Landmark Cases on Capital Gains

The principles for exemption under Section 54 of the Income-tax Act apply equally to Section 54F, allowing exemption for multiple residential units received under a joint development agreement if the assessment year is prior to the Finance (No. 2) Act, 2014 amendment.

Exemption under Section 54 of the Income-tax Act for capital gains invested in a new residential house is not denied even if the construction of the new house commenced before the sale of the original asset.

The fiction created by Section 50(1) and (2) of the Income Tax Act, 1961, applies only to the computation of capital gains under Sections 48 and 49, and not to other provisions. Section 54E is available for exemption irrespective of whether the asset is depreciable or not.

Extinguishment of rights in a capital asset includes transfer and attracts capital gains computation provisions. Demolition and conversion of a building into scrap constitutes a form of transfer.

Whether a sale of shares at an appreciated value is genuine is a question of fact, and the genuineness of a transaction cannot be dislodged based on mere presumptions without cogent proof.

The term 'assessee' in Section 54 of the Income Tax Act should be interpreted liberally to include legal heirs, ensuring the exemption's object is not frustrated by overly strict interpretations.

If the cost of acquiring tenancy rights cannot be determined, the consideration received from the surrender of those rights is not subject to capital gains tax.

Expenditure incurred by an assessee towards payment of installments for acquiring a new residential property can be considered as investment for the purpose of claiming exemption under Section 54, even if the sale deed has not been registered. The assessee's claim for exemption under Section 54 can be allowed if the installments paid exceed the amount of capital gain.

The case holds that a significant price escalation in shares, without plausible explanation tied to market practices, company fundamentals, or financials, may indicate the transaction is not genuine.

The character of a transaction as an adventure in the nature of trade, or not, depends on the totality of circumstances, and no single test is sufficient. Specifically, for land, the court will consider its use for agricultural purposes prior to transfer and the intended future use by the purchaser.

Capital receipts can be subjected to tax as income. The nature of receipts is determined by the purpose of payment.

Two or more residential units with a common entrance, kitchen, and passage are considered a single residential house for the purpose of claiming exemption under Section 54/54F of the Income Tax Act, 1961.

Taxpayers qualify for exemption under Section 10(38) for long-term capital gains if shares were purchased via account payee mode, held in a demat account for over 12 months, and sold through a recognised stock exchange after paying STT.

Deduction under Section 54F is available to an assessee for an investment made jointly with their spouse, even if the assessee only contributes a portion of the investment. The benefit of the deduction is not restricted to the assessee's share of the investment.

Short Term Capital Loss (STCL) arising from transactions in penny stocks is rightly disallowed when the assessing officer concludes the transaction was a pre-arranged sham to convert unaccounted money into accounted money.

Consideration received on surrender of tenancy rights is not subject to capital gains tax if the cost of acquisition of such rights cannot be determined.

Handing over possession of property under a Development Agreement-cum-GPA in exchange for built-up area constitutes a transfer of a capital asset, triggering capital gains tax, as it satisfies the conditions under Section 2(47)(v) read with Section 53A of the Transfer of Property Act.

An assessee is eligible for deduction under section 54EC even if the investment of capital gains is made in two different financial years, provided the investment is within six months from the date of transfer of the capital asset.

The period of holding a flat for capital gains purposes commences from the date of the allotment letter and the first installment payment, not from the later date of possession or registration.

Construction of a new house can commence before the sale of the original asset for availing exemption under section 54 or 54F of the Income-tax Act, 1961.

The issue of bogus long-term capital gains (LTCG) arising from penny stock transactions is frequently addressed under Section 68 and Section 10(38), with the burden of proof resting on the assessee to establish the genuineness of the transactions.

Income received from relinquishment of a right in property, such as compensation received due to breach of an agreement to purchase immovable property, is taxable as capital gains. The right acquired under a sale agreement is considered a right to property, not merely a right to sue.

Handing over possession under a Joint Development Agreement (JDA) does not constitute a 'transfer' under Section 2(47)(v) of the Income Tax Act, 1961, read with Section 53A of the Transfer of Property Act.

The revenue is debarred from taking inconsistent stands on similar facts across different assessment years, adhering to the rule of consistency. Short-term capital gains are assessable under the head 'Capital Gains' only.

For capital gains computation, the date of allotment of a residential unit under a construction scheme is the date of acquisition, not the date of agreement or possession. This applies even if possession is delivered later, as the allotment letter confers the right to hold the property.

Capital gains arise at the time of execution of a Joint Development Agreement (JDA) and handing over of possession of property to the developer, due to the concept of part performance.

A transaction involving the transfer of property, even if not a sale in the conventional sense, can fall under the definition of 'transaction' as contemplated in Section 2(47)(v) of the Income Tax Act. This includes situations where consideration is received in the form of built-up area under a development agreement.

The distribution of capital assets to a partner upon the dissolution of a partnership firm does not constitute a 'transfer' and is therefore not taxable as capital gains.

The holding period of an asset, particularly a flat allotted by the DDA, commences from the date of the allotment letter, not the date of possession or subsequent sale deed registration.

A residential house for the purpose of Section 54 of the Income Tax Act can include more than one or plural residential houses, prior to April 1, 2015.

Where an assessee has filed all documents evidencing purchase and sale of shares, and statements relied upon by the authorities do not name the assessee, the revenue's appeal is dismissed.

The Supreme Court dismissed a Special Leave Petition upholding the High Court's decision that additions made by the Assessing Officer on account of bogus Long Term Capital Gains (LTCG) were not justified, particularly when the scrip was actively traded and the Assessing Officer lacked sufficient adverse material.

Land classified as agricultural in revenue records, evidenced by documents like Adangal, is treated as agricultural land and profits from its sale are not subject to capital gains tax.

Delayed payment of compensation for compulsory acquisition of land, including interest, is taxable as income, especially after amendments to Section 56(2)(viii) and Section 145B(1). This treatment applies to amounts received post-amendment, distinguishing it from pre-amendment rulings.

Enhanced compensation along with other statutory benefits awarded to an assessee constitutes capital gains and is exempt from tax under Section 10(37) of the Income Tax Act, 1961.

Capital gains are computed on the full price realized from the sale of an asset, even if certain dues are deducted from that price by a third party before payment to the assessee. Deductions for such dues are not permissible when calculating capital gains.

Interest paid on borrowed funds for acquiring an asset should be included in the cost of acquisition for the purpose of determining capital gains. The actual cost includes all expenditure incurred to bring the asset into existence, as understood in commercial practice.

An assessee is entitled to a deduction under section 54 if substantial steps have been taken towards acquiring a new residential property, even if the sale deed has not yet been executed, provided the intention to purchase and invest is evident.

Investment in bonds for Section 54EC deduction made within six months from the date of transfer of the original asset is considered proper, even if made in different financial years.

The date of acquisition of shares, particularly in the context of rights issues, is the date the company's offer to subscribe to shares is made, not the date of allotment, physical issuance, or payment.

Deduction under Section 54B for capital gains on sale of agricultural land cannot be allowed if the new property is purchased exclusively in the name of the assessee's wife.

An assessee can claim the benefit of investment in multiple flats under Section 54F of the Act, as there is no inhibition against claiming such benefit for multiple properties purchased for residential purposes. Fractional ownership does not equate to exclusive ownership for the purpose of denying exemption under Section 54F.

When a partner retires from a partnership firm and receives consideration, including a proportionate share of goodwill, it is not considered a transfer for capital gains tax purposes.

Interest paid on loans borrowed for the purpose of investment in shares is allowed as part of the cost of acquisition eligible for deduction while computing capital gains under Section 48. The intention of the assessee at the time of acquisition of shares determines the nature of the gain.

The intention of the assessee at the time of purchasing shares is a key criterion to determine capital gains treatment. This intention can be ascertained from how the purchase was treated in the assessee's books.

Receipts from the sale of carbon credits are capital receipts and not chargeable to tax. This treatment is applicable even when the Income-tax Act later introduced provisions for taxation of such receipts.

Income from the sale of carbon credits is capital in nature. This classification is supported by judicial precedent.

Profit on sale of investments is not taxable in the hands of insurance companies. The Madras High Court has held that such gains are not taxable.

Where an expense is incurred for the purpose of acquiring a capital asset, and that asset is subsequently sold, the expenditure must be considered as part of the cost of acquisition of that asset for the purpose of calculating capital gains. This is because the expense forms an integral part of the cost of acquiring the asset, not an expenditure of revenue nature.