Direct Taxes Code Bill, 2009 (Draft)

E. Capital gains

44.Capital gains

(1) The income from the transfer of any investment asset shall be computed under the head "Capital gains".
(2) The income under the head "Capital gains" shall, without prejudice to the generality of the foregoing provisions, include the following,-

(a) income from the transfer referred to in clause (c) or clause (d) of sub-section (1) of section 45, if,-

(i) the parent company, or its nominee, ceases to hold the whole of the share capital of the subsidiary company; or
(ii) the investment asset is converted by the transferee into, or treated by it as, its business trading asset;

(b) the income from the transfer referred to in clause (e) of section 45, if any of the conditions laid down in clause (16) or clause (81), as the case may be, of section 284 is not complied with;
(c) the amount of withdrawal referred to in sub-section (4) of section 53 to the extent determined in accordance with the formula -

A x B / C
Where
A= amount of deduction claimed under section 53;
B= the amount withdrawn from the account under the capital gains deposit scheme, which is not utilised for the purposes of purchase or construction of the new investment asset within one month from the end of the month in which the amount is withdrawn;
C= the net consideration as a result of the transfer of original investment asset; and

(d) the amount of deposit referred to in sub-section (5) of section 53 to the extent determined in accordance with the formula -

A x B / C Where
A= amount of deduction claimed under section 53;
B = the balance in the account referred to in sub-section (5) of section 53, of the assessee, as on the first day of the financial year immediately following the three financial years from the end of the financial year in which the transfer of the original investment asset referred to in that section is effected;
C= the net consideration as a result of the transfer of original investment asset.

45. Income from certain transfers not to be treated as capital gains

The income from the following transactions shall not be included in the computation of income under the head "Capital gains":-

(a) distribution of any investment asset on the total or partial partition of a Hindu undivided family;
(b) gift, or transfer under an irrevocable trust, of any investment asset, other than sweat equity share;
(c) transfer of any investment asset by a company to its subsidiary company, if-

(i) the parent company or its nominees hold the whole of the share capital of the subsidiary company,
(ii) the subsidiary company is an Indian company; and
(iii) the subsidiary company treats the asset as an investment asset;

(d) transfer of any investment asset by a subsidiary company to the holding company, if

(i) the whole of the share capital of the subsidiary company is held by the holding company or its nominees,
(ii) the holding company is an Indian company, and
(iii) the holding company treats the asset as an investment asset;

(e) transfer of any investment asset by a predecessor to a successor in a scheme under a business reorganisation if the successor is neither a non-resident nor a foreign company;
(f) transfer of any investment asset situated in India, by an amalgamating or demerged foreign company to the amalgamated or resulting foreign company, if -

(i) the transfer is effected under a scheme of amalgamation or demerger, as the case may be; and
(ii) the transfer does not attract tax on capital gains in the country, in which the amalgamating or demerged company is incorporated;

(g) transfer of shares of a predecessor by a shareholder under a scheme of business reorganisation, if-

(i) the transfer is made in consideration of the allotment to the shareholder of shares in the successor amalgamated company; and
(ii) the successor is neither a non-resident nor a foreign company;

(h) transfer of bonds or global depository receipts by a non-resident to another non-resident, if the transfer is made outside India;
(i) transfer of any work of art, archaeological, scientific or art collection, book, manuscript, drawing, painting, photograph or print, to the Government or a University or the National Museum, National Art Gallery, National Archives or any other public museum or institution of national importance or of renown throughout any State or States and notified by the Central Government in the Official Gazette for this purpose;
(j) transfer by way of conversion of any bonds or debentures, debenture-stock or deposit certificates in any form, of a company into shares or debentures of that company;
(k) transfer by way of conversion of foreign exchange convertible bond of a company into shares or debenture of any company;
(l) transfer of any securities, if-

(i) the transfer is effected under a scheme for lending of any securities; and
(ii) the scheme is framed in accordance with the guidelines issued by the Securities and Exchange Board of India, or the Reserve Bank of India.

(m) transfer of any investment asset, if -

(i)the transferor is a company; and
(ii) the asset of the company is distributed to its shareholders on its liquidation;

(n) transfer of a investment asset under a will;

Go back to Section-wise Index

46.Financial year of taxability

(1) The income from the transfer of an investment asset specified in column 2 of the Table 2 shall be the income of the financial year specified in column 3 of the said Table: Table - 2 : Financial year of taxability

S.No.	Nature of transfer	Financial year
(1)	(2)	(3)
a	Transfer between parent and subsidiary company, referred to in clause (c) or clause (d) of sub-section (1) of section 45	(a) in a case where the investment asset is converted by the transferee into, or is treated by it as, business trading asset, the financial year in which the business trading asset is sold; (b) in the case of any other investment asset, the financial year in which the parent company, or its nominee, ceases to hold the whole of the share capital of the subsidiary company
b	Transfer in a scheme under a business reorganisation, referred to in clause (e) of sub-section (1) of section 45.is not complied with.	The financial year in which any of the conditions referred to in clause (16) or clause 81, as the case may be, of section 284
c	Transfer by way of compulsory acquisition under any law	The financial year in which the compensation or its part, as determined by the Central or State Government or the Reserve bank of India, is received.
d	Transfer referred by way of conversion into, or its treatment as business trading asset	The financial year in which the converted or treated asset is sold or otherwise transferred.
e	Transfer by way of - (i)contribution of the asset, whether by way of capital or otherwise, to a company or an unincorporated body, in which the transferor is, or becomes, a shareholder or participant, as the case may be; or (ii) the distribution of the asset on account of dissolution of an unincorporated body.	The financial year in which the asset is transferred or distributed.
f	Transfer by way of part performance of a contract, referred to in sub-clause(i) of clause (287) of section 284	The financial year in which the possession of the immovable property is taken or retained.
g	Transfer by way of damage or destruction referred to in sub-clause (m) of clause (287) of section 284	The financial year in which the money or asset is received.
h	Transfer by way of distribution of the asset to a participant in an unincorporated body on account of his retirement from the body.	The financial year in which the money or the asset is distributed.
i	Transfer by any mode other than the modes referred to in serial numbers a to h.	The financial year in which the transfer took place.

(2) The amount referred to in clause (c) of sub-section (2) of section 44 shall, regardless of anything to the contrary contained in sub-section (1), be the income of the financial year in which the capital gains bond is transferred.
(3) The amounts referred to in clause (d) and clause (e) of sub-section (2) of section 44 shall, regardless of anything to the contrary contained in sub-section (1), be the income of the financial year in which the amount is withdrawn or of the fourth financial year immediately following the financial year in which the transfer of the original asset is effected, respectively.

Go back to Section-wise Index

47.Computation of income from the transfer of any investment asset

(1) The income from the transfer of any investment asset during the financial year shall be the full value of the consideration accrued or received as a result of the transfer, as reduced by the aggregate amount of the deductions referred to in section 49.
(2) The income from the transfer of each investment asset during the financial year, as computed under sub-section (1), shall be aggregated and the result of such aggregation shall be the 'current income from capital gains', for the financial year.
(3) The 'current income from capital gains' shall be aggregated with the 'unabsorbed preceding year capital loss', if any, and the result of such aggregation shall be the income under the head 'Capital gains'.
(4) The income under the head 'Capital gains' shall be treated as 'nil' if the result of aggregation under sub-section (3) is negative and the absolute value of the net result shall be the amount of 'unabsorbed current capital loss', for the financial year.

48.Full value of the consideration

(1) The full value of the consideration shall be the amount received by, or accruing to, the transferor, directly or indirectly, as a result of the transfer of the investment asset.
(2) The full value of the consideration shall, notwithstanding anything contained in sub-section (1), be,-

(a) the amount of compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India, if the transfer of the investment asset is by the mode specified in sub-clause (c) of clause (287) of section 284;
(b) the fair market value of the asset as on the date of the transfer, if the transfer is by the mode specified in sub-clause (d) of clause (287) of section 284;
(c) the amount of consideration received, if the transfer is by the mode specified in sub-clause (e) of clause (287) of section 284;
(d) the amount recorded in the books of account of the company or unincorporated body as the value of the investment asset, if the transfer of the investment asset is by the mode specified in sub-clause (f) of clause (287) of section 284;
(e) the fair market value of the asset as on the date of the transfer, if such transfer is by the mode specified in sub-clause (g) of clause (287) of section 284;
(f) the amount of money, or the fair market value as on the date of the receipt of any asset, received under an insurance from an insurer, if the transfer of the investment asset is by the mode specified in sub-clause (m) of clause (287) of section 284;
(g) the amount of money, or the fair market value as on the date of distribution of any asset, received from a company under liquidation or dissolution , as reduced by the amount of dividend within the meaning of sub-clause (iii) of clause (89) of section 284, if the person is a shareholder of the company;
(h) the amount of money, or the fair market value as on the date of distribution of the asset, received by the participant, if the transfer of the asset is by the mode specified in sub-clause (o) of clause (287) of section 284;
(i) the fair market value as on the date of transfer of the asset, if the transfer is by the mode, and the asset is of the nature, specified in clause (b) of sub-section (1) of section 45;
(j) the higher of the stamp duty value of the asset and the value of the asset ascertained on reference, if any, to the Valuation Officer.

(3) The reference to the Valuation Officer referred to in sub-section (2) shall be made, at the option of the assessee, if-

(i) the asset is land or building; and
(ii) the consideration accrued, or received, as a result of the transfer of the asset is less than the stamp duty value of the asset.

Go back to Section-wise Index

49.Deduction for cost of acquisition, inflation-adjustment etc.

(1) The deductions for the purposes of section 47 shall, in the case of an investment asset, be the following:-

(i) the amount of expenditure, if any, incurred wholly and exclusively in connection with the transfer of the asset;
(ii) the cost of acquisition, if any, of the asset; and
(iii) the cost of improvement, if any, of the asset.

(2) However, if the investment asset is transferred at any time after one year from the end of the financial year in which the asset is acquired by the assessee, the deductions for the purposes of section 47 shall be the following:-

(i) the amount of expenditure, if any, incurred wholly and exclusively in connection with the transfer of the asset;
(ii) the indexed cost of acquisition, if any, of the asset;
(iii) the indexed cost of improvement, if any, of the asset; and
(iv) the amount of relief for roll over of the asset, as determined under section 53.

50.Indexed cost of acquisition

(1) The indexed cost of acquisition of an investment asset shall be the amount determined in accordance with the formula -

A x B / C
Where
A =the cost of acquisition of the asset;
B =the Cost Inflation Index for the financial year in which the asset is transferred;
C =the Cost Inflation Index for the financial year immediately following the financial year in which the asset was acquired by the person or for the financial year beginning on the first day of April 2000, whichever is later.

(2) The indexed cost of improvement of an investment asset shall be the amount determined in accordance with the formula -

A x B / C
Where
A =the cost of improvement;
B =the Cost Inflation Index for the financial year in which the asset is transferred;
C =the Cost Inflation Index for the financial year immediately following the financial year in which the improvement to the asset took place or for the financial year beginning on the first day of April 2000, whichever is later.

Go back to Section-wise Index

51.Cost of acquisition of an investment asset

(1) The cost of acquisition of an investment asset, other than the asset referred to in sub-section (2) to sub-section (5), shall be,-

(a) the purchase price of the asset, or
(b) at the option of the person, the fair market value of the asset on the 1st day of April, 2000, if the asset is acquired by the person before such date.

(2) The cost of acquisition of an investment asset specified in column 2 of the Seventeenth Schedule, acquired by the mode specified in column 3 of the said Schedule, shall be the cost specified in column 4 therein.
(3) The cost of acquisition of an investment asset acquired by the assessee by any of the special modes of acquisition, shall be,-

(a) the cost for which the previous owner of the asset acquired it; or
(b) at the option of the person, the fair market value of the asset on the 1st day of April, 2000, if the asset is acquired by the previous owner or the person before such date.

(4) The cost of acquisition of an investment asset forming part of a bundle of investment assets acquired by any participant, on distribution of the asset to him on account of his retirement from any unincorporated body, shall be the amount determined in accordance with the formula -

A - (B + C)
where,
A= the amount payable to the participant as appearing in the books of account of the unincorporated body on the date of distribution;
B= any amount attributable to the change in the value of the bundle on account of revaluation of the bundle, if any, up to the date of distribution; and
C= the cost of acquisition of any other asset, if any, forming part of the bundle acquired by the participant, on distribution of the asset to him on account of his retirement from any incorporated body if the cost of acquisition has been allowed as a deduction under section 49 in any earlier financial year.

(5) The cost of acquisition of an investment asset shall, regardless of anything to the contrary contained in this section, be nil, if,-

(a) the asset is acquired by self-generation; or
(b) the cost of acquisition of the asset to the person or previous owner, if any, is incapable of being determined or ascertained, for any reason.

(6) The Board may, for the purposes of sub-section (1), prescribe the cost of acquisition of any investment asset and the method of determination thereof, having regard to the nature of the investment asset, mode of acquisition and the circumstances in which the asset became the property of the person.

52.Cost of improvement

(1) The cost of improvement of an investment asset shall be any expenditure of a capital nature incurred in making any additions or alterations to the asset ,-

(a) by the person; or
(b) by the previous owner, if the asset is acquired by any special modes of acquisition.

(2) The cost of improvement of the investment asset, referred to in sub-section (1), shall, in a case where the cost of acquisition of the asset is taken as fair market value of the asset as on the 1st day of April, 2000, not include any capital expenditure referred therein, which is incurred before the 1st day of April, 2000.
(3) The cost of improvement of an investment asset shall, regardless of anything to the contrary contained in sub-section (1), be 'nil' in relation to,-

(a) an investment asset acquired by self generation;
(b) any investment asset if the cost of improvement is incapable of being determined or ascertained, for any reason; and
(c) any undertaking transferred in slump sale.

Go back to Section-wise Index

53.Relief for roll over of investment asset

(1) An individual or a Hindu undivided family shall be allowed a deduction, in respect of roll over of any original investment asset, from the capital gain arising from the transfer of the asset in accordance with the provisions of this section.
(2) The deduction referred to in sub-section (1) shall be computed in accordance with the formula -

A x (B+C+D) / E
Where
A=the amount of capital gains arising from the transfer of the original asset;
B=the amount invested for purchase or in construction of the new asset within one year before the beginning of the financial year in which the transfer of original investment asset is effected;
C=the amount invested for purchase or in construction of the new asset during the financial year in which the transfer of original investment asset is effected;
D=the amount deposited in an account in any post office in accordance with the Capital Gains Deposit Scheme framed by the Central Government in this behalf, by the end of the financial year in which the transfer of original investment asset is effected;
E=the net consideration received as a result of the transfer of the original asset.

(3) The deduction computed under sub-section (2) shall not exceed the amount of capital gains arising from the transfer of the investment assets.
(4) Any amount withdrawn from the account under the Capital Gains Deposit Scheme shall be utilised within one month from the end of the month in which the amount is withdrawn, for the purposes of purchase or construction of the new asset.
(5) The amount deposited in the account under the Capital Gains Deposit Scheme shall be utilised for the purposes of purchase or construction of the new asset within three years from the end of the financial year in which the transfer of the original asset is affected.
(6) The deduction under this section in respect of capital gain arising from an investment asset, specified in column (2) of Table-3, shall be allowed with reference to the corresponding new investment asset referred to in column (3) of the Table, subject to the fulfillment of conditions specified in column (4) therein.

Table-3:Deduction in respect of capital gains

S. No,	Description of the original investment asset	Description of the new investment asset	Conditions
(1)	(2)	(3)	(4)
1	Agricultural land	One or more pieces of agricultural land.	The original investment asset was - (i) an agricultural land during two years immediately preceding the financial year in which the asset is transferred; and (ii) acquired prior to one year before the beginning of the financial year in which the transfer of the asset took place.
2	Any investment asset	Residential house.	(i) The assessee does not own any residential house, other than the new investment asset, on the date of transfer of the original investment asset; and (ii) The original investment asset was acquired prior to one year before the beginning of the financial year in which the transfer of the asset took place.
3	Any investment asset	Deposit in an account maintained under the Capital Gains Savings Scheme	(i) The original investment asset was acquired prior to one year before the beginning of the financial year in which the transfer of asset took place; and (ii) The deposit is made within a period of sixty days from the date of transfer of the original investment asset.