Q1. Mr. X had a leasehold property since 5th May, 2016. The leasehold rights were converted into freehold on 20th May, 2025. The said property was sold on 10th January, 2026. The assessee claimed the capital gain as long-term capital gain. The A.O. contended the same as short-term as the property was acquired by converting the leasehold right into freehold right only on 20th May, 2025. Is Mr. X justified in his claim? [CA Final May 2015] [4 Marks] Ans.
CIT v. Smt. Rama Rani Kalia (2013) (All.).
Q2. Mr. Ramesh purchased a plot of land in Chennai in June 2012 for ` 50 lakhs. He decided to sell the property to Mr. Mahesh for ` 80 lakhs and received an advance of ` 2 lakhs in May, 2013. Mr. Mahesh was unable to complete the agreement and hence, the entire advance was forfeited by Mr. Ramesh. Again Mr. Ramesh entered into an agreement to sell the property to Mr. Rakesh for ` 95 lakhs and received advance money of ` 2.50 lakhs in August, 2024. But again the transfer did not materialise due to which the advance money was again forfeited.
On 4th January, 2026, the property was finally sold to Mr. Mukesh for ` 105 lakhs and the stamp duty value on that date was ` 125 lakhs. During financial year 2025-26, Mr. Ramesh earned business income of ` 25 lakhs.
He acquired a new residential property for ` 130 lakhs by investing entire sale consideration and his business income. Determine the total income of Mr. Ramesh for the A.Y. 2026-27 [CA Final May 2015] [7 Marks]
PARTI:DIRECTTAXLAWS
Ans. Computation of total income of Mr. Ramesh for the A.Y. 2026-27 ` in lakhs ` in lakhs
Business Income
Capital Gains
Income from other sources
Notes:
in lakhs
Mahadevappa ITO
Q3. SS(P) Ltd., a domestic listed Indian company having two undertakings engaged in manufacture of cement and steel, decided to hive off cement division to RV(P) Ltd., a domestic Indian company, by way of demerger. The net book value of assets of SS(P) Ltd. before demerger was ` 40 crores. The net book value of assets transferred to RV(P) Ltd. was ` 10 crores. The demerger was made in January 2026. In the scheme of demerger, it was fixed that for each equity share of ` 10 each (fully paid-up) of SS(P) Ltd., two equity shares of ` 10 each (fully paid-up) were to be issued.
One Mr. N.K. held 25,000 equity shares in SS(P) Ltd. which were acquired in the F.Y. 2010-11 for ` 6,00,000. Mr. N.K. received 50,000 equity shares from RV(P) Ltd. consequent to demerger in January 2026. He sold all the shares of RV(P) Ltd. for ` 8,00,000 in March, 2026. In this background answer the following:
(i) Does the transaction of demerger attract any income tax liability in the hands of SS (P) Ltd. and RV(P) Ltd.?
(ii) State the conditions in brief, which are to be satisfied under the Act for a demerger.
(iii) Compute the capital gain that could arise in the hands of Mr. N.K. on receipt of shares of RV(P) Ltd.
(iv) Compute the capital gain that could arise in the hands of Mr. N.K. on sale of shares of RV(P) Ltd.
(v) Will the sale of shares by Mr. N.K. affect the tax benefits availed by SS(P) Ltd. and/or RV(P) Ltd.?
Note:F.Y.Cost Inflation Index (CII) 2010-11167 2025-26376 [CA Final Nov. 2015] [10 Marks]
vid transfer or issue of shares by the resulting company
Computation of Capital Gains
Q4. K and Co. (firm) had sold all its assets and liabilities as a slump sale on 31-3-2026 to SVPC & Co. (firm) for a lump sum consideration of ` 580 lakhs. The FMV of the capital assets on the date of transfer computed as per Rule 11UAE is ` 600 lakhs.
The statement of affairs of K & Co. as on 31-3-2026 is as below: Liabilities ` in lakhsAssets ` in lakhs
Unsecured Loans25Plant & Machinery at WDV250 Bank Borrowing500Land (At
Additional Information:
(1) Cost of land in March 2013 was ` 100 lakhs.
(2) WDV of Plant & Machinery u/s 43(6) was ` 200 lakhs.
(3) Cost Inflation Index for the financial year 2012-13 was 200 and for 2025-26 is 376.
(4) Stock is overvalued by 10%
Compute capital gain arising from slump sale and tax on such gain. [CA Final May 2016] [10 Marks]
revaluation of assets shall be ignored
Computation of Tax Liability arising on Slump Sale
in Lakhs
Note:
1. Net Worth of the undertaking: ` in Lakhs
Total Assets Less: Liabilities
Q5. Mr. Raghu purchased 10,000 equity shares of AB Avenues Pvt. Ltd. on 25-5-2012 for ` 1,20,000. The company went into liquidation on 31-7-2025. The following is the summarized financial position of the company as on 31-7-2025.
The assets remaining after discharging liability for income tax were distributed to the shareholders in the proportion of their shareholding. The market value of agricultural land as on 31-7-2025 is ` 60,00,000.
The agricultural land received as above was sold by Mr. Raghu on 28-2-2026 for ` 15,00,000.
Discuss the tax implications in the hand of the company and Mr. Raghu.
The cost inflation indices are F.Y. 2012-13: 200 and F.Y. 2025-26: 376. [CA Final Nov. 2016] [10 Marks]
Ans.
Computation of Capital Gains for A.Y. 2026-27 ``
a Capital Gain on transfer of shares ` ` ` 22 c
b Capital gain on transfer of Land:
Note: As per section 46(2), as reduced by u/s 2(22)(c)
2(22)(c), ` ` ` ` ` 22 c
Q6. Mr. Ankit sold a plot during the F.Y. 2025-26 and invested the sale proceeds in purchase of a new house in the name of his wife by the end of the financial year i.e. 31st March, 2026. He claimed exemption u/s 54F in respect of the new house purchased by him in the name of his wife. The A.O. while making assessment for the A.Y. 2026-27 denied such deduction on the ground that in order to avail benefit u/s 54F, it is necessary to invest the sale proceeds in the name of the assessee. Comment on the validity of action taken by the Assessing Officer.
[CA Final Nov. 2016] [4 Marks]
Ans. CIT v. Kamal Wahal (2013), where the Delhi High Court observed that the entire investment for purchase of new residential house had come out of the sale proceeds of the capital asset (of the assessee) and there was no contribution from his wife. rule of purposive construction and the object of enactment of section 54F,
Q7. A manufacturing company was transporting two of its machines from unit ‘X’ to unit ‘Y’ on 1st September, 2025 by a truck. On account of a civil disturbance, both the machines were damaged. The insurance company paid ` 5 lakhs for the damaged machines. On these facts, for submitting the return of income for the previous year ending 31st March, 2026, your advice is sought as to: (i) Whether the damage of machines results in any transfer, vis-à-vis eligibility to capital gains. (ii) How the amounts received from the insurance company are to be treated for taxability. (iii) Whether there will be any impact on the written down value of the block of plant and machinery as on 31-3-2026? [CA Final May 2017] [3 Marks] Ans.
inter alia,
Q8. Alpha Ltd. has two industrial undertakings. Unit-1 is engaged in the production of television sets and Unit-2 is engaged in the production of refrigerators. The company has, as part of its restructuring program, decided to sell Unit-2 as a going concern, by way of slump sale for ` 275 lakhs to a new company called Beta Ltd., in which it holds 85% equity shares. The FMV of the capital assets of the unit on the date of transfer computed as per Rule 11UAE is ` 300 lakhs. The following are extracted from the balance sheet of Alpha Ltd. as on 31st March 2026:
The company had set up Unit-2 on 1 1st April, 2019. The written down value of the block of fixed assets for tax purpose as on 31st st March, 2026 is ` 130 lakhs out of which ` 75 lakhs are attri 75 lakhs are attributable to Unit2. Determine what would be the tax liability of Alpha Ltd. on account of this slump sale.
How can the restructuring plan of Alpha Ltd. be modified, without changing the amount of consideration, in order to make it more tax efficient? [CA Final May 2017, May 2012] [10 Marks]
Ans. a longterm capital gain minus
Aggregate value of total assets minus as appearing in its books of account. revaluation of assets shall be ignored
For computing the “net worth”,
Computation of Net Worth of Unit-II
Net worth of Unit-II ` i ii
Aggregate value of total assets
Calculation of Capital gains `
Calculation of tax liability `
b Tax Advice:
Q9. Avimanyu, a resident individual held 25% equity shares in FMC Ltd., an Indian company. The company’s paid-up share capital as on 31-3-2025 was ` 10,00,000 divided into 1,00,000 equity shares of ` 10 each issued at a premium of ` 20 each. The shares were allotted to the shareholders on 1st October, 2018. The company had gone for buyback of 30% of its shares on 30-10-2025 as per the provisions of the Companies Act, 2013.
The company paid ` 60 per share on buy back.
Explain and compute the tax effect in the hands of FMC Ltd. and Avimanyu if the shares of FMC Ltd. are not listed on recognised stock exchange.
Whether the answer would be different if the shares of FMC Ltd. are listed on recognised stock exchange. Cost Inflation Index: 280 for F.Y. 2018-19; 376 for F.Y. 2025-26 [CA Final Nov. 2017] [10 Marks]
Ans.
(i) If shares of FMC Ltd. are not listed on recognized stock exchange: Tax effect in the hands of shareholders (i.e. Avimanyu):
Particulars `
Capital Gain (Sec. 46A)
Income From Other Sources
