Kalpesh Classes

Basics of Capital Gains

Question 1 ​​ (capital gains fundamentals) (Revision ​​ / Home work) (CG ID ​​ 31)

The Partnership firm of​​ M/s. ABCD sold the asset acquired by one of its partners A which he had given to firm as capital contribution. At the time of distribution of the asset of the erstwhile firm which was reconstituted thereafter it claimed that the sum paid by A to the retiring partners in past Mr. M and N at time of his admission should be treated as a part of cost of acquisition in addition to the cost that had been originally incurred by the erstwhile firm for acquiring the said asset, please discuss whether the claim for deduction is acceptable?

Question ​​ 2 (capital gains fundamentals) (Revision ​​ / Home work) ​​ (CG ID ​​ 32)

R. Ltd had a liability of Rs. 238.14 crores payable from 1-5-2004 to 1-4-2015 to the sales tax departments of Governments of Maharashtra and Gujarat in​​ respect of Sales Tax deferral scheme. R Ltd. has assigned the said Liability to another Company on Payment of Rs. 55.76 Crores in financial year 07-08. Whether surplus i.e. difference of Rs. 182.38 Crores can be directly credited to capital reserve or it must be credited to profit and Loss a/c? Discuss Liability of Capital gain tax ?

Question 3 ​​ (capital gains fundamentals) (Revision ​​ / Home work) (CG ID 33)

Mr. X has entered into derivative transactions and has incurred loss of Rs. 5,00,000. He claims this loss as a short term capital loss and asks for set off against short term capital gain on sale of share. A.O. rejects the claim as according to him the loss is speculation loss. Discuss.

Question 4 (capital gains fundamentals) (Revision / Home work) (CG​​ ID ​​ 34)

Mr. X an investor has invested a sum of Rs. 5,00,000 in shares of M/s Y. The said company went into liquidation and since the liabilities were much more than the assets, noting was distributed to the shareholders. Mr. X wants to claim the loss. Is​​ his contention correct ?

Question 5 (capital gains fundamentals) (CG ID ​​ 35)

Mr. Albert a practicing C.A aged 55 years. His uncle Shri Rajagopalan is staying at Chennai and aged 75 years. His brother Mr. Virender who is computer engineer and he is 2 years younger to him. His family consist of his wife and two daughters. He disclosed the following for the computation of his income :-

A.O. is of the opinion that looking to the volume and the frequency of​​ transaction, capital gain has to be taxed as Business Income.

Question 6 (capital gains fundamentals) (CG ID ​​ 71) (Revision / Home work)

X owns 1,000 partly paid shares in a company. These shares have been fortified by the company for non-payment of call​​ money. X wants to claim Rs.8.000 (i.e., amount paid at the time of application and allotment) as short-term capital loss. Is the claim of ​​ X tenable?

Question 7 (capital gains fundamentals) (CG ID ​​ 73) (Revision / Home work)

X purchased in 1984-85, 42,000 (non-listed) shares of a company at the rate of Rs. 100 per share with a view to acquiring controlling interest of the company. In 2014-15, he sells the entire lot of 42,000 shares at the market value of Rs. 45 per share. On account of this sale, X wants​​ to claim capital loss of Rs, 3,25,16,400 in the assessment year 2015-16. The Assessing Officer finds that X had purchased the shares in 1984-85 at the rate of Rs. 100 per share when the market value of the shares was Rs. 76 per share. According to the Assessing officer, the extra price of Rs. 24 per share was paid by X to acquire the controlling rights of the company. The Assessing Officer, therefore, determines the amount of ​​ loss at Rs. 2,42,58,864, excluding the extra price of Rs. 24 per share. Is the Assessing Officer legally correct?

Question 8 (capital gains fundamentals) (CG ID ​​ 74) (Revision / Home work)

A car in personal use for about 6 years is sold at a profit of about Rs. 58,000. Will the gain be taxable?

Question 9 (capital gains fundamentals) (CG ID ​​ 88) (Revision / Home work)

Mr. X had a leasehold property since 5th May, 2008. The leasehold rights were converted into freehold on 20th May, 2014. The said property was sold on 10th January, 2015. The assessee claimed the capital gain as long-term capital gain. The Assessing Officer contended the same as short-term as the property was acquired by converting the leasehold right into freehold right only on 20 May, 2014. Is Mr. X justified in his claim?

Property basics and 53A of TOP’s act

Question 1 (CG ID 36)

A flat was booked on 1-4-2014, by paying Rs. 50,000, Rs. 4,00,000 were paid in instalments during financial year 2015-16. Rs. 1,00,000 was paid on taking possession on 30-6-17. Flat was sold on 1-3-18 for Rs. 7,00,000.

• whether the Capital Gain is Long Term or Short Term ?

• Would it make any difference if the flat is sold on 31-5-2017 before taking possession ?​​ 

• How COA will be indexed ?

Question 2 (CG ID 02)

R owns a plot of land acquired on 1-6-1994 for a consideration of Rs. 2 lakhs.​​ He enters into an agreement to sell the property on 15-3-PY for a consideration of Rs. 5 lakhs. In part performance of the contract, he handed over the possession of land on 21-3-PY on which date he received the full consideration. As on 31-3-PY, the sale​​ was not registered. Discuss the liability to capital gain. Computation need not be made.

Non Residents special computation – 48 Prov 1​​ 

Question ​​ 1 (specific computations, Non resident) (CG ID 46)

Refer this Question in Chapter of Non resident – F51

Mr.​​ N (non resident) purchased shares of Reliance industries on 01-01-2005 by remitting US $. The following data is given.

Cost of acquisition : 5,85,000 (Dated : ​​ 1.1. 2005)

Sale price : 9,00,000 (Dated : ​​ 1.1. PY)

Expense on transfer : 6,600 (Dated : ​​ 28.12. PY)

On 24.04.AY 6,15,000 was invested out of above sale proceeds and it was sold on 18.08.AY for value of 10,50,000.

Question 2 (specific​​ computations, Non resident) (CG ID 47)

Refer this Question in Chapter of Non resident – F51

X, a non-resident, remits US$ 60,000 to India on August 10, 1989. The amount is partly utilised on August 17, 1989 for purchasing 50,000 shares in Lotus Ltd., an Indian company at the rate of Rs. 6 per share. These shares are sold for Rs. 28 per share on April 10, PY.

Find out the capital gains chargeable to tax on the assumption that telegraphic transfer buying and selling rate of US dollars adopted by the State Bank of India is as follows:

Insurance Compensation – 45(1A)

Question ​​ 1 (specific computations, Insurance monies) (Revision ​​ / Home​​ work) (CG ID 03)

A manufacturing company was transporting two of its machines from unit ‘A’ to unit ‘B’ (which is at a distance of 100 miles) on 1-9-PY by a truck. On account of a civil disturbance, both the machines were damaged. The insurance company paid Rs. 5 lakhs for the damaged machineries. On these facts, for submitting the return of income for the previous year, your advice is sought as to:

• Whether the damage of machines result in any transfer ?

• How the amount received from the insurance company are to be treated for taxability ?

• Would there be any impact on the written down value of the block of plant and machinery ?

Discuss these points in your answer and give your valuable opinion.

Question ​​ 2 (specific computations, Insurance monies) (CG ID 48)

Rohit Ltd installed a new plant for Rs. 20,00,000 on Dec. 30, 2008. They received a grant from the central Government exclusively for busying the new plant amounting to Rs. 5,00,000. In September 2010 the new plant was destroyed by fire. The company realized Rs. 10,00,000 from the insurance company and Rs. 2,50,000 from scrap sale. Calculate the profit / loss for this plant. Depreciation allowed for year ending 31-03-09 is Rs. 1,12,500 and for the year ending 31-03-2010 is Rs. 2,08,125.

Conversion of CA​​ into stock in trade – 45(2)

Question ​​ 1 (specific computations, 45(2)) (CG ID 42)

The assessee company purchased a land on 01-01-1972 for Rs. 120,000 (stamp duty value on 01-01-72 Rs. 1350,000) (FMV as on 01-04-2001 – 350,000) the land was acquired for use of industrial purpose. The company on 02-02-2008 (FMV : 10,10,000) decided to go into real estate business and said land is intented to be used for real estate business and company has resolved it dated 15-02-2008 (FMV : 11,00,000) that the land will be​​ used for development of property. The difference has been transferred to general reserve in the accounts and land is now being shown as under the head current assets in the books. The Land is sold during the PY for 13,50,000. Discuss the tax implications.

Question ​​ 2 (specific computations, 45(2)) (Revision ​​ / Home work) (CG ID 43)

Assessee bank acquired securities as stock in trade on 02-02-2002 for 200 crore. On 02-03-2005 bank converted the securities as capital asset and recorded the book entry at 225​​ crore (FMV 250 crore). During year it is sold at 300 crores. You are required to discuss tax implications of the same.

Question ​​ 3 (specific computations, 45(2)) (CG ID 49)

Mr. Dilip, an individual purchased unlisted shares in Indian companies as investments on 10.5.2005 for Rs. 30 lacs. On June 1, 2008 he started a business a dealer in shares and transferred 50% of such shareholding to the business. The fair market value of the entire shares as on that date was Rs. 60 lacs. The shares held in business were sold by Dilip for Rs. 34 lacs in PY. Compute the taxable income of Mr. Dilip under the relevant hands of income indicating the relevant assessment year.

De-Mat of securities – 45(2A)

Question 1 (specific computations, DE-mat of shares) (Revision ​​ / Home work) (CG ID 06)

R furnishes the following information:

He sold 1,500 shares in January out of the​​ dematted shares. He seeks your advice as to the taxability towards capital gains. Discuss the provisions of law.​​ 

Question 2 (specific computations) (CG ID 56)

Mrs. Sanghvi acquired 1000 listed shares in January 2001 at a cost of Rs. 2 lacs. The company​​ allotted one bonus share for every 2 shares held in March 2008. She sells 1,250 in April of PY for a consideration of Rs. 10 lacs. The demat account has been entered first with bonus shares and thereafter with original shares. The transaction is subject to​​ securities transaction tax. Determine the capital gains. FMV as on 1.4.01 is Rs. 60 per share.

Partnership firms 45(3) and 45(4)

Question 1 (specific computations, partnership firms) (CG ID 44)

Mr. A is admitted as partner in firm M/s ABC. He transfers​​ capital asset on 01-03 to firm as his capital contribution. Market value of the asset on date of transfer is 50,00,000 however firm has recorded it at book value of 30,00,000. Capital asset was acquired by Mr. A in 1971 for Rs. 10,00,000.

Question 2 (specific computations, partnership firms) (Revision ​​ / Home work) (CG ID 04)

A firm consisting of four partners was dissolved consequent to the death of one of the partners. The remaining partners reconstituted the firm immediately, without discontinuance of the business, and carried on the business as before. The inventory of stocks on the date of dissolution was valued at cost, which was lower than the market value and all other assets were valued at book value, for the purpose of transfer to the reconstituted firm. The Assessing Officer, while arriving at the total income of the firm as constituted prior to dissolution, valued the stocks as well as the other assets at market value. You are required to comment on the correctness of the Assessing Officer’s action.

Question 3 (specific computations, partnership firms) (Revision ​​ / Home work) (CG ID 05)

A firm RGS had an immovable property purchased out of the firm’s funds for Rs. 6,00,000. On 31-3-2001, the property was divided among the partners equally by making entries in the capital accounts of the partners. The property was subsequently sold on 1-7-PY for Rs. 9,00,000. The Assessing Officer assessed the resultant capital gain in the hands of the firm. Discuss the validity of the order of the Assessing Officer.

Question 4 (specific computations, partnership firms) (CG ID 50)

X and Y form a partnership firm. Soon after formation of the firm X brings on July 10, the following assets as his capital contribution:

Rs. 6,50,000 is credited in the capital account of X in the firm.​​ 

Is X chargeable to tax in this case?

Question 5 (specific computations, partnership firms) (CG ID 51)

X, Y and Z are three partners of a firm. On March 10, the firm is dissolved. The following assets are distributed to partners:

Determine the amount of chargeable capital gains.

Question 6 (specific computations, partnership firms) (Revision / Home work) (CG ID 72)

X is a​​ partner in a firm, A co., along with three other persons. On December 31, the firm is dissolved and X takes over the following assets :

​​ 

Discuss whether A Co. is liable for tax on any capital gains.​​ 

Will X be able to claim depreciation in respect of plant and machinery on Rs. 6,50,000 ?

Compulsory Acquisition – 45(5)

Question 1 (specific​​ computations, compulsory acquisition) (Revision ​​ / Home work) (CG ID 07)

R Ltd., a public limited company, engaged in the generation and distribution of power had its business acquired by the Government in June, 2003. Certain items of plant and machinery used by the company in its business were taken over by the Government at a price which resulted in the company realizing a surplus of Rs. 26,60,000 over its written down value. The compensation was received by the company in April, which was accepted by it​​ under protest. The company proceeded to initiate arbitration proceedings under law and was granted an additional compensation Rs. 16 lakhs. This was decided by the arbitrators in December and received by the company in March.

The company claims that the assessment of the company to tax should not be made since the business was completely taken over by the Government in June, 2003 and at the time of final determination of compensation in March, the company did not exist. Do you agree to the company’s claim ?​​ Discuss with reference to the assessment year(s) to which the claim to tax, if any, can be related.

Question 2 (specific computations, compulsory acquisition) (Revision ​​ / Home work) (CG ID 08)

A plot of land purchased 5 years back by Ram Janki trust was acquired by Government of India for construction of an over-bridge in Mumbai. The compensation awarded by Revenue Authorities was at Rs. 5,00,000. The trust preferred an appeal against the order for increase in the compensation awarded to it. The appellate authority increased the compensation by further Rs. 4 lakhs in August, 2009 but the amount was actually received in April, 2010. You are required to compute the capital gains, if any, arising to the trust in respect of additional compensation by it and​​ state the year of its taxability.

Question 3 (specific computations, compulsory acquisition) (CG ID 52)

The Government compulsorily acquired land of Mr. Balaji in June 2009 and paid compensation of Rs. 5,00,000 in April 2010. The land was acquired by Mr.​​ Balaji in May 1998 for Rs. 3,00,000. Mr. Balaji claimed more compensation and court awarded additional compensation of Rs. 8 lakhs in January 2016 and it was paid in April 2016. Compute the taxable capital gain from the above transaction indicating the relevant assessment year. Expenses in connection with compulsory acquisition were Rs. 20,000 and for obtaining enhancement of compensation was Rs. 40,000.

Question 4 (specific computations, compulsory acquisition) (CG ID 53)

The Central Government acquires​​ a house property owned by X on October 17, 2009. This property was purchased on April 10, 1976 for Rs. 76,000 (cost of improvement incurred during 2005-06: Rs. 40,000 and fair market value of the property on April 1, 2001 was Rs. 1,32,000). The Government​​ awards Rs. 5,67,000 as compensation out of which Rs. 1,00,000 is received on May 4, 2011 and Rs. 4,67,000 is received on April 1, 2012. Expenditure incurred by X for getting compensation fixed: Rs. 2,000. Being aggrieved against the award, X files an appeal. The Bombay court, as per order dated August 1, 2011, enhanced the compensation from Rs. 5,67,000 to Rs. 8,50,000 (legal expenditure incurred in court’s proceedings : Rs 10,000). X receives the additional compensation of Rs. 2,83,000 on April 15, PY. Compute the income under the head “Capital gains”. Does it make any difference if the additional compensation is received by X’s son after the death of X?

Buy Back of Shares and Securities – 46A

Question 1 (Buy Back) (CG ID 84)​​ 

On June 6, 1984, X purchases 1,000 shares in A Ltd. for Rs. 12,000. Under a scheme of buy-back of its own shares, A Ltd. purchases these shares on October 10 PY, for a consideration of Rs. 4,60,000. On October 10, PY, A Ltd. has an accumulated profit of Rs. 50,00,000. Find out the​​ income chargeable to tax. Is there any dividend income under section 2(22) ?

Financial Assets

Question 1 (Taxation of 112, 111A) (CG ID 09)

R acquires 10,000 equity shares of R Ltd., listed in stock exchanges in India and abroad and a constituent of BSE​​ 500 on 15-3-2013 @ Rs. 2,250 per share. Fair market value of the shares on 31st​​ January 2018 is 1600 per share. He transfers the shares at Rs. 5,000 per share on 31-12-PY. The brokerage and securities transactions tax deducted were at 0.5% and 0.1%​​ respectively. Examine the liability of R to income tax. Will your answer be different, if instead of selling the shares in the market R privately transferred the shares to his son at the same price ?

Will your answer be different if Fair market value of the shares on 31st​​ January 2018 is 3600 per share or may be even 6600 per share.

Question 2 (Taxation of 112, 111A) (CG ID 55)

Mr.A acquired 2000 shares listed in National Exchange for Rs. 5 lakhs during 2012-13. Company allotted him equal value of bonus shares during 2014-15. Second bonus issue was made during March PY when he received 1 bonus share for every 2 shares held by him. The entire shares held in the company have been sold by him on 8th of August PY @ 1,100/- per shares on which securities transaction tax was paid. Determine the taxable capital gain indicating the nature of capital gain.​​ Fair market value of the shares on 31st​​ January 2018 is 600

Question 3 (settlement of disputes) (CG ID 10)

Discuss the following:

• R entered into an agreement with​​ G for the purchase of a property of Rs. 10 lakhs and paid Rs. 10,000 as earnest money. On G failing to execute a conveyance in respect of the property, a suit for specific performance was filed by R. the suit was comprised and R agreed to receive Rs. 50,000 by way of damages and gave up his right to specific performance. What will be the position of this amount under the Income-tax Act.

• An assessee acquired 1,000 shares of R Ltd. at Rs. 100 per share on 1-4-1975. The company issued bonus shares in the ratio of 1:1 in April 2004 and a further issue in the ratio of 1:2 in April 2008. The assessee sold in June-PY the bonus shares allotted to him in April 2008 at Rs. 175 per share (FMV as 31/01/2018 is Rs. 100 per share) . The market value of the shares as on 1-4-2001 is Rs. 250 per share. What is the capital gain assessable in the hands of the assessee?

Question 4 (Previous owner and Indexation) (CG ID 11)

R was allotted 3,000 equity shares of a widely held company on 1-3-2009 of the value of Rs. 10 each. R gifted 2,000 shares to his son G on 30-11-PY on which day the share is quoted at Rs. 50. G disposed of 1,000 shares at Rs. 80 per share on 15-3-PY. What are the consequences of the transaction in the hands of G ? Discuss.

Question 5 (Debentures to shares)​​ (CG ID 54)

Mr. X purchases convertible debentures for Rs. 4,88,000 during May 2002. The debentures were converted into shares in June 2006. These shares were sold for Rs. 10,00,000 in August. The brokerage expenses are Rs. 30,000. Compute the capital gain​​ taxable of Mr. X.

Question 6 (Debentures to shares) (CG ID 58)

X gets 1,000 partly convertible debentures (face value Rs. 100) of A Ltd. (cost being Rs. 200 per debenture) at the time of original allotment to him on May 16, 2004. As per terms of allotment​​ A Ltd. converts 60 per cent portion of each debenture into 2 equity shares of face value of Rs. 10 on July 1, 2012. On September 10, PY, X transfers 2,000 equity shares in A Ltd. @ Rs. 300 per share and 1,000 (non-convertible portion) debentures @ Rs. 310​​ per debenture. Find out the amount of capital gains chargeable to tax.

Company in liquidation - 46

Question 1 (specific computations, company in liquidation) (CG ID 12)

R Private Ltd. went into liquidation on 1-6-PY. The company was seized and possessed​​ of the following funds prior to the distribution of assets to the shareholders:

There are 5 shareholders, each of​​ whom received Rs. 2,60,000 from the liquidation in full settlement. You are required to examine the various issues and advice the shareholders about their liability to income-tax.

Question 2 (specific computations, company in liquidation) (CG ID 13)

R had​​ purchased 5,000 equity shares in M/s. Kamat & Co. Ltd. at the rate of Rs. 2 per share (on 16-4-1985). M/s. Kamat & Co. Ltd. goes into liquidation on 30-6-PY. The Balance Sheet of the company as on the date of liquidation stood as under:

On liquidation tax, the assets are distributed to the shareholders. In​​ the process, R gets 1,000 debentures (market value Rs. 3,00,000) and 50,000 cash during the year. He transfers the entire debentures on 10-3-PY for Rs. 3,20,000. Indicate the tax consequences of these transactions.

Question 3 (specific computations, company in liquidation) (CG ID 87)

X holds 10 per cent of equity shares of ABC Ltd. (cost of acquisition on April 1, 1969 of 1,500 shares : Rs. 75,000; fair market value on April 1, 2001 : Rs. 80,000). ABC Ltd. goes into liquidation on December 31,. Balance sheet of ABC Ltd. as on December 31, is given below. Determine the net income of (a) the company, and (b) X. ​​ 

Not regarded as transfer - 47

Question 1 (Not regarded as transfer) (CG ID 16)

​​ An individual was the sole proprietor of a business. His net investment in the business, on 01-4-PY, was Rs. 20 lakhs​​ represented by:

Finding himself unable to carry on business by himself and also to attract additional capital,​​ he formed a private limited company in April-PY with an authorized capital of Rs. 1 crore. At the time of formation of the company, A and his wife had subscribed to 100 equity shares each-fully paid in cash on 10-6-PY. A transfers his individual business​​ in entirely, as going concern, to the private limited company for Rs. 40 lakhs for issue of shares in the following manner:

The shares of the face value of Rs. 10 each are to be issued fully paid up. No other​​ purchase consideration for the transfer of the business to the company was due.

Required:​​ 

• Ascertain whether in A’s hands any tax liability will be due; if so, also indicate the assessment year relevant for this.

• If, on 10-5-AY, A sold 10,000 equity shares​​ allotted to him, at Rs. 50 per share, to a friend, what will be the consequences ?

Question 2 (Not regarded as transfer) (Revision ​​ / Home work) (CG ID 17)

R held 2,000 shares in G Ltd. This company amalgamated with another company during the previous year. Under the scheme of amalgamation, R was allotted 1,000 shares in the new company. The market value of shares so allotted is higher by Rs. 50,000 than the value of holding in G Ltd. The Assessing Officer proposes to treat the transaction as an exchange​​ and to tax Rs. 50,000 as capital gain. Is he justified ? Discuss.

Question 3 (Not regarded as transfer) (CG ID 40)

X Co. Ltd. was amalgamated with Y Co. Ltd. on 30.04.PY. X Co. Ltd. was engaged in real estate and whereas Y Co. Ltd. was engaged in​​ manufacture of textile articles. Y Co. Ltd. after amalgamation altered its objects clause of Memorandum of Association, to carry on real estate business. The stock in trade of X Co. Ltd. (being vacant lands) was taken over at Rs. 110 lakhs by Y Co. Ltd. as​​ against their original cost of Rs. 125 lakhs to X Co. Ltd. for the purpose of amalgamation. Y Co. Ltd incurred Rs. 25 lakhs towards development of those lands obtained on amalgamation. It sold the entire land for Rs. 160 lakhs during the year. Determine the tax implication of the transaction in the hands of Y Co. Ltd.​​ 

Question 4 (Not regarded as transfer) (CG ID 41)

Mr. X transferred his residential house to Y for​​ ​​ 10 lakh on 1st​​ April,. ​​ The value of the said house as per Stamp Valuation Authority was​​ ​​ 16 lakh. ​​ Mr. Y is a childhood friend of Mr. X. Mr. X gifted a plot of land (purchased by him on 1st​​ August, 2007) to Mr. Y on 1st​​ July,. The value as per Stamp Valuation Authority is​​ ​​ 8 lakh. Mr. Y sold the land on 1st​​ March, at​​ ​​ 14 lakh. Compute total income of Mr. Y.

Question 5 (Not regarded as transfer) (CG ID 45)

Balance sheet of partnership firm as on 31st​​ march is as under

Now the firm is taken over by the company and firm is dissolved. Discuss the tax treatment of the​​ same.

Question 6 (Not regarded as transfer) (CG ID 57)

X Ltd. owns the following assets:

These capital assets​​ (no depreciation is claimed) are transferred by X Ltd. to its wholly-owned Indian subsidiary company – S Ltd. on April 1, 2009. On July 7, PY these assets are transferred by S ltd. for a consideration of Rs. 4,50,000 (i.e., units: Rs. 2,15,700, house property: Rs. 2,34,800). Compute the capital gain chargeable to tax in the case of S Ltd.

Question 6 (Not regarded as transfer) (CG ID 85) (Revision / Home work)

X is a member of DEL Stock Exchange. He purchased the membership ticket on March 2, 1956 for Rs.​​ 5,000. The fair market value on April 1, 1981 is Rs. 6,000. The Stock Exchange is converted into a company on November 1, 2014. Consequently, on November 1, 2014, X is allotted 1,000 shares in DEL Stock Exchange Ltd. and a ticket to trade in DEL Stock Exchange Ltd. X transfers 1,000 shares in DEL Stock Exchange Ltd. on December 1, 2014 for Rs. 2,00,000 and the ticket to trade in DEL Stock Exchange Ltd. on April 10, 2015 for Rs. 45,000, find out the amount of capital gains chargeable to tax.

Question 7 (Not regarded as transfer) (CG ID ​​ 86) (Revision / Home work)

X Ltd. owns the following assets :

 ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ Goodwill  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ Shares (non-listed)  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ House property

Cost of acquisition  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ Self-generated  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ Rs. 1,38,600  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ Rs. 96,000

Date of acquisition  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ -*  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ March 10, 2011  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ March 10,​​ 2012

(*Since the commencement of ​​ business on November 1, 1981).

These capital assets (no depreciation is claimed) are transferred by X Ltd. to its wholly-owned Indian subsidiary company S Ltd. on April 1, 2013. On July 7, these assets are transferred by S Ltd. for ​​ consideration of ​​ Rs. 10,50,000 (i.e., goodwill : Rs. 6,00,000, shares : Rs. 2,15,700, house property : Rs. 2,34,800). Compute the capital gain chargeable to tax in the case of S Ltd. for the year.

Depreciable assets - 50

Problem 1​​ (depreciable assets) (CG ID 59)

Details regarding the opening WDV, additions the year and deletions during the year of 5 block of assets are given below. You are required to compute depreciation or capital gain/ loss for the purpose of income-tax:-

In respect of Block D above the entire assets in that block is sold during the year and expenses on transfer is Rs. 15,000. In respect of Block E above there are​​ still some assets remaining in that block and expenses incurred for transfer is Rs. 20,000/-

Slump Sale / Sale of Business – 50B

Question 1 (slump sale) (CG ID 20)

Your client, A Ltd. has two industrial undertakings-one engaged in production of audio​​ music CDs and cassettes and the other engaged in production of video CDs. As a restructuring drive, the company has decided to sell its undertaking producing video CDs as a going concern by way of slump sale for Rs. 450 lakhs to new company called T Ltd.,​​ in which it holds 75% equity shares. The balance sheet of A ltd. as on 31-3-PY reads as follows: (Rs. In lakhs)

The company set up the video unit on 1-4-2005. The written down value of the block of assets for tax purposes as on 31-3-PY is Rs. 200 lakhs of which Rs. 85​​ lakhs are attributable to video unit.

• Determine the capital gains which would arise to A Ltd. from slump sale;

• Suggest modification of the restructuring plan of A Ltd. without changing the amount of consideration so as to make it more tax efficient.

Question 2 (slump sale) (CG ID 21) (Revision / Home work)

Axel Ltd. has two industrial undertakings. Unit-I is engaged in the production of television sets and Unit-II is engaged in the production of refrigerators. The company has, as part of its restructuring​​ program, decided to sell Unit-II as a going concern by way of slump sale for Rs. 260 lacs to a new company called Gamma Ltd., in which it holds 85% equity shares. The following is the extract of the balance sheet of Axel Ltd. as on 31-3-PY: (Rs. In lacs)

The company set up Unit-II​​ on 1-4-2006. The written down value of the block of assets for tax purpose as on 31-3-PY is Rs. 150 lacs of which Rs. 60 lacs are attributable of Unit-II. Determine what would be the capital gains of Axel. Ltd. on account of Slump sale.

Question 3 (slump​​ sale) (CG ID 66)

X Ltd. has two units — one engaged in manufacture of computer hardware and the other involved in developing software. As a restructuring drive, the company has decided to sell its software unit as a going concern byway of slump sale for Rs. 385 lakh to a new company called S Ltd., in which it holds 74 per cent equity shares.

The balance sheet of X Ltd. as on March 31, being the date on which software unit has been transferred, is given hereunder ​​ -

The following additional information is available —

• The Software unit is in existence since May 2011. Fixed assets of software unit​​ include land which was purchased at Rs. 40 lakh in the year 2008 and revalued atRs. 60 lakh as on March 31, 2015.

• Fixed assets of software unit mirrored at Rs. 140 lakh (Rs. 200 lakh minus land value Rs. 60 lakh) is written down value of depreciable assets​​ as per books of account. However, the written down value of these assets under section 43(6) isRs. 90 lakh.

Ascertain the tax liability, which would arise from slump sale to S Ltd. What would be your advice as a tax consultant to make the restructuring plan of the company more tax-savvy, without changing the amount of sale consideration?​​ 

Stamp Duty Valuation – 50C

Question 1 (stamp duty) ​​ (Revision ​​ / Home work) (CG ID 01)​​ 

X owns a piece of land situated in Noida (date of acquisition: March 1, 1983,​​ cost of acquisition: Rs. 19,291 value adopted by Stamp duty authority at the time of purchase: Rs. 45,000). On March 30, the piece of land is transferred for Rs. 4 lakh.

• The value adopted by Stamp duty authority is Rs. 5.5 lakh. X does not dispute it.

• The​​ value adopted by the Stamp duty authority is Rs. 5.75 lakh. X files an appeal under the Stamp Act and Stamp duty valuation has been reduced to Rs. 4.90 lakh by the Allahabad High Court.

• The value adopted by the Stamp duty authority is Rs. 5.60 lakh. X does​​ not challenge it under the Stamp Act However, he claims before the Assessing officer that Rs. 5.60 lakh is more than the fair market value of the land. The Assessing Officer referred it to the Valuation Officer who determines Rs. 5.25 lakh as fair market​​ value.

• In situation (3), suppose the value adopted by the Valuation Officer is Rs. 6.10 lakh.

Question 2 (stamp duty) (CG ID 18)

A piece of land owned by Mr. Mishra located on Jaipur-Delhi highway was acquired by NHAI in the F.Y. 2006-07, but the award​​ ordered in F.Y. 2007-08 was paid in the previous year. This land was purchased by him on 2-4-1977 for Rs. 1,000. The fair market value of the land on 1-4-2001 was Rs. 900. Compensation paid was Rs. 5,00,000.

The other piece of land located in Chennai purchased in April 2005 for Rs. 25,00,000 was also sold by him in February-PY for Rs. 35,00,000, but sale deed therefore could not be executed by 31-3-PY. The value for the purpose of stamp duty applied by the stamp valuation authority was Rs. 38,00,000. Compute the income chargeable to tax arising as a result of these transactions.​​ 

Question 3 (stamp duty) (Revision ​​ / Home work) (CG ID 19)

‘X’, purchased on 18-6-1982, house property for Rs. 2,25,000 which was sold to A on 18-10-PY for Rs. 8,75,000. The sub-registrar, at the time of registration of sale deed, charged stamp duty on Rs. 13,50,000 which was paid by the buyer. The Assessing Officer while assessing for capital gain referred the matter to the valuation officer who determined the value of property at​​ Rs. 15,00,000 on the date of transfer. X seeks your advice on the following:

• Is the Assessing Officer correct to charge capital gain on the value of Rs. 15,00,000 as determined by valuation officer?

• The amount of capital gain on which ‘X’ is required to pay capital gains tax.​​ 

Question 4 (stamp duty) (CG ID 65)

X transfers his residential house to Y for Rs. 10 lakh on April 1, The value of the said house as per stamp duty regulations is Rs. 16 lakh. Y is a childhood friend of X.

Further, X gifts a plot of​​ land (purchased by him on August 1, 2011) to Yon July 1 PY, The value as per stamp duty regulations is Rs. 8 lakh. Y sells the land on March 1, at Rs. 14 lakh.

Compute the income of Y chargeable under the heads “Capital gains” and “Income from other sources”.​​ 

Advance Money Forfeited - 51

Question 1 (specific computations, advance money) (Revision ​​ / Home work) ​​ (CG ID 14)

R entered into an agreement with G for the sale of his property and received earnest money of Rs. 1,00,000 on 1-4-PY. The balance of​​ Rs. 4,00,000 was to be paid within 3 months, failing to which R was entitled to a compensation of Rs. 50,000. The earnest money was also liable to be forfeited. G defaulted in the payment of the business within the time specified and, therefore, the earnest money was forfeited. A suit was also filed for breach of contract and Rs. 50,000 was awarded, which was received on 24-3-PY. Discuss the nature of the two receipts from the point of view of liability to tax.

Question 2 (specific computations, advance money) (CG ID 15)

R received a house in may, 2010 by way of Gift from Mr. G who had purchased the same in April, 1979 for Rs. 12,00,000. The cost of improvements incurred by G were Rs. 2,55,000 in March, 2000 and Rs. 3,40,000 in November, 2008. The fair market value of the house as on 1-4-2001 was Rs. 9,14,000. Before this house was gifted to R, G had received an advance of Rs. 3,00,000 in March, 2006 towards sale of this house from S but the sale did not materialize and the advance was forfeited by G. the house was sold by R in March-PY for Rs. 48,00,000. Ascertain the capital gains chargeable to tax.

Question 3 (specific computations, advance money) (Revision ​​ / Home work) ​​ (CG ID 89)

Mr. Ramesh purchased a plot of land in Chennai in June 2005 for 50 lakhs. He decided to sell the property to Mr. Mahesh for 80 lakhs and received an advance of 2 lakhs in May, 2009. Mr. Mahesh was unable to complete the agreement and hence, the entire advance was forfeited by Mr. Ramesh.

Again Mr. Ramesh entered into an agreement to sell the property to Mr. Rakesh for 95 lakhs and received advance money of ​​ 2.50 lakhs in August. 2014. But again the transfer did not materialise due to which the advance money was again forfeited.

On 4th January, 2015, the property was finally sold to Mr. Mukesh for 105 lakhs and the stamp duty value on that date was 125 lakhs.

He acquired a new residential property for 130 lakhs by investing entire sale consideration and his business income.

Exemptions from capital gains 54, 54F​​ 

Question 1​​ (exemptions) (CG ID 60)

Mr. Adhisesha sells his house property, acquired in 1975 for Rs. 2.5 lacs, for a consideration of Rs. 85 lacs in September PY. Cost of improvement incurred for this property in June 2000 was Rs. 3 lacs and in July 2006 Rs. 2.8 lacs.​​ Expenses incurred for effecting sale is Rs. 1 lac. He acquired a new house property during January PY for a consideration of Rs. 9 lacs. Compute the taxable capital gains by assuming that the fair market value as on 1.4.2001 at Rs. 10 lakhs.

Question 2​​ (exemptions) (CG ID 61)

Compute the net taxable capital gains of Smt. Megha on the basis of the following information:

A house was purchased on 1.05.1999 for Rs. 4,50,000 and was used as residence by the owner. The owner had contracted to sell this property in June, 2009 for Rs. 10 lacs and had received an advance of Rs. 70,000 towards sale. The intending purchaser did not proceed with the transaction and the advance was forfeited by the owner. The property was sold in April, for Rs. 15,00,000. The owner, out of the sale proceeds, invested Rs. 4 lacs in a new residential house after 9 months of sale.

Question 3 (exemptions) (CG ID 23)

R owns a residential house which is self-occupied and also a house plot. He sells the house on 31-1-PY and the house plot​​ on 15-2-PY for Rs. 20,00,000 and Rs. 9,00,000 respectively. The house was purchased on 15-1-2005 for Rs. 4,00,000 and the plot on 30-5-2005 for Rs. 2,00,000. R has purchased a new residential house on 25-4-PY for Rs. 15,00,000. Compute the income chargeable under the head ‘Capital gains’.

Question 4 (exemptions) ​​ (CG ID 26)

R was the owner of two residential houses. On 2-4-PY he disposed one of the house and utilized the entire sale proceeds to construct first floor on his second house which he completed​​ by 15-3-PY. He seeks your advice as to the taxability of transaction to capital gains under the provisions of Income-tax Act, 1961. Discuss.

Question 5 (exemptions) (CG ID 27)

X has acquired a residential house property in Delhi on April 1, 2000 for Rs.​​ 10,00,000 and decided to sell the same on May 3, 2003 to Ms. P and an advance of Rs. 25,000 was taken from her. The balance money was not paid by Ms. P and X has forfeited the entire advance sum. On June 3, PY, he has sold this house to Y for Rs. 35,00,000. In the meantime on April 4, PY, he had purchased a residential house in Delhi for Rs. 8,00,000 where he was staying with his family on rent for the last 5 years and paid the full amount as per the purchase agreement. However, X does not possess any legal​​ title till March 31, ​​ as such transfer was not registered with the registration authority.

X has purchased another old house in Chennai on October 14, PY from Z, an Indian resident by paying Rs. 5,00,000 and purchase was registered with the appropriate authority.

Determine the taxable capital gain arising from above transactions in the hands of X.

 ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ 

Question 6 (exemptions) (Revision ​​​​ / Home work) (CG ID ​​ 38)

Mr. X sold a house on 15-6-PY. He deposited the amount of capital gains in “Capital Gains Account Scheme” on 30-6-PY. He booked a flat from the said amount on 30-9-PY. The flats cost was equal to the capital gains. Hence he claimed exemption under section 54. Thereafter, Mr. X paid the whole amount towards cost of flat before end of year. But the builder was not able to finish the construction of the building and hence the builder was unable to give possession of the flat in 5 years time from sale of old house. Discuss the liability of capital gains tax.

Question 7 (exemptions) (Revision ​​ / Home work) ​​ (CG ID 39)

Mr. A owns a residential house at C.G. Road. His two married sons are also staying with him. To meet the need for larger area, he sells C.G. Road Flat and purchases three adjoining flat at Vastrapur in a new building. Whether he can claim exemption under section 54 for all the flats ?

Whether it will make any difference if, the aforesaid three flats are located on different floors ? or are located in different localities ?

Question 8 (exemptions) (CG ID 69)

X enters into a partnership with three other persons on July 1, to start a manufacturing business.​​ 

The following capital assets are contributed by X as his capital​​ contribution:

On July 31 of assessment year i.e. on last date of filing return of income, ​​ he deposits Rs. 13,00,000 in a bank account for purpose of availing​​ exemption under section 54F (he owns one residential house). Construction of a residential house at Bombay is completed on June next year of deposit, . Rs. 8,60,000, being the amount of investment, is financed by withdrawing from the deposit account.

Question 9 (exemptions) (Revision ​​ / Home work) ​​ (CG ID 70)

X acquired a plot of land on June 30, 2001 for Rs. 1,10,000. The funds invested were borrowed at the rate of 9 per cent per annum (the amount was repaid by X on March 31, 1985). X sells the plot of land on June 30, for Rs. 15,00,000. What will be the amount of capital gains? Can X claim deduction of ground rent paid by him ?

Question 10 (exemptions) (Revision ​​ / Home work) ​​ (CG ID 77)

Residential house property situated at Kolkata  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ Rs.

Date of transfer  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ December 30, PY

Date of purchase  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ June 30, 1992

Sale consideration  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ 30,00,000

Stamp duty value  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ 35,00,000

Cost of acquisition  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ 2,00,000

Expenses on transfer  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ 40,000

Amount deposited in capital gains deposit account scheme on July 20, AY  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ 21,00,000

To get the exemption under section 54, the following residential house property is purchased At Chennai by X by withdrawing from the deposit account -

Date of purchase (after deposit)  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ June 20,​​ 

Cost of acquisition  ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ 15,00,000

Find out the​​ following-

• Capital gain chargeable to tax for different assessment years;

• X does not want to purchase or construct another property, what is the earliest date when he can withdraw the Unutilized amount from the deposit account; and

• Is it possible to take back the exemption given under section 54 in a subsequent year.

Question 11 (exemptions) (Revision ​​ / Home work) ​​ (CG ID 82)

X sells shares in private limited company on July 10, 2014 for Rs. 8,05,000 (cost of acquisition on June 15, 1984 : Rs.​​ 60,000,expenses on sale : Rs.5,000). On July 10, PY, he owns one residential house property. To get the benefit of exemption under section 54F, X deposits on July 30,AY Rs. 6,00,000 in Capital Gains Deposit Account Scheme. By withdrawing from the Deposit Account, he purchases a residential house property at Delhi on July 6 , ​​ for Rs. 4,80,000.​​ 

Ascertain-​​ 

• The amount of capital gain chargeable to tax;

• Tax treatment of the unutilized amount;​​ 

• When can he withdraw the unutilized amount; and

• What X has to do to ensure that exemption under section 54F is never taken back.

Exemption from Agricultural Land - 54B

Question 1 (exemptions) (CG ID 68)

During the previous year ending on March 31, X sells the following :

On July 31, (being the due date​​ of furnishing return of income), X deposits Rs. 1,00,000 under section 54B for claiming exemption in future by purchasing agriculture land. By withdrawing from the deposit account, he purchases agriculture land for Rs. 70,000 till June 9 of year next after deposit.

Question 2 (exemptions) (CG ID 75) (Revision ​​ / Home work)

X owned 5 acres of agriculture land within the city limits of Madras which he had purchased on October 1, 1982 for Rs. 5,00,000. On October 1, he sold the agriculture land for Rs.​​ 70,00,000. On January 1, he purchased a coffee estate for Rs. 20,00,000. The coffee estate was in a remote village and the nearest town was about 20 kilometers away from the estate. On February 28 of next year, he sold the coffee estate for Rs.35,00,000. You are required to compute the income chargeable under the head “Capital gains”. what would be your answer if the coffee estate was situate within the city limits of Ooty?

Question 2 (exemptions) (CG ID 78) (Revision ​​ / Home work)

X sells agriculture land​​ in Calcutta for Rs. 70,73,960 on July 1, which was purchased by him in 1982-83 for Rs. 6,80,000.On July 13, 2014, he purchases agriculture land of Rs. 40,000 in Delhi. On July 30, AY, he deposits Rs.3,90,000 in the Deposit Account. Determine the amount of​​ exemption under section 54B.

Exemption Industrial Units / Undertakings - 54D / 54G / 54GA

Question 1 (exemptions) (CG ID 24)

X Ltd. located within the corporation limits decided in December-PY to shift its industrial undertaking to non-urban area. The​​ company sold some of the assets and acquired new assets in the process of shifting. The relevant details are as follows:

Compute the capital gains of R Ltd.

Question 2 (exemptions) (CG ID​​ 79)​​ 

X Ltd., a manufacturing company, purchases a factory building (constructed on a leasehold land) on May 6, 1998 for Rs.20 lakh (prior to this the company used the same building as a tenant for about 5 years). The building is compulsory acquired by the​​ Government on April 20, for which a sum of Rs. 60 lakh is paid as compensation on March 14,. Compute the amount of capital gain chargeable to tax taking into consideration the following information-

• On April 1, the company owns two buildings (rate of​​ depreciation : 10 per cent) one of which is acquired by the Government. The depreciated value of the block on April 1, is Rs. 21.35 lakh.

• The company purchases the factory building (constructed on a leasehold land) on April 6, AY for Rs. 15 lakh. Does it make difference if the factory building is purchased on March 31,?

Residential House to Corporate Plant and Machinery – 54GB

Question 1 (exemptions) (CG ID 64)

X purchased a residential house in June 2001 for Rs. 22 lakh. He transfers the house on December 1, PY for Rs 100 lakh. He pays brokerage a 2 percent on sale price. He invests Rs. ​​ 80 lakh in April of AY in equity shares of X Mfg. (Pvt.) Ltd, a newly formed manufacturing company which qualifies to be a medium enterprise under the Micro, Small and Medium Enterprises Development Act, 2006. X is a shareholder in the company and holds 80 per cent of share capital.

The company utilises the sum of Rs. 80 lakh in the following manner:

• Purchase of new machinery during April AY: Rs. 70 lakh (including Rs. 10 lakh for purchase of cars).

• Deposit in specified bank on September 25, AY : Rs. 10 lakh.

The due date for filing return of income for X for assessment year September 30,. Assume that he files the return on September 28, on time. Compute the taxable capital gain.​​ 

Question 2 (exemptions) (CG ID 83)

X, an individual, has income from salary and house property. Besides, he owns a business whose annual turnover is not more than Rs. 25 lakh. On May 14, he transfers a residential house property (or a​​ residential plot of land) for Rs. 1,15,00,000 (expenses on transfer incurred by X : Rs. 3,00,000, indexed cost of acquisition : Rs. 14,60,000, year of acquisition : 1992-93, indexed ​​ cost of improvement : Rs. 8,15,000). Stamp duty value is Rs. 1,24,00,000​​ on which the purchaser pays stamp duty.

X ​​ Ltd. is incorporated on December 1, for manufacture or production of chemicals in Andhra Pradesh. There are 10 shareholders in X Ltd. X is one of the shareholders. He holds 51 per cent shares (date of subscription of shares in X Ltd: December 10, total investment by X in shares of X Ltd. : Rs.85,00,000). Out of Rs.85,00,000, the company makes the following investments-

Find out the amount of exemption under section 54GB.

Exemption for Investment in Bonds – 54EC

Question 1 (exemptions) (CG ID 28)

Mrs. X, resident woman, transfers a house property (received without consideration from her husband in 1991) on January 16,.​​ On the said transaction she earns a long-term capital gain of Rs. 1,01,50,000. She invests a sum of Rs. 50,00,000 in capital gains bonds specified in section 54EC on January 5 out of the advance monies received on account of transfer,. She further invests​​ a sum of Rs. 50,00,000 in the same bonds after 3 months of the first investment in bonds. She has raised Funds of 40,00,000 on the security of above bonds of Value 50,00,000 in the month of March of next year. Her other income for year is Rs. 46,000. Discuss the tax consequence of the above transactions.

Question 2 (exemptions) (CG ID 63)

Ms. X purchased a land at a cost of Rs. 10 lakh in the financial year 2002-03 and held the same as her capital asset till March 31, 2012. Ms. X started her real estate business on April 1, 2012 and converted the said land into stock-in-trade of her business on the said date, when the fair market value of the land was Rs. 150 lakh. She constructed 20 flats of equal size, quality and dimension. Cost of construction of each flat is Rs. 8 lakh. Construction was completed in December PY. She sold 15 flats at Rs. 20 lakh per flat between January and March PY. Remaining 5 flats were held in stock.

She invested Rs. 50 lakh in bonds issued by Rural Electrification Corporation Ltd. on March 31 PY.

Compute the amount of chargeable capital gain and business income in the hands of Ms. X arising from above transactions.​​ 

Question 3 (exemptions) (CG ID 29)

XY & CO., a partnership firm, transfers a piece of land situated in Thane district​​ on August 17, for Rs. 80 lakh. The land purchased on March 6, 2000 for Rs. 1 lakh got registered on April 3, 2003 on payment of stamp duty of Rs. 20,000. Expenses on land development and construction of boundary wall incurred in August 2003 were of Rs. 1,50,000. The charges for the transfer of land paid to the broker were 2.5% of the sale consideration. Fair market value of the land as on April 1, 2001 was Rs. 1,50,000. The firm invested Rs. 20 lakh on December 1, in the bonds issued by National Highways Authority of India redeemable after a period of 72 months. Compute the amount of capital gain chargeable to tax. Also give in brief the reasons and the provisions of the Act for each of the items dealt with.​​ 

Question 4 (exemptions) (CG ID 76) (Revision ​​ / Home work)

X ​​ Ltd., an Indian company, had been the owner of ​​ a plot of vacant land since 1973 when it had been acquired at a cost of Rs. 10,000. The government compulsorily acquired the plot under the Land Acquisition Act and after the Collector had given his award of compensation on January 2, 2004, took possession thereof immediately. The amount of the award was Rs. 5,00,000 and the fair market value of the plot on April 1, 1981 was Rs.40,000. The amount was duly received by X Ltd. on June 6, 2005, but​​ considering the amount of the compensation awarded as too meager, it filed an appeal to Court. In the appeal decided on June 30, 2014 the High Court increased the amount of the award by Rs.10,00,000 and also ordered payment of interest @ 6 per cent per annum on the increased amount with effect from January 2,2004, the date of the award by the Collector. Such interest up to the date of High Court’s order amounted to ​​ Rs. 4,50,000. The levy of interest was automatic in accordance with the provisions of section 34 of the Land Acquisition Act. The government appealed to the Supreme Court against the High Court decree, but as directed by the High Court paid both the additional compensation and the interest to X Ltd. in September 2014 after taking a bond from the​​ company promising to refund whatever sum might be held to have been received in excess on the basis of the Supreme Court’s decision. X Ltd. approaches you for advise on the following issues:

• Was there any chargeable surplus as a result of the compulsory acquisition? What is the nature of such surplus?

• On what date did the surplus arise and in which year did it become assessable?

• What was the amount of the chargeable surplus?

• What was the effect of the High Court decree in regard to the assessment already​​ completed? Could the additional compensation be charged to tax in any particular assessment year (to be indicated by you if the answer is in the affirmative?

• How is the interest to be treated for taxation purposes? When is it assessable?

• Can it can be claimed that there being an appeal filed before the Supreme Court, the enhanced compensation or the interest, though actually received cannot be taxed because of the possibility of the Supreme Court reversing or modifying the High Court decree?

• Is there any legal provision enabling X Ltd. to reduce its liability to tax on the additional compensation or interest?

Give your advice on all the issues stating your reasons.

Question 4 (exemptions) (CG ID 80) (Revision ​​ / Home work)

X Ltd. sells the following assets-

 ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​ ​​​​ 

​​ The agriculture land is situated in urban area and used for agriculture purpose since 1994.

X Ltd. invests in the following assets during April AY-

• Bonds of​​ the National Highway Authority of India (redeemable 39 months) : Rs. 4,00,000.

• Bonds (redeemable 60 months) of the Rural Electrification Corporation : Rs.5,00,000.​​ 

Find out the capital gains chargeable to tax.

Question 4 (exemptions) (CG ID 81) (Revision ​​​​ / Home work)

X sells the following long-term capital assets on January 11, 2015 -

The due date of filling return of income is July 31,. For claiming exemption under section 54 and 54EC, X purchases the following​​ asset-

Capital Gains - Others

Question 1 (Others) (CG ID 30)

X had taken a loan under registered mortgage deed​​ dated July 16, 2008 against the house which was purchased by him on March 26, 1982 for Rs. 5 lakh. The said property is inherited by his son A during July of PY under Will who for obtaining a clear title thereof has paid the outstanding amount of loan on February 12, PY of Rs. 15 lakh. The said house property is sold by A on March 16, PY for Rs. 50 lakh. State with reasons the amount chargeable to capital gains.​​ 

Question 2 (Others) (CG ID 67)

Mrs. X has submitted the following details of transactions. You​​ are required to discuss the tax treatment of the same.

• Mrs. X invested in a Plot of land at Noida in 1982-83 for cost of Rs. 5,05,000. This plot of land fetches Lease rent of 20,000 per month generally. During the year she has entered in to agreement to lease the plot of land at 20,000 per month and at the time of entering in to agreement she has collected a lump sum payment of Rs. 350,000 on account of lease premium.

• Mrs. X has received Rs. 250,000 cash and House worth 15 Lakhs as alimony from her husband​​ in consideration to live apart.

• She has sold during the year, ancestral silver utensils for 260,000 (FMV as on 01-04-01 Rs. 23,000), her personal car (Maruti swift) 125,000 (Purchased for Rs. 525,000), her old designer garments and sandals Rs. 35,000.

• When her father died 6 years back, he had some of pet horses. These horses had delivered pony, which is sold for 250,000.

• She is operating a dairy farm as her business activity. In dairy farm there was 3rd​​ generation of cows and calves. Some of the calves has​​ been sold for Rs. 160,000.

• Her father had left behind one bunglow in Chennai. She has sold bunglow for 10 lakhs. Land for the bunglow was purchased by her father in 1971 for Rs. 25,000 (FMV as on 01-04-2001 Rs. 200,000) and Construction on that was done 2​​ years back at cost of Rs. 52,000.​​ 

• She has plan to sell her kidney to one rich women for 11 crore lumpsum.

• She is staying in house which is originally acquired by her father, but by will transferred to her brother. She is occupying this house since last many years. Now brother has decided to sell the house and paid her 3 lakhs lumpsum to vacate the house so that vacant possession can be given to the buyer of the house.

• Her fathers HUF was being parted by meats and bonds, she has received her share in the HUF property Rs. 375,000.​​ 

Indexation to be ignored.

HUF, Family Settlement and Others​​ 

Question 1 (exemptions) (CG ID 22)

V, an individual, owned three residential houses which were let out. Besides, he and his four brothers co-owned a residential house​​ in equal shares. He sold one residential house owned by him during the previous year. Within a month from the date of such sale, the four brothers executed a release deed in respect to their shares in the co-owned residential house in favour of V for a monetary consideration. V utilized the entire long-term capital gain arising out of the sale of the residential house for payment of the said consideration to his four brothers. V is not using the house, in respect of which his brothers executed a release deed, for his own residential purposes, but has let it out to another person, who is using it for his residential purposes. Is V eligible for exemption under section 54 of the Income-tax Act, 1961 in respect of the long-term capital gain arising from the sale of his residential house, which he utilized for acquiring the shares of his brothers in the co-owned residential house ? Will the ownership of two more houses by him or the date of sale of the residential house and non-use of the new house for his own residential purposes disentitle him to exemption ?

Question 2 (exemptions) (CG ID 25)

R is a member of a Hindu undivided family which owned a house for the purpose of residence. There was a partial partition of the family and instead of selling property to​​ an outsider, the property was allotted to R for a consideration of Rs. 5 lakhs. Release deeds were accordingly executed in favour of R by the other members of the family. R had also his individual property which he sold during the same previous year, thereby making a capital gain of Rs. 5 lakhs, which he wants to set off against the consideration fixed for the family property. Discuss the impact of these arrangements on the assessments of the family and R.

Question 3 (exemptions) (CG ID 62)

Mr. A who transfers land and building on 02.01.PY, furnishes the following information:​​ 

Net consideration received Rs. 100 lakhs. Value adopted by stamp valuation authority, which was not contested by Mr. A Rs. 120 lakhs. Value ascertained by Valuation officer on reference by the Assessing officer Rs. 130 lakhs.

This land was distributed to Mr. A on the partial partition of his HUF on 1.4.2001 Fair market value of the land as on 1.4.2001 was Rs. 1,10,000. A residential building was constructed on the above land by Mr. A​​ at a cost of Rs. 3,20,000 (construction completed on 01.12.2007).

Short-term capital loss incurred on sale of shares during 2 years preceding the PY Rs. 2,05,000.

Mr. A seeks your advice as to the amount to be invested in NHAI bonds so as to be exempt from​​ clutches of capital gain tax.​​ 

Question ​​ 14 (exemptions) (CG ID ​​ 37)

In the year, Mr. X has sold immovable property and has earned a long term capital gain amounting to Rs. 5 lacs, which he has already invested in the investments specified under section​​ 54EC for claiming exemption from long term capital gains tax on such transaction. On the other hand he has also sold another property in which he has incurred ​​ a long term capital loss of Rs. 5 lacs. Mr. X proposes to claim exemption under section 54EC and​​ carry forward the capital loss for the set off in the subsequent years. Is the contention of the Mr. X correct ?

List of Important Question to be glanced for Revision before exam.

Wishing You all the best​​ for exams.​​