Landmark Cases on 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.

Additions made by the Assessing Officer alleging penny stock transactions and bogus long-term capital gains are rightly deleted if there is no adverse comment from the stock exchange or the company, and no material relating to the assessee is found in the Investigation Wing Report.

The case establishes that for certain types of compensation, specifically enhanced compensation under Section 45(5) of the Income Tax Act, 1961, it is taxable in the year of receipt, not necessarily the year of acquisition. It also touches upon the application of Section 145B(1) regarding the method of accounting for such income.

Interest awarded under Section 28 of the Land Acquisition Act on enhanced compensation is exempt under Section 10(37) if the land acquired was agricultural.

Disallowing short-term capital loss on the sale of shares is unjustified when the shares were held as an investment and not for trading purposes.

Section 54E deduction is allowable against capital gains assessable under section 50 on depreciable assets. For other provisions, the asset remains a long-term capital asset despite being treated as short-term for section 50.

Bonus shares are akin to splitting existing shares, not a receipt of new property. Therefore, there is no accretion of wealth or gift involved in their issuance.

The six-month period for reinvesting capital gains under Section 54EC is calculated from the date of actual receipt of sale consideration, not the date of transfer or compulsory acquisition.

Transactions involving the sale of shares within the same group, especially when facilitated by a director's spouse being the MD of the counterparty, can be deemed a colorable device to evade tax on long-term capital gains if there's an absence of genuine delivery of shares.

Lease premiums, salami, or pagadi received for granting tenancy rights are capital receipts, not revenue receipts. This premium is treated as a transfer of a capital asset, exigible to capital gains tax.

Compensation received for breach of contract and disposal of the subject-matter is a capital receipt and not assessable as capital gains, as it does not involve a transfer of a capital asset.

An assessee's intention at the time of selling land, evidenced by actions like applying for conversion to non-agricultural use and the buyer paying non-agricultural tax and penalties, indicates the land's nature for capital gains purposes.

When sale consideration is diverted by an overriding title, it is not subjected to tax. This principle applies to situations where a financial institution sells a mortgaged property to recover a loan.

Capital gains are taxable only when there is a transfer of property, and not merely on the execution of an agreement for sale. The registration of an agreement for sale is crucial for determining the nature and taxability of the transaction.

Interest received on delayed payment of compensation, whether under Section 28 or Section 34 of the Land Acquisition Act, 1894, is considered to be in the nature of compensation itself. This is because it is paid to compensate the assessee for the loss of not having the use of the principal compensation amount.

A slump sale is not a sale of a business, but a sale of individual assets of the business. The consideration received for a slump sale is to be allocated among the assets sold. Capital gains are then to be computed separately for each asset, taking into account its cost of acquisition.

Additions on account of bogus long-term capital gains are deleted when the assessee produces complete evidence of share transactions, including purchase, sale, demat account details, bank payments, and broker statements.

The exemption under section 54F(1) of the Income-tax Act, 1961, is available for capital gains arising from the transfer of a long-term capital asset that is not a residential house.

The Assessing Officer's decision to reject a claim for exemption of long-term capital gains under section 10(38) was influenced by an SEBI inquiry report that only prima facie indicated unfair trade practices by some share brokers, without establishing the assessee's involvement.

A partner retiring from a firm, where disputes are settled out of court through a deed of retirement, may attract capital gains tax under Section 45 of the Income Tax Act, 1961, if the retirement constitutes a 'transfer' of their interest.

Land is an independent, identifiable asset that remains so even after construction. Capital gains from land and buildings can be bifurcated into short-term and long-term, even when sold at a consolidated price, allowing the assessee to claim benefits for long-term gains.

The sale of plots, even if developed from inherited land, is considered a disposal of a capital asset and taxable as capital gains, not business income or 'stock-in-trade'. This applies even if the land was held for a long time and the intention was to sell in piecemeal.

Deduction under section 54 is allowable even if construction is incomplete or possession is not yet handed over, provided the assessee has entered into an agreement to purchase or invested capital gains towards construction. The utilization of capital gains for construction of a residential house is sufficient to claim the benefit of Section 54.

An investment in shares is not bogus and a transaction is genuine, not penny stock, if shares are retained for over ten years and sold after a long time, particularly when the assessee substantiates the genuineness of the investment.

An income-tax addition for bogus long-term capital gains from penny stocks is unjustified if there's no evidence that the assessee or their broker was involved in rigging the share price.

Section 54 deduction for capital gains is available even if the sale deed is not registered at the time of purchase, as long as possession and control of the property are transferred.

Transfer of a right to receive capital asset is a transfer of a capital asset. The transfer of the right to receive a capital asset is considered a transfer of a capital asset for the purposes of capital gains tax.

A sum received by a partner as their share of the value of goodwill or other amounts upon retirement from a partnership firm is not liable to be taxed as capital gains.

Mortgage expenses and interest payable on a mortgage used as part of the purchase consideration are included in the cost of acquisition for computing capital gains on the transfer of property.

Relinquishing rights in a property for consideration constitutes a transfer under Section 2(47) of the Income Tax Act, making the assessee liable for capital gains tax under Section 45.

Investment in a new asset must be in the name of the assessee to fulfil the requirements of Section 54F. If the investment is not in the assessee's name, they are not entitled to claim the exemption.

No capital gains tax arises when shares are transferred to a wholly-owned subsidiary without consideration, as the computation mechanism for determining taxable gain fails.

The court examines a transaction involving the purchase and sale of UTI units with a short holding period, highlighting the cum-dividend purchase in relation to a booking closing date.

An Assessing Officer cannot substitute the 'actual sale consideration' received by an assessee with another figure, such as the 'fair market value', if Section 52 of the Income Tax Act is not applicable.

The Assessing Officer cannot reduce the value adopted by the assessee based on a Registered Valuer's report if the value is claimed in accordance with the Registered Valuer's estimate. A reference to the DVO for ascertaining fair market value as on 1.4.1981 was not competent prior to the amendment in section 55A with effect from 1.7.2012.

A single payment made for the acquisition of a lessor's right by a lessee to enjoy lease benefits is considered a payment on capital account, as the general right is a capital asset.

The forfeiture of convertible warrants does not amount to a 'transfer' within the meaning of Section 2(47) of the Income Tax Act.

If land is recorded as agricultural land in revenue records, it is considered agricultural land for tax purposes, entitling the assessee to exemption from tax.

Where an assessee has valued investments at cost and classified shares as investments in its books of account, the Assessing Officer cannot treat short-term capital gains arising from the purchase and sale of shares as business income. Such a classification in the books of account, maintaining a clear dichotomy, supports treating the gain as capital gain.

For exemption under Section 54, an assessee needs to construct or purchase a residential house for their own residence. The sale consideration from the asset sold does not necessarily have to be used for this purchase.

The taxability of an amount received by a partner upon retirement from a firm depends on the specific mode of retirement and how the accounts are settled, with admission of new partners generally not constituting a taxable transfer.

Income received from the sale of Carbon Credits is a capital receipt and not chargeable to tax. This is based on previous decisions from the Tribunal, including the jurisdictional ITAT, Mumbai.

An exchange is a mutual transfer of ownership of one thing for the ownership of another. This definition of exchange is consistent with the definition of 'transfer' under Section 2(47) of the Income Tax Act, 1961, which includes exchange or relinquishment of an asset.

Possession of a flat within the stipulated period is necessary for claiming deductions under Section 54F.

The profit or gains from the transfer of a capital asset are assessable to capital gains tax, even if the asset was classified as 'stock in trade'. The determination of whether income is capital gain or business income depends on the attendant facts and circumstances, not solely on classification in books of accounts.

Investment in two different flats at separate locations can be allowed as deduction under Section 54 if they are converted into a single duplex flat.

The exchange of shares of one company for shares of another company constitutes a realization of the shares of the first company, and the difference in value is chargeable income. Consequently, a loss on a similar exchange is also allowable.

Where a successor discharges a mortgage created by a previous owner, the amount paid to clear the mortgage debt is considered the cost of acquiring the mortgagee's interest in the property, deductible as the cost of acquisition under section 48 of the Income-tax Act.