Budget 2012 : Highlights - Capital Gains Tax

Profession:D.M. Harish & Co.

Definition of 'Capital Asset': Sec. 2(14)

'Capital asset' at present has been defined by the said section as property of any kind held by an assessee. A proviso is to be inserted retrospectively from 1st April, 1962, which clarifies that a property‟ "includes any rights in or in relation to an Indian Company, including rights of management or control or any other rights whatsoever".

This proposed retrospective amendment has been made as a reaction to the Vodafone case as the current definition does not include property indirectly held. Furthermore, it would have to be understood what is meant by rights of management or control and whether is it a reference to voting rights agreement, right to appoint director etc.

Definition of 'transfer'

Sec. 2(47): Definition of transfer‟, which currently includes sale, exchange or relinquishment of assets or rights therein etc. has been proposed to be extended retrospectively from 1st April, 1962 by insertion of Explanation 2‟. The explanation provides that transfer‟ includes creation of or disposing of any right in an asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (entered in or outside India) or otherwise. Further the Explanation provides that there will be a transfer‟ notwithstanding that the interest created in contingent or dependent on transfer of shares in a Company. Therefore, option agreements, contingent contracts etc could amount to transfer of shares.

The extended meaning of transfer may include creation of beneficial interest in an asset and therefore, there may be tax payable on having beneficial ownership.

Mode of computing Cost of acquisition

Sec. 49(1)(iii)(e): Sec. 49(1) provides for cost of acquisition in certain cases, including cost of acquisition of an asset in the hands of the LLP, where a LLP had succeeded a Company on conversion, as the cost in the hands of the Company originally as increased by cost of improvement. However, the said section does not provide for cost or acquisition in the hands of the Company, where a Company has succeeded a partnership firm or a sole proprietary concern.

The proposed amendment as a clarification, coming into effect from 1st April, 1999, provides that the cost of acquisition in the hands of the Company, where a Company had succeeded a partnership firm or a sole proprietary concern, would be the cost that was originally in the hands of the partnership firm or a...

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