Landmark Cases on Capital Gains

When the cost of acquisition of a capital asset cannot be determined, the computation mechanism for capital gains fails, and thus no capital gains can be charged. This establishes a broader principle that a charging section cannot operate in the absence of specific machinery provisions for computation.

Tax authorities are entitled to examine surrounding circumstances and apply the test of human probabilities to determine the genuineness of long-term capital gains arising from the sale of manipulated penny stock, even if prima facie documents appear to support the transaction.

A gain arising from the cancellation of a forward exchange contract entered into for the acquisition of a capital asset constitutes a capital receipt. Income-tax liability for such transactions is determined by the specific provisions of the Income Tax Act, independent of the accounting treatment in the books of account.

Interest received under Section 28 of the Land Acquisition Act, 1894, is considered part of the enhanced compensation on compulsory acquisition of land. It is taxable as 'capital gains' and not separately as 'interest income' under the head Income from Other Sources.

Income is taxable only when it represents real income, not notional income. It accrues only when there is a vested right to receive it, typically upon the occurrence of a transfer or event, rather than merely on a time basis.

The gain from delivery-based share transactions, where shares are consistently treated as investments and valued at cost in the books, is assessable as capital gains and not business income. An assessee's consistent stand on classifying share transactions should generally be followed by the assessing officer in subsequent years.

Off-market share transactions alone do not deem a transaction sham; revenue authorities must consider all facts, such as fair market value of shares and utilization of banking channels, to prove it bogus. This principle is often applied to claims of long-term capital gains from share sales, including those involving alleged penny stocks.

A transfer of immovable property, for the purpose of capital gains under section 2(47)(v) of the Income-tax Act, occurs only when the agreement allowing possession in part performance of a contract is a registered instrument, as mandated by Section 53A of the Transfer of Property Act.

Interest on enhanced compensation received under Section 28 of the Land Acquisition Act, 1894, is considered part of the compensation, not merely interest income, and is exigible to tax on a receipt basis.

The genuineness of share transactions, particularly those generating long-term capital gains, cannot be rejected solely based on general investigation reports, third-party statements, or a mere increase in share price, when the assessee provides comprehensive documentary evidence, without the Revenue bringing substantial evidence to the contrary.

Interest received as enhanced compensation under Section 28 of the Land Acquisition Act, 1894, for compulsory acquisition of land is taxable as "income from other sources" under Sections 56(2)(viii) and 57(iv) of the Income-tax Act, 1961, and is not exempt under Section 10(37).

For capital gains purposes, a 'transfer' under section 2(47)(v) occurs and capital gains arise in the year when possession of the property is handed over in part performance of a contract, such as a joint development agreement. This was the settled position before the specific provisions of section 45(5A) were introduced.

A receipt not chargeable as capital gains under Section 45 cannot be taxed under the residuary head of income from other sources (Section 56). If a receipt is not taxable under specific provisions, it cannot be brought to tax under any other section.

The department must substantiate its allegations of a bogus long term capital gain scheme; if not substantiated, the addition made by the Assessing Officer for purported bogus LTCG derived from the purchase/sale of shares cannot be sustained. An assessee's claim for long term capital gains exemption on share transactions should be allowed where documentation supports the transactions.

Exemption under Section 10(38) is not allowable for long-term capital gains arising from bogus share transactions involving penny stocks or manipulative dealings. The Income Tax Department can establish such a case based on the preponderance of probabilities where there is no genuine financial worth.

This case establishes the principles for calculating compensation in motor accident and personal injury claims, including the selection of the multiplier based on the deceased's age, assessment of loss of dependency, consideration of future prospects, and deductions for personal expenses.

Interest received under Section 28 of the Land Acquisition Act, 1894, for compulsory acquisition of land is compensation, not income, for tax purposes. This characterization dictates its treatment under Sections 56(2)(viii) and 57(iv) of the Income-tax Act, 1961, a position later affirmed by the Supreme Court.

For claiming capital gains exemption under beneficial provisions like section 54, the 'date of transfer' can be the date of the agreement to sell, particularly when coupled with substantial advance consideration or an enforceable right, adopting a purposive and liberal interpretation to acknowledge the assessee's intent.

For capital assets acquired by gift or will, the indexed cost of acquisition under Section 48 is computed with reference to the year the previous owner first held the asset. The period of holding for determining if an asset is long-term also includes the previous owner's holding period, as per Section 2(42A).

Interest received under Section 28 of the Land Acquisition Act, 1894, on enhanced compensation does not form part of the compensation itself but is taxable as 'income from other sources', analogous to interest under Section 34 of the Act.

The assessee has the burden to prove whether shares are held as investments or as stock-in-trade. This requires the assessee to produce evidence from their records clearly distinguishing between shares held for investment and those held as stock-in-trade.

For exemption under Section 54, the expression 'a residential house' allows for investment in multiple residential units that form one functional unit, as 'a' does not imply a singular number. The amendment to Section 54, effective from April 1, 2015, is prospective.

Interest received under Section 28 of the Land Acquisition Act, 1894, forms an integral part of enhanced compensation and is not taxable as "Income from Other Sources" under Section 56(2)(viii) of the Income-tax Act, 1961. The Finance Act, 2009 amendments do not alter the compensatory nature of such interest.

For capital gains exemption under Sections 54 and 54F of the Income Tax Act (prior to the 2015 amendment), the expression "a residential house" includes multiple residential units and should not be construed in the singular, by applying Section 13 of the General Clauses Act.