Cost of Inflation Index (CII) used for Capital Gains and analysis

The Cost of Inflation Index (CII) is published by CBDT every year for the purpose of computation of Capital Gains.
This Index Number series started from 1981, thus the Index for Base Period is always 100.

Financial Year	CII	Increase in Points	% Increase
Before 1/4/1981	100
1981-82	100	-	-
1982-83	109	9	9%
1983-84	116	7	6%
1984-85	125	9	8%
1985-86	133	8	6%
1986-87	140	7	5%
1987-88	150	10	7%
1988-89	161	11	7%
1989-90	172	11	7%
1990-91	182	10	6%
1991-92	199	17	9%
1992-93	223	24	12%
1993-94	244	21	9%
1994-95	259	15	6%
1995-96	281	22	8%
1996-97	305	24	9%
1997-98	331	26	9%
1998-99	351	20	6%
1999-00	389	38	11%
2000-01	406	17	4%
2001-02	426	20	5%
2002-03	447	21	5%
2003-04	463	16	4%
2004-05	480	17	4%
2005-06	497	17	4%
2006-07	519	22	4%
2007-08	551	32	6%
2008-09	582	31	6%
2009-10	632	50	9%
2010-11	711	79	13%
2011-12	785	74	10%
2012-13	852	67	9%
2013-14	939	87	10%
2014-15	1024	85	9%
2015-16	1081	57	6%
2016-17	1125	44	4%

Ambiguity cleared regarding investment of 'a residential house'

Capital gains exemption in case of investment in a residential house property

The existing provisions contained in sub-section (1) of section 54, inter alia, provide that where capital gain arises from the transfer of a long-term capital asset, being buildings or lands appurtenant thereto, and being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the amount of capital gains to the extent invested in the new residential house is not chargeable to tax under section 45 of the Act.

The existing provisions contained in sub-section (1) of section 54F, inter alia, provide that where capital gains arises from transfer of a long-term capital asset, not being a residential house, and the assessee within a period of one year before or two years after the date of transfer, purchases, or within a period of three years after the date of transfer constructs, a residential house then the portion of capital gains in the ratio of cost of new asset to the net consideration received on transfer is not chargeable to tax.

The benefit was intended for investment in one residential house within India. Accordingly, it is proposed to amend the aforesaid sub-section (1) of section 54 so as to provide that the rollover relief under the said section is available if the investment is made in one residential house situated in India.

It is further proposed to amend the aforesaid sub-section (1) of section 54F so as to provide that the exemption is available if the investment is made in one residential house situated in India. 

These amendments will take effect from 1st April, 2015 and will accordingly apply in relation to assessment year 2015-16 and subsequent assessment years.

Alkaben B. Patel vs. ITO (ITAT Ahmedabad) (Special Bench)

The term “month” in s. 54E, 54EA, 54EB & 54EC does not mean “30 days” but the “calendar month”. So, the expression “within a month” means “before the end of the calendar month”

Sections 54E, 54EA, 54EB & 54EC require the investment to be made “within a period of six months after the date of such transfer”. The subtle question is that whether the word “month” refers in this section a period of 30 days or it refers to the month only. The term ‘month’ is not defined in the Income-tax Act. Therefore, its meaning has to be understood as per the General Clauses Act, 1897 which defines the word “month” to mean a month reckoned according to the British calendar. In Munnalal Shri Kishan Mainpuri 167 ITR 415 (All) it was held in the context of limitation u/s 256(2) that the word ‘month’ refers to a period of 30 days and, therefore, the reference to “six months” in s. 256(2) is to “six calendar months” and not “180 days”. On some occasions, the Legislature had not used the term “Month” but has used the number of days to prescribe a specific period. For example, the First Proviso to s. 254(2A) provides that the Tribunal may pass an order granting stay but for a period not exceeding 180 days. This is an important distinction made in the statute while subscribing the limitation/ period. This distinction thus resolves the present controversy by itself.

Recent important tax caselaws

Below are the recent important tax caselaws related to Income tax, Service tax, Excise in brief. The citation is made available for your benefit :

INCOME TAX

SECTION 2(47)

CAPITAL GAINS - TRANSFER

Immovable property : Where in terms of joint development agreement of land, assessee executed a power of attorney in favour of representative of builder agreeing to authorize him to execute sale of built-up area, even though builder could not subsequently complete said agreement, in view of fact that substantial construction had already been completed, transfer took place within meaning of section 2(47) and, thus, assessee was liable to pay capital gain tax on such transfer - Smt. Prameela Krishna v. Income-tax Officer, Ward -1(2), Mysore (2014) 42 taxmann.com 185 (Karnataka)     SECTION 12AA CHARITABLE OR RELIGIOUS TRUST - REGISTRATION PROCEDURE Scope of power : Question as to whether trust is created or established for benefit of any particular religious community or caste would be relevant only when income of trust is being assessed in terms of section 11, however, at time of disposing of application of a trust seeking registration, Commissioner has to merely decide whether said trust has fulfilled necessary requirements of registration as provided under section 12A - Commissioner of Income-tax, Rajkot –II v. Leuva Patel Seva Samaj Trust (2014) 42 taxmann.com 181 (Gujarat)       SERVICE TAX SECTION 65(27) COMMERCIAL TRAINING OR COACHING SERVICES - STAY ORDER Sale of CD ROMs containing "live virtual class" provided to enhance skill or impart knowledge on certain subjects to buyers of CDs and imparting "online learning/e-learning" to certain customers not covered under Commercial Training or Coaching Services - Sun Microsystems (I) (P.) Ltd. v. Commissioner (LTU), Bangalore (2014) 42 taxmann.com 321 (Bangalore - CESTAT)       SECTION 93 EXEMPTIONS - SERVICE TAX If a co-owned property is rented out by its co-owners to a single person, every co-owner can avail small service provider's exemption separately - Manju Champaklal Bafna v. Commissioner of Service Tax, Ahmedabad (2014) 42 taxmann.com 320 (Ahmedabad - CESTAT)

Sec. 2(47)(v): Mere execution of a development agreement is not a “transfer” if possession as per s. 53A of the Transfer of Property Act is not given

CIT vs. Sadia Shaikh (Bombay High Court At Goa)

Sec. 2(47)(v): Mere execution of a development agreement is not a “transfer” if possession as per Sec. 53A of the Transfer of Property Act is not given


Though the development agreement was executed in AY 2003-04, the possession as contemplated in Section 53A of the Transfer of Property Act was in fact not handed over by the assessee to the developer. The agreement only permitted the development to be carried out by the said developer.

The entire control over the property was in fact with the assessee inasmuch as the licence to construct the property was also in the name of the assessee and the occupancy certificate was also given to the assessee. Therefore the execution of the agreement could not amount to transfer as contemplated under Section 53A of the Transfer of Property Act. The agreement was subsequently specifically modified and the assessee was liable to pay the capital gain as per the last agreement i.e. for assessment year 2008-09.

See also General Glass 108 TTJ 854 (Mum) & Fibars Infratech (ITAT Hyd) where Chaturbhuj Dwarakadas Kapadia 260 ITR 491 (Bom) is explained/ distinguished. Contrast with Charanjit Singh Atwal (ITAT Chd)

Gist of latest important caselaws

Below are the recent important tax caselaws related to Income tax, Service tax in brief. The citation is made available for your benefit :

 INCOME TAX

SECTION 2(42A)

CAPITAL GAINS – SHORT-TERM CAPITAL ASSETS/GAINS

Period of holding as de facto owner should be considered for computing holding period of capital asset u/s 2(42A) - Commissioner of Income-tax v. A. Suresh Rao (2014) 41 taxmann.com 475 (Karnataka)     SECTION 10(23C) EDUCATIONAL INSTITUTIONS Where assessee, running a college for Arabic language affiliated to Madras University, claimed exemption under section 10(23C)(iiiad), said claim could not be rejected merely on ground that its students had to pray daily along with religious leader and they had specific dress code accordingly to Islamic specifications - Deputy Director of Income-tax (Exemptions)-III v. Madarasa E-Bakhiyath-Us- Salihath Arabic College (2014) 41 taxmann.com 8 (Chennai - Trib.)       SECTION 28(v) BUSINESS INCOME - NON-COMPETE FEE Position prior to 1-4-2003 : Since amendment in Finance Act, 2002 was not clarificatory but amendatory in nature, non-competition fee received under a negative covenant is taxable only with effect from 1-4-2003, and not retrospectively - Commissioner of Income-tax v. Prakash Ladhani (2014) 41 taxmann.com 22 (Karnataka) SECTION 32 DEPRECIATION - ALLOWANCE/RATE OF Foreign exchange rate difference : Assessee was entitled to depreciation in respect of an amount representing addition to cost of plant and machinery on account of foreign exchange rate difference - Additional Commissioner of Income-tax v. Gujarat Narmada Valley Fertilizers Co. Ltd. (2013) 40 taxmann.com 481 (Gujarat)       SECTION 54F CAPITAL GAINS - EXEMPTION OF, IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE Owning more than one residential house : Where an assessee on date of transfer of original asset, owns more than one residential house, he is not eligible for deduction under section 54F, even if other residential house is owned by assessee wholly or partially - Income-tax Officerv.Apsara Bhavana Sai (2013) 40 taxmann.com 528 (Hyderabad - Trib.)       SECTION 237 REFUNDS TDS : In pursuance of order passed by Supreme Court that shares allotted to employees under Employees Stock Option Scheme did not amount to perquisite and, thus, there was no liability to deduct tax at source in respect of same, amount so deducted in case of assessee-employee on aforesaid ground was to be refunded along with interest - K. Parthasarathy v. Commissioner of Income-tax (2014) 41 taxmann.com 16 (Madras)       SERVICE TAX SECTION 65(75) ON-LINE INFORMATION AND DATABASE ACCESS OR RETRIEVAL SERVICES Where assessee had only hired out infrastructure of broadband for use of customer and had not provided any data or information to customer, said activity did not amount to 'online information and data base access and/or retrievable services' - Gujarat State Petroleum Corpn. Ltd. v. Commissioner of Central Excise (2014) 41 taxmann.com 291 (Ahmedabad - CESTAT)

Gist of recent important tax caselaws and judgements

INCOME TAX ACT

SECTION 11

CHARITABLE OR RELIGIOUS TRUST - EXEMPTION OF INCOME FROM PROPERTY HELD UNDER

Investment in specified securities : Where shares of co-operative banks were subscribed only for purposes of obtaining loan for furtherance of objects of trust, section 11/12 exemption could not be denied - Commissioner of Income-tax v. Dr. Vikhe Patil Foundation (2014) 42 taxmann.com 190 (Bombay)     SECTION 37(1) BUSINESS EXPENDITURE - ALLOWABILITY OF ESOP : Where in terms of Employees Stock Purchase Scheme (ESOP), assessee company offered shares of its parent company to employees, difference between fair market value of shares of parent company on date of issue of shares and price at which those shares were issued by assessee to its employees was to be regarded as expenditure incurred for business purpose allowable under section 37(1) - Novo Nordisk India (P.) Ltd. v. Deputy Commissioner of Income-tax (2014) 42 taxmann.com 168 (Bangalore - Trib.)       SECTION 54F CAPITAL GAINS - EXEMPTION OF, IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE Construction : Where construction of residential house takes place prior to date of transfer of long term capital asset, assessee's claim for deduction under section 54F cannot be allowed - Smt. Ushaben Jayantilal Sodhan v. Income-tax Officer (2014) 42 taxmann.com 175 (Ahmedabad - Trib.)       SECTION 68 CASH CREDIT Gift : Gift from brother being not substantiated by any evidence, was to be assessed under section 68 - K. Sivakumar v. Assistant Commissioner of Income-tax (2014) 42 taxmann.com 202 (Madras)

Recent important tax caselaws / judgements

SECTION 2(15)

CHARITABLE OR RELIGIOUS PURPOSE

Land dealings : Where assessee-trust was carrying out following activities: purchase of land at nominal cost, then level and clear it, cut into plots and sell of plots at much higher prices, and charging of fees and fines, activities of assessee were not charitable in nature within meaning of proviso to section 2(15) - Improvement Trust v. Commissioner of Income-tax (2014) 41 taxmann.com 403 (Amritsar - Trib.)     SECTION 10(23C) CHARITABLE/RELIGIOUS INSTITUTIONS University not tax-exempt under Art 289(1) of the Constitution as 'State' in Art 289 doesn't include University - Visvesvaraya Technological University v. Assistant Commissioner of Income-tax (2014) 42 taxmann.com 237 (Karnataka)       SECTION 45 CAPITAL GAINS - CHARGEABLE AS Business income v. Capital gains - Share dealings : Where assessee-corporation along with private entrepreneurs made investment in shares of companies which were formed with object of promoting agro/horticulture based industry in State, income arising from subsequent sale of those shares was to be taxed as 'capital gain' and not as a 'business income' - Commissioner of Income-tax v. Punjab Agro Industries Corporation Ltd. (2014) 41 taxmann.com 328 (Punjab & Haryana)       SECTION 268A FILING AN APPEAL BY INCOME-TAX AUTHORITY Monetary limit : Appeal cannot be dismissed without considering merits of case, solely on ground of low tax effect, where notional tax effect exceeds monetary limit prescribed by Board - Commissioner of Income-tax v. Anjani Fabrics Ltd (2014) 41 taxmann.com 361 (Gujarat)    Source : Taxmann

Recent important tax caselaws / judgements

SECTION 36(1)(vii)

BAD DEBTS

Conditions precedent : Deduction on account of bad debts was allowable to assessee since debts were outstanding since long and assessee wrote off same as irrecoverable in its books - Radhu Palace v. Additional Commissioner of Income-tax (2014) 41 taxmann.com 281 (Delhi - Trib.)     SECTION 37(1) BUSINESS EXPENDITURE - ALLOWABILITY OF Bad debt : Where trade advances becoming unrealizable, provision was made and profit was loss account was debited in earlier year, same was to be allowed when written of in subsequent year - Commissioner of Income-tax v. Indian Explosives Ltd. (2014) 41 taxmann.com 264 (Calcutta) SECTION 41(1) REMISSION OR CESSATION OF TRADING LIABILITY Time-barred liabilities : Where assessee had outstanding creditors for goods and Assessing Officer made addition in income of assessee under section 41(1) on basis that with respect to 14 creditors liability was outstanding for more than three years, Assessing Officer was not justified in his view - Commissioner of Income-tax v. Puridevi Mahendrakumar Chaudhary (2014) 41 taxmann.com 329 (Gujarat)       SECTION 54F CAPITAL GAINS - EXEMPTION OF, IN CASE OF INVESTMENT IN RESIDENTIAL HOUSE Construction : Where consideration received on transfer of property had been invested by assessee in construction of residential house, merely because construction was not complete in all respects within stipulated period, benefit of section 54F, should not be rejected - Income-tax Officer v. Smt. B.S. Shanthakumari (2014) 41 taxmann.com 325 (Bangalore - Trib.)       SECTION 251 COMMISSIONER (APPEALS) - POWERS OF Power to admit additional evidence : Where assessee was prevented by sufficient cause in not appearing before Assessing Officer while framing assessment due to confusion relating to jurisdiction of Assessing Officer, in such circumstances, Commissioner (Appeals) as well as Tribunal relying upon additional evidence produced by assessee were justified in deleting a part of addition made by Assessing Officer - Commissioner of Income-tax v. Safari Bikes Ltd. (East) (2014) 41 taxmann.com 282 (Punjab & Haryana)       SECTION 271(1)(c) PENALTY - FOR CONCEALMENT OF INCOME Surrender of income : Where Assessing Officer had conducted enquiries into matter of sale of shares prior to surrender made by assessee and duly established on record that said share transactions were sham and bogus, he was justified in levying penalty under section 271(1)(c) in respect of addition made for those transactions - Deputy Commissioner of Income-tax v. Mukesh Kumar Agarwal, (HUF) (2014) 41 taxmann.com 269 (Agra - Trib.)    Source : Taxmann

Gist of Important tax caselaws / judgements

INCOME TAX ACT

SECTION 2(14)

CAPITAL GAINS - CAPITAL ASSET

Agricultural land : Where assessee claimed that during previous year he in terms of an agreement entered with a promoter of land had sold his agricultural land and said land was situated at a distance of more than eight kilometres from nearest panchayat, profit derived on sale of land was not liable to capital gain tax, because land was not a capital asset by virtue of section 2(14)(iii) - Income-tax Officer, Business Ward -IV (3), Chennai v. P. Prakasam (2014) 41 taxmann.com 79 (Chennai - Trib.) SECTION 41(1) REMISSION OR CESSATION OF TRADING LIABILITY Conditions precedent : If amount of advance received for making export stood as a liability in books of account, and same had not been written of, it could not be said that liability had ceased to exist; additions under section 41(1) could not be made - Aasia Business Ventures (P.) Ltd.v.Income Tax Officer (2014) 41 taxmann.com 84 (Mumbai - Trib.)  SECTION 55 CAPITAL GAINS - COST OF ACQUISITION Goodwill : Sale of goodwill of profession would not as such come within ambit of provisions of section 55(2)(a); same is not taxable as LTCG - Dr. K. Premraj v. Deputy Commissioner of Income-tax (2014) 41 taxmann.com 81 (Chennai - Trib.) SECTION 68 CASH CREDITS Loan : Where in respect of loan transaction, it was apparent that amount was advanced through account payee cheques and lender had got sufficient balance in their bank account before issuing cheques, said transaction was to be regarded as genuine and, thus, loan amount could not be added to assessee's income under section 68 merely on ground that lenders were related to a person who was involved in providing accommodation entries - Commissioner of Income-tax -1, Agra v. Rahul Vineet Traders (2014) 41 taxmann.com 86 (Allahabad) SECTION 194-I DEDUCTION OF TAX AT SOURCE – RENT Hire of vehicles : Where assessee entered into an agreement with a contractor for hiring of vehicles and made use of vehicles and equipment and paid hire charges on basis of number of hours of use, section 194-I, and not section 194C, would be attracted - Three Star Granites (P.) Ltd. v. Assistant Commissioner of Income-tax (2014) 41 taxmann.com 91 (Kerala) SECTION 260A HIGH COURT - APPEAL TO Condonation of delay : Where delay in filing appeal was due to negligence of advocate and also negligence of assessee who did not enquire about filing of appeal for more than two and half years, application for condonation of delay was to be rejected - Dr. G.G. Dhir v. Deputy Commissioner of Income-tax (2014) 41 taxmann.com 88 (Allahabad) Source : Taxmann