To analyse and interpret the provisions of the Income-tax Act relating to computation and chargeability of Capital Gains. In this Webinar we shall look at computation of capital gains in specific cases such as Insurance compensation, Compulsory acquisition, Distribution of Assets, Slump Sale and the provisions in case of sale of Depreciable Assets. We will also look at provisions which provide for full value of consideration in certain cases. Finally, the Webinar will touch upon relevant Judicial Precedents.

1. Understanding Income-tax –
Capital Gains – Part 2
CA. Divakar Vijayasarathy

2. Credits and Acknowledgments
V Thirumal
CA Jugal Gala

3. Legends used in the Presentation
AOP Association of Person
AO Assessing Officer
BOI Body of Individuals
CA Chartered Accountant
COC Certificate of Completion
DDT Dividend Distribution Tax
FMV Fair Market Value
IFOS Income from Other Sources
JDA Joint Development Agreement
PY Previous Year
RBI Reserve Bank of India
SEBI Securities Exchange Board of India
SDV Stamp Duty Value
WDV Written Down Value

4. Presentation Schema
Capital Gains in Case of
Specified Receipts
Capital Gains in Case of
Specified Events
Capital Gains in Case of
Specified Transactions
Capital Gains in Case of
Depreciable Assets
Full Value of
Consideration in Certain
Cases

5. Sections Covered
Category Sec Description
Capital Gains in Case of Specified Receipts
45(1A) Insurance Compensation on Destruction of Capital Assets
45(5) Compensation on Compulsory Acquisition of Capital Asset
51 Advance Money Received
Capital Gains in Case of Specified Events
45(2) Conversion of Capital Asset into Stock-in-trade
45(3), 45(4) Transfer of Capital Assets from Partner/Member to Firm/AOP/BOI and vice versa
46 Capital gains on distribution of assets by companies in liquidation
46A Capital Gains on Buy-back of shares or other specified securities
Capital Gains in Case of Specified
Transactions
45(2A) Transfer of Beneficial Interest in Securities
45(5A) Taxation of Joint Development Agreements
45(6) Capital Gains on Repurchase of Units mentioned in Sec 80CCB
50B Computation of Capital Gains in the case of Slump Sale
Capital Gains in Case of Depreciable Assets
50 Capital Gains on Transfer of Depreciable Assets
50A Capital Gains on Depreciable Assets pertaining to Electricity companies
Full Value of Consideration in Certain Cases
50C Determination of consideration based on guideline value
50CA Full value of consideration for transfer of shares other than quoted shares
50D Fair market value deemed to be full value of consideration in certain cases
55A Reference to Valuation Officer

6. Capital Gains in Case of Specified Receipts

7. Insurance Compensation on Destruction of Capital
Assets - Sec 45(1A)
Particulars Remarks
Applicable asset Any capital asset
Applicable assessee Any assessee
Event for taxation
Destruction of, any capital asset, as a result of—
(i) flood, typhoon, hurricane, cyclone, earthquake or other convulsion of nature; or
(ii) riot or civil disturbance; or
(iii) accidental fire or explosion; or
(iv) action by an enemy or action taken in combating an enemy (whether with or
without a declaration of war)
Year of transfer
Year of destruction (indexation shall be restricted till this year irrespective of the
year of receipt of compensation)
Year of chargeability Year of receipt of compensation
Sale consideration
Insurance compensation from insurer + Fair market value of assets received along
with insurance compensation
Period of holding Date of acquisition till the date of destruction
Indexation Benefit Shall be done only till the year of destruction

8. Contd.
In case of depreciable assets, the compensation received shall be reduced from the block of assets and capital
gains shall be computed in accordance with Sec 50
However, the value of consideration shall be determined in accordance with the provisions of Sec 45(1A)
Insurance compensation for loss of raw material shall be treated as trading receipts
Where an asset is destroyed and no insurance compensation is received, there would be no incidence of
taxation since there is no compensation received by the assessee; however, the cost of acquisition can be
claimed as a capital loss by the assessee in the year of destruction
Relevant Considerations
Insurer
(a) any individual or unincorporated body of individuals or body corporate incorporated under the law of any country, other than India,
carrying on insurance business, not being a person specified in sub-clause (c) of this clause, which—
(i) carries on that business in India, or
(ii) has his or its principal place of business or is domiciled in India, or
(iii) with the object of obtaining insurance business, employs a representative, or maintains a place of business, in India;
(b) any body corporate, not being a person specified in sub-clause (c) of this clause, carrying on the business of insurance, which is a body
corporate incorporated under any law for the time being in force in India; or stands to any such body corporate in the relation of a subsidiary
company within the meaning of the Indian Companies Act, 1913, as defined by sub-Sec (2) of Sec 2 of that Act, and
(c) any person who in India has a standing contract with underwriters who are members of the Society of Lloyd's whereby such person is
authorised within the terms of such contract to issue protection notes, cover notes, or other documents granting insurance cover to others
on behalf of the underwriters, but does not include a principal agent, chief agent, special agent or an insurance agent or a provident society.

9. Compensation on compulsory Acquisition of Capital
Asset — Sec 45(5)
Particulars Initial compensation Enhanced compensation (enhancement by court,
Tribunal or any authority)
Year of Chargeability Financial year in which whole or part of the
consideration is received
Entire consideration is taxable even if only a part of
it has been received.
Taxable in the year of receipt only to the extent
received.
Compensation received in pursuance of an interim
order of a court, Tribunal or other authority shall be
chargeable in the PY in which the final order is made
Cost of Acquisition and
Improvement
Actual or indexed cost of acquisition as per regular
provisions
Nil. However expenses for receiving the amount shall
be deductible
Nature of Capital gains Depends on period of holding of capital asset Depends on how initial compensation was taxed i.e. if
initial compensation was taxed as long term capital
gains, enhanced compensation will also be long term
capital gains and vice versa.
Transfer by way of compulsory acquisition under any law, or a transfer the
consideration for which was determined or approved by the Central Govt or the RBI

10. Contd.
Particulars Initial compensation Enhanced compensation (enhancement by court,
Tribunal or any authority)
Subsequent Reduction in
Compensation
Recompute capital gains and file rectification under Sec 154 read with Sec 155 (16).
Recomputation shall be done for the year of receipt of initial or enhanced compensation.
Period of 4 years under Sec 154 shall be reckoned from the end of the financial year in which the order
reducing the compensation was passed.
Indexation Indexation shall be done till the year in which the
property is compulsorily acquired
Not Applicable
Where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation
or consideration is received by any other person, it shall be chargeable to tax as capital gains of that person

11. Advance Money Received — Sec 51
Position before 01.04.2015
at the time of calculating the capital gains in case of next fructified transfer
the said amount shall be reduced while calculating the cost of acquisition
on account of negotiations not resulting in actual transfer,
Any advances or money received and forfeited by the assessee in relation to transfer of a capital asset
Position after 01.04.2015
Advance money so received shall be treated as Income from other sources (IFOS) as per Sec 56(2)(ix)
Charged to tax as IFOS in the year of receipt instead of reducing from the cost of acquisition
This provides relief to assessees as the benefit of indexation, while computing capital gains, shall
now be available on the actual cost of acquisition rather than the reduced cost of acquisition

12. Capital Gains in Case of Specified Events

13. Conversion of Capital Asset into Stock-in-trade — Sec 45(2)
Particulars Remarks
Applicable asset Any capital asset
Applicable assessee Any assessee
Event for taxation Conversion of a capital asset into stock in trade
Year of transfer Year of conversion (indexation shall be restricted till this year
irrespective of the year of actual sale)
Year of chargeability Year of actual sale of the converted asset
Sale consideration Fair market value of the asset converted as on conversion date
Period of holding Date of acquisition till the date of conversion
Capital gains Fair market value on conversion date (-) cost/indexed cost of
acquisition (-) cost/indexed cost of improvement
Business income Actual sale consideration (-) fair market value on conversion date (-)
any other business expense
The rules of taxation prevailing in the year of conversion shall apply even though the year of taxation is different
For example, if the capital asset is converted into stock in the FY 2016-17 and the converted asset is sold in the FY 2019-20
the rules of taxation for the year 2016-17 will apply even though the transaction would be taxed only in the FY 2019- 20

14. Transfer of Capital Asset by a Member / Partner to Firm /
AOP / BOI as Capital Contribution or Otherwise – Sec 45(3)
Particulars Remarks
Applicable asset Any capital asset transferred
Applicable assessee
a partner or member of a firm/AOP/BOI (not being a company or a
co-operative society)
Event for taxation transfer of a capital asset by way of capital contribution or otherwise
Year of chargeability PY in which such transfer takes place
Sale consideration
Amount recorded in the books of the firm/AOP/BOI as value of capital
asset shall be regarded as the full value of consideration
Capital Gains Amount recorded in books - Cost/Indexed cost of acquisition
Indexation benefit Available till the year of transfer

15. Transfer of Capital Asset on Distribution in the Event of
Dissolution of a Firm / AOP / BOI – Sec 45(4)
Particulars Remarks
Applicable asset Any capital asset distributed
Applicable assessee
Firm/AOP/BOI (not being a company or co-operative society) distributing to a
partner or member
Event for taxation Distribution of capital assets on the dissolution of firm/AOP/BOI
Year of chargeability PY in which such transfer takes place
Sale consideration
Fair market value of the assets distributed, on the date of transfer, shall be deemed
to be the full value of consideration
Period of holding Date of acquisition till date of distribution
Capital Gains Fair market value of assets distributed - Cost/Indexed cost of acquisition
Cost of Acquisition
Cost of acquisition in the hands of the firm/AOP/BOI shall be the book value of the
assets standing in the books of accounts as on the date of transfer
• When after distribution, the partner or member transfers the asset so received, to determine the cost of acquisition in
their hands, there is no specific rule or judicial precedent for the same.
• However, since the partner or member is extinguishing his right in the firm or AOP or BOI and receiving the assets in
lieu of his right, the capital balance outstanding as on the date of dissolution may be considered as cost of acquisition

16. Capital gains on distribution of assets by companies
in liquidation - Sec 46
• This Sec pertains to a scenario where a company in liquidation distributes assets and/or cash to its shareholders.
• In this case, the shareholders give up their rights in the capital of the company for a consideration in the event of liquidation
Tax implications on liquidation can be
seen under 3 scenarios:
Where assets including cash are
distributed to shareholders – Scenario I
Where assets are sold by the company
and cash is distributed to the
shareholders – Scenario II
Where part of the assets are sold by the company
and realised cash along with part of the assets are
directly distributed to shareholders – Scenario III
Scenario I: Where assets (any asset and not only capital asset) including cash are distributed to share holders
Tax implications in the hands of shareholders
Market value of assets on date of distribution
and/or money received
***
Less: Deemed Dividend under Sec 2(22)(c) ***
Full value of consideration ***
Less: Cost/Indexed cost of acquisition ***
Long Term/Short Term Capital gains ***
• Deemed Dividend under Sec 2(22)(c) = Accumulated Profits – DDT
• DDT = Accumulated Profits * Grossed up DDT rate/100+Grossed
up DDT rate
• A provision for Dividend Distribution Tax (DDT) under Sec 115-O
@ 15% plus surcharge @ 7% and educational cess @ 4% (grossed
up to 20.022%), should be made against the value of accumulated
profits prior to distribution to shareholders
Indexation shall be done till the year of liquidation
and not till the year of receipt of the assets
Tax implications in the hands of company no incidence of tax where assets are directly distributed to shareholders

17. Contd. Scenario II: Where assets are sold by the company and cash is distributed to shareholders
Tax implications in the hands of shareholders
Tax implications in the hands of company
Same as Scenario I
 Capital gains shall be chargeable to tax as net sale consideration of assets sold less cost/indexed cost of acquisition
 Capital gains shall be computed for each individual capital asset separately
 Where stock or other business assets are sold, the resultant gain shall be business income and not capital gains
Scenario III: Where part of the assets are sold by the company and realised
cash along with part of the assets are directly distributed to shareholders
In this case, split the transactions as follows:
 Consideration in the form of distribution of assets (apply principles of Scenario I)
 Consideration in the form of cash after selling the assets (apply principles of Scenario II)
• Period of holding in case of shares of liquidated company - period subsequent to the date of liquidation shall not be considered
• Period of holding In case of subsequent transfer of distributed assets - From the date of distribution to the date of transfer
• Even if a non-capital asset (say rural agricultural land), is received by the shareholder on liquidation, FMV of such asset shall still
be chargeable to tax. It is not the nature of the asset, but the event which is relevant for chargeability under Sec 46
• Where distribution of assets is made in instalments, the entire cost of acquisition shall be set off against the first distribution
and any further distribution shall be fully taxable

18. Capital Gains on Buy-back of shares or other specified
securities - Sec 46A
Where a company buys backs shares, employees’ stock options or other specified securities notified by Central
Government from its shareholder, the difference between the consideration received by the shareholder in this
behalf and the cost of acquisition shall be charged as capital gains in the hands of the shareholder.
• Sec 115QA - where unlisted shares are bought back and distribution is made to the shareholders,
• the company is liable to pay buy back distribution tax
• at the rate of 20% plus applicable surcharge and cess
• on the net distributed income (after reducing the cost of acquisition for such shares).
• In this case, capital gains shall not be computed in the hands of shareholders and such distribution shall be
exempt in the hands of shareholders as per Sec 10(34A).
Union Budget 2019 Amendment
Union Budget 2019 expanded the scope of Sec 115QA to levy tax on buy-back of shares by
companies listed on recognised stock exchange along with unlisted domestic company.
Thus, on account of the amendment, all domestic companies shall be liable for buy-back distribution tax @
20% plus applicable surcharge and cess and thus, capital gains shall not be computed in the hands of
shareholders and such distribution shall be exempt in the hands of shareholders as per Sec 10(34A).

19. Capital Gains in Case of Specified Transactions

20. Transfer of Beneficial Interest in Securities — Sec 45(2A)
Profits and gains arising from transfer made by depository or
participant of such beneficial interest in respect of securities
Where, any person had beneficial interest in any securities during the previous year,
shall be charged to capital gains tax in the hands of the beneficial owner in the year of transfer and not in
the hands of the depository who is registered owner as per Sec 10(1) of the Depositories Act, 1996.
Beneficial owner A person whose name is recorded as such with a depository.
Depository A company formed and registered under the Companies Act, 1956 (1 of 1956) and which has been granted a
certificate of registration under SEBI Act, 1992
Security Such security as may be specified by the Board;
According to SEBI (Depositories and Participants) Regulations, 1996, the following securities shall be eligible for
being held in dematerialised form in a depository: —
(a)shares, scrips, stocks, bonds, debentures, debenture stock, Indian Depository Receipts or other marketable
securities of a like nature in or of any incorporated company or other body corporate;
(b) units of mutual funds, rights under collective investment schemes and venture capital funds, commercial
paper, certificates of deposit, securitised debt, money market instruments, Government securities and
unlisted securities shall also be similarly eligible for being held in dematerialised form in a depository;
(c)any other security as may be specified by the Board from time to time, by way of a notification in the Official
Gazette and subject to such conditions as it may deem fit to impose.
The cost of acquisition and the period of holding of any securities shall be determined on the basis of the first-in-first-out (FIFO) method

21. Taxation on Joint Development Agreements — Sec 45(5A)
Particulars Remarks
Applicable Assessee Individual or an HUF
Eligible income Capital gains arising from transfer of land and/or building under Specified Agreement (JDA)
Year of taxation
PY in which the certificate of completion for the whole or part of the project is issued by the competent
authority
Certificate of
completion (COC)
 Upon completion of construction, it is mandatory for the developer or the owner of a stand-alone
property to get a completion certificate from the local authority
 This certificate is awarded only if the authorities inspect and are satisfied that the project/building
has been constructed according to the approved building plan and mandatory standards have been
maintained
 This certificate is crucial to ensure the supply of basic amenities such as water, electricity and
drainage system. The builder cannot give the possession to the buyer unless the completion
certificate is obtained
• Joint Development Agreement (“JDA”) is a popular mechanism where property owned by a land owner is developed by a
builder and the resultant flats developed are shared between the developer and the land owner in a pre-agreed proportion.
• The moment JDA is executed and possession is transferred, it becomes an event of transfer.
• Such transfer gives rise to capital gains tax

22. Contd.
means the value adopted or assessed or assessable by any authority of the Government for the purpose of
payment of stamp duty in respect of an immovable property being land or building or both
Stamp duty value
means a registered agreement in which a person owning land or building or both, agrees to allow another
person to develop a real estate project on such land or building or both, in consideration of a share, being land
or building or both in such project, whether with or without payment of part of the consideration in cash
Specified agreement
means the authority empowered to approve the building plan by or under any law for the time being in force
Competent Authority
Sale consideration
Stamp duty value (SDV) on the date of issue of said certificate of assessee’s share in land or building or
both in the project (+) consideration received in cash
Event of violation
Where the assessee transfers his share in the project on or before the date of issue of said certificate of
completion, capital gains shall be deemed to be the income of the financial year in which such transfer
takes place.
Further, regular computation provisions (other than Sec 45(5A)) shall apply for the purpose of calculating
capital gains – Proviso to Sec 45(5A)
• In case of constructed components or rights in it are being sold subsequently before issuing of COC, the SDV for the purpose of
land, if considered, shall be as of date of entering JDA and not the date of subsequent sale of constructed components
• Further, there would be requirement of different SDV for land as well as constructed component as the chargeability shall differ

23. Practical Issues
Sec 45(5A), though aimed at reducing hardships, contains following ambiguities:
• For the purpose of invoking the event of violation, even if part of the share in the project is sold, the benefit of Sec 45(5A) shall be
withdrawn for the entire transaction and the general provisions shall apply.
• Period of holding of the flats received in the event of completion shall begin from the date of completion and end on the date of
actual sale
• The land component of the flat, which has been held by the assessee much before the date of completion of the flat, would not be
considered to compute the holding period for flats
• Explanation 1 to Sec 2(42A) (Determination of period of holding) has not been amended consequently implying that the period of
holding for flats shall begin from the date of completion and not from the date of holding of land
• According to Sec 45(5A), SDV of the land and/or building on the date of completion shall be regarded as full value of consideration
• Hence even the undivided share of land, though owned by the land owner and not forming part of JDA, would still be regarded as
part of the sale consideration which seems to be inappropriate.

24. Capital Gains on Repurchase of Units mentioned in
Sec 80CCB - Sec 45(6)
Particulars Remarks
Applicable Asset Units referred under Sec 80CCB are as follows:
• Units of mutual fund registered under the SEBI Act, 1992 or a mutual fund set up by a public
sector bank or a public financial institution or authorised by RBI subject to conditions laid down
by the Central Government; or
• Units on Unit Trust of India established under the Unit Trust of India Act, 1963.
Event of Transfer Repurchase of Units by the Assessee or when plan is terminated
Capital Gains Repurchase price of the units (-) Capital Value of such units
Capital value of such units means any amount invested by the assessee in the units

25. Computation of Capital Gains in the case of Slump Sale
— Sec 50B
Slump Sale refers to transfer of one or more undertakings for a lump sum
consideration, without assigning value to individual assets and liabilities
Particulars Remarks
Chargeability Any profits and gains arising from transfer of capital assets in a slump sale
Nature of capital gains • Long term or short term depending upon the period of holding of the undertaking by
the assessee (36 months criteria)
• If the undertaking was held for more than 36 months, the entire block of assets sold
will be treated as long term irrespective of period of holding of individual assets
Taxable year PY in which such sale took place
Cost of Acquisition • Net worth of the division or unit
• Net worth= Total Assets - Outside liabilities
Indexation benefit Not Available
Reporting Requirement Form No. 3CEA by a CA certifying the computation to be filed online along with return of
income

26. Computation of Net Worth
Computation of Net-worth
Total Assets includes current assets
Change in value on account of revaluation of assets shall not be considered
Value of assets which have been subject to deduction under Sec 35AD shall be considered as nil
value of depreciable assets - WDV of the block shall be considered (depreciation shall be
assumed if not actually charged in books of account)
Value of other assets shall be considered at book value
Outside liabilities shall include liabilities other than share capital and reserves, as appearing in
the books of account

27. Capital Gains in Case of Depreciable Assets

28. Capital Gains on Transfer of Depreciable Assets – Sec 50
Capital gains on transfer of depreciable assets (forming part of block of assets) shall always be short term in nature
However, the capital asset can be long term or short term based on the period of holding
Expenditure in relation to transfer shall be reduced while calculating capital gains
Situation Where entire block is sold Where part of the block is sold
Net sale consideration is greater than
(opening WDV plus additions)
Short term capital gains Short term capital gains
Net Sale Consideration is lower than
(opening WDV plus additions)
Short term capital loss No capital gains or loss shall arise, depreciation
shall be claimed on the balance
Block of asset refers to group of assets falling within the same class of assets and carrying the same rate of depreciation

29. Capital Gains on Transfer of Depreciable Assets
pertaining to Electricity companies – Sec 50A
Applicable to power sector companies, engaged in generation or generation and distribution of electricity, which have
opted to choose depreciation under the straight-line method i.e. as a percentage on actual cost under Sec 32 (1)(i)
Since depreciation is computed on actual cost, the concept of block of assets does not exist
The nature of capital gains shall be short term or long term depending upon the period of holding
No indexation benefit shall be allowed in the case of long term capital assets
Situation Tax Implications
Net sale consideration is less than WDV Charge the difference as terminal depreciation under Sec 32
i.e. Terminal Depreciation = Net sale consideration – WDV
Net sale consideration is greater than WDV
value but lower than actual Cost
Add the difference as balancing charge income under Sec 41
i.e. Balancing charge = Net sale consideration – WDV
Net sale consideration is greater than
Actual cost
o Capital gains = Net sale consideration – Actual cost
o Balancing Charge = Actual cost - Written Down Value
Net sale consideration = Actual cost Balancing Charge = Actual cost - Written Down Value
Net sale consideration = WDV No tax implications
Balancing Charge is in the nature of an Income and is charged to taxation as business income under Sec 41

30. Full Value of Consideration in Certain Cases

31. Determination of consideration based on guideline
value – Sec 50C
Particulars Remarks
Applicable assets Land and/or building
Full value of consideration • Actual sale consideration or
• the value adopted or assessed or assessable by any authority of a State
Government for the purpose of stamp duty - stamp duty value (SDV),
whichever is higher
Provided where the SDV does not exceed 105% of the Actual Consideration, actual
sale consideration shall be considered as full value of consideration
“assessable” means the price which the stamp valuation authority would have, notwithstanding anything to the contrary
contained in any other law for the time being in force, adopted or assessed, if valuation was referred to such
authority for the purposes of the payment of stamp duty
Advance agreement transactions
Where date of
agreement differs from
date of registration
SDV on date of
agreement may
be taken
Condition – whole or part of consideration received
through account payee cheque or bank draft or
electronic methods on or before such date

32. Reference to Valuation Officer
Reference to Valuation Officer
The AO may refer the valuation of the capital asset to a Valuation Officer where:
The assessee claims that SDV adopted the stamp valuation authority exceeds the FMV of the
property as on date of transfer
The SDV adopted by the stamp value authority has not been disputed in any appeal or
revision or no reference has been made before any authority or court or High Court
Situation Full value of consideration under Sec 50C
Value of Valuation Officer > than stamp duty value Stamp duty value
Value of Valuation Officer < stamp duty value but
higher than actual consideration
Value of Valuation Officer
Value of Valuation Officer is < actual consideration Actual consideration
Where reference to Valuation Officer is made, relevant provisions of the Wealth-tax Act, 1957 shall apply accordingly

33. Full value of consideration for transfer of shares other
than quoted shares - Sec 50CA
• In a transfer of shares of a company other than quoted shares (unlisted shares),
• if the consideration received is lesser than the FMV determined as per Rule 11UAA,
• the FMV shall be deemed to be the full value of consideration
Determination of FMV of unquoted shares — Rule 11UA
Rule 11UAA – as per Sub-clause (b) or (c) of Rule 11UA
Unquoted equity shares (A + B + C + D – L) × (PV)/(PE)
A = book value of all assets (other than jewellery, art, shares, securities and immovable property) in the balance-sheet as reduced by,—
(i) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and
(ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset
B = Price which the jewellery and art would fetch if sold in open market on the basis of valuation report obtained from a registered valuer
C = Fair market value of shares and securities as determined in the manner provided in this rule
D = Stamp duty value (SDV) in respect of the immovable property
“Quoted share” means the share quoted on any recognised stock exchange with regularity from time to time, where the
quotation of such share is based on current transaction made in the ordinary course of business

34. Contd.
L = Book value of liabilities shown in the balance sheet, but not including the following amounts, namely:—
(i) the paid-up capital in respect of equity shares;
(ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends
have not been declared before the date of transfer at a general body meeting of the company;
(iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set
apart towards depreciation;
(iv) any amount representing provision for taxation, other than amount of income-tax paid, if any, less the amount
of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book
profits in accordance with the law applicable thereto;
(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;
(vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative
preference shares
PV = Paid up value of such equity shares
PE = Total amount of paid up equity share capital as shown in the balance-sheet
Unquoted shares other
than equity shares
Price it would fetch if sold in the open market on the valuation date and the assessee may
obtain a report from a merchant banker or an accountant in respect of which such valuation

35. Fair market value deemed to be full value of
consideration in certain cases - Sec 50D
Conditions
Consideration must be received or accruing
There must be transfer of capital asset
Consideration should not be ascertainable or cannot be determined
shall be deemed to be the full value of the consideration for the purpose of computing capital gains
FMV of the said asset on the date of transfer
wherein consideration has been accrued or received,
Where full value of consideration cannot be ascertained for transfer of any asset

36. Reference to Valuation Officer – Sec 55A
According to Sec 55A, with a view to ascertain the FMV of any capital asset, the AO may refer valuation of capital asset to the
Valuation Officer if:
• In a case where the value of the asset as claimed by the assessee is in accordance with the estimate made by a registered
valuer and the AO is of opinion that the value so claimed is at variance with its FMV;
• in any other case, if the AO is of opinion—
• that the FMV of the asset exceeds value claimed, by 15% or Rs. 25,000; or
• that having regard to the nature of the asset and other relevant circumstances, it is necessary to do so
Where reference to Valuation Officer is made, relevant provisions of the Wealth-tax Act, 1957 shall apply accordingly
The report of valuation by a registered valuer in respect of any asset shall be furnished
in the appropriate form specified in rule 8D of the Wealth-tax Rules, 1957
“fair market value” in relation to a capital
asset - Sec 2(22B)
• Price that the capital asset would ordinarily fetch on sale in the open market and
• Where the price referred to in above point is not ascertainable, such price as
may be determined in accordance with the rules made under this Act

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