Income Tax Act

Official PDF pages 151–155

SOURCE PDF PAGE 151
tion Limited, a company formed and registered under the Companies Act, 2013 (18
of 2013) or any other bond as may be notified by the Central Government for the
purposes of this section.
Capital gains on transfer of certain capital assets not to be charged in case of
investment in residential house.
86.   (1) If an individual or a Hindu undivided family has—
( a )   capital gains arising from the transfer of any long-term capital asset, not
being a residential house (original asset); and
( b )   within one year before, or two years after, the date of such transfer,
purchased, or has within three years after that date constructed, one
residential house in India (new asset),
then, the capital gains shall be dealt with as follows:—
( i )   if the net consideration is more than the cost of the new asset, so much
of the capital gains as bears to the whole of the capital gains, the same
proportion as the cost of the new asset bears to the net consideration,
shall not be charged under section 67; or
( ii )   if the net consideration is equal to or less than the cost of the new asset,
no capital gains shall be charged under section 67.
(2) If the net consideration referred to in sub-section (1) is not utilised by the
assessee to purchase the new asset within one year before the date of transfer of the
original asset, or is not utilised for the purchase or construction of the new asset
before filing the return of income under section 263, then,—
( a )   the unutilised amount shall be deposited in a specified bank or institution
and utilised as per the scheme notified by the Central Government;
( b )   such deposit shall be made before the filing of the return and not later
than the due date applicable in the case of the assessee for filing the
return of income under section 263; and
( c )   the proof of deposit shall be submitted along with such return.
(3) For the purposes of sub-section (1), the amount already utilised for purchasing
or constructing the new asset together with the deposited amount under sub-sec -
tion (2) shall, subject to sub-section (8), be deemed to be the cost of the new asset.
(4) If the amount deposited under sub-section (2) is not wholly or partly utilised for
purchasing or constructing the new asset within the period specified in sub-section
(1), then,—
( a )   the amount determined as per the following formula shall be charged
under section 67 as income of the tax year in which three years from the
date of the transfer of the original asset expires:—
X – Y,
where,—
X = the capital gains not charged under section 67 as per sub-section (1).

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Y = the capital gains that would not have been charged under section
67, if the cost of the new asset had been taken to be the amount actually
utilised for purchase or construction of the new asset;
( b )   the assessee shall be entitled to withdraw such unutilised amount in
accordance with the scheme referred to in sub-section (2).
(5) The provisions of sub-section (1) shall not apply, if—
( a )   the assessee—
( i )   owns more than one residential house, other than the new asset,
on the date of transfer of the original asset; or
( ii )   purchases any residential house, other than the new asset, within
one year of transfer of the original asset; or
( iii )   constructs any residential house, other than the new asset, within
three years of transfer of the original asset; and
( b )   the income from such residential house, other than the one residential
house owned on the date of transfer of the original asset, is chargeable
under the head “Income from house property”.
(6) If the assessee purchases, within two years after the date of transfer of the
original asset, or constructs, within three years after such date, any residential
house, the income from which is chargeable under the head “Income from house
property”, other than the new asset, the capital gains not charged under section
67 on the basis of cost of such new asset as per sub-section (1), shall be charged as
long-term capital gains of the tax year in which such residential house is purchased
or constructed.
(7) If the new asset is transferred within three years from the date of purchase or
its construction, the capital gains not charged under section 67 on the basis of cost
of such new asset as per sub-section (1) shall be charged as long-term capital gains
of the tax year in which such new asset is transferred.
(8) If the cost of the new asset exceeds ten crore rupees, the amount exceeding ten
crore rupees, shall not be taken into account for the purposes of sub-section (1).
(9) If the net consideration on the transfer of original asset exceeds ten crore
rupees, the amount exceeding ten crore rupees, shall not be taken into account for
the purposes of sub-section (2).
(10) For the purposes of this section, “net consideration”means the full value of the
consideration received or accruing as a result of the transfer of the original asset
as reduced by any expenditure incurred wholly and exclusively in connection with
such transfer.
Exemption of capital gains on transfer of assets in cases of shifting of industrial
undertaking from urban area.
87.   (1) If the assessee has—
( a )   capital gains arising from the transfer of capital asset, being machinery
or plant or building or land or any rights in building or land used for the
business of an industrial undertaking situated in an urban area, effected
in the case of shifting of an industrial undertaking situated in an urban
area (original asset) to any area [other than an urban area (new area)];

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and
( b )   within one year before or three years after the date of such transfer,—
( i )   purchased new machinery or plant for business of the industrial
undertaking in the new area;
( ii )   acquired building or land or constructed building for his business
in the said area;
( iii )   shifted the original asset and transferred the establishment of such
undertaking to such area; and
( iv )   incurred expenses on such other purpose as specified in a scheme
notified by the Central Government for this section,
then, instead of the capital gains being charged to income-tax as income of the tax
year in which the transfer took place, it shall be dealt with as follows:—
( A )   if the cost and expenses incurred on all or any of the purposes mentioned
in sub-clauses ( i ) to ( iv ) referred to as “new asset”,—
( I )   is less than the capital gains, the difference shall be charged under
section 67 as the income of the tax year; or
( II )   is equal to or more than the capital gain, no capital gain shall be
charged under section 67; and
( B )   for computing any capital gain arising from transfer of the new asset
within three years of its being purchased, acquired, constructed or
transferred, the cost shall be   nil   in case of sub-clause ( A )( II ) or shall be
reduced by the amount of the capital gain in case of sub-clause ( A )( I ).
(2) If the capital gain is not used by the assessee for the new asset within one year
before the date of transfer of the original asset, or before filing the return of income
under section 263, then—
( a )   the unutilised amount shall be deposited in a specified bank or institution
and utilised as per the scheme notified by the Central Government;
( b )   such deposit shall be made before the filing of the return and not later
than the due date applicable in the case of the assessee for filing the
return of income under section 263(1); and
( c )   the proof of deposit shall be submitted along with such return.
(3) For the purposes of sub-section (1), the amount already utilised for purchasing
or constructing the new asset together with the deposited amount under sub-section
(2) shall be deemed to be the cost of the new asset.
(4) If the amount deposited under sub-section (2) is not wholly or partly utilised for
the new asset within the period specified in sub-section (1), then,—
( a )   the unutilised amount shall be charged under section 67 as the income
of the tax year in which the period of three years from the date of the
transfer of the original asset expires; and
( b )   the assessee shall be entitled to withdraw such unutilised amount in
accordance with the scheme referred to in sub-section (2).

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(5) For the purposes of this section, the expression “urban area” means any area
within the limits of a municipal corporation or municipality, declared to be an urban
area by the Central Government for the purposes of this section, having regard to—
( a )   the population;
( b )   concentration of industries; and
( c )   need for proper planning of the area and other relevant factors.
Exemption of capital gains on transfer of assets in cases of shifting of industrial
undertaking from urban area to any Special Economic Zone.
88.   (1) Irrespective of anything contained in section 87, if the assessee has—
( a )   capital gains arising from the transfer of a capital asset, being machin -
ery or plant or building or land or any rights in building or land used
for the business of an industrial undertaking situated in an urban area,
effected in the course of or in consequence of shifting of such industrial
undertaking (original asset) to any Special Economic Zone in any urban
or any other area; and
( b )   has within one year before or three years after the date of such transfer,—
( i )   purchased machinery or plant for the business of the industrial
undertaking in such Special Economic Zone;
( ii )   acquired building or land or constructed building for his business
in such Special Economic Zone;
( iii )   shifted the original asset and transferred the establishment of such
undertaking to such Special Economic Zone; and
( iv )   incurred expenses on such other purposes specified by a scheme
notified by the Central Government in this behalf,
then, instead of capital gain being charged to income-tax as income of the tax year
in which the transfer took place, it shall be dealt with as follows:—
( A )   if the cost and expenses incurred in on all or any of the purposes men -
tioned sub-clauses ( i ) to ( iv ) referred to as “new asset”,—
( I )   is less than the capital gains, the difference shall be charged under
section 67 as the income of the tax year; or
( II )   is equal to or more than the capital gains, no capital gain shall be
charged under section 67;
( B )   for computing any capital gain arising from transfer of the new asset
within three years of its being purchased, acquired, constructed or
transferred, the cost shall be   nil   in case of sub-clause ( A )( II ), or shall be
reduced by the amount of the capital gain in case of sub-clause ( A )( I ).
(2) If the capital gain referred to in sub-section (1) is not utilised by the assessee
for the new asset within one year before the transfer of the original asset, or before
filing the return of income under section 263, then,—
( a )   the unutilised amount shall be deposited in a specified bank or institution
and utilised as per the scheme notified by the Central Government;

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SOURCE PDF PAGE 155
( b )   such deposit shall be made before the filing of the return and not later
than the due date applicable in the case of the assessee for filing the
return of income under section 263(1); and
( c )   the proof of deposit shall be submitted along with such return.
(3) For the purposes of sub-section (1), the amount already utilised for purchasing
or constructing the new asset together with the deposited amount under sub-section
(2) shall be deemed to be the cost of the new asset.
(4) If the amount deposited under sub-section (2) is not wholly or partly utilised for
the new asset within the period specified in sub-section (1), then,—
( a )   the unutilised amount shall be charged under section 67 as the income
of the tax year in which the period of three years from the date of the
transfer of the original asset expires; and
( b )   the assessee shall be entitled to withdraw such unutilised amount in
accordance with the scheme referred to in sub-section (2).
(5) For the purpose of this section, the expression “urban area” shall have the mean -
ing assigned to it in section 87.
Extension of time for acquiring new asset or depositing or investing amount
of capital gains.
89.   Irrespective of anything contained in sections 82, 83, 84, 85 and 86,—
( a )   if the transfer of the original asset mentioned in those sections is by way
of compulsory acquisition under any law; and
( b )   if the compensation awarded for such acquisition is not received by the
assessee on the date of transfer, then, the period available to him under
those sections for acquisition of the new asset or investment or deposit
of capital gain in specified bank or institution shall be reckoned from
the date of receipt of compensation.
Meaning of “adjusted”, “cost of improvement” and “cost of acquisition”.
90.   (1) For the purposes of sections 72 and 73, “cost of improvement”,—
( a )   in relation to a capital asset being goodwill or any intangible asset of a
business, or a right to manufacture, produce or process any article or
thing, or right to carry on any business or profession, or any other right,
shall be taken to be   nil ; and
( b )   in relation to any other capital asset,—
( i )   if the capital asset became the property of the previous owner or
the assessee before the 1st April, 2001, means all expenditure of
a capital nature incurred on or after the said date in making any
additions or alterations to the capital asset by the previous owner
or the assessee; and
( ii )   in any other case, means all expenditure of a capital nature incurred
in making any additions or alterations to the capital asset by the
assessee after it became his property, and, where the capital asset
became the property of the assessee by any of the modes specified
in section 73 (Table: Sl. No. 1), by the previous owner.