Learn Capital Gain in easy way

Hi friends, 

This is my own notes prepared by me for last day revision of important topics.

Step by step i will post my other notes also. I hope it may be helpful to all of you for ur exams.

So, First , Here i start with some hard topics but very important from exams point of view.

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Computation of capital Gain in the case of Conversion of Capital Asset into Stock-in-trade Under Sec. 45(2) 

 (a) Separate Business Income  

= Sale price -  Fair market Value on the date of conversion.

(b) Capital Gain (This is notional profit)

=   Fair market Value on the date of conversion (Full value of consideration)         

                                                           -      

     Cost of   Acquisition or Indexed  Cost of   Acquisition (*)

* in this, index cost of acquisition calculated as follows  :-

1. If capital Asset purchase before 1^st April, 1981 :-

 = FMV on 1^st April 1981 or Purchase price (Whichever is higher)

                                              *

         Cost inflation Index for the year of conversion     

            Cost inflation index for 1981-82(i.e.100)

 2. If capital Asset purchase on or After 1^st April,1981 :-

=                  Purchase price of Capital Asset

                                          *

    ___Cost inflation Index for the year of conversion___     

    Cost inflation index for the year of purchase of Asset

Note: -

# If the capital asset is converted before 1^st April, 1984 (i.e A.Y 1985-86) then it is not treated as “transfer” U/s 2(47). Then only separate business income should be calculated. Nothing is taxable, only separate business income is taxable in the year of sale.

# If the capital asset is converted on or after 1^st April,1984 (i.e A.Y 1985-86) then it is  treated as “transfer” U/s 2(47) and both the separate business income & capital gain will be calculated. Both profit (i.e. Separate Business Income & Capital Gain .i.e. notional profit) will be taxable in the year of sale

 # Treated as “transfer” in the year in which Capital Asset is converted into Stock-in-trade.

 # There is no force in the argument that the provisions of sec.45(2) would come into play only when there is profit or gain and not when there is loss –CIT v. Claridges Investments & Finances(P) Ltd.[2007]

# If stock-in-trade is sold in parts in different years, tax on capital gain on conversion of Capital Asset into Stock-in-trade as per section 45(2), can be said to arise in parts in different years and not in one year in which last of stock-in-trade is sold – CIT v. Crest Hotels Ltd.[2001]