1 Answer: Short-term
State with reasons the implications of the above transaction on taxable income of Dev and Jeet for the Assessment Year 2015-16.
Answer: Implication in the hands of Dev: As the flat sold by Dev formed part of his stock-in-trade, the provision of section 43CA shall apply.
As per section 43CA where consideration as a result of transfer by an assessee of any immovable asset (other than a capital asset) is less than the stamp duty value, then the stamp duty value shall be deemed to be the full value of the consideration for the purpose of computing business profit from transfer of such asset.
Therefore, the difference between the stamp duty value and the actual consideration i.e. ₹10 lacs (₹55 lacs – ₹45 lacs) shall be charged to tax under the head ‚profits and gains from business or profession‛.
Implication in the hand of Jeet: As per section 56(2)(vii) if any individual receive any immovable property (being capital asset) for a consideration which is less than its stamp duty value by more than
₹5000, then the excess of stamp duty value over the actual consideration shall be taxed under the head
‚income from other sources‛
Therefore, the amount of ₹10 lacs, being the excess of stamp duty value over the actual consideration shall be taxed in the hands of Jeet under the head ‚income from other sources‛.
[CMA INTER SY12, J14, 1 Mark]
Question: Choose the best option: To avail exemption u/s 54, an individual should purchase a new residential house within ________ years from the date of sale.1
(A) 2 (B) 3 (C) 1 (D) 4
[CMA INTER SY12 & SY08, J14, 5 Marks]
Question: State the provisions relating to claiming of exemption in order to reduce tax liability on short-term capital gains.
Answer: Provisions relating to claiming of exemption in order to reduce tax liability on short term capital gains.
Applicable for Exemption U/S
1 Transfer of Agricultural land 54B
2 Transfer by way of compulsory acquisition by Government 54D 3 Shifting of industrial undertaking from urban to Rural area 54G 4 Compulsory acquisition of Agricultural land by Central Government / RBI 10(37) 5 Transfer by companies engaged in power sector business 10(41)
1 A
[CMA INTER SY12, D14, 1 Mark]
Question: Fill up the blanks: Buy back of unlisted shares by a company is _______ even if it is incurred in the course of shareholder1.
[CMA INTER SY08, D14, 1 Mark]
Question: Choose the best option: Basic rate of tax applicable to domestic company on distributed income in the case of buyback of shares not listed in stock exchange is2
(A) 15% on the distributed income (B) 20% on the distributed income (C) 30% on the distributed income (D) Nil
[CMA INTER SY08, D14, 4 Marks]
Question: State with brief reason, whether the following assets are long-term or short-term capital assets (Mere conclusion will not receive any credit):
1. Renunciations of right to subscribe to right share, immediately after the offer was made by the company.
2. Sale of surgery equipments by a doctor on discontinuance of profession.
3. Slump sale of undertaking offer operating for 4 years.
4. Sale of bonus shares within 6 months after the allotment; original shares were acquired 24 menthes e earlier.
Answer:
1. As per clause (e) of the Explanation 1 to section 2(42A) right to subscribe to any financial asset when renounced in favour of any other person, the period shall be reckoned from the date of offer of such right by the company. Since the time between the offer made by the company and its renunciation in no case could exceed 12 months, it is always a short-term capital asset.
2. Surgery equipment used by a surgeon in profession might have been allowed depreciation under section 32. Hence, in view of section 50 it shall deemed to be a short-term capital asset and the gain or loss if any sale be short-term capital gain or loss.
3. As per proviso to section 50B(1) an undertaking owned and held for not more than 36 months shall be short-term capital asset and when the undertaking was operated for 4 years before slump sale, it shall be a long-term capital asset.
4. As per clause (f) of the Explanation 1 to section 2(42A), a financial asset allotted without payment shall be treated as long-term or short-term by reckoning the time period from the date of allotment of such financial asset. Thus bonus shares sold within 6 months after allotment will be short-term capital asset.
1 Exempt
2 (B) 20% on the distributed income
[CMA INTER SY12, J15, 1 Marks]
Question: Fill up the blanks: A Zero coupon bond is a long-term capital asset, if it is held for more than ______ months before transfer1.
[CMA INTER SY12, J15, 1 Marks]
Question: Choose the best option: Long-term capital gain on off-market sale of shares of a listed company without availing of indexation benefit is taxed at 2
(A) 5% (B) 10% (C) 15% (D) 20%
[CMA INTER SY12, J15, 3 Marks]
Question: Can Mr. Ajit who has long-term capital gain from sale of vacant site in India buy a residential house outside India to claim exemption under section 54F? Assume that he has no residential property in India.
Answer: Exemption u/s 54F
When the assessee has no residential house property or has not more than one residential house property, he is eligible to claim exemption under section 54F.
When a long-term capital asset other than a residential house is transferred, the exemption by way of investment in residential house could be obtained by deploying the net consideration.
The exemption is subject to the condition that the assessee has within a period of one year before or two years after the date of transfer of long-term capital asset acquires a residential house or three years after transfer constructs a new residential house in India for the purpose of availing the exemption under section 54F.
A person transferring a long-term capital asset in India cannot acquire a residential house outside India and be eligible for exemption under section 54F.
Thus the person cannot claim exemption in respect of long-term capital gain on sale of vacant site in India by acquiring a residential house outside India.
[CMA INTER SY12, J15, 5 Marks]
Question: Mr. Dhoni sold a residential building at Cochin for ₹65 lakhs in December 2015. The stamp valuation authority determined the value at ₹80 lakhs which was not contested by Mr. Dhoni. The property was acquired in April, 2005 for ₹6 lakhs. He acquired a residential flat at Ranchi for ₹55 lakhs and another residential house at Cuttack for ₹25 lakhs before March, 2016. Compute the capital gain of Mr. Dhoni for the assessment year 2016-17.
1 12 months
2 (B) 10%
Answer: You are required to plan in such a way that the incidence of tax is the least.
Particulars
Sale consideration of residential building of Cochin 65,00,000 Stamp valuation authority has determined the value of ₹80 lakhs 80,00,000 The higher of the two is to be adopted as deemed sale consideration u/s 50C 80,00,000 Less Indexed cost of acquisition 13,05,030
Capital gains before exemption 66,94,970
Less Exemption u/s 54
In respect of residential property acquired of Ranchi 55,00,000
Taxable long-term capital gain 11,94,970
Note: From the assessment year 2016-17 onwards, the exemption u/s. 54 is limited to one residential house in India. Out of the two residential properties acquired by him, he can opt for exemption u/s. 54 in respect of one property only. The higher of the value has been adopted for maximizing the benefit to the assessee.