Landmark Cases on Capital Gains

Compensation received for breach of an agreement to sell, where the assessee had the right to sue for specific performance and damages, is considered a capital receipt not chargeable to tax as it arises from the 'right to sue,' which cannot be transferred.

For a transaction to be considered a 'transfer' under Section 2(47)(v) of the Income Tax Act, all legal requirements of Section 53A of the Transfer of Property Act must be met, including the registration of an Agreement to Sell. If the agreement is not registered, it is not enforceable under general law and does not fall under Section 2(47)(v).

The actual cost of an asset to the assessee includes all amounts expended or laid out to acquire it, as per the ordinary dictionary meaning of 'cost'.

The origin of an asset determines its nature, whether it is a capital asset or a business asset, regardless of how its proceeds are utilized or if it is shown as part of fixed assets.

Section 54F deduction for acquiring a residential plot and constructing a house should be construed liberally. The purpose of the provision is to encourage investment in housing, and the intention of the legislature should be considered.

Exemption under Section 54F of the Income Tax Act is not available if the new residential units are located at different geographical locations. The benefit is restricted to one residential unit, even if multiple units are acquired.

The phrase 'within six months' in the context of reinvestment for Section 54EC is to be interpreted as six calendar months, not strictly based on the specific dates of receipt of consideration and reinvestment.

The intention of the purchaser of agricultural land is not determinative in classifying profits from its sale as business income. The classification of land as non-agricultural land by the Assessing Officer is an error if the land was agricultural on the date of sale.

A Special Leave Petition filed by the Income Tax Department against a decision concerning the computation of capital gains or related issues was dismissed by the Supreme Court.

Deduction under section 54 is not denied to an assessee for mere non-compliance with the procedural requirement of depositing sale consideration in the Capital Gains Account scheme before the due date of filing the return, if the sale consideration is utilized within the time prescribed for investment.

A right to a capital asset can exist even without formal ownership through a registered conveyance deed, such as the right derived from an agreement to allot a flat from a builder. This right itself constitutes a capital asset.

Long-term capital gains from share transactions cannot be treated as bogus if the assessee provides all documentary evidence and no contrary evidence exists. Where an assessee provides all relevant evidence for share transactions and no contradictory evidence is presented, treating the transactions as sham is not justified.

Expenses incurred to overcome difficulties in the sale of a property are deductible as they are intimately connected to the transfer of the asset and are paid in the interest of the assessee.

For the purpose of claiming exemption under Section 54F, the crucial date for investment in a flat is the date of allotment by the DDA, with subsequent payments and taking possession being mere formalities.

The transfer of an industrial unit as a 'going concern' should be treated as a sale of individual items of assets if related business assets and liabilities are not transferred, and Section 50B of the Income Tax Act, 1961, regarding capital gains on such transfers, is not applicable. The capital gain should be computed based on the sale of individual assets.

Section 45(4) of the Income Tax Act is attracted only when there is a transfer of a capital asset by a firm in favour of a partner, resulting in the extinguishment of the firm's interest and vesting of exclusive interest in the partner.

A company can convert its stock-in-trade to an investment portfolio, and shares held in such an investment portfolio, if sold after the period of holding for long-term capital gains, are eligible for exemption under Section 10(38).

The High Court held that the transfer of an undertaking was not a slump sale within the meaning of Section 2(42C) of the Income-tax Act and was thus not liable to capital gains tax.

A lease agreement where significant consideration is assigned to plant and machinery, with the intention to sell, may be construed as a transfer of those assets for capital gains purposes, even if the agreement purports to be a lease.

The date of allotment of an undivided share in land is the date of acquisition for computing capital gains, not the date of the sale deed.

When a capital asset is converted into stock-in-trade, the taxable profit is determined by deducting the market value of the asset at the date of conversion from the sale proceeds, not its original cost.

When revenue records and a Village Administrative Officer's certificate confirm land is agricultural and subject to cultivation, the Assessing Officer cannot disregard this evidence and deem it non-agricultural solely based on suspicion or private agent advertisements.

The expression 'any income' in section 10(38) refers only to long-term capital gains computed per section 48, which includes the indexed cost of acquisition. Indexation is allowed when computing book profits under section 115JB.

The nature of a receipt as capital or revenue is determined by its character in the hands of the recipient, not the payer.

Gains arising on the sale of shares cannot be treated as sham solely because purchases were made in cash, if the surrounding facts and circumstances support the transaction.

Transfer of land in consideration of flats constitutes one transaction giving rise to capital gains, and the subsequent sale of those flats by the assessee constitutes a separate transaction also giving rise to capital gains.

The decision in Suraj Lamps & Industries Pvt. Ltd. vs. State of Haryana is inapplicable for calculating the holding period under section 2(42A) of the Income Tax Act. The right to hold a flat can be established from the date of an allotment letter, not solely from the date of possession.

Giving an advance to a builder for the construction of a house is considered equivalent to construction for the purpose of claiming deduction under section 54F.

Goodwill has a nebulous and uncertain character, making its ascertainment in monetary terms difficult, but it is possible to value it, for instance, by applying accounting standards at a certain multiple of past average profits. An asset for which no cost can be envisaged is not subject to capital gains tax.

Share transactions cannot be treated as non-genuine if the assessee has provided details like contract notes, broker accounts, demat accounts, and payments through account payee cheques, and there is no evidence of cash returning to the assessee. The Assessing Officer cannot treat short-term capital gains as non-genuine without such evidence.

The Income Tax Appellate Tribunal has considered the interpretation of provisions relating to exemptions, potentially in the context of capital gains, indicating a need for purposive construction of incentive provisions.

Exemptions under Section 54 of the Income Tax Act are allowable against only one house property when multiple residential properties are owned by the assessee.

For claiming the benefit under section 54 of the Income Tax Act, the capital gain realized from the sale of a capital asset must be invested in a residential house. The law does not require the completion of construction or occupation for this purpose.

Compensation paid to hutment dwellers for vacating land is an allowable expenditure in computing capital gains, as it relates to the transfer of the asset. Such payments are considered a cost of acquisition or improvement under Section 48 read with Section 55 of the Income-tax Act, 1961.

The period of holding of an asset for the purpose of determining capital gains includes the period from the date of allotment or the buyer's agreement, not necessarily from the date of payment or registration.

Benefit of Section 54F deduction cannot be denied merely because the land on which construction was done was agricultural in nature, as there is no rider in Section 54F disallowing deduction for investment in land appurtenant to a building or on land where a building is constructed.

Gains from the transfer of agricultural land are outside the purview of capital gains tax if the land falls within the definition of agricultural land under section 2(14)(iii) of the Income-tax Act, 1961.

The benefit of Section 54F, prior to its amendment, can be extended to a residential house purchased outside India. The amendment inserting 'constructed one residential house in India' was applicable from April 1, 2015.

A joint development agreement may not result in a transfer of property until possession is passed, meaning capital gains may not arise at the time of the agreement. Consideration received for a joint development project might be a license fee rather than purchase consideration, depending on the agreement's terms.

The amendment to Section 55A(a) of the Income-tax Act made in 2012, which substituted "is less than the fair market value" with "is at variance with its fair market value", is prospective in nature and effective from July 1, 2012.

The expression 'a residential house' under Section 54(1) of the Income Tax Act includes plural residential houses, entitling an assessee to exemption benefit for more than one house.

The intention with which an asset is acquired determines whether it is stock-in-trade or a capital asset. Merely realizing an investment at a higher price does not make it trading in nature.

The distribution, division, or allotment of assets of a firm to its partners upon dissolution is a mutual adjustment of rights and not a sale, exchange, or transfer of assets, thus not attracting capital gains tax.

Deduction under section 54 is allowed even if construction of the new residential house is delayed beyond three years from the date of transfer of the original asset, provided the delay is for reasons beyond the assessee's control and substantial investment has been made.

Capital gains cannot be said to have accrued in the year of execution of a Joint Development Agreement (JDA) if no consideration is received and possession is handed over only for development purposes.

Receipts are to be treated as income from capital gains and not as business income when the factual matrix is identical to prior decisions that have established this principle.

An assessee can be treated as an absolute owner of a property for the purpose of Section 54 exemption if the lease is for a very long term (150 years) and the rent is a nominal 'peppercorn' rent payable only on demand, making the assessee not duty-bound to pay rent.