Section 2(14): Meaning of Capital asset

Capital asset means property of any kind held by an assessee whether or not connected with his business or profession. It however does not include the following:

Any stock-in-trade, consumable stores or raw materials held for the purpose of his business or profession;
Personal effects, i.e., movable property (including wearing apparel and furniture, excluding jewellery), held for personal use by the assessee or any member of his family dependent on him.
Agricultural land in India, not being land situated in the following:-
1. In any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and, which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year; or
2. In any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanization of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;
6.5 per cent Gold Bonds, 1977, or 7 per cent Gold Bonds, 1980, or National, Defence Gold Bonds, 1980, issued by the Central Government;
Special Bearer Bonds, 1991, issued by the Central Government;
Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government.

Related Cases:

S. 2(14), 2(47), 45(1) & 45(4) of IT Act, 1961—Capital gain—Profit received by the assessee partner on notional basis by deducting 40 per cent from two years average profit for the period of penence of dissolution of the firm under the direction of the Court is to be treated as revenue receipt—B. Raghurama Prabhu Estate Executrix, Smt. M. Kaveri Bai vs. JCIT (2011) 239 CTR 274 (Kar)

S. 2(14), r/w S. 45 and 2 (47) of the IT Act, 1961—Capital gain—Capital asset, as defined u/s 2(14) means property of any kind held by an assessee, whether or not connected with his business or profession. The assessee was a member of the Stock Exchange and on account of chronic default, the Stock Exchange declared him as a defaulter, terminated his membership and sold his stock exchange membership card in an auction. Therefore, stock exchange membership card which was sold in an auction is property covered by description capital asset u/s 2(14) and its sale by the Stock Exchange amounted to transfer within the meaning of S. 2(47) of the Act. Therefore, it attracts tax on profit arising out of sale of same u/s 45 of the Act—CDR. P.J. Mathew vs. ITO.

S. 2(14)(iii) & 45 of IT Act, 1961—Capital Gain—When land is clearly agriculture land irrespective of the fact that the assessee intended to use the land for industrial purposes and did not carry any agricultural operation, same will remain agriculture land and no capital gain will be attracted on acquisition of such land—Hindustan Industrial Resources Ltd. vs. ACIT (Del)

S. 2(14)(iii) & 54B of IT Act, 1961—Capital gain—The Tehsildar working under the State Government, is competent to measure the distance of the land, more competent to measure the distance of the land than the Inspector of the Department. Since as per the report of the tehsildar, the assessee land is situated more than 8 kms. Away from the municipal limits, such land constitutes agricultural land and, therefore, assessee is entitled for exemption u/S 54B of the Act—CIT vs. Lal Singh & Ors (2010) 228 CTR 575 (P&H)

S. 2(14)(iii) of IT Act, 1961—Capital gain—As per S. 2(14)(iii)(b), the Central Government is required to specify the area referred to in S. 2(14)(iii)(a), by notification in the Official Gazette. A plain reading of S. 2(14)(iii) reveals that “capital asset” within the meaning of this section excludes agricultural land situated in any area beyond eight kilometers from the local limits of any municipality having a production of at least ten thousand [as referred to in S. 2(14)(iii) (a)] as notified in the Official Gazette by the Central Government, having regard to the extent of, and scope for, urbanisation of that area and other relevant consideration. Therefore, if the Central Government specifies, by notification in the official gazette, any area as an area falling outside the local limits of municipality, having regard to the extent of, and scope for, urbanisation of the said area and other relevant consideration, agricultural land comprised within such area shall stand excluded from the definition of capital asset as envisaged by S. 2(14), by virtue of operation of the law contained in S. 2(14)(iii)(b) of the Act—DCIT vs. Capital Area Bank Ltd. (2009) 123 TTJ 918 (ITAT-Asr)

S. 2(14), r/w S. 45 and 2(47) of the IT Act, 1961—Capital gain—Capital asset, as defined u/s 2(14) means property of any kind held by an assessee, whether or not connected with his business or profession. The assessee was a member of the Stock Exchange and on account of chronic default; the Stock Exchange declared him as a defaulter, terminated his membership and sold his stock exchange membership card in an auction. Therefore, stock exchange membership card which was sold in an auction is property covered by description capital asset u/s 2(14) and its sale by the Stock Exchange amounted to transfer within the meaning of S. 2(47) of the Act. Therefore, it attracts tax on profit arising out of sale of same u/s 45 of the Act—CDR. P. J. Mathew vs. ITO [2010] 323 ITR 592 (KER)

S. 2(14), (47), 45 of IT Act, 1961—Capital gain—The assessee-company carried on business as a dealer in motor vehicles in certain premises which it held as lessee of the Municipal Corporation and assessee entered into an agreement called a “Retailing business agreement with other under which it received a sum of Rs. 50 laks in lieu of forgoing its right to use those premises. The surrender of possession, occupation and enjoyment of the premises by the assessee for a premium of Rs. 50 lakhs for a fairly long period, would amount to extinguishment of the assessee right in the capital asset. Thus, under such circumstances, there is a transfer within the definition of S. 2(47) of a capital asset, being the right in the property u/s 2(14) and, hence, capital gain has to be computed u/s 45 of the Act—ACIT vs. United Motors (I) Ltd. [2010] 128 TTJ 290 (ITAT-Mumbai)

S. 2(14), 2(47), 45 & 47 (xiiia) of IT Act, 1961, of IT Act, 1961—Capital gain—”Capital asset”, as defined u/s 2(14) means property of any kind held by an assessee, whether or not connected with his business. Membership card which confers right on the member to trade in stock and shares in the exchange, is certainly a property. Clause 47A(b) provides for auction sale of the membership after 90 days of declaring a members as defaulter. Since the stock exchange membership card which is sold in auction is property covered by the description capital asset” u/s 2(14), its sale by stock exchange amounts to “transfer” within meaning of S. 2(47)—CDR P. J. Mathew vs. ITO [2010] 230 CTR 398 (KER)

S. 2(14) of the IT Act, 1961—Capital gain—The assessees purchased a piece of land in question against consideration of Rs. 8 lakhs and later on they sold the same to a private limited company for a sum of Rs. 73 lakhs and, thereafter, they filed separate returns of income wherein capital gain arising out of the sale of agricultural land was claimed by each of them to be exempted. When it was proved on record that said land was never used for other than agriculture purpose and therefore, the consideration received by assessee against sale of said piece of land is not assessable to tax as capital gain—CIT vs. JOAQUIM ALEMAO

S. 2(14) of the IT Act, 1961—Capital gain—Income arising from the transfer of agricultural land that falls within the terms of items (a) and (b) of sub cl. (iii) of cl. (14) of S. 2 falls outside the ambit of revenue derived from land and therefore, outside the ambit of agricultural income. Thus, such income is liable to capital gains tax chargeable u/s 45 of the Act—CIT vs. Ajit Kumar Arya

S. 2(14)(iii) of IT Act, 1961—Capital gain—The maximum distance prescribed by S. 2(14)(iii)(b) which may be incorporated in the notification of Central Government cannot be more than 8 kms. From the local limits of municipal committee or cantonment board etc. Therefore, the distance of 2kms from the municipal limits of city has to be reckoned for the purpose of S. 2(14)(iii) by measuring the same as per the road distance and not as per straight line distance on a horizontal plane or as per crow flight—CIT vs. Satinder Pal Singh (2010) 229 CTR 82 (P&H)

S. 2(14), (47), 14A, 36(1)(iii) of IT Act, 1961—Capital gain—According to S. 2(14) of the Act, the word capital asset means, property of any kind held by an assessee and it does not necessarily mean that the property which the assessee hold must be his own. Surrender of rights of the assessee would amount to extinguishment of his rights in the land/capital asset and, therefore, it attracts capital gains loss—Asian PPG Industries Ltd. vs. DCIT (2010) 4 ITR (Trib) 17 (ITAT-Mum)

Income Tax Act, 1961, S. 2(14)—Agricultural Income—The following questions of law was referred:—

“1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in not holding that this was a case of transfer of a capital asset as defined u/s 2(14) of the I.T. Act and, therefore, the profit or gain arising from this transfer was chargeable to income tax under head “Capital gains” as per S. 45 of the I.T. Act, 1961?

2. Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the sale price realised on the sale of the land was an agricultural income treating the land as an agricultural land and exempted u/s 2(1)(ii) of the I.T. Act, 1961?”

While answering the questions in favour of the Revenue, the Rajasthan High Court held that:—

“The position as a result, is that income arising from the transfer within the terms of items (a) and (b) of sub-clause (iii) of clause (14) of S. 2 falls outside the ambit of revenue derived from land and therefore, outside the ambit of “agricultural income”. Such income, therefore, is liable to capital gains tax chargeable u/s 45 of the 1961 Act. Parliament has, as a fore stated, the power to define what agricultural income is in the 1961 Act; the amendment of clauses (1A) and (14) of S. 2 thereof in the manner a fore stated are, therefore, good in law. The effect is that the assessee is liable to pay capital gains tax on the sales of this land within the municipal limits of Bina.”

CIT, Jaipur vs. Ajit Kumar Arya [2009] 12 ITCD 20 (Raj.Jaipur)

S. 2(14), 45, 47(iv), 90, 92 to 92E, 115JB, 195 of IT Act, 1961—Minimum Alternate Tax—The provisions of S. 115JB of the Act are not applicable to a foreign company which has no physical presence in India or permanent establishment in India—Praxair Pacific Ltd. In re. (2010) 326 ITR 276 (AAR)

S. 2(14), 2(42A), 10(38) & 45 of IT Act, 1961—Capital gain—The word asset cannot be segregated from the word capital as capital asset itself has been defined in the Act. No doubt, the assessee has transferred the capital asset which is not in dispute but such capital asset came into existence only from 1st April, 2004 and before which it was merely a stock-in-trade and same cannot be treated as capital asset as per the definition of capital asset. The holding period prescribed in S. 2(42A) has to be reckoned with in the asset i.e., shares became capital asset w.e.f. 1st April, 2004. Since the holding period was less than 12 months therefore, exemption of long-term capital gain u/s 10(38) cannot be allowed—Lohia Metals Pvt. Ltd. vs. CIT (2010) 131 TTJ 472 (ITAT-Chennai)

S. 2(14), 4 & 45(5) of IT Act, 1961—Capital gain—The compensation received for requisition cannot be taxed as an income of the assessee under the Act because the requisition of the land is only taking of possession of the land by the State Government for purposes specified in S. 3(1) of the Act, thereby the owners of the land are deprived from the use and enjoyment of the land. Even otherwise, when the compensation which is not against the transfer of the property (compulsory acquisition), then same cannot be included as consideration for computation of capital gain and same cannot be taxed as income of the assessee under any other head—DCIT vs. Udhava Das Fomra & Ors. (2009) 124 TTJ 817 (ITAT-Chennai)

S. 2(14)(iii) & 45 of IT Act, 1961—Capital gain—As per the notification issued by the Central Government which has been verified by the Assessing Officer, the municipal limit in the case of Samalkha District Karnal, is the area upto a distance of 5 Kms. from the municipal limit in all directions. Hence, as per circular Nos. SO-10 and SO-1302, the area outside a distance of 5 Kms. from the municipal limit will not be taken within the meaning of capital asset as defined in S. 2(14) of the Act—ITO vs. Gahlot Farms Pvt. Ltd. (2011) 138 TTJ (UO) 13 (ITAT-Delhi.)

S. 2(14), 2(47), 45 & 48 of IT Act, 1961—Capital gain—Giving up of a right to claim specific performance by conveyance in respect of an immovable property, amount to relinquishment of the capital asset. Therefore compensation received for giving up the right to specific performance of an agreement to sell, constitutes capital gain chargeable to tax but deduction as per S. 48 of the Act is allowable—CIT vs. H. Anil Kumar (2011) 242 CTR 537 (ITAT-Kar)

S. 2(14), 4, 45 & 145(3) of IT Act, 1961—Capital gain—Trees rooted to the land, by definition, are a part of land. The trees under reference are not sold together with the land, which remains unsold, but after uprooting them. Therefore, receipt from sale of trees of spontaneous growth with roots as well as soil is liable to tax under the head capital gain with a reduction towards the decline in the value of the land on account of removal of such trees—Prasad Mathew vs. DCIT (2011) 136 TTJ 612 (ITAT-Coch)

S. 2(14) of IT Act, 1961—Capital gain—Since the items in question sold were articles meant for personal use and are, therefore, personal effects and sale proceeds are exempted u/s 2(14) of the Act and not eligible to tax—CIT vs. Faiz Murtaza Ali (2011) 335 ITR 272 (Delhi)

S. 2(14), 2(47), 45, 48 & 55(2)(a) of the IT Act, 1961—Capital Gain—The right to construct the additional storeys on account of increase in FSI by virtue of regn. No. 14 is a capital asset held by assessee, therefore, assignment of such right in favour of the developers amounted to transfer of capital asset—Maheswar Prakash-2 Co-operative Housing Society Ltd. vs. ITO (2009) 121 TTJ 641 (ITAT-Mumbai)

S. 2(14) 2(29A), 2(42A) & 2(42B) of the IT Act, 1961—Capital gain—S. 2 (29A) and 2(42A) provides that if capital asset is held for more than 36 months immediately after preceding the date of transfer, it will be treated as long-term capital asset and the gain will be considered as long term capital gain but where from the date of conversion of business asset into investment or capital asset upto date of transfer or sale is less than 36 months as provided in S. 2(29A) and 2(42A), the same has to be treated as short term capital gain and the rate applicable in the case of short-term capital gain is leviable—Splendor Constructions Pvt. Ltd. vs. ITO (2009) 122 TTJ 34 (Del)

S. 2(14), 45, 50 & 50B of IT Act, 1961—Capital gain—After the introduction of S. 2(42C) and S. 50B, slump sale has to be assessed strictly in accordance with the provisions of S. 50B of the Act. In other words, until the special provision is introduced, land and building and depreciable assets are assessable under other provisions of the Act, particularly S. 50. The sale of capital assets like land, building and depreciable assets are assessable separately. However this can be done by bifurcating the sale consideration in a realistic manner between the value attributable to land, building and fixed assets and the value fixed for the transfer of the business, which is essentially the transfer of dealership licence by the manufacturing company. However the value of licence which constitutes consideration for sale of business cannot be assessed to capital gain by applying s. 55(2) as the said provision came into force after the sale—CIT vs. T. J. George (2011) 240 CTR 149 (Ker)

Income-tax Act, 1961, S. 2(14) and 45—Capital gains on sale of agricultural land—The question of law before the Madras High Court was :

“Whether the Tribunal was right in holding that the lands are not agricultural lands and hence profit on sale of the lands is assessable as capital gains”?

While partly allowing T.C. No. 139 and allowing T.C. Nos. 140 and 141, the Madras High Court held that:—”A perusal of section 45 shows that the requirement as on the date of sale or transfer is that the asset must be a capital asset, considering the description under the Act. The chargeability to tax u/s 45 arises only if on the date of sale, the land in question retained its character as a capital asset, which means, an asset which does not answer the definition of a capital asset and which is an agricultural land falling within the definition of S. 2(14) would automatically be outside the scope of S. 45. As on the date of sale, the agricultural operations were in fact carried on in the lands, it is difficult to accept the view of the Tribunal, considering the law was to proceed from the point of how the purchaser had intended to use. It is not disputed by the Revenue that the land in question does not fall within the restricted clause to make it a capital asset for purposes of levy u/s 45.”

M.S. Srinivasa Naicker and Other vs. Income-tax Officer (Mad)

S. 2(14), 45, 48 & 55(2) of the IT Act, 1961—Capital gain—If the assessee has not incurred any cost of acquisition on a capital assets and such capital assets does not fall in the category of the capital assets specified in S. 55(2) then no capital gain would be charged—New shailaja Co-operative Housing Society Ltd. vs. ITO (2009) 121 TTJ 62 (ITAT-Mum)

S. 2(14)(iii), 45 of IT Act, 1961—Capital gain—The sale of agriculture land does not attract any capital gains tax. Since the tax effect is less than the prescribed tax effect limit of Rs. 2 lakhs decided as per Circular issued by CBDT, the Department’s appeal before the Tribunal is not maintainable—Ramjibhai P. Chaudhary vs. DCIT (2009) 314 ITR 259 (ITAT-Ahmedabad)

Capital Gain—S. 2(14)—IT ACT, 1961—Commissioner of Income tax vs . Madhukumar N. (HUF).

S. 2(14), 45, 48 of IT Act, 1961—Capital gain—The land in question is converted into non-agricultural but in view of the cultivation of the land till the date of sale, the land should be treated as agricultural land and, therefore, the same is exempt from capital gains in view of S. 2(14) r/w S. 45 and 48 of the Act —CIT vs. Smt. K. Leelavathy (2012) 341 ITR 287 (Karn.)

Search & Seizure—S. 002(14)(ii), 069—IT ACT, 1961—V. SANJAY KUMAR v. DEPUTY COMMISSIONER OF INCOME-TAX [2012] 16 ITR (Trib) 262 (ITAT-MUMBAI)

Reference:

As Per Section 2(14), of the Income Tax Act, 1961-

In this Act, unless the context otherwise requires,—

S. 2(14) “capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include—

(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession ;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes—

(a) jewellery;

(b) archaeological collections;

(d) paintings;

(e) sculptures; or

(f) any work of art.

—For the purposes of this sub-clause, “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 India, not being land situate—

(a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand according to the last preceding census of which the relevant figures have been published before the first day of the previous year ; or

(b) in any area within such distance, not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a), as the Central Government may, having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations, specify in this behalf by notification in the Official Gazette;

The following item (b) shall be substituted for the existing item (b) of sub-clause (iii) of clause (14) of section 2 by the Finance Act, 2013, w.e.f. 1-4-2014:

(b) in any area within the distance, measured aerially,—

(I) not being more than two kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten thousand but not exceeding one lakh; or

(II) not being more than six kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than one lakh but not exceeding ten lakh; or

(III) not being more than eight kilometers, from the local limits of any municipality or cantonment board referred to in item (a) and which has a population of more than ten lakh.

—For the purposes of this sub-clause, “population” means the population according to the last preceding census of which the relevant figures have been published before the first day of the previous year;

(iv) 6½ per cent Gold Bonds, 1977,[or 7 per cent Gold Bonds, 1980,] [or National Defence Gold Bonds, 1980,] issued by the Central Government

(v) Special Bearer Bonds, 1991, issued by the Central Government ;

(vi) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 notified by the Central Government.

[Explanation.—For the removal of doubts, it is hereby clarified that “property” includes and shall be deemed to have always included any rights in or in relation to an Indian company, including rights of management or control or any other rights whatsoever]

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