Landmark Cases on Capital Gains

The division of land into small plots for sale is considered an adventure in the nature of trade and income derived from it is to be treated as business income, not long-term capital gains.

Expenditure incurred to improve property before sale, such as dividing land into plots and laying roads, does not constitute an adventure in the nature of trade if the primary purpose is to obtain a better price for the property.

Deduction under Section 54 or 54F for capital gains can be allowed even if multiple residential units are acquired, provided they are used as a single residential unit or can be combined into one for the purpose of residence.

Capital gains arising from the distribution of capital assets on the dissolution of a firm or other association of persons, or otherwise, are taxable under section 45(4) based on the fair market value of the asset on the date of transfer. This applies even to reconstitutions of partnership businesses as part of a family settlement.

The period of holding of booking rights of an apartment for the purpose of capital gains is counted from the date of execution of the buyer's agreement.

The intention of the purchaser to use land is not relevant to determine if it was agricultural land on the date of sale. Agricultural land is not a capital asset if it is not located within the limits of a municipality or cantonment board, but a panchayat is not considered a municipality for this purpose.

A residential property comprising multiple independent units can be considered a single residential house for the purpose of claiming deduction under Section 54F of the Income Tax Act, 1961.

Section 54 of the Income-tax Act allows deduction for purchase of a residential house even if the transaction involves an agreement with a builder, payment linked to construction stages, and possession is obtained later, as the term 'purchased' has a wider connotation beyond a registered sale deed or immediate possession.

The disallowance of Long Term Capital Gain (LTCG) claimed under Section 10(38) is upheld when the shares in question, specifically those of M/s. Turbo Tech Engineering Ltd., were found to be part of a transaction involving price rigging and bogus LTCG.

Granting a licence to a developer for land development does not constitute 'allowing possession' under Section 53A of the Transfer of Property Act, 1882, and therefore does not qualify as a 'transfer' under Section 2(47)(v) of the Income-tax Act, 1961.

A flat owner acquires a right to possession and a proportionate right in the undivided share of land, leading to automatic membership in a cooperative society, which grants ownership of that undivided share.

A person is considered to be 'holding' property for the purpose of capital gains tax if they possess it as an owner, lessee, mortgagee, or under an agreement for sale, not solely as the legal owner.

The potential for non-agricultural use or the purchaser's intention does not alter the agricultural character of land for capital gains purposes if it was agricultural at the time of sale and prior use. Market conditions leading to a high price do not change the essential nature of the land.

The nature of gain arising from the transfer of shares or securities depends on the assessee's intention at the time of acquisition.

Capital gains tax cannot be levied if no consideration is received for a transfer. The market value of the asset transferred cannot be substituted for the actual consideration received.

Transferable Development Rights (TDR), generated by a change in zoning laws and transferred, do not result in capital gains as they lack an ascertainable cost of acquisition. Gains from the transfer of such rights are not taxable.

Exemption under Section 54 cannot be denied solely because possession of the new residential property was not taken within the prescribed period, especially if delays are attributable to factors beyond the assessee's control.

For computing the holding period of a capital asset for determining capital gains, the relevant date is the date of allotment of the property, not the date of registration of the conveyance deed.

Exemption under section 10(38) on sale of shares is rightly disallowed where the transaction was an arranged affair to convert unaccounted money through accommodation entries and the assessee failed to prove its genuineness.

Expenditure incurred by an assessee to discharge a mortgage created by a previous owner is an allowable deduction in computing capital gains, as it represents the cost of acquisition or perfecting an imperfect title. The assessee's payment to clear the encumbrance is not deductible for capital gains computation.

Capital gains arising from the transfer of equity shares and equity-oriented mutual funds are exempt if the shares are long-term capital assets, transferred on the stock exchange, and the sale transaction is subject to levy. The case also relates to the application of beneficial provisions and the rejection of claims under Double Taxation Avoidance Agreements (DTAA).

Redemption of preference shares by a company constitutes a 'transfer' under Section 2(47) of the Income Tax Act, making it subject to capital gains tax under Section 45 for the shareholder.

For the purposes of Section 54B, the location of land in a commercial area, its partial utilisation for non-agricultural purposes, or the vendees' intention to purchase for non-agricultural purposes are irrelevant considerations. The primary focus is on whether the land was agricultural.

Section 54F(1) allows an individual or HUF to claim exemption on long-term capital gains from assets other than a residential house if they purchase a residential house within one year before or two years after the transfer date. The provision is beneficial and should be interpreted liberally when the old asset is replaced by a new residential asset.

Dismissal of a Special Leave Petition (SLP) by the Supreme Court does not necessarily mean the Supreme Court concurred with the High Court's decision, but rather that it found no reason to interfere with the High Court's ruling. The Karnataka High Court in CIT v. M. J. Siwani held that ownership or co-ownership of property is a crucial factor for claiming deduction under Section 54F.

Transfer of land not falling under section 2(14)(iii) of the Income Tax Act, where the land is recorded as agricultural in revenue records and the assessee is engaged in agricultural operations, cannot be considered a transfer of a capital asset.

If agricultural operations are being carried out on land at the time of sale and revenue records indicate it is agricultural land, a presumption arises that it is agricultural in character, which the revenue must rebut. Permission to convert land to non-agricultural use does not render it non-agricultural if not obtained before the sale.

The determination of whether land is agricultural or a capital asset is fact-specific, depending on the cumulative circumstances. The onus is on the assessee to prove the change in character to agricultural land at the time of transfer.

The transfer of property does not necessarily occur upon registration; the true test is the intention of the parties and whether there are any conditions precedent like payment of consideration or delivery of the deed.

Surplus arising on the sale of agricultural land is exempt from capital gains tax if it does not fall within the definition of 'capital asset' under section 2(14)(iii) of the Income-tax Act, 1961.

When a business is transferred, the chargeability of any resulting income arises under Section 50B of the Income Tax Act, 1961. The issue of whether a sale constitutes a slump sale is a key consideration in this context.

Income derived from share transactions entered into with the intention of investment constitutes short-term capital gain, and the frequency of such transactions alone is not a determining factor to classify it as business income.

The net worth of a business, when computed for capital gains purposes in a slump sale, can be negative, and this negative value should be considered in the calculation rather than presumed to be NIL.

An Assessing Officer is not precluded from considering an assessee's contention that capital gains disclosed in the return are not exigible to tax, even in the absence of a revised return, because tax cannot be collected except by the authority of law. If capital gains are wrongly offered, no tax should be levied.

Section 56(2)(vii)(c) does not apply to additional shares allotted pro rata to existing shareholders, as there is no scope for any property being received in such a situation.

Income received as salami on sub-leases, even for long periods like 90 years, may be considered as capital receipt and not income, particularly when the original lease is for 99 years and does not provide for renewal. The nature of the receipt depends on the terms of the lease and sub-lease agreements.

Consideration paid to a retiring partner, even if it exceeds the balance in their capital account, is not chargeable to tax as it does not constitute a 'transfer'.

The extinguishment of rights in a capital asset, independent of and otherwise than on account of a transfer, amounts to a short-term capital loss. This includes the forfeiture of share application money or convertible warrants.

For claiming deduction under Section 54F, an assessee does not need to complete construction or occupy the residential house. It is sufficient to demonstrate that the entire net consideration was invested within the stipulated period.

Sale of shares shown under the head 'Long Term Capital Gain' cannot be taxed under the head business income if the shares are separate from the business. The Tribunal's earlier order does not have binding precedence if it contradicts established High Court and Supreme Court decisions.

Exemption under section 54B for investment in agricultural land can be allowed even if the new property is purchased in the name of the spouse or other family members, provided the investment is made from the sale consideration of the original agricultural land.

The Supreme Court dismisses an SLP challenging the Delhi High Court's view that tribunal findings based on record material do not require interference, particularly in cases involving bogus long-term capital gains from penny stocks where the assessee fails to establish genuineness of transactions.

The Delhi High Court decision in CIT v. Rohit Anand is cited as precedent in cases concerning capital gains, specifically when shares are held as investments.

Income earned on sale or redemption of investments made by an insurance company is not necessarily business income and may be eligible for exemptions, even if the department contends the investments are stock-in-trade. The applicability of CBDT Circular No. 528 needs examination in such cases.

Cost of land purchased prior to the sale of a capital asset, on which a new property is constructed, is eligible for exemption under Section 54(1). The same money received from the sale of the old property need not be used for acquisition of the new property.

Deduction under sections 54 and 54F for investment in property can be claimed when two residential flats are treated as a single unit, even if they were purchased separately and converted into one duplex by the assessee, provided they were joined before the assessee became the owner.

The potential non-agricultural value of land, or the large price a purchaser is willing to pay due to market conditions, does not change its essential character as agricultural land at the time of sale, provided it was used for agricultural purposes.

The term 'property' in Section 2(14) of the Income Tax Act has the widest amplitude, including any right a person holds in a capital asset. The date of allotment of a property, rather than the date of possession or conveyance deed, is relevant for computing the holding period for capital gains.

Interest awarded on a capital receipt is also a capital receipt, not business income. Similarly, where a transfer of property becomes null and void due to subsequent events, no capital gains can accrue.

An amount received for relinquishing the right to sue or for settlement of disputes is a capital receipt, not assessable as capital gains. This is because the right to sue is considered a 'capital asset' and its relinquishment does not constitute a 'transfer' under Section 2(47) for the purpose of capital gains.