Topic wise Test Papers of CA Inter - Direct Tax - MAY/NOV-23 Exams
Topic: Income from Capital Gain & IFOS
Total Marks: 50 Marks
Time Allowed: 70 minute
Answers:
Part-A Multiple Choice Questions
[Total 20 Marks]
1. Answer : B
2. Answer : C
3. Answer : D
4. Answer : B
5. Answer : C
6. Answer : C
7. Answer : A
8. Answers : (i) A
(ii) C
(iii) A
Part- B Descriptive Questions
[Total 30 Marks]
Solution 1:
Computation of capital gains and business income of Harshita for A.Y. 2023-24
Particulars `
Capital Gains
Fair market value of land on the date of conversion deemed as the full value of 2,10,00,000
consideration for the purposes of section 45(2)
Less: Indexed cost of acquisition[`35,00,000×317(2021-22)/113(2004-05)] 98,18,584
1,11,81,416
Proportionate capital gains arising during A.Y. 2023-24 [` 1,11,81,416 x 2/3] 74,54,277
Less: Exemption under section 54EC 50,00,000
Capital gains chargeable to tax for A.Y.2023-24
24,54,277
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Business Income
Sale price of flats [10 × ` 30 lakhs] 3,00,00,000
Less: Cost of flats
Fair market value of land on the date of conversion [` 210 lacs × 2/3] 1,40,00,000
Cost of construction of flats [10 × ` 10 lakhs] 1,00,00,000
Business income chargeable to tax for A.Y.2023-24 60,00,000
Notes:
(1) The conversion of a capital asset into stock-in-trade is treated as a transfer under section 2(47). It
would be treated as a transfer in the year in which the capital asset is converted into stock-in-trade
(i.e., P.Y.2021-22, in this case).
(2) However, as per section 45(2), the capital gains arising from the transfer by way of conversion of
capital assets into stock-in-trade will be chargeable to tax only in the year in which the stock-in-
trade is sold.
(3) The indexation benefit for computing indexed cost of acquisition would, however, be available
only up to the year of conversion of capital asset into stock-in-trade (i.e., P.Y.2021-22) and not up
to the year of sale of stock-in- trade (i.e., P.Y.2022-23).
(4) For the purpose of computing capital gains in such cases, the fair market value of the capital asset
on the date on which it was converted into stock- in-trade shall be deemed to be the full value of
consideration received or accruing as a result of the transfer of the capital asset.
In this case, since only 2/3rd of the stock-in-trade (10 flats out of 15 flats) is sold in the P.Y.2022-
23, only proportionate capital gains (i.e., 2/3rd) would be chargeable to tax in the A.Y.2023-24.
(5) On sale of such stock-in-trade, business income would arise. The business income chargeable to
tax would be the difference between the price at which the stock-in-trade is sold and the fair market
value on the date of conversion of the capital asset into stock-in-trade.
(6) In case of conversion of capital asset into stock-in-trade and subsequent sale of stock-in-trade, the
period of 6 months is to be reckoned from the date of sale of stock-in-trade for the purpose of
exemption under section 54EC [CBDT Circular No.791 dated 2.6.2000]. In this case, since the
investment in bonds of NHAI has been made within 6 months of sale of flats, the same qualifies
for exemption under section 54EC. With respect to long-term capital gains arising on land or
building or both in any financial year, the maximum deduction under section 54EC would be ` 50
lakhs, whether the investment in bonds of NHAI or RECL are made in the same financial year or
next financial year or partly in the same financial year and partly in the next financial year.
Therefore, even though investment of ` 50 lakhs has been made in bonds of NHAI during the P.Y.
2022-23 and investment of ` 50 lakhs has been made in bonds of RECL during the P.Y. 2023-24,
both within the stipulated six-month period, the maximum deduction allowable for A.Y. 2023-24,
in respect of long- term capital gain arising on sale of long-term capital asset(s) during the P.Y.
2022-23, is only ` 50 lakhs.
Solution 2:
As per section 50B, any profits and gains arising from the slump sale effected in the previous year shall
be chargeable to income-tax as capital gains arising from the transfer of capital assets and shall be
deemed to be the income of the previous year in which the transfer took place.
If the assessee owned and held the undertaking transferred under slump sale for more than 36 months
before slump sale, the capital gain shall be deemed to be long-term capital gain. Indexation benefit is
not available in case of slump sale as per section 50B(2).
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Test Papers of CA Inter - Direct Tax - MAY/NOV-23 Exams — Answers 3
Computation of capital gain on slump sale of Unit 2
Particulars `
Full value of consideration for slump sale of Unit 2 [Fair market value of capital asset 18,10,000
transferred by way of slump sale (i.e., ` 18,10,000) or fair market value of the
consideration received (value of the monetary consideration received i.e., `
18,00,000) whichever is higher]
Less: Expenses on sale [professional fees & brokerage] 78,000
Net full value of consideration 17,32,000
Less: Cost of acquisition, being the net worth of Unit 2 (Note 1) 13,35,781
Long term capital gains arising on slump sale 3,96,219
(The capital gains is long-term as the Unit 2 is held for more than 36 months)
Notes
1. Computation of net worth of Unit 2
Particulars `
(1) Book value of non-depreciable assets
(i) Land (Revaluation not to be considered) 5,00,000
(ii) Debtors 3,50,000
(2) Written down value of depreciable assets under section 43(6)
(i) Furniture (See Note 2) 4,75,000
(ii) Patents (See Note 3) 4,75,781
Aggregate value of total assets 18,00,781
Less: Current liabilities of Unit 2
Bank Loan [` 8,50,000 x 30%] 2,55,000
Trade Creditors [` 4,50,000 x 20%] 90,000
Unsecured Loan [` 4,00,000 x 30%] 1,20,000 4,65,000
Net worth of unit 2 13,35,781
2. Written down value of furniture as on 1.4.2022
Value of patents `
Cost as on 1.12.2021 5,00,000
Less: Depreciation @ 10% x 50% for Financial Year 2021-22 25,000
WDV as on 1.4.2022 4,75,000
3. Written down value of patents as on 1.4.2022
Value of patents `
Cost as on 1.12.2020 7,25,000
Less: Depreciation @ 25% x 50% for Financial Year 2020-21 90,625
WDV as on 1.4.2021 6,34,375
Less: Depreciation@25% for Financial Year 2021-22 1,58,594
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4 Test Papers of CA Inter - Direct Tax - MAY/NOV-23 Exams — Answers
WDV as on 1.4.2022 4,75,781
Solution 3:
Computation of Capital Gain & IFOS of Mr. Raghav for the A.Y.2023-24
Particulars ` `
Capital Gains
On transfer of 60,000 shares (2,00,000 x 30%)
Sales consideration [60,000 x ` 60 per share] 36,00,000
Less: Cost of acquisition, higher of – 30,00,000
- Actual cost [60,000 x ` 40 per share] 24,00,000
- Lower of
• FMV on 31.1.2018 [60,000 x50] 30,00,000
• Actual sales consideration [60,000 x 60] 36,00,000
Long-term capital gains u/s 112A (since shares are held for a 6,00,000
period of more than 12 months before transfer)
Income from Other Sources
Gift from friend taxable u/s 56(2)(x) since the same exceeds ` 50,000. 2,00,000
It is fully taxable
Interest on Saving A/c with SBI Bank 14,000
Interest on Fixed deposits with SBI Bank 1,00,000
[Since interest is credited after deduction of at source @ 10%, as the
amount of interest exceeds ` 50,000, amount included in the total
3,14,000
income need to be grossed up (` 90,000 x 100/90)]
Total 9,14,000
Solution 4:
Computation of capital gains of Mr. Shivam for the A.Y.2023-24
Particulars `
Full value of consideration (Compensation received) [Taxable in the year of receipt 20,00,000
i.e., P.Y.2022-23]
Less: Expenses in connection with compulsory acquisition 30,000
19,70,000
Less: Indexed cost of acquisition [` 12,00,000 × 301/113] 31,96,460
Long-term capital loss (since land was held for > 24 months) for the A.Y. 2023-24 12,26,460
Note – Since the year of compulsory acquisition i.e., F.Y.2020-21 is the year of
transfer of land, CII for F.Y.2020-21 has to be considered for computing indexed
cost of acquisition.
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Test Papers of CA Inter - Direct Tax - MAY/NOV-23 Exams — Answers 5
Computation of capital gains of Mr. Shivam for the A.Y.2024-25
Particulars `
Full value of consideration 18,00,000
(Enhanced Compensation received is taxable in the year of receipt i.e.,
P.Y.2023-24)
Less: Expenses for obtaining enhanced compensation (allowable as 1,00,000
deduction)
17,00,000
Less: Set-off of b/f long-term capital loss from A.Y.2023-24 12,26,460
Long-term capital gains for the A.Y. 2024-25 4,73,540
Note – No deduction in respect of cost of acquisition is allowable from
enhanced compensation.
Solution 5:
Computation of Total Income of Ms. Mishika for PY 22-23 (AY 23-24)
Particulars ` `
Long-term capital gains on transfer of land under specified
agreement
Since Ms. Mishika transferred her share in the project after issue of
completion certificate, capital gains on transfer of land handed over
to developer under specified agreement in the P.Y. 2019-20 would
be taxable in the previous year 2022-23, being the year in which
certificate of completion is issued as per section 45(5A).
Accordingly, capital gain arising in respect of land would be-
Full value of consideration, being 20% share in shopping mall 82,80,000
[Stamp duty value on the date of issue of completion certificate (`
4,14,00,000 x 20%)]
Less: Indexed of cost of acquisition [` 15,00,000 x 289/148] 29,29,054
Long term capital Gain 53,50,946
Short term Capital Gain on transfer of 15% shares in shopping
mall 65,00,000
Full Value of Consideration
Less: Cost of Acquisition [` 4,14,00,000 x 15%] 62,10,000
Short term capital Gain 2,90,000
BB’s Note: In above question ICAI considered index of FY 22-23 for the computation of capital gain
u/s 45(5A) but as per plain language of provision in this case transfer took place in the year in which
possession of plot is transferred to Builder so we have considered index of the year FY 19-20.
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6 Test Papers of CA Inter - Direct Tax - MAY/NOV-23 Exams — Answers
Note given by ICAI: As per section 45(5A), any capital gains arising from the transfer of a capital asset,
being land or building or both, under a specified agreement, is chargeable to income-tax as income of
the previous year in which the certificate of completion is issued by the competent authority. In the
above solution, the CII of F.Y.2022-23 has been considered on the basis of parity, since, as per section
45(5A), it is the stamp duty value of the developed property (shopping mall, in this case) on the date
of issue of certificate of completion (26.12.2022), which is deemed as the full value of consideration
for transfer of land handed over to the developer. In this case ICAI has given alternative of CII FY
2019-20 also.
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