This is the fourth head of income chargeable to tax as given in section 14. First of all this income was made chargeable to tax in 1947 and contained the transfer made up to and on 31st March 1948. This charge was abolished from 1.4.1948 onward but it was revived from the assessment year 1957-58 and income accruing from all transfers effected after 31st March 1956 was made chargeable to tax under this head.
BASIS OF CHARGE [Section 45]
U/s 45(1) any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in section 54, be chargeable to income-tax under the head ‘capital gains’ and shall be deemed to be the income of the previous year in which the transfer took place.
The above definition can be split up into two parts
(a) income arising from the transfer of a capital asset
(b) Effected in the previous year and it is essential to study both the parts in detail.
Meaning of Capital Assests [ Section 2(14)]
Capital Asset. The tax is to be levied on any profit or gain occurring on the transfer of a capital asset. Section 2(14) defines capital assets as “property of any kind held by an assessee whether or not connected with his business or profession”.
This definition has a very wide coverage as it includes all types of properties, whether movable or immovable, tangible or intangible, fixed or floating. Such asset may represent not only actual ownership but also any right in relation to any property which is capable of being transferred. The goodwill, the lease-hold rights, right to subscribe for shares and share of partner in partnership etc. are also considered as capital assets for the purpose of this head. In case a person transfers his tenancy rights to another person, it has been held that it is a self-generating asset and is not eligible to tax under capital gains. [C.I.T. v. B.C. Srinivasa Shetty (S.C.)] and [C.I. T. v. Mrs. Shrinbhiai P. Pandale (Bombay)].With effect from 1.4.1973 jewellery is also included in the term ‘capital assets’. Even a licence obtained by the assessee from the Government to start some manufacturing activity shall be included in this term.
Clarification of the expression “property” used in the definition of capital asset
[Explanation to Sec. 2(14)1 [w.r.e.f. 1-4-1962]
“Property” includes and shall be deemed to have always included any rights in or in relation to an Indian Co., including rights of management or control or any other rights whatsoever.
What is not included in capital asset? Under Section 2(14) following assets have been specially excluded from the scope of the definition of capital assets
(i) Any stock-in-trade, raw materials, consumable stores held by any assessee for the purposes of his business or profession.
(ii) Personal effects (movable property) including wearing apparel, motor car, electrical appliances, refrigerator, furniture etc.; ornaments excluding jewellery, archaeological collections, drawings, paintings, sculptures, or any work of art held for personal use by the assessee or any other member of his family dependent upon him.
Explanation : The Capital Gain on transfer of jewellery is fully taxable and as such it is necessary to understand the meaning of term ‘jewellery’. According to explanation attached to Section 2 (14) (ii) the term “jewellery” includes
(a) ornaments made of gold, silver, platinum or any other precious metal or any alloy containing one or more of such precious metals whether or not containing any precious or semi-precious stone and whether or not worked or sewn into any wearing apparel;
(b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel.
(iii) Agricultural Land in rural India—But the land should not be situated
(a) Within the limits of any municipality or cantonment board having a population of 10,000 or more or
(b) Within distance measured aerially (shortest aerial distance) from any municipality or cantonment board as follows
Distance Population of Area
within 2 kilometers 10,001-1,00,000
within 6 kilometers 1,00,001-10,00.000
within 8 kilometers More than 10,00,000
(iv) 6% Gold Bonds 1977 or 7% Gold Bonds 1980 or National Defence Gold Bonds, 1980 issued by the Central Government.
(v) Special Bearer Bonds, 1991.
(vi) Gold Deposit Bonds issued under Gold Deposit Scheme 1999
business, it would have been a capital asset. Any movable asset which is in the nature of personal effects is specially excluded from the definition of capital asset as given in Section 2(14).
(ii) An air-conditioning plant owned by the company is a capital asset and it cannot fall in the category of personal effects of the company, company being an artificial person. The use of the plant at the factory premises or the residence of its managing director will not change its nature.
(iii) Silverware owned by a H.U.F. and placed before the family deity at the time of Pooja on / special occasions is a capital asset of the H.UF. The ownership of these silverwares continues to be in the H.U.F. and the family has not parted with these silverwares as these are placed before the family deity only at the time of Pooja on some special occasions. The Supreme Court has held it to be not a personal effect in a case Hemant Singhji v. C.I.T. 103 TR 61.