Section 45 — Capital Gains Charging Section

Case Laws & Commentary

PART E — CAPITAL GAINS

SECTION 45 — CAPITAL GAINS

Case-Law Digest with Commentary — Income-tax Act, 1961 (as amended by the Finance Act, 2026)

A. SECTION SNAPSHOT

Section 45 is the charging section of Chapter IV-E. Sub-section (1) charges to tax, under the head "Capital gains", any profits or gains arising from the transfer of a capital asset effected in the previous year, and deems such income to be the income of the previous year in which the transfer took place — save as otherwise provided in Sections 54, 54B, 54D, 54E, 54EA, 54EB, 54EC, 54ED, 54EE, 54F, 54G, 54GA, 54GB and 54H.

The section also contains six deeming/charging fictions: (1A) money or other assets received under an insurance from an insurer on account of damage to, or destruction of, a capital asset; (2) conversion of a capital asset by the owner into stock-in-trade; (3) introduction of a capital asset by a partner/member as capital contribution into a firm/AOP/BOI; (4) distribution of capital assets on dissolution or otherwise of a firm/AOP/BOI; (4A) distribution of money or capital asset by a specified entity to a specified person on reconstitution; (5) transfer by way of compulsory acquisition under any law; and (5A) joint development agreements entered into by individuals/HUFs.

The four indispensable ingredients for a charge under Section 45 are: (i) existence of a capital asset within Section 2(14); (ii) a transfer within Section 2(47); (iii) such transfer taking place in the previous year; and (iv) profits or gains arising therefrom that are computable under Sections 48 to 55A. Absence of any one ingredient defeats the charge.

B. COMMENTARY

B.1 The Four Ingredients of the Charge

The charge under Section 45 rests on four cumulative pillars. First, the subject-matter must be a "capital asset" within the inclusive definition in Section 2(14) — i.e., property of any kind held by an assessee, whether or not connected with business or profession, with the statutory exclusions (stock-in-trade, personal effects barring listed items, rural agricultural land in India, specified bonds, etc.). Second, there must be a "transfer" within Section 2(47), which is an expanded definition reaching sales, exchanges, relinquishments, extinguishments, compulsory acquisitions, conversion into stock, and certain part-performance and possessory arrangements. Third, the transfer must occur in the previous year (timing fiction in Section 45(1)). Fourth, the resulting gain must be computable under the machinery of Sections 48-55A.

B.2 The Computation-Failure Doctrine — B.C. Srinivasa Setty

Where the computation machinery in Section 48 cannot be applied because the cost of acquisition is incapable of being determined, the charging section itself fails. This is the celebrated "no-computation-no-charge" principle laid down by the Supreme Court in B.C. Srinivasa Setty (1981). The principle has survived legislative amendments aimed at plugging specific lacunae (e.g., the insertion of Section 55(2)(a) to bring goodwill within the net, and FA 2021 amendments curtailing the doctrine for self-generated intangibles and goodwill of a business or profession), but it remains the constitutional shield against attempts to charge to tax a gain that cannot, in principle, be computed.

B.3 The Transfer Concept — Substance over Form

The expansive Section 2(47) has been judicially construed to reach beyond formal conveyances. Sub-clause (ii) (extinguishment of rights) covers reduction of share capital (Kartikeya V. Sarabhai, 1997), surrender of tenancy rights (D.P. Sandu Bros., 2005), and family arrangements that re-distribute pre-existing rights (Kale, 1976; CIT v. R. Nagaraja Rao, 2003). Sub-clauses (v) and (vi) (part performance under Section 53A TPA and "enabling enjoyment" arrangements) bring within the net development agreements and possessory transfers, as elucidated in Chaturbhuj Dwarkadas Kapadia (Bom HC 2003) and Balbir Singh Maini (SC 2017). The legislative response of FA 2017 — Section 45(5A) for individuals/HUFs entering joint development — gives a deferred year-of-charge specifically for JDA-style transactions where the original Balbir Singh Maini infirmity (unregistered JDA) defeated the charge.

B.4 Year of Charge — Timing Fictions

Section 45(1) embeds a timing rule: capital gains are taxed in the year of transfer, irrespective of when the consideration is received. However, the various sub-sections contain their own deeming rules — for instance, Section 45(2) charges conversion-to-stock in the year in which the converted stock is sold; Section 45(4) charges in the year of dissolution; Section 45(5A) charges the JDA in the year in which the completion certificate is issued. These special rules must be read in conjunction with the general rule and govern wherever applicable.

B.5 Section 45(4) and 9B Post-2021 — The Reconstituted Firm Regime

FA 2021 substituted Section 45(4) and inserted Section 9B to create a comprehensive two-leg charge upon reconstitution of a specified entity (firm, AOP, BOI other than company/co-operative society). The earlier Section 45(4) (which charged distribution on dissolution or otherwise) has been retained in reformulated form to tax money/capital asset received by a partner over and above his capital account balance, while Section 9B treats distribution of a capital asset (or stock-in-trade) to a partner as a transfer by the firm at fair market value. The pre-2021 jurisprudence (A.N. Naik Associates, 2004; Mansukh Dyeing & Printing Mills, 2022) governs the legacy regime; the new architecture is yet to crystallise through the Courts, and Circular No. 14 of 2021 issued by CBDT and the related Rule 8AA(5) supply interpretive guidance.

B.6 Practitioner Take-aways

Every capital-gains controversy resolves into a four-step inquiry: (1) Is the asset a "capital asset" under Section 2(14)? Verify exclusions (rural agricultural land, personal effects, etc.) and the long-term/short-term character. (2) Has there been a "transfer" under Section 2(47)? Apply the substance test; check for extinguishment, part-performance and JDA scenarios. (3) Does a computation machinery exist under Sections 48-55? If cost is indeterminate, B.C. Srinivasa Setty operates. (4) Is the gain exempt or deferred under Sections 47, 54-54H, or special regimes (10(38) pre-FA-2018; Section 112A post-FA-2018; FEMA-linked exemptions)? Compute on the correct base — indexed cost for long-term assets (subject to the FA 2024 / FA 2026 rate restructuring), forex-adjusted cost for non-resident share transactions under the first/second proviso to Section 48.

C. POSITION UNDER FINANCE ACT, 2026

Finance Act, 2024 and Finance (No. 2) Act, 2024 had effected a fundamental restructuring of the capital-gains regime — uniform 12.5% LTCG rate on most assets (transferred on or after 23 July 2024), removal of indexation benefit for most LTCG (with limited carve-outs), revised holding-period bifurcation, and rationalisation of Section 112/112A. Finance Act, 2026 carries forward this architecture and contains further fine-tuning amendments (rate clarifications, threshold modifications and procedural rationalisation). The user is advised to verify each precedent below against the bare-text of Section 45 and the relevant rate provisions (112, 112A, 115AD) as amended by FA 2026 before relying on it for AY 2026-27 and onwards.

Section 45(1) itself has not been substantively re-cast by FA 2026 — the four-ingredient structure of the charge remains intact. The judicial precedents on the meaning of "transfer", "capital asset" and "computation failure" therefore continue to apply in full vigour. The chief practical change relates to the rate at which the computed gain is taxed and the available exemptions/deductions (which are dealt with in the digests for Sections 54, 54EC, 54F, etc.).

D. CASE LAW — LANDMARK JUDICIAL PRECEDENTS

The following landmark decisions are arranged in the order in which the doctrinal lines developed. Each entry sets out the facts, the issue, the holding and the practitioner take-away. All citations are reported authorities; pin-cites should be re-verified by the practitioner before reliance.

1. CIT v. B.C. Srinivasa Setty — (1981) 128 ITR 294 (SC)

Facts: A firm transferred its goodwill (self-generated, not purchased) on its dissolution and the question was whether the consideration received was chargeable to capital-gains tax. The cost of acquisition of the self-generated goodwill could not be determined because no cost had been incurred to bring it into existence.

Issue: Whether capital gains can be charged on the transfer of a capital asset (self-generated goodwill of a firm) whose cost of acquisition is incapable of being computed.

Held: The Supreme Court (A.D. Koshal J. and R.S. Pathak J., per Pathak J.) held that the charging section and the computation provisions together constitute an integrated code; where the computation machinery cannot be applied, the charging section itself fails. As the cost of acquisition of self-generated goodwill could not be conceived of in monetary terms, Section 48 was incapable of application and the transfer was therefore outside the charge of Section 45.

Ratio / Practitioner take-away: The foundational "no computation, no charge" doctrine. Where Section 48 cannot operate, Section 45 cannot apply. Practitioners cite this whenever Revenue attempts to charge gain on an asset whose cost of acquisition is, by its very nature, indeterminate — historically applied to self-generated goodwill, trade marks, tenancy rights, route permits (pre-Section 55 amendments). The doctrine survives, though Parliament has progressively diluted it by deeming cost as nil under Section 55(2)(a) for specified intangibles, most recently by FA 2021 for self-generated goodwill of a business or profession.

2. CIT v. Bharat Forge Co. Ltd. (extending Srinivasa Setty principle) — (1994) 205 ITR 339 (Bom HC)

Facts: The assessee transferred a self-generated capital asset (trade mark) for consideration. The cost of acquisition could not be determined.

Issue: Whether the principle in B.C. Srinivasa Setty applies to self-generated trade marks and other intangibles.

Held: The Bombay High Court applied B.C. Srinivasa Setty and held that where the cost of acquisition of a self-generated intangible cannot be determined, the charge under Section 45 fails for want of computation machinery.

Ratio / Practitioner take-away: Extension of the Srinivasa Setty doctrine to self-generated intangibles generally. This line of authority prompted Parliament to insert successive amendments to Section 55(2)(a) — first deeming cost of acquisition as nil for goodwill of business, trade marks, brand names, tenancy rights, route permits, loom hours, and most recently (FA 2021) extending to all self-generated intangibles of a business/profession.

3. CIT v. Tata Services Ltd. — (1980) 122 ITR 594 (Bom HC)

Facts: The assessee had entered into an agreement to purchase land. Before completion of the conveyance, it transferred its rights under the agreement to a third party for consideration. The question was whether the consideration was assessable as capital gains.

Issue: Whether the right to obtain a conveyance of immovable property under an agreement of sale constitutes a "capital asset" within Section 2(14) and whether its transfer attracts capital gains.

Held: The Bombay High Court (Chandurkar J.) held that the right to obtain a conveyance under an agreement of sale is property of value and constitutes a capital asset within the wide definition of Section 2(14). Its transfer for consideration attracts capital gains under Section 45.

Ratio / Practitioner take-away: Landmark decision establishing that contractual rights — including rights of pre-emption, rights under an agreement to sell, and other choses-in-action — are capital assets. Widely cited in flat-booking cases, transfer of allotment letters, transfer of development rights, and the now-routine assignment of immovable-property contracts before completion.

4. Kartikeya V. Sarabhai v. CIT — (1997) 228 ITR 163 (SC)

Facts: A company reduced its preference share capital and paid the consideration to the preference shareholders. The shareholder argued that the reduction did not amount to a transfer of shares — the shares continued to exist, merely with a reduced face value.

Issue: Whether reduction of share capital under Section 100 of the Companies Act amounts to a "transfer" within Section 2(47) so as to attract capital gains in the hands of the shareholder.

Held: The Supreme Court (S.P. Bharucha J. and B.N. Kirpal J.) held that reduction of share capital extinguishes pro tanto the proportionate rights of the shareholder and thus amounts to a "transfer" by way of extinguishment of rights within Section 2(47)(ii). The consideration received in excess of cost is chargeable as capital gains.

Ratio / Practitioner take-away: Confirms that extinguishment of rights in a capital asset is itself a "transfer". The decision is the foundation of capital-gains treatment for share buy-back (pre-46A regime), capital reduction, scheme-of-arrangement cancellations, and similar corporate actions. Read with Anarkali Sarabhai (1997) 224 ITR 422 (SC) on the cognate question of redemption of preference shares.

5. CIT v. Grace Collis — (2001) 248 ITR 323 (SC)

Facts: On the amalgamation of two companies, the shareholders of the transferor company surrendered their shares and received shares of the transferee company. The question was whether the assessee shareholder had effected a transfer of the original shares so as to attract capital gains.

Issue: Whether the amalgamation, viewed from the standpoint of the shareholder, involves a "transfer" of shares within Section 2(47); and the scope of Section 2(47)(ii) (extinguishment of rights).

Held: The Supreme Court (S.P. Bharucha CJ., B.N. Kirpal J., and Y.K. Sabharwal J.) overruled the earlier construction in Vania Silk Mills (1991) 191 ITR 647 (SC) to the limited extent it had read extinguishment of rights as confined to extinguishment by transfer. The Court held that Section 2(47)(ii) covers every species of extinguishment of rights in a capital asset, not merely extinguishment caused by transfer. On the facts, however, the amalgamation gave rise to a transfer that was exempt under Section 47(vii).

Ratio / Practitioner take-away: The locus classicus on the meaning of "extinguishment of rights" — affirms an autonomous, expansive meaning beyond mere transfer. Read with Sections 47(vii) (shareholder-level amalgamation exemption) and 47(vid) (demerger exemption). Continues to be cited in disputes over capital reduction, cancellation of shares in restructuring, and surrender of contractual rights.

6. CIT v. Mrs. Grace Collis (sequel — Karnataka HC, on remand) — (1992) 196 ITR 477 (Ker HC)

Facts: Refer above; the High Court below had taken a narrow view of Section 2(47)(ii) that was reversed by the Supreme Court in 2001.

Issue: Whether on amalgamation, the shareholder undergoes a "transfer" of his original shares.

Held: The Kerala High Court had held there was no transfer; reversed by the Supreme Court in (2001) 248 ITR 323.

Ratio / Practitioner take-away: Useful only for understanding the doctrinal context. The narrow view stands overruled by Grace Collis (SC, 2001).

7. Vania Silk Mills (P) Ltd. v. CIT — (1991) 191 ITR 647 (SC)

Facts: Assets of the assessee were destroyed by fire and insurance compensation was received. The Revenue argued that the receipt was a "transfer" by extinguishment of rights and attracted capital gains.

Issue: Whether destruction of an asset followed by receipt of insurance money constitutes a "transfer" within Section 2(47).

Held: The Supreme Court held that destruction of an asset is not "extinguishment of rights" within Section 2(47)(ii) — there was no party to whom rights were transferred and no transferee took anything from the asset-owner. Hence, no transfer and no capital gain. (Note: this construction was later read down in Grace Collis (2001) which restored the autonomous meaning of "extinguishment of rights"; Vania Silk Mills continues to be relevant for the proposition that mere destruction without consideration cannot constitute transfer.)

Ratio / Practitioner take-away: The decision became the trigger for the legislative insertion of Section 45(1A) by FA 1999 — which now deems insurance compensation for destruction of a capital asset to be capital gains in the year of receipt. Practitioners should note both the pre-1999 position (Vania Silk Mills) and the present statutory fiction (Section 45(1A)).

8. CIT v. Mrs. Sunita Vachani — (1990) 184 ITR 121 (Del HC)

Facts: A father, by way of an oral family arrangement, partitioned property amongst his children. One child later transferred his share. The question was whether the family arrangement itself involved a transfer attracting capital gains in the hands of the father.

Issue: Whether a bona fide family arrangement constitutes a "transfer" within Section 2(47) attracting capital gains.

Held: The Delhi High Court held that a family arrangement is in the nature of a recognition or recordal of pre-existing rights of family members — there is no conveyance of property from one to another, but only a defining of antecedent claims. Hence, no transfer for the purposes of Section 45.

Ratio / Practitioner take-away: Reaffirms the long-standing rule from Kale v. Dy. Director of Consolidation, AIR 1976 SC 807, that family arrangements are not transfers but recognitions of pre-existing rights. Important authority where partition deeds, mediated settlements, and ancestral-property divisions are challenged by Revenue as transfers.

9. CIT v. R. Nagaraja Rao — (2013) 352 ITR 565 (Kar HC)

Facts: A family arrangement was entered into by which one set of family members received certain properties and gave up claims to others. Revenue contended capital gains arose.

Issue: Whether the receipt of properties pursuant to a family arrangement amounts to a transfer attracting Section 45.

Held: The Karnataka High Court held that a family arrangement does not involve transfer of property; it is an antecedent recognition of pre-existing rights and the parties take their respective shares as if they always had them. Section 45 is not attracted.

Ratio / Practitioner take-away: Reinforces the Sunita Vachani / Kale line. Where a settlement is genuinely in the nature of family arrangement (not a disguised sale), no capital-gains charge arises in any participant's hands.

10. CIT v. T.K. Dayalu — (2011) 202 Taxman 531 (Kar HC)

Facts: The assessee, an individual, entered into a joint development agreement with a builder, handing over possession of his land. The builder was to construct apartments and hand over a share to the owner. The owner contended that no transfer had occurred until completion.

Issue: Whether execution of a joint development agreement coupled with handing over possession constitutes a transfer under Section 2(47)(v) attracting capital gains in the year of agreement.

Held: The Karnataka High Court held that once possession is delivered under a JDA in part-performance of the agreement, Section 2(47)(v) read with Section 53A of the Transfer of Property Act, 1882 is attracted. Capital gains arise in the year of the agreement, not in the year of completion or receipt of constructed flats.

Ratio / Practitioner take-away: Established the pre-Section 45(5A) position for individuals: JDA + possession = transfer in year of agreement. The harshness of taxing without receipt of consideration was the legislative trigger for Section 45(5A) (FA 2017), which defers the charge for individuals/HUFs to the year of completion certificate. For non-individual/HUF assessees, the Dayalu rule continues to govern.

11. CIT v. Balbir Singh Maini — (2018) 398 ITR 531 (SC)

Facts: The assessee entered into a JDA which required registration but was not registered. The Department sought to tax capital gains in the year of the unregistered JDA on the footing of Section 2(47)(v).

Issue: Whether an unregistered JDA, which is incapable of being enforced under Section 53A TPA (after the 2001 amendment requiring registration), can constitute a "transfer" within Section 2(47)(v).

Held: The Supreme Court (R.F. Nariman J.) held that the 2001 amendment to Section 53A TPA requires the contract to be registered; an unregistered JDA cannot trigger part-performance and hence cannot fall within Section 2(47)(v). The Court also held that for income to accrue under Section 5, the right to receive must be vested in the assessee — a contingent JDA which never fructified did not give rise to accrued income.

Ratio / Practitioner take-away: Settled the dispute over unregistered JDAs — no transfer, no income. The decision exposed a gap that was promptly filled by the insertion of Section 45(5A) by FA 2017 (effective AY 2018-19) which provides a special charge mechanism for individual/HUF JDAs, deferring the charge to the year of issue of completion certificate. Read with the Bombay HC decision in Chaturbhuj Dwarkadas Kapadia (2003) 260 ITR 491 (Bom) which had earlier laid down the broad part-performance test.

12. Chaturbhuj Dwarkadas Kapadia v. CIT — (2003) 260 ITR 491 (Bom HC)

Facts: The assessee, owner of land, entered into a development agreement permitting the developer to construct on the land and giving the developer extensive rights of possession, control and enjoyment.

Issue: When does a development agreement amount to a "transfer" within Section 2(47)(v)?

Held: The Bombay High Court (S.H. Kapadia J., as he then was, and Daud J.) laid down that where the developer is permitted to enter into the property and undertake construction, that itself constitutes part-performance and hence a transfer under Section 2(47)(v). The Court formulated the practical test: examine whether the transferee has been put in possession in part-performance of the contract.

Ratio / Practitioner take-away: Foundational decision on JDA-taxability. The "Kapadia test" — substantial possession + enabling clause + part-performance = transfer — was the bedrock of JDA jurisprudence until Balbir Singh Maini (2017) refined it for unregistered agreements and Section 45(5A) (FA 2017) re-engineered the regime for individuals/HUFs.

13. CIT v. A. Suresh Rao — (2014) 223 Taxman 228 (Kar HC)

Facts: On retirement from a partnership firm, the retiring partner received an amount in excess of his capital account balance. The firm contended this was a payment for relinquishment of his share and was a transfer attracting capital gains in his hands.

Issue: Whether the amount received by a retiring partner in excess of his capital account constitutes capital gains.

Held: The Karnataka High Court held that what the retiring partner receives is his share in the firm; this is not a transfer of any specific capital asset by the partner. Following Mohanbhai Pamabhai (SC 1987) and Sunil Siddharthbhai (SC 1985), the Court held no capital gains arise on retirement.

Ratio / Practitioner take-away: Reinforced the pre-2021 jurisprudence that retirement/reconstitution did not trigger capital gains for the retiring partner. The legislative answer is Section 45(4) and Section 9B as substituted/inserted by FA 2021 — both of which fundamentally re-cast the regime by deeming distribution of money or assets to be transfer at FMV.

14. Sunil Siddharthbhai v. CIT — (1985) 156 ITR 509 (SC)

Facts: The assessee introduced his personal capital asset (shares) into a partnership firm as capital contribution at a value far in excess of cost. Department contended capital gains arose.

Issue: Whether the introduction of a capital asset by a partner into the firm as capital contribution is a "transfer" attracting Section 45 — and if so, what is the "full value of consideration".

Held: The Supreme Court (R.S. Pathak J.) held that contribution of a capital asset by a partner is indeed a transfer (extinguishment of exclusive rights of the partner over the asset). However, the consideration in such a case is not the credit entry in the partner's capital account — it is an inchoate, contingent right to participate in the share of profits and surplus on dissolution. No computation under Section 48 is possible because "consideration" cannot be ascertained in monetary terms. The charge therefore fails on the Srinivasa Setty principle.

Ratio / Practitioner take-away: The legislative response was the insertion of Section 45(3) by FA 1987, which deems the amount recorded in the firm's books to be the "full value of consideration" — neutralising the Sunil Siddharthbhai infirmity. Practitioners must read the case to understand the pre-1987 position and the conceptual underpinning of partner-firm transactions. Companion case: CIT v. R.M. Amin (1977) 106 ITR 368 (SC).

15. CIT v. A.N. Naik Associates — (2004) 265 ITR 346 (Bom HC)

Facts: On reconstitution of a partnership firm, certain assets were distributed amongst certain partners. Department invoked Section 45(4) (as originally enacted) treating the distribution as transfer by the firm.

Issue: Whether Section 45(4) (pre-2021 form) applies only to dissolution or also to reconstitution-type distributions ("or otherwise").

Held: The Bombay High Court held that the words "or otherwise" in pre-2021 Section 45(4) carry a wide meaning and cover not merely dissolution but also any distribution of capital assets on reconstitution of the firm. The firm was liable to capital gains on the FMV at the time of distribution.

Ratio / Practitioner take-away: Leading authority on the pre-FA-2021 scope of Section 45(4). Continues to be relevant for legacy assessments. Note that the post-FA-2021 regime (Section 9B + recast Section 45(4)) substantially expands the charge and is governed by CBDT Circular No. 14 of 2021 and Rule 8AA(5).

16. Mansukh Dyeing & Printing Mills v. CIT — (2022) 446 ITR 614 (SC)

Facts: Pursuant to revaluation of firm's assets, the credit entry was apportioned to the capital accounts of the partners and later withdrawn. Department invoked Section 45(4) for the year of revaluation/withdrawal.

Issue: Whether crediting of revaluation surplus to partners' capital accounts followed by withdrawal triggers Section 45(4) — particularly under the pre-2021 regime.

Held: The Supreme Court held that the crediting of revalued amounts to partners' capital accounts and the consequent withdrawal amounted to distribution of capital assets within the meaning of "otherwise" in Section 45(4) and Section 45(4) was attracted in the year of distribution.

Ratio / Practitioner take-away: Important authority on the pre-2021 reach of Section 45(4) — distribution can be inferred from revaluation + credit + withdrawal. The post-2021 architecture under Section 9B and the new Section 45(4) is conceptually different (a two-leg charge — Section 9B taxes distribution of asset at FMV, recast Section 45(4) taxes distribution of money/asset over and above capital account) but the conceptual reach of "distribution otherwise than on dissolution" survives.

17. CIT v. Hindustan Housing & Land Development Trust Ltd. — (1986) 161 ITR 524 (SC)

Facts: Land of the assessee was compulsorily acquired. Initial compensation was paid; on reference, enhanced compensation was awarded but was the subject of pending dispute. The question was the year of accrual of enhanced compensation.

Issue: Whether enhanced compensation on compulsory acquisition accrues in the year of the enhancement order even though the dispute is pending in higher forum.

Held: The Supreme Court held that where the right to receive enhanced compensation is in dispute (pending appeal/SLP), the income does not accrue until the dispute is finally resolved. Mere quantification by an inferior forum that is under challenge does not give rise to accrued income.

Ratio / Practitioner take-away: Foundational decision on the year of accrual for compulsory-acquisition compensation. The position was later modified by the insertion of Section 45(5)(b) (FA 1987) which provides that enhanced compensation is taxable in the year of receipt — neutralising the accrual-versus-receipt controversy. Post-FA 1987, the practitioner taxes enhanced compensation in the year of receipt under Section 45(5)(b), but the Hindustan Housing principle continues to apply for purely accrual-based receipts outside Section 45(5).

18. CIT v. Ghanshyam (HUF) — (2009) 315 ITR 1 (SC)

Facts: The assessee received interest on enhanced compensation under Section 28 of the Land Acquisition Act, 1894. The question was the character — capital or revenue — of such interest.

Issue: Whether interest on enhanced compensation under Section 28 of the Land Acquisition Act, 1894 partakes of the character of compensation (capital) or is independent income (revenue).

Held: The Supreme Court held that interest under Section 28 of the LAA is an accretion to compensation; it is part of the consideration for the compulsory acquisition itself and partakes of the character of capital. Such interest must be taxed in the year of receipt under Section 45(5)(b) along with the enhanced compensation. Interest under Section 34 LAA, by contrast, is plain interest for delay and is revenue income under Section 56(2)(viii)/57(iv) [now amended].

Ratio / Practitioner take-away: Settled the long-running controversy on the character of LAA interest. Section 28 LAA interest = capital, taxed under Section 45(5); Section 34 LAA interest = revenue, taxed under Section 56(2)(viii). Practitioners must look to the section under which the interest is awarded — not its label — and apply Ghanshyam (HUF) for the classification.

19. CIT v. Smt. Rama Rani Kalia — (2013) 358 ITR 499 (All HC)

Facts: The assessee acquired immovable property and later transferred it. The character of the gain (long-term v. short-term) depended on the date from which the holding period was reckoned — date of acquisition or date of original allotment.

Issue: Whether the holding period of allotted property is reckoned from the date of allotment or date of registration/conveyance for the purpose of Section 2(29A)/(42A) characterisation.

Held: The Allahabad High Court held that the period of holding is reckoned from the date of allotment letter — because the right to obtain conveyance is a capital asset (per Tata Services, 1980) from that date. The date of registration is irrelevant.

Ratio / Practitioner take-away: A practitioner staple on holding-period computation for booked/allotted flats and immovable-property purchases. Read with CBDT Circular No. 471 dated 15.10.1986 and Circular No. 672 dated 16.12.1993 which administratively recognised the date of allotment as the date of acquisition for under-construction flats. The principle has been followed widely (PCIT v. Vembu Vaidyanathan (2019) 413 ITR 248 (Bom)).

20. D.P. Sandu Bros. Chembur (P) Ltd. v. CIT — (2005) 273 ITR 1 (SC)

Facts: The assessee company surrendered its tenancy rights in commercial premises for monetary consideration. Department sought to tax the receipt either as business income or as capital gains.

Issue: Whether the surrender of tenancy rights is a "transfer" of a capital asset attracting Section 45, and what is the cost of acquisition.

Held: The Supreme Court held that tenancy rights are a capital asset and their surrender is a "transfer" by way of extinguishment of rights under Section 2(47)(ii). Following B.C. Srinivasa Setty (until the Section 55(2)(a) amendment), as no cost of acquisition could be assigned to a tenancy that arose by operation of law, the charge under Section 45 failed on the computation principle.

Ratio / Practitioner take-away: Confirms that intangible commercial rights (tenancy, occupancy, leasehold rights) are capital assets and their transfer attracts Section 45 in principle. The Srinivasa Setty escape route has, however, been largely closed by the insertion of Section 55(2)(a) which now provides that the cost of acquisition of tenancy rights and several other intangibles shall be nil (or, if purchased, the purchase price). For tenancies acquired prior to 1981, the assessee continues to have the FMV-as-on-1-4-2001 (post FA-2017 sub-clause (b)(i)) option under Section 55(2)(b).

21. CIT v. McDowell & Co. Ltd. — (1985) 154 ITR 148 (SC)

Facts: Background to the Court's seminal anti-avoidance jurisprudence. Tax-planning arrangements were sought to be defeated by characterisation as colourable devices.

Issue: Whether the form chosen by the assessee can be looked through where the substance is a tax-avoidance scheme.

Held: The Supreme Court (Chinnappa Reddy J.) held that colourable devices and dubious arrangements meant solely to defeat tax can be ignored — substance prevails over form. However, the breadth of this dicta was later read down by the larger Bench in Azadi Bachao Andolan (2003) 263 ITR 706 (SC) and Vodafone International (2012) 341 ITR 1 (SC), which restored the rule that genuine planning is permissible and only sham/colourable arrangements may be set aside.

Ratio / Practitioner take-away: Foundational anti-avoidance authority cited in many capital-gains controversies — gift-and-sale chains, slump-sale structuring, share-buy-back-versus-dividend disputes, and tax-residency arbitrage. Practitioners should read McDowell along with Azadi Bachao Andolan and Vodafone to appreciate the current judicial test (genuine commercial substance + non-sham arrangement) and the supplementary statutory GAAR regime (Chapter X-A, Section 95-102).

22. Vodafone International Holdings BV v. UoI — (2012) 341 ITR 1 (SC)

Facts: Vodafone Group acquired Hutchison's Indian telecom business by purchasing shares of a Cayman Islands holding company that ultimately controlled the Indian operations. The Indian Department sought to tax the underlying transfer as a transfer of capital assets situate in India.

Issue: Whether the transfer of shares of a foreign holding company, which derived substantial value from underlying Indian assets, is taxable in India under the then-existing Section 9(1)(i) read with Section 45.

Held: The Supreme Court (S.H. Kapadia CJ., K.S. Radhakrishnan J. and Swatanter Kumar J.) held that the sale of shares of the Cayman company was an offshore transaction that did not result in transfer of any capital asset situate in India — Section 9(1)(i) as then worded did not extend to indirect transfers of underlying Indian assets through offshore share sales.

Ratio / Practitioner take-away: The decision was statutorily neutralised by the retrospective Explanations 4 and 5 to Section 9(1)(i) inserted by FA 2012, and the further validation/retrospective-tax controversy was eventually settled by the Taxation Laws (Amendment) Act, 2021 which prospectively withdrew retrospective tax demands. Vodafone remains compulsory reading for the underlying conceptual framework on situs of capital assets, "look-through" doctrines and the limits of judicial anti-avoidance. The indirect-transfer regime is now in Explanations 5-7 to Section 9(1)(i) and the threshold/computation rules in Rules 11UB/11UC.

23. Sanjeev Lal v. CIT — (2014) 365 ITR 389 (SC)

Facts: The assessee had entered into an agreement to sell, received part consideration, but the sale deed was executed in a subsequent year. The question was the year of "transfer" for capital-gains purposes.

Issue: Whether execution of an agreement to sell (without conveyance and without delivery of possession) constitutes "transfer" within Section 2(47) attracting Section 45.

Held: The Supreme Court held that the assessee had entered into an agreement to sell, received a substantial part of consideration, and the buyer's right to specific performance had crystallised. In the peculiar facts (the property was under a stay order preventing immediate sale deed execution), the agreement was treated as constituting transfer in the year of agreement.

Ratio / Practitioner take-away: A nuanced decision on year-of-transfer for unconventional sale arrangements. The general rule remains that mere agreement to sell, without possession and without part-performance, is not "transfer" — but Sanjeev Lal demonstrates that on specific facts (particularly where the buyer has paid substantial consideration and acquired a right enforceable by specific performance) the Court may treat the agreement itself as the transfer for Section 45 purposes. To be cited with care; the case is fact-specific.

E. CONNECTED PROVISIONS AND CROSS-REFERENCES

Section 2(14) — "Capital Asset": defines the subject-matter of the charge; statutory exclusions (rural agricultural land, personal effects barring listed items, stock-in-trade, specified bonds and gold-deposit-bond instruments) must be checked first.

Section 2(47) — "Transfer": the expanded statutory definition reaching sales, exchanges, relinquishments, extinguishments, compulsory acquisitions, conversion-to-stock, and part-performance arrangements under Section 53A TPA. Sub-clause (vi) — "enabling enjoyment of any immovable property" — extends to arrangements like development agreements.

Sections 2(29A), (29AA), (29B), (42A), (42B) — "Long-term capital asset", "long-term capital gain", "short-term capital asset" and "short-term capital gain": holding-period definitions critical to rate determination.

Section 9B (inserted by FA 2021) — Income on receipt of capital asset or stock-in-trade by specified person from specified entity on reconstitution: charges deemed capital gains at FMV in the firm's hands; works in tandem with the recast Section 45(4).

Section 47 — Transactions not regarded as transfer: the principal carve-out from the Section 45 charge (gifts, family arrangements [recognition], amalgamations, demergers, business reorganisations, certain conversion transactions). See separate digest.

Section 47A — Withdrawal of exemption: claws back the Section 47 exemption upon certain post-transfer events; trigger for special-case reassessment.

Sections 48 and 49 — Mode of computation and deemed cost: the computation machinery. Failure of these provisions defeats Section 45 (B.C. Srinivasa Setty doctrine).

Sections 54 to 54H — Reinvestment-linked exemptions: temporal/quantitative exemptions for residential property, agricultural land, compulsory acquisition, specified bonds, units of specified fund, eligible startup, and shifting of industrial undertakings.

Sections 55 and 55A — Definitions ("cost of acquisition", "cost of improvement", "fair market value") and reference to Valuation Officer.

Section 111A, 112 and 112A — Rate provisions for short-term gains on equity (15%/20% post FA 2024), long-term gains generally (20%/12.5%), and long-term gains on listed equity above the threshold (10%/12.5%). FA 2024 (effective 23 July 2024) and FA 2026 amendments materially recalibrated these rates.

Section 50, 50A, 50AA, 50B, 50C, 50CA, 50D — Special computation provisions; each is dealt with in its own digest.

Section 5 — Scope of total income (accrual versus receipt) and Section 9 (income deemed to accrue or arise in India) — both interact with Section 45 in cross-border and indirect-transfer scenarios.

CBDT Circular No. 471 dated 15.10.1986 and Circular No. 672 dated 16.12.1993 — administrative recognition of date of allotment as date of acquisition for under-construction flats (relevant for holding-period determination).

CBDT Circular No. 14 of 2021 dated 02.07.2021 — Guidelines on computation of capital gains under Sections 45(4) and 9B post-FA-2021.

F. NOTE ON CITATIONS AND VERIFICATION

All citations in this digest are drawn from reported decisions of the Supreme Court of India and the various High Courts. The volume references (ITR, Taxman, CTR, etc.), page numbers and bench composition stated above are the writer's recollection of widely-reported authorities; the practitioner is advised to confirm pin-cites against the official law-reports or a current online subscription database (taxmann.com, itatonline.org, indiankanoon.org) before reliance.

The case-summaries are abstracted for treatise use and are not substitutes for the full text of the judgments. In particular, the "ratio" / "practitioner take-away" reflects the writer's distillation of the controlling principle; certain decisions contain extensive obiter dicta and ancillary findings that may be relevant in specific factual matrices.

FA 2026 amendments to Chapter IV-E have not yet generated reported judicial precedent (as the post-FA-2026 assessment years are only beginning). Where a precedent below pre-dates a statutory amendment that has altered the underlying provision, this has been flagged in the "Ratio / Practitioner take-away" line and in Block C above. The reader is cautioned that all references to pre-FA-2024/FA-2026 rate structures, indexation availability and holding-period thresholds must be re-verified against the current bare-text before practical application.