 on 6.9.1989 through a broker and paid Rs. 3,000 as brokerage. On 21.11.04 Smt. Sujata gifted the said jewellery by way of limit to her sister smt. Priyanka Smt. Priyanka sold this jewellery on 17.1.2010 for Rs. 4,40,000. Compute the amount of capital gain arising to Smt. Priyanka for the assessment year 2010-11. The cost inflation index for the year 1989-90 and 2004-2005 are 172 and 480 respectively.

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