Income Tax Act

Official PDF pages 136–140

SOURCE PDF PAGE 136
Sl.
No.
Clause   Definitions
A   B   C
( b )   “consolidating scheme” means the scheme of a mutual
fund which merges under the process of consolidation of
the schemes of mutual fund as per the Securities and Ex -
change Board of India (Mutual Funds) Regulations, 1996
made under the Securities and Exchange Board of India
Act, 1992 (15 of 1992);
( c )   “equity oriented fund” means a fund—
( i )   where the investible funds are invested by way of
equity shares in domestic companies to the extent of
more than 65% of the total proceeds of such fund, for
which the percentage of equity shareholding shall be
computed with reference to the annual average of the
monthly averages of the opening and closing figures;
and
( ii )   which has been set up under a scheme of Mutual Fund
specified in Schedule VII (Table: Sl. No. 20 or 21);
( d )   “mutual fund” means a mutual fund specified in Schedule
VII (Table: Sl. No. 20 or 21).
11.   ( zk )   ( a )   “consolidating plan” means the plan within a scheme of
a mutual fund which merges under the process of con -
solidation of the plans within a scheme of mutual fund as
per the Securities and Exchange Board of India (Mutual
Funds) Regulations, 1996 made under the Securities and
Exchange Board of India Act, 1992 (15 of 1992);
( b )   “consolidated plan” means the plan with which the consoli-
dating plan merges or which is formed as a result of such
merger;
( c )   “mutual fund” means a mutual fund specified in Schedule
VII (Table: Sl. No. 20 or 21).
12.   ( zl )   “joint venture” means a business entity, as may be notified by
the Central Government.
Withdrawal of exemption in certain cases.
71.   (1) The profits or gains arising from the transfer of capital asset not charged
under section 67 by virtue of section 70(1)( c ) and ( d ) shall, irrespective of any -
thing contained in the said clauses, be deemed to be income chargeable under the
head “Capital gains” of the tax year in which such transfer took place, if at any time
before the expiry of eight years from the date of such transfer,—
( a )   the transferee company converts the capital asset into, or treats it as,
stock-in-trade of its business; or

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SOURCE PDF PAGE 137
( b )   the parent company or its nominees or the holding company, ceases or
cease to hold the whole of the share capital of the subsidiary company.
(2) If any of the conditions laid down in section 70( zd ) or ( zf ) are not complied with,
the profits or gains arising from the transfer of such capital asset or intangible asset
not charged under section 67 by virtue of such conditions shall be deemed to be the
profits and gains chargeable to tax under the head “Capital gains” of the successor
company for the tax year in which such conditions are not complied with.
(3) If any of the conditions laid down in section 70( ze ) are not complied with, the
profits or gains arising from the transfer of such capital asset or intangible assets or
share or shares not charged under section 67 by virtue of such conditions shall be
deemed to be the profits and gains chargeable to tax under the head “Capital gains”
of the successor limited liability partnership or the shareholder of the predecessor
company, for the tax year in which such conditions are not complied with.
Mode of computation of capital gains.
72.   (1) Income chargeable under the head “Capital gains” shall be computed, by
deducting from the full value of the consideration received or accruing as a
result of the transfer of the capital asset, the following amounts:—
( a )   expenditure incurred wholly and exclusively in connection with such
transfer; and
( b )   the cost of acquisition of the asset and the cost of any improvement
thereto.
(2) For the purposes of item B of the formula in section 197(3), the provisions of
sub-section (1) shall have effect as if for the words “cost of acquisition” and “cost
of any improvement”, the words “indexed cost of acquisition” and “indexed cost of
any improvement” had respectively been substituted.
(3) In computing the income chargeable under the head “Capital gains”, the following
amounts shall not be allowed as a deduction:—
( a )   the interest claimed as deduction under section 22(1)( b ) or under
Chapter VIII;
( b )   any sum paid as securities transaction tax under Chapter VII of the
Finance (No. 2) Act, 2004 (23 of 2004).
(4) If a unit holder receives any amount from a business trust with respect to a unit
that is not in the nature of income under Schedule V (Table: Sl. No. 3 or 4) and is
not chargeable to tax under section 92(2)( k ) or 223(2), then,—
( a )   such amount shall be reduced from the cost of acquisition of such unit;
and
( b )   if the transaction of transfer of a unit is not considered as transfer
under section 70 and cost of acquisition of such unit is determined under
section 73, the amount received with respect to such unit before as well
as after such transaction, shall be reduced from the cost of acquisition.
(5) In case of value of any money or capital asset received by a specified person from
a specified entity, as referred to in section 67(10), the specified entity, in addition
to deductions under sub-section (1), shall also be entitled to a deduction calculated
in such manner, as may be prescribed for computing the amount chargeable to

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income-tax in its hands under that sub-section which is attributable to the transfer
of such capital asset.
(6) In the case of an assessee, who is a non-resident, capital gains arising from the
transfer of a capital asset being shares in, or debentures of, an Indian company
(other than equity shares referred to in section 198) shall be computed—
( a )   by converting the cost of acquisition, expenditure incurred wholly and
exclusively in connection with such transfer and the full value of the
consideration received or accruing as a result of the transfer of the
capital asset into the same foreign currency as was initially utilised in
the purchase of the shares or debentures; and
( b )   the capital gains so computed in such foreign currency shall be reconverted
into Indian currency, so, however, that the said manner of computation
of capital gains shall be applicable in respect of capital gains accruing
or arising from every re-investment thereafter in, and sale of, shares in,
or debentures of, an Indian company.
(7) In the case of an assessee who is a non-resident, any gains arising on account of
appreciation of rupee against a foreign currency at the time of redemption of rupee
denominated bond of an Indian company held by the assessee, shall be ignored for
computing the full value of consideration under this section.
(8) For the purposes of this section,—
( a )   “Cost Inflation Index”, in relation to a tax year, means such Index as the
Central Government may, having regard to 75% of average rise in the
Consumer Price Index (urban) for the immediately preceding tax year
to such tax year, by notification, specify, in this behalf;
( b )   “indexed cost of acquisition” means an amount which bears to the cost
of acquisition, the same proportion as Cost Inflation Index for the year
in which the asset is transferred bears to the Cost Inflation Index for
the first year in which the asset was held by the assessee or for the year
beginning on 1st April, 2001, whichever is later;
( c )   “indexed cost of any improvement” means an amount which bears to
the cost of improvement, the same proportion as Cost Inflation Index
for the year in which the asset is transferred bears to the Cost Inflation
Index for the year in which the improvement to the asset took place;
and
( d )   the conversion of Indian currency into foreign currency and the recon -
version of foreign currency into Indian currency shall be at such rate of
exchange as may be prescribed in this behalf.
Cost with reference to certain modes of acquisition.
73.   (1) In the case of a capital asset specified in column B of the Table below,
the cost of acquisition of the asset shall be deemed to be the cost as mentioned
in column C of the said Table.

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SOURCE PDF PAGE 139
TABLE
Sl. No.   Description of the capital asset   Cost of acquisition
A   B   C
1.   If the capital asset became the property
of the assessee—
( a )   under a gift or will; or
( b )   by   succession,   inheritance   or
devolution; or
( c )   on any distribution of assets on
the liquidation of a company; or
( d )   under a transfer to a revocable or
an irrevocable trust; or
( e )   being a Hindu undivided family,
by the mode referred to in section
99(3) after the 31st December,
1969; or
( f )   under any such transfer as is re -
ferred to in section 70(1)( a ), ( c ),
( d ), ( e ), ( g ), ( h ), ( i ), ( j ), ( l ), ( m ), ( n ),
( o ), ( t ), ( u ), ( v ), ( w ), ( zd ), ( ze ) or ( zf ).
The cost for which the previous
owner of the property acquired
it, as increased by the cost of
any improvement incurred or
borne by the previous owner
or the assessee.
2.   Capital asset, being a share or shares
in an amalgamated company which is
an Indian company that became the
property of the assessee in considera-
tion of a transfer referred to in sec-
tion 70(1)( f ).
The cost of acquisition to him
of the share or the shares in the
amalgamating company.
3.   Capital asset being a share or debenture
of   a   company,   which   became   the
property   of   the   assessee   in   consideration
of a transfer referred to in section 70(1)
( z ) or ( za ).
That   part   of   the   cost   of
debenture,   debenture-stock,
bond or deposit certificate in
relation to which such asset is
acquired by the assessee.
4.   Capital asset, being specified security
or sweat equity shares, referred to in
section 17(1)( d ).
Fair market value taken into
account for the purposes of the
said clause.
5.   Capital asset, being rights of a partner
referred to in section 42 of the Limited
Liability Partnership Act, 2008 (6 of
2009), which became the property of
the assessee on conversion as referred
to in section 70(1)( ze ).
The cost of acquisition to him
of the share or shares in the
company immediately before
its conversion.

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SOURCE PDF PAGE 140
Sl. No.   Description of the capital asset   Cost of acquisition
A   B   C
6.   Capital asset, being share or shares of
a company acquired by a non-resident
assessee   on   redemption   of   Global
Depository Receipts referred to in
section 209(1) (Table: Sl. No. 2) held
by such assessee.
The price of the said share
or shares prevailing on any
recognised stock exchange on
the date on which a request for
redemption was made.
7.   Capital asset, being a unit of a business
trust, which became the property of the
assessee in consideration of a transfer
as referred to in section 70(1)( zi ).
The cost of acquisition to him
of the share referred to in the
said clause.
8.   Capital asset, being a unit or units in
a consolidated scheme of a mutual
fund, which became the property of the
assessee in consideration of a transfer
referred to in section 70(1)( zj ).
The   cost   of   acquisition   to
him of the unit or units in the
consolidating scheme of the
mutual fund.
9.   Capital asset, being equity share of a
company, which became the property
of   the   assessee   in   consideration
of a transfer referred to in section
70(1)( zb ).
That part of the cost of the
preference shares in relation
to which such asset is acquired.
10.   Capital asset, being a unit or units in
a consolidated plan of a mutual fund
scheme, which became the property
of   the   assessee   in   consideration
of a transfer referred to in section
70(1)( zk ).
The   cost   of   acquisition   to
him of the unit or units in
the consolidating plan of the
scheme of the mutual fund.
11.   Capital asset being a unit or units in
the segregated portfolio.
Computed as per the following
formula:—
X =  
A × B  
,
C
where,—
X = cost of acquisition of the
unit   or   units   in   segregated
portfolio;
A = cost of acquisition of unit
or units in the total portfolio;
B = Net Asset Value of the asset
transferred to the segregated
portfolio; and
C = Net Asset Value of the total
portfolio immediately before
segregation of portfolios.