Taxmann's Taxation of Capital Gains

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I-9
CONTENTS
PAGE
Compliance checklist of actions to claim deductions with
extended time-limits for compliances under the Taxation
and Other Laws (Relaxation of Certain Provisions)
Ordinance, 2020 I-31
1
WHICH INCOME IS TAXABLE UNDER THE
HEAD “CAPITAL GAINS”
1.1 Charging sections - Sections 45, 46 and 46A 1
1.2 Conditions to be fulfilled for taxing capital gains under
section 45 2
1.3 Tax-free capital gains 4
1.4 Whether situs/location of a capital asset matters for
taxability of capital gains? 6
2
WHAT IS ‘CAPITAL ASSET’?
2.1 Overview of definition of in Section 2(14) 8
2.2 Scheme of the definition in clause (14) of section 2 8
2.3 Property of any kind held by the assessee 11
2.4 Securities held by a foreign institutional investor 26
2.5 Jewellery is ‘capital asset’, not ‘personal effect’ 27
2.6 Archaeological collections are ‘capital assets’ and not ‘personal
effects’ 29
2.7 Work of art/drawings are capital assets, not personal effects 30
2.8 Paintings are capital assets, not personal effects 31
2.9 Sculptures are capital assets, not personal effects 31

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CONTENTS I-10
2.10 Stock-in-trade [Sub-clause (i) of clause (14)] 31
2.11 Consumable stores or raw materials held for business/
profession are not capital assets [Sub-clause (i)] 39
2.12 Personal effects [Sub-clause (ii) of clause (14)] 39
2.13 Agricultural land in India other than land situate in urban
area [Sub-clause (iii) of clause (14)] 42
2.14 Deposit certificates issued under GMS, 2015 [Sub-clause (vi)
of clause (14)] 66
2.15 Immovable property (except stock-in-trade and rural agricul-
tural land) are capital assets 67
2.16 Silver bars/bullion/sovereigns/silver coins are capital assets
and not personal effects 68
2.17 Silver utensils are personal effects and not capital assets 68
2.18 Agricultural land situated in India in rural area is not a capital
asset 69
3
TYPES OF CAPITAL ASSETS : SHORT-TERM CAPITAL
ASSETS AND LONG-TERM CAPITAL ASSETS
3.1 Distinction between short-term capital gains and long-term
capital gains 70
3.2 Overview of section 2(42A) - Definition of section 2(42A) 70
3.3 Classification of capital asset into short-term capital asset and
long-term capital asset 71
3.4 Capital assets which will be regarded as STCA if held for 24
months or less 72
3.5 Capital assets which will be held as short-term capital assets if
held for 12 months or less before transfer 72
3.6 How to compute the holding period of a capital asset? 73
3.7 Minimum holding period for various assets to qualify as long-
term capital assets 81
3.8 Computation of holding period in case of immovable properties 83
4
WHAT IS ‘TRANSFER’?
4.1 What is ‘transfer’ for capital gains purposes? 85

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I-11 CONTENTS
4.2 Definition of ‘transfer’ in section 2(47) of the Act 85
4.3 Indirect transfers i.e. transfer of rights effected or dependent
upon or flowing from transfer of shares of foreign company 87
4.4 Transactions deemed to be transfers under sub-sections (1A),
(2A), (3) and (4) of section 45 87
4.5 Distribution of assets by a company to its shareholders on its
liquidation is not ‘transfer’ by the company 88
4.6 Meaning of ‘transfer’ 88
4.7 Transfer by sale 89
4.8 Transfer by exchange 90
4.9 Transfer by relinquishment 93
4.10 Extinguishment of any rights in a capital asset 95
4.11 Compulsory acquisition of a capital asset under any law 98
4.12 Conversion of a capital asset into stock-in-trade 105
4.13 The maturity or redemption of a zero coupon bond 105
4.14 Part performance of a contract of sale of immovable property 106
4.15 Transfer of rights in immovable properties through the
medium of co-operative societies, companies, etc. 108
4.16 Transfer by a person to a firm or other association of persons
[AOP] or body of individuals [BOI] 108
4.17 Distribution of capital assets on dissolution 108
4.18 Distribution of money or other assets by the company on
liquidation 108
4.19 Family arrangement - Whether transfer? 109
4.20 Firm/partner transactions - Whether ‘transfer’ involved 109
4.21 Shareholder/company transactions 112
4.22 Date of transfer 114
5
WHICH TRANSFERS DO NOT GIVE RISE
TO TAXABLE CAPITAL GAINS
5.1 Transfers which do not give rise to taxable capital gains 120
5.2 Distribution by a HUF on Total/Partial Partition 124
5.3 Transfer of capital asset under a gift or a will or irrevocable
trust 125

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CONTENTS I-12
5.4 Transfers of capital assets between a parent company and its
100% subsidiary company 126
5.5 Transfer of capital asset by amalgamating company to
amalgamated company 132
5.6 Transfer of shares held in an Indian Company by amalgama-
ting foreign Co. to amalgamated foreign Co. 133
5.7 Transfer on amalgamation of banking company with a
banking institution 134
5.8 Transfer by demerged company to resulting Indian company 134
5.9 Transfer of shares by demerged foreign company to resulting
foreign company 137
5.10 Transfer in reorganization of co-operative banks 137
5.11 Transfer of shares in amalgamation or demerger of Co-opera-
tive Banks 138
5.12 Transfer by a shareholder in a scheme of amalgamation 138
5.13 Transfer outside India by non-resident of bonds/GDRs to
another non-resident 140
5.14 Transfer of Rupee Denominated Bonds outside India by one
non-resident to another non-resident 140
5.15 Exemption from tax to transfer of G-Sec. by one non-resident
to another - Section 47(viib) 140
5.16 Transfer of works of art, etc. 141
5.17 Conversion of bonds, debentures, debenture-stock or deposit
certificates into shares or debentures 142
5.18 Conversion of FCCBs into shares/debentures 142
5.19 Conversion of preference shares to equity shares [Section
47(xb)] 142
5.20 Transfer of land of sick industrial company 143
5.21 Succession of firm by company 143
5.22 Transfer of capital asset by AOP/BOI in course of demutuali-
zation/corporatization of stock exchange 148
5.23 Transfer of membership right in recognized stock exchange 148
5.24 Conversion from general partnership to LLP - Whether gives
rise to taxable capital gains? 148
5.25 Conversion of private company/unlisted public company into
LLP 149
5.26 Transfer of proprietorship to company 158
5.27 Transfer in a scheme for lending of any securities 159

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I-13 CONTENTS
5.28 Reverse mortgage transactions by senior citizens - i.e. indivi-
duals aged 60 years or more 160
5.29 Taxation of capital gains arising to sponsor on conversion of
SPV shares into units of business trust [Section 47(xvii)] 162
5.30 Tax neutrality on merger of similar schemes of Mutual Funds 163
5.31 Tax neutrality on merger or consolidation of plans within a
scheme of a mutual fund 163
6
YEAR OF TAXABILITY OF CAPITAL GAINS
6.1 Capital gains is taxable in the year of transfer of capital asset
subject to certain exceptions 164
6.2 Insurance claim 165
6.3 Conversion of asset into stock-in-trade 167
6.4 Transfer by depository or participant of beneficial interest in
securities 168
6.5 Transfer of assets by way of capital contribution 169
6.6 Distribution of assets on dissolution of Firm LLP/AOP/BOI
or otherwise 170
6.7 Compulsory acquisition 172
6.8 Enhanced compensation on compulsory acquisition 173
6.9 Year of taxability of capital gains when owner of land transfers
land to developer under Joint Development Agreement 175
6.10 Entitlement to goodwill 177
6.11 Transfer by partner of right in firm’s asset for consideration
payable in instalments 177
6.12 Accrual of right to receive profits determinative 178
6.13 Sale of part of asset 178
7
COMPUTATION OF CAPITAL GAINS - SHORT-TERM CAPITAL
GAINS AND LONG-TERM CAPITAL GAINS
7.1 Tax incidence depends upon whether capital gains is long-term
capital gains or short-term capital gains 179
7.2 How to compute short-term capital gains 181

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CONTENTS I-14
7.3 How to compute long-term capital gains other than long-term
capital gains taxable under section 112A 181
7.4 How to compute long-term capital gains in respect of listed
equity shares, equity-oriented MFs and units of business trust
u/s 112A 181
7.5 Cases in which benefit of indexation of cost of acquisition/
cost of improvement is not available for computing long-
term capital gains 182
7.6 Surcharge applicable on capital gains tax in respect of indivi-
dual, HUF, AOP, BOI and AJP for A.Y. 2020-21 183
7.7 Changes made by the Finance Act, 2020 W.E.F. AY 2021-22 196
8
HOW TO COMPUTE FULL VALUE OF
CONSIDERATION
8.1 Existence of consideration - A prerequisite for taxability as
capital gains 199
8.2 ‘Consideration’ 201
8.3 Full value of consideration 202
8.4 Deemed full value of consideration - Situations where a
deemed amount shall be full value of consideration 204
8.5 Computation of capital gains in real estate transactions -
Section 50C 207
8.6 Fair market value 216
8.7 Special provision for full value of consideration for transfer
of unquoted share - Section 50CA 216
8.8 Where the consideration is not ascertainable or cannot be
determined - Section 50D 220
8.9 Conversion by the owner of a capital asset into, or its treat-
ment as, stock-in-trade of a business carried on by him
[Section 45(2)] 222
8.10 Compulsory acquisition under any law for the time being in
force - Section 45(5) 223
8.11 Contribution of capital asset to firm/LLP/AOP/BOI by
partner/member - Section 45(3) 225
8.12 Distribution of capital assets on dissolution of firm/LLP/
AOP/BOI - Section 45(4) 227
8.13 Insurance claim received in respect of capital asset destroyed
by act of god etc. - Section 45(1A) 230

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I-15 CONTENTS
8.14 Transfer by way of distribution of assets by company in liqui-
dation to its shareholders - Section 46(2) 232
8.15 Full value of consideration where assessee-buyer gets excess
amount of compensation received by seller over agreed sale
consideration where land agreed to be bought is acquired. 232
9
WHAT IS EXPENDITURE ON TRANSFER OF
CAPITAL ASSETS?
9.1 Expenditure incurred wholly and exclusively in connection
with the ‘transfer’ is deductible 234
9.2 Interest paid on borrowings for acquisition of capital asset -
Whether deductible 235
9.3 Payment to tenant to get property vacated - Whether deduc-
tible 235
9.4 Legal expenses incurred for obtaining compensation for
compulsory acquisition - Whether deductible 236
9.5 Expenditure incurred for obtaining probate of the will -
9.6 Transfer charges paid to co-operative society - Whether
deductible 238
9.7 Expenditure incurred before or after passing of title -
9.8 Liability/obligation - Whether deductible 238
9.9 Interest on provident fund loan - Whether deductible 239
9.10 Damages for mental agony and suffering - Whether
deductible 239
9.11 Expenses on staff after the takeover of undertaking 239
9.12 Where option under section 55(2)(b)(i) is exercised 240
9.13 Payment for freeing property of encumbrance - Whether
deductible 240
9.14 Payment for release of interest - Whether deductible 243
9.15 Brokerage - Whether deductible 243
9.16 Assumed value of solatium 243
9.17 Amount embezzled 244
9.18 Interest on delayed payment of unearned increase 244

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CONTENTS I-16
10
WHAT IS COST OF ACQUISITION?
10.1 Meaning/definition of cost of acquisition 245
10.2 Ground rent - Whether deductible as COA 253
10.3 Interest on moneys borrowed to purchase asset - Whether
deductible as COA 253
10.4 Interest paid to partners - Whether COA 254
10.5 Payment to estate of deceased partner - Whether COA 254
10.6 Litigation expenses to register transfer of shares is COA of
shares 254
10.7 Payment having no connection with the capital asset 254
10.8/9 Income-tax dues - Whether COA 255
10.10 Sums paid under will - Whether COA 255
10.11 Urban land tax and other taxes - Whether COA 256
10.12 Cost of acquisition of shares obtained in family settlement 256
10.13 Subsequent events do not affect cost of acquisition 256
10.14 Date of acquisition 257
10.15 COA where asset becomes capital asset after acquisition but
before sale 257
10.16 Cases in which the Act deems cost of acquisition of capital
asset to be nil 258
10.17 Cases in which cost of acquisition deemed to be cost to
the previous owner 259
10.18 Cost of acquisition of shares of amalgamated company in
exchange for shares of amalgamating company - Section 49(2) 273
10.19 Cost of shares/debentures acquired on conversion of bonds/
debentures/deposit certificates/FCCBs into shares/deben-
tures - Section 49(2A) 273
10.20 Cost of acquisition of ESOPs/sweat equity shares - Section
49(2AA)/section 49(2AB) 273
10.21 Cost of acquisition in case of unit of business trust acquired
by sponsor in exchange for shares in SPV 274
10.22 Cost of acquisition of shares in the resulting company in a
demerger and cost of original shares in demerged company 274
10.22A Cost of acquisition where the provisions of section 47A are
applicable 275

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I-17 CONTENTS
10.23 Cost of acquisition of intangible assets purchased 275
10.24 Capital asset acquired by a shareholder on distribution of its
assets in liquidation - Section 55(2)(b)(iii) 275
10.25 Where conditions for exemption of transfers between parent
and its 100% subsidiary are violated subsequently 277
10.26 Cost of acquisition of shares acquired on stock-splits etc. 277
10.27 Cost of acquisition of rights shares 278
10.28 Cost of acquisition of capital asset acquired very long ago 279
10.29 Cost of acquisition of immovable property taxed as gift 283
10.30 Cost of acquisition of jewellery, bullion, shares and securities,
paintings, sculptures etc. taxed as gifts under section
56(2)(vii)/(viia)/(x) 285
10.31 Cost of acquisition in case of depreciable assets on which
depreciation allowed at SLM rates - Section 50A 288
10.32 Cost of acquisition in case of slump sale - Section 50B 288
10.33 Where enhanced compensation is received 289
10.34 Cost of acquisition of certain assets - Calves, colts, trees etc. 289
10.35 Shares acquired by non-resident assessee on redemption
of GDRs 290
10.36 Tax neutrality on merger of similar schemes of Mutual Funds 290
11
WHAT IS COST OF IMPROVEMENT?
11.1 Cost of improvement - Definition 292
11.2 Allowance of deduction 294
11.3 Expenses incurred by persons other than assessee 295
11.4 Improvement of title 296
11.5 Assets acquired before 1-4-1981 and transferred in any
previous year relevant to AYs 1992-93 to 2017-18 297
11.6 Assets acquired before 1-4-1981 and transferred in any
previous year relevant to AY 2018-19 or subsequent AY 298
11.7 Assets acquired after 1-4-1981 but on or before 31-3-2001
and transferred in any previous year relevant to AY 2018-19
or subsequent AY 299
11.8 Assets acquired after 1-4-2001 299
11.9 Expenditure not allowable as deduction 300

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CONTENTS I-18
11.10 Taxability of advance for transfer of a capital asset where
advance is forfeited (Sections 51 and 56) 300
12
WHAT IS INDEXED COST OF ACQUISITION AND
INDEXED COST OF IMPROVEMENT?
12.1 Indexation benefit for computing long-term gains - Relief
from inflation 301
12.2 Cases in which indexation benefit is not available for compu-
ting long-term capital gains 301
12.3 Indexed cost of acquisition/improvement - Meaning of 302
12.4 Indexation benefit linked to period of holding of asset and not
to its owner 304
12.5 Computation of indexed cost of acquisition/improvement 307
13
ROLLOVER DEDUCTION IN RESPECT OF PROFIT
ON SALE OF PROPERTY USED FOR RESIDENCE
[SECTION 54]
13.1 Provisions of section 54 in a nutshell 310
13.2 Conditions to be fulfilled for availing deduction under the
regular section 54 scheme 319
13.3 Profit on sale of property used for residence [Section 54] 319
13.4 Sale of new residential house within 3 years 343
13.5 Capital Gains Accounts Scheme 346
13.6 Extension of time for acquiring new asset or depositing or
investing capital gain [Section 54H] 349
13.7 Assessee availing section 54 relief required to file ITR w.e.f.
AY 2020-21 even if his total income after relief is below
threshold exemption limit 350
13.8 Non-disclosure of capital gains in ITR will not bar assessee
from claiming deduction u/s 54 in assessment proceedings 351
13.9 Claim under wrong provision of section 54F will not bar
deduction under section 54 351

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I-19 CONTENTS
14
DEDUCTION OF ROLLOVER OF GAIN ON TRANSFER
OF LAND USED FOR AGRICULTURAL
PURPOSES [SECTION 54B]
14.1 Provisions of section 54B in brief 353
14.2 Gain on transfer of land used for agricultural purposes 353
14.3 Quantum of deduction under section 54B 355
14.4 Tax implications of sale of new land within 3 years 360
14.5 Who can claim the exemption under section 54B 361
14.6 Use of land for agricultural purposes in two years imme-
diately preceding transfer 361
14.7 Whether new land purchased should be in assessee’s
name only to qualify for section 54B deduction? 363
14.8 Purchase of new land before sale of old land 363
14.10 Extension of time for acquiring new asset or depositing
or investing capital gain 366
from claiming deduction u/s 54B in assessment proceedings 367
14.12 Claim under wrong provision will not bar deduction under
section 54B 368
14.13 Assessee availing section 54B relief required to file ITR w.e.f.
15
ROLLOVER DEDUCTION IN RESPECT OF CAPITAL
GAIN ON COMPULSORY ACQUISITION OF LANDS
AND BUILDINGS [SECTION 54D]
15.1 Provisions of section 54D in a nutshell 370
15.2 Conditions to be fulfilled for claiming deduction u/s 54D in
respect of capital gain on compulsory acquisition of lands
and buildings 371
15.3 Quantum of deduction 373
15.4 Tax implications on sale of new asset within 3 years 377
15.5 Who can claim the exemption under section 54D 378

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CONTENTS I-20
15.6 Industrial undertaking - Meaning of 378
15.7 Enhanced compensation 380
15.8 Exemption in case of depreciable assets 381
investing capital gain 385
15.11 Assessee availing section 54D relief required to file ITR w.e.f.
from claiming deduction u/s 54D in assessment proceedings 387
section 54D 388
16
ROLLOVER DEDUCTION IN RESPECT OF INVEST-
MENT OF LONG-TERM CAPITAL GAINS FROM
LAND OR BUILDING OR BOTH IN SPECIFIED
BONDS [SECTION 54EC]
16.1 Provisions of section 54EC in a nutshell 389
16.2 Pre-conditions for deduction under section 54EC 390
16.3 Ceiling on investment - ` 50 lakhs in a financial year 391
16.4 Transfer of specified asset within lock-in period of 5 years 393
16.5 Whether capital gains arising under section 50 is long-term
capital gains for section 54EC purposes? 394
16.6 Time-limit of 6 months for investment in specified bonds
under section 54EC means 6 calender months and not
180 days 394
16.7 Name in which bonds should be purchased 397
16.8 Specified bonds for investment under section 54EC 399
16.9 Direct nexus not required 399
16.11 Assessee availing section 54EC relief required to file ITR
w.e.f. AY 2020-21 even if his total income after relief is
below threshold exemption limit 401

12 Non-disclosure of capital gains in ITR will not bar assessee
from claiming deduction u/s 54EC in assessment proceedings 402
section 54EC 402
17
CAPITAL GAINS NOT TO BE CHARGED ON INVEST-
MENT IN UNITS OF A SPECIFIED FUND
17.1 Backdrop 403
17.2 Capital gains exemption on investment in specified funds -
Section 54EE 404
18
DEDUCTION IN RESPECT OF LONG TERM CAPITAL
GAIN INVESTED IN RESIDENTIAL
HOUSE [SECTION 54F]
18.1 Provisions of section 54F in brief 406
18.2 Long term capital gain invested in residential house 407
18.3 Conditions for deduction 407
18.4 Quantum of deduction 408
18.5 Net consideration 412
18.6 Purchase/construction of second residential house 412
18.7 Date of purchase of new house 413
18.8 Sale of second vacant land and investment in second
dwelling unit 414
18.9 Exemption for minor 414
18.10 No deduction for extension of house 414
18.11 Transfer of new residential house 414
18.12 Whether deduction is available if new house purchased in
joint names of assessee and his wife? 415
I-21 CONTENTS

15 Assessee availing section 54F relief required to file ITR w.e.f.
from claiming deduction u/s 54F in assessment proceedings 421
section 54F 421
19
TAX INCENTIVES FOR TRANSFER OF ASSETS ON
SHIFTING OF INDUSTRIAL UNDERTAKINGS
FROM URBAN AREA/SHIFTING OF
INDUSTRIAL UNDERTAKING FROM
URBAN AREA TO ANY SPECIAL
ECONOMIC ZONE (SEZ)
[SECTION 54G/54GA]
19.1 Provisions of section 54G/54GA in brief 422
19.2 Transfer of assets on shifting of industrial undertakings
[Section 54G] 423
19.3 Conditions for deduction under section 54G 424
19.4 Quantum of deduction under section 54G 425
19.5 Sale of new asset within three years-tax implications 430
19.6 Shifting of industrial undertaking from urban area to any
Special Economic Zone (SEZ) [Section 54GA] 431
19.8 Assessee availing section 54G/54GA relief required to file
ITR w.e.f. AY 2020-21 even if his total income after relief is
from claiming deduction u/s 54G or u/s 54GA in assess-
ment proceedings 437
section 54G/Section 54GA 438
CONTENTS I-22

TAX EXEMPTION FOR CAPITAL GAINS FROM SALE OF
RESIDENTIAL PROPERTY IF INVESTED IN CAPITAL
OF START-UP COMPANY - SECTION 54GB
20.1 Tax Exemption for long-term capital gains from selling resi-
dential property if the same is invested in equity shares
of start-up company 441
20.2 Conditions to be satisfied for availing tax relief in respect
of capital gains by investment in shares of a company
which is “eligible start-up” 442
20.3 Promoter selling his residential property and investing
monies in its shares- is it efficient from point of view
of explaining “source of source” under section 68 444
20.4 Assessee availing section 54GB relief required to file ITR
w.e.f. AY 2020-21 even if his total income after relief is
from claiming deduction u/s 54GB in assessment
proceedings 445
section 54GB 446
20.7 FAQs on section 54GB 446
21
POWER OF CBDT TO RELAX ANY REQUIREMENT
FOR CLAIMING DEDUCTIONS
21.1 Power of CBDT under section 119(2)(c) 448
21.2 Section 119(2)(c) applies to sections 54 to 54GB 449
21.3 Application for relief on plain paper 449
22
TAX COMPUTATION IN RESPECT OF STCG
22.1 Tax on short-term capital gains 450
22.2 Equity Oriented Fund 451
I-23 CONTENTS

TAX COMPUTATION IN CASE OF LONG-TERM
CAPITAL GAINS
23.1 Overall scheme of tax computation on LTCG 452
23.2 Tax on long-term capital gains from shares, securities and
units 453
23.3 Tax on long-term capital gains other than from shares,
securities and units 454
23.4 Concessional tax rate of 10% not applicable to long-term
capital gains from units of GETFs/Debt-oriented mutual
funds - Section 112(1) 454
24
LONG-TERM CAPITAL GAINS TAX ON LISTED
EQUITY SHARES, UNITS OF EQUITY-ORIENTED
MUTUAL FUNDS AND UNITS OF BUSINESS TRUSTS
24.1 Taxation of long-term capital gains from listed equity shares
and units of equity-oriented MFs upto AY 2018-19 456
24.2 New Scheme of taxation of long-term capital gains from
listed equity shares, units of equity-oriented MFs and units
of business trusts - Section 112A 456
24.3 Rationale behind the introduction of new scheme of
taxation by the Finance Act, 2018 459
24.4 Conditions for applicability of new section 112A 459
24.5 Computation of tax 461
24.6 Computation of LTCG 462
24.7 Cost of acquisition (COA) of specified assets 462
24.8 New Section overrides section 112 464
24.9 Applicability of new section to different assessees 465
24.10 Applicability of section 112 in certain cases 467
24.11 Computation of long-term capital gains under the New
Section 469
24.12 Condition (b) : The total income of the assessee should
include income chargeable as capital gains 474
24.13 Condition (c) : The asset has to be long term capital asset 480
CONTENTS I-24

14 Condition (d) : Section 112A applies only if LTCG arises
from “Specified Asset” 481
24.15 Condition (e) : Section 112A is applicable if STT is paid 482
24.16 FAQs on Cost of acquisition of specified assets 488
24.17 Computation of tax if section 112A applies 509
24.18 Deductions under Chapter VI-A are not available qua
capital gains under section 112A 515
24.19 Rebate under section 87A 515
24.20 Taxation of non-residents 516
24.21 Miscellaneous 521
24.22 Taxation of long term capital gains in the case of foreign
institutional investor 523
25
REFERENCE TO VALUATION OFFICER
25.1 Statutory provisions 525
25.2 Valuation Officer 526
25.3 Valuation procedure 528
25.4 Purpose for which reference may be made 528
25.5 Binding nature of Valuation Officer’s report 532
25.6 Where assessment is completed before receipt of valuation
report 533
25.7 Where valuation report is not received 533
25.8 Reference after assessment 533
25.9 Reference cannot be made without giving opportunity and
disclosing reasons 534
25.10 Second reference 535
25.11 Appeal 535
25.12 Appearance by registered valuer 536
25.13 Rectification of mistakes 536
25.14 Power to take evidence on oath, etc. 537
I-25 CONTENTS

LOSS UNDER THE HEAD ‘CAPITAL GAINS’
26.1 Loss under the head ‘Capital gains’ - Whether same as
capital loss 538
26.2 Carry forward and set-off of losses under the head ‘Capital
gains’ 539
26.3 On Liquidation of Company 544
26.4 Revaluation of Investment 544
26.5 Where transaction of sale is genuine 545
26.6 Sum assessed as dividend under section 2(22) 546
26.7 Carry forward and set off 547
27
DISTRIBUTION OF ASSETS BY COMPANIES
IN LIQUIDATION
27.0 Introduction 549
27.1 Coverage of section 46(2) 549
27.2 Nature of asset in the hands of shareholders 550
27.3 Liquidation of subsidiary company and application of
section 46 550
27.4 Realisation of asset by liquidator 551
27.5 Distinction between ‘a company in liquidation’ and ‘a
company on liquidation’ 552
27.6 Section 46(2) - A deeming provision 553
27.7 Section 46(2) is a charging provision 555
27.8 Liability to capital gains 556
28
HOW TO COMPUTE CAPITAL GAINS IN CASE OF BUY-
BACK OF SHARES/SPECIFIED SECURITIES
28.1 What is buy-back? 560
28.2 Tax implications of buy-back for shareholder - Section 46A 560
28.3 Withholding tax of 20% of profits distributed by companies
through buyback of shares 562
CONTENTS I-26

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I-27 CONTENTS
28.4 Amount received by the company in respect of issue of
share which is the subject of buyback 563
29
CAPITAL GAIN AND DEPRECIABLE ASSETS
29.2 Statutory provisions of section 50 567
29.3 Power generation undertakings [Section 50A] 572
29.4 Legal decisions - In assessee’s favour 574
29.5 Legal decisions - In Revenue’s favour 576
30
SLUMP SALE
30.2 Slump sale - Definition 578
30.3 Computation of capital gain from slump sale [Section 50B] 579
30.4 Negative Net Worth 582
30.5 Complete sale of unit or undertaking is a must 583
30.6 Lock, stock and barrel sale 583
30.7 Comparative study of slump sale and demerger 585
31
CAPITAL GAIN ON INTANGIBLE ASSETS
31.1 Goodwill 586
31.2 Route permits/stage carriage permits 588
31.3 Import licences/entitlements 588
31.4 Rights under a contract 588
31.5 Tenancy rights 589
31.6 Loom hours 590
31.7 Leasehold rights 590
31.8 Life interests 592
31.9 Remainderman’s reversionary interest 592

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CONTENTS I-28
31.10 Devaluation gain 593
31.11 Patent 593
31.12 Right to manufacture, produce or process any article or
thing 593
31.13 Right to carry on any business or profession 594
32
CHARITABLE TRUST AND CAPITAL GAINS
32.2 Trust wholly for charitable or religious purposes [Section
11(1A)(a)] 595
32.3 Trust in part for charitable or religious purposes [Section
11(1A)(b)] 596
32.4 Capital gains kept in fixed deposit in bank 597
32.5 Capital gain kept as deposit in public sector companies 598
32.6 Capital gain used for redeeming pledged asset 598
32.7 Capital gain used for acquiring English Mortgage 599
32.8 Advance receipt of sale proceeds used for regular objects 600
32.9 Time limit for reinvestment 601
32.10 Sub-section (7) of section 11 602
33
CAPITAL GAIN IN REAL ESTATE TRANSACTIONS
33.1 Immovable property 603
33.2 Period of holding immovable property before transfer to
maximize tax advantages 603
33.3 Entering an agreement to sell does not transfer the property 604
33.4 Cash component of consideration should be less than
Rs. 20,000 to avoid violation of section 269SS 604
33.5 Immovable property transactions between firm/LLP and
partners 605
33.6 Membership of Co-operative Society 606
33.7 Mortgage transactions 607
33.8 Reverse Mortgage 607

PAGE
I-29 CONTENTS
33.9 Agricultural land 608
33.10 Deemed transfers 609
33.11 Deemed sale consideration - Section 50C 610
33.12 Section 50C vis-a-vis transfers under section 45(2), 45(3)
and 45(4) 610
33.13 Exemptions under sections 54, 54EC and 54F 611
33.14 Development agreements (Joint Development Agreements) 613
33.15 Lease right 614
33.16 99 years lease 615
33.17 Sub-lease for 97 years 615
33.18 Composite consideration 616
33.19 Single transaction - Whether business 617
33.20 Repurchase of sold property 618
33.21 Mortgage followed by sale 619
33.22 Where auction sale is set aside 620
APPENDICES
APPENDIX 1 : Taxation and Other Laws (Relaxation of Certain
Provisions) Ordinance, 2020 625
APPENDIX 2 : Section 3 of the Taxation and Other Laws (Relaxation
of Certain Provisions) Ordinance, 2020 - Relaxation
of certain provisions of specified Acts - Notified dates
for extension of due dates of various completions or
compliances under specified Acts 630

C H A P T E R
3
TYPES OF CAPITAL ASSETS :
SHORT-TERM CAPITAL ASSETS AND
LONG-TERM CAPITAL ASSETS
3.1 Distinction between short-term capital gains and long-term
capital gains
Section 2(42B) of the Act defines ‘short-term capital gain’ to mean
‘capital gain arising from the transfer of a short-term capital asset’.
Section 2(29B) defines ‘long-term capital gain’ as ‘capital gain arising
from the transfer of a long-term capital asset’. Section 2(29A) of the Act
defines ‘long-term capital asset’ as capital asset which is not a short-term
capital asset.
Transfer of a short term capital asset [Para 3.3] gives rise to ‘Short Term
Capital Gains’ (STCG) and transfer of a long term capital asset gives rise
to ‘Long Term Capital Gains’ (LTCG). Identifying gains as STCG and
LTCG is a very important step in computing the income under the head
Capital Gains as method of computation of gains and tax payable on the
gains and treatment of losses is different for STCG and LTCG.
It may be mentioned that long-term capital gains gets more favourable
tax treatment as compared to short-term capital gains.
3.2 Overview of section 2(42A) - Definition of section 2(42A)
u General rule : Holding period of 36 months or less before transfer
to qualify as short-term asset [Para 3.3]
70

u Exceptions to the general rule of 36 months or less holding period:
n 1st proviso : The following assets to be regarded as short-
term capital assets if held for 12 months or less before
transfer [Para 3.4]
l Security (other than a unit ) listed on a recognised
stock exchange in India
l Units of UTI
l Units of equity oriented mutual funds
l Zero Coupon Bond
n 2nd proviso: Holding period of 12 months or less for unlisted
shares and units of mutual fund units transferred during
the period 01.04.2014 to 10.07.2014
n 3rd proviso: Unlisted shares of companies and immovable
property to be regarded as short-term capital assets if held
for 24 months or less before transfer. [Para 3.5]
u Explanation 1: How to compute the holding period..what periods
of time to be included or excluded [Paras 3.6 to 3.6-18]
u Minimum holding period for various assets to qualify as long-term
capital assets [Para 3.7]
u Explanation 2: Definition of ‘security’ [Para 3.7-1]
u Explanation 3: Definition of ‘specified security’ and ‘sweat equity
shares’ [Para 3.6-8]
u Explanation 4: Definition of ‘equity-oriented fund [See Chapter
24]
3.3 Classification of capital asset into short-term capital asset
and long-term capital asset
The incidence of tax on Capital Gains depends upon the length of the
time period for which the capital asset was held before the transfer. In
terms of section 2(42A) which defines a ‘short-term capital asset’,
ordinarily,acapitalassetheldfor36monthsorlessiscalleda‘short-term
capital asset’ and the capital asset held for more than 36 months is called
‘long-term capital asset’.
Exceptionstothe“36monthsorlessholdingperiod”ruleisgiveninParas
3.4 and 3.5 below.
71 CLASSIFICATION OF CAPITAL ASSET Para 3.3

3.4 Capital assets which will be regarded as STCA if held for 24
months or less
The following assets shall be regarded as short-term capital assets if
held for 24 months or less and long-term assets if held for more than 24
months:
u Unlisted shares of companies (share of a company not listed in a
recognized stock exchange in India)
u Immovable property, being land or building or both. [See Para 3.8]
3.5 Capital assets which will be held as short-term capital assets
if held for 12 months or less before transfer
The following assets shall be regarded as short-term capital assets if
held for 12 months or less and long-term assets if held for more than 12
months:
u Security (other than a unit) listed in a recognized stock exchange
in India
u Unit of UTI
u Unit of equity-oriented mutual funds
u Zero Coupon bond [Para 3.5-2]
Units of debt-oriented mutual funds, GETFs/REITs/InVITs to be held
for more than 36 months to qualify as long-term capital assets - Section
2(42A)
3.5-1 Securities transacted through stock exchanges
When the securities are transacted through stock exchanges it is the
established procedure that the brokers first enter into contracts for
purchase/sale of securities and thereafter, follow it up with delivery of
shares, accompanied by transfer deeds duly signed by the registered
holders. The seller is entitled to receive the consideration agreed to as on
the date of contract. Thus, it is the date of broker’s note that should be
treated as the date of transfer in case of sale transactions of securities
provided such transactions are followed up by delivery of shares and
also the transfer deeds. Similarly, in respect of the purchasers of the
securities, the holding period shall be reckoned from the date of the
broker’s note for purchase on behalf of the investors. In case the trans-
actions take place directly between the parties and not through stock
exchanges the date of contract of sale as declared by the parties shall be
Para 3.5 TYPES OF CAPITAL ASSETS 72

treated as the date of transfer provided it is followed up by actual deliv-
ery of shares and the transfer deeds.
Where securities are acquired in several lots at different points of time,
the First-in-first-out (FIFO) method shall be adopted to reckon the
period of the holding of the security, in cases where the dates of pur-
chase and sale could not be correlated through specific numbers of the
scrips.Inotherwords,theassetsacquiredlastwillbetakentoberemain-
ing with the assessee while assets acquired first will be treated as sold.
Indexation, wherever applicable, for long-term assets will be regulated
on the basis of the holding period determined in this manner - Circular
: No. 704, dated 28-4-1995.
3.5-2 Zero Coupon Bond
According to section 2(48) of the Act, “zero coupon bond” means a bond-
(a) issued by any infrastructure capital company or infrastructure
capital fund or public sector company or scheduled bank on or
after the 1st day of June, 2005;
(b) in respect of which no payment and benefit is received or receiv-
able before maturity or redemption from infrastructure capital
company or infrastructure capital fund or public sector company
or scheduled bank; and
(c) which the Central Government may, by notification in the Official
Gazette, specify in this behalf.
3.6 How to compute the holding period of a capital asset?
In Bharti Gupta Ramola v. CIT [2012] 20 taxmann.com 762, the Delhi
High Court held that the holding period of a capital asset (36 months/24
months/12 months) to be computed as under:
u Holdingperiodofcapitalassetu/s2(42A)(36months/24months/
12 months) to be reckoned in calendar months by including both
date of its acquisition and date of its transfer and without
excluding even a fraction of a day.
u The term ‘month’ has not been defined in the Act and, therefore,
‘month’ would have to be understood in the sense of ‘calendar
month’asdefinedinsection3(35)oftheGeneralClausesAct,1897.
u Period of 12 calendar months would begin on the day when the
assessee became the holder of the asset and end one day before in
73 COMPUTE HOLDING PERIOD OF CAPITAL ASSET Para 3.6

the relevant calendar month, next year. Thus, if an assessee
acquires an asset on 2nd January in a preceding year, the period
of 12 months would be complete on 1st January, next year and not
on 2nd January. This position will apply to all cases, except when
an asset is transferred/purchased on 1st January. In such cases,
the period of one year or 12 months would expire and would be
complete on 31st December in the same year.
u There is nothing in section 2(42A) to show that the time period
would not include fraction of a day.
3.6-1 Computation of holding period of share held in a company in liquidation
In the case of a share held in a company in liquidation, the period
subsequent to the date on which the company goes into liquidation shall
be excluded in determining the period for which such share was held by
the assessee. [Explanation 1(i)(a) to section 2(42A)]. In other words, the
date on which company goes into liquidation shall be included in
computing the holding period for determining whether the share was
held for 12 or 24 months or less or for more than 12/24 months.
3.6-2 Computation of holding period of a capital asset which becomes the
property of the assessee in the circumstances mentioned in section 49(1)
A capital asset may becomes the property of an assessee in the circum-
stances mentioned in section 49(1) viz :
(A) on any distribution of assets on the total or partial partition of a
Hindu undivided family;
(B) under a gift or will;
(C)(a) by succession, inheritance or devolution, or
(b) on any distribution of assets on the liquidation of a company, or
(c) under a transfer to a revocable or an irrevocable trust, or
(d) under any such transfer as is referred to in clause (iv) or clause (v)
[Para 5.4] or clause (vi) [Para 5.5] or clause (via) [Para 5.6] or
clause (viaa) [Para 5.7] or clause (viab) [Para 5.1] or clause (vib)
[Para 5.8] or clause (vic) [Para 5.9] or clause (vica) [Para 5.10] or
clause (vicb) [Para 5.11] or clause (vicc) [Para 1.4] or clause (xiii)
or clause (xiiib) [Para 5.21/Para 5.22] or clause (xiv) [Para 5.26] of
section 47;

(D) such assessee being a Hindu undivided family, by the mode
referred to in sub-section (2) of section 64 - i.e. conversion of self-
acquired property of member of HUF into HUF property.
In above cases, the period for which the asset was held by the previous
owner shall be included in determining the period for which such asset
was held by the assessee. [Explanation 1(i)(b) to section 2(42A)]. The
expression ‘previous owner of the property’ in relation to any capital
asset owned by an assessee means the last previous owner of the capital
asset who acquired it by a mode of acquisition other than that referred
to section 49(1) - i.e. (A) to (D) above.
3.6-3 Computation of holding period of a capital asset resulting from conver-
sion of inventory into capital asset
In case of conversion of inventory into capital asset or treatment of
inventory as capital asset, the period for which the resulting capital
asset is held shall be reckoned from the date of such conversion or
treatment. [Explanation 1(i)(ba) to section 2(42A)]
3.6-4 Computation of holding period of a share or shares in an Indian company
whichbecomesassessee’spropertyasconsiderationfortransferinamalgam-
ation of companies
If a share or shares in an Indian company (amalgamated company)
becomes property of assessee (who was a shareholder of amalgamating
company) as consideration for his shares in amalgamating company
[See section 47(vii)], the period for which shares in amalgamating
company were held by the assessee shall be included in determining the
holding period of shares in amalgamated company. [Explanation 1(i)(c)
to section 2(42A)].
For example, Mr. X is a shareholder of ABC Ltd. (amalgamating com-
pany) and holds 100 shares in it. He had acquired it two years back. ABC
Ltd. is amalgamated into PQR Ltd., an Indian company and he receives
50sharesinPQRLtd.asconsiderationforhis100sharesinABCLtd.This
transfer of ABC Ltd. shares for PQR Ltd. shares is exempt from taxation
as capital gains under section 47(vii). Suppose he sells the shares of PQR
Ltd. after 6 months. In this case, the holding period of 2 years of shares
in ABC Ltd. should be added to the 6 months holding period of shares in
PQR Ltd. and holding period of shares of PQR Ltd. shall be treated as 2
years and 6 months and hence shares of PQR Ltd. shall be treated as
long-term asset.

3.6-5 Computation of holding period in case of rights shares/other security
issued on rights basis
In the case of a share or any other security (‘financial asset’) subscribed
to by the assessee on the basis of his right to subscribe or by the
renouncee of the right to subscribe (i.e. the person in whose favour the
right to subscribe is renounced by the assessee), the period shall be
reckoned from the date of allotment of such financial asset for deter-
mining whether the financial asset was held for 12 months or less or for
more than 12 months. [Explanation 1(i)(d) to section 2(42A)]
The words used are ‘from the date of allotment’. A question arises
whether date of allotment is to be included in the holding period or not.
Stroud’s Judicial Dictionary defines “from the date of ……” as under:
“From the date of incorporation of the company” in section 16, Companies
(Consolidation) Act, 1908 (c. 69) - see now Companies Act, 1985 (c. 6), section
13 - held to include any portion of the day on which the company was
incorporated: see Re Jubilee Cotton Mills [1924] A.C. 958.”
In Bharti Gupta Ramola v. CIT [2012] 20 taxmann.com 762, the Delhi
High Court held that the clause [section 2(42A)] refers to the holding
period. It will not be appropriate to exclude or include any day of the
holding for computing the said period. The date on which the asset is
acquired is not to be excluded because the holding starts from the said
date.
In view of the above, the date of allotment or any portion of that day has
to be included in computing the holding period.
It must be noted that ‘rights share’ is a capital asset distinct from ‘rights’
or the right to subscribe. Explanation 1(i)(d) to section 2(42A) applies to
the former. Explanation 1(i)(e) to section 2(42A) [See Para 3.6-6] applies
to the latter.
3.6-6 Computation of the holding period of the right to subscribe to shares/
other security - i.e. ‘rights’
Inthecaseofrighttosubscribetoanyfinancialassetwhichisrenounced
in favour of any other person, the period shall be reckoned from the date
of offer of such right by the company or institution making such offer
for determining whether the right was held for 12 months or less or for
more than 12 months. [Explanation 1(i)(e) to section 2(42A)].
As regards the phrase ‘from the date of offer’, remarks in Para 3.6-5
above as regards ‘from the date of allotment’ shall apply here also.

Crucialdateisdateonwhichrighttosubscribecomesintoexistence.For
determiningwhetherthegains/lossofrenunciationofrighttosubscribe
is a short-term or long-term gains/loss, the crucial date is the date on
which such right to subscribe for additional shares/debentures comes
into existence and the date of renunciation [transfer] of such right -
Navin Jindal v. Asstt. CIT [2010] 187 Taxman 283 (SC).
3.6-7 Computation of holding period in case of bonus shares/bonus deben-
tures
In the case of a financial asset allotted without any payment and on the
basis of holding of any other financial asset, the period shall be reckoned
from the date of allotment of such financial asset for determining
whether the right was held for 12 months or less or for more than 12
months. [Explanation 1(i)(f) to section 2(42A)].
Asregardsthephrase‘fromthedateofallotment’[SeePara3.6-5above].
Bonus shares issued by a company are acquired by a shareholder when
they are issued and they must be taken to be held by shareholder from
the date of their issue and not from the date when the original shares, in
respect of which they are issued, were acquired by the shareholder -
Executive of the Will of Late Shri Manecklal Premchand v. CIT [1990] 48
Taxman 310 (Bom.)/Manecklal Premchand v. CIT [1990] 186 ITR 554
(Bom.)/CIT v. D.V. Paranjape [2014] 49 taxmann.com 245/226 Taxman
169 (Bom.).
3.6-8 Computation of holding period of share/shares in an Indian company
which becomes the property of the assessee in consideration of demerger
If a share or shares in an Indian company (resulting company) becomes
property of assessee (who was a shareholder of demerged company) as
consideration for his shares in demerged company, the period for which
sharesindemergedcompanywereheldbytheassesseeshallbeincluded
in determining the holding period of shares in resulting company.
[Explanation 1(i)(g) to section 2(42A)]
3.6-9 Computation of holding period of specified security or sweat equity
shares
In the case of a capital asset, being any specified security or sweat equity
sharesallottedortransferred,directlyorindirectly,bytheemployerfree
of cost or at concessional rate to his employees (including former
employee or employees), the period shall be reckoned from the date of

allotment or transfer of such specified security or sweat equity shares
for determining whether the right was held for 12 months or less or for
more than 12 months. [Explanation 1(i)(hb) to section 2(42A)]
The following definitions may be noted:
u ‘Specified security’ means the securities as defined in clause (h) of
section 2 of the Securities Contracts (Regulation) Act, 1956 [See
Para 3.7-1] and, where employees’ stock option has been granted
under any plan or scheme therefor, includes the securities offered
under such plan or scheme;
u ‘Sweat equity shares’ means equity shares issued by a company to
its employees or directors at a discount or for consideration other
than cash for providing know-how or making available rights in
the nature of intellectual property rights or value additions, by
whatever name called.
Asregardsthephrase‘fromthedateofallotment’[SeePara3.6-5above].
3.6-10 Computation of holding period of unit of business trust allotted
pursuant to transfer of shares
In the case of a capital asset, being a unit of a business trust, allotted
pursuant to transfer of share or shares as referred to in clause (xvii) of
section 47 [see Para 5.29], there shall be included the period for which
the share or shares were held by the assessee. [Explanation 1(i)(hc) to
section 2(42A)].
3.6-11 Computation of holding period of units which become property of the
assessee in consideration of transfer referred to in Section 47(xviii)
In the case of a capital asset, being a unit or units, which becomes the
property of the assessee in consideration of a transfer referred to in
clause (xviii) of section 47 [see Para 5.30], there shall be included the
period for which the unit or units in the consolidating scheme of the
mutual fund were held by the assessee. [Explanation 1(i)(hd) to section
2(42A)].
3.6-12 Computation of holding period of shares acquired by non-resident on
redemption of GDRs
In the case of a capital asset, being share or shares of a company, which
is acquired by the non-resident assessee on redemption of Global
Depository Receipts [See clause (b) of sub-section (1) of section 115AC]

held by such assessee, the period shall be reckoned from the date on
which a request for such redemption was made. [Explanation 1(i)(he)
to section 2(42A)].
3.6-13 Computation of holding period of equity shares acquired by way of
conversion of preference shares into equity shares
In the case of a capital asset, being equity shares in a company, which
becomes the property of the assessee in consideration of a transfer
referred to in clause (xb) of section 47, there shall be included the pe-
riod for which the preference shares were held by the assessee; [Expla-
nation 1(i)(hf) to section 2(42A)].
3.6-14 Computation of holding period of unit or units acquired in consideration
of a transfer referred to in clause (xix) of section 47
In the case of a capital asset, being a unit or units, which becomes the
property of the assessee in consideration of a transfer referred to in
clause (xix) of section 47, there shall be included the period for which
the unit or units in the consolidating plan of a mutual fund scheme
were held by the assessee. [Explanation 1(i)(hg) to section 2(42A)].
3.6-15 Holding period in case of unit or units in segregated portfolios
SEBI has vide circular SEBI/HO/IMD/DF2/CIR/P/2018/160 dated
December 28, 2018, permitted creation of segregated portfolio of debt
and money market instruments by Mutual Fund Schemes. As per the
SEBI circular, all the existing unit holders in the affected scheme as on
the day of the credit event shall be allotted equal number of units in the
segregated portfolio as held in the main portfolio. On segregation, the
unit holders come to hold same number of units in two schemes –the
main scheme and segregated scheme.
Inviewoftheabove,theFinanceAct,2020hasinsertedanewclause(hh)
in Explanation 1 to sub-section (42A) of section 2 of the Act to provide
that in the case of a capital asset, being a unit or units in a segregated
portfolio, referred to in sub-section (2AG) of section 49, there shall be
included the period for which the original unit or units in the main
portfolio were held by the assessee.
Further, a new sub-section (2AG) has been inserted by the Finance Act,
2020 in section 49 of the Act to provide that the cost of acquisition of a
unit or units in the segregated portfolio shall be the amount which bears
to the cost of acquisition of a unit or units held by the assessee in the total

portfolio, the same proportion as the net asset value of the asset trans-
ferred to the segregated portfolio bears to the net asset value of the total
portfolio immediately before the segregation of portfolios.
Sub-section (2AH) has been inserted in the said section to provide that
the cost of the acquisition of the original units held by the unit holder in
the main portfolio shall be deemed to have been reduced by the amount
as so arrived at under the proposed sub-section (2AG).
The Explanation below these two new sub-sections, as inserted by the
Finance Act, 2020, provide that for the purposes of sub-sections (2AG)
and (2AH), the expressions “main portfolio”, “segregated portfolio” and
“total portfolio” shall have the meaning respectively assigned to them in
the said circular dated 28th December, 2018 issued by SEBI.
These amendments will take effect from 1st April, 2020 and will, accord-
ingly, apply in relation to the assessment year 2020-21 and subsequent
assessment years.
3.6-16 Computation of holding period of a share or debenture which becomes
the property of the assessee in the circumstances mentioned in clause (x) of
section 47
In the case of a capital asset, being a share or debenture of a company,
which becomes the property of the assessee in the circumstances men-
tioned in clause (x) of section 47 [see Para 5.17] of the Act, there shall
be included the period for which the bond, debenture, debenture-stock
or deposit certificate, as the case may be, was held by the assessee prior
to the conversion. [Explanation 1(ii) to section 2(42A); Rule 8AA].
Where assessee was allotted convertible debentures and later on same
were converted into shares, while computing capital gains arising from
sale of said shares, it would be logical to reckon date of acquisition of
convertible debentures as date of acquisition of such shares - CIT v.
Naveen Bhatia [2015] 62 taxmann.com 87/235 Taxman 178 (Punj. &
Har.).
3.6-17 Computation of holding period of a capital asset declared in IDS, 2016
In the case of a capital asset, declared under the Income Declaration
Scheme, 2016,—
u being an immovable property, the period for which such property
is held shall be reckoned from the date on which such property is
acquired if the date of acquisition is evidenced by a deed regis-
tered with any authority of a State Government; and

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