References and links:

Sections 2(47), 47 and 50D of the Income-tax Act, 1961

New Provision:

The provision to assess capital gains based on market value was inserted by the Finance Act 2012 w.e.f.  01.04.2013 that is Assessment Year 2013-14 (PYE 31.03.2013). Now the first relevant previous year is to end soon, therefore, author thought it proper to write on some new provisions for benefit of readers- tax payers and tax consultants.

In past it has been experienced that in initial years of any provision, mistakes took place by tax payers and also tax practioners because the new provision was not well circulated and popular. For example, disallowance under section 40(a)(ia), provided shock to many, because care was not taken in depositing small sums of TDS, disallowance was not made in return. In many cases huge disallowances were was made when a scrutiny assessment was made and on same issue penalty proceedings were also initiated.

The provision of S. 50D reads as follows (with highlights added for analysis)

From Income-tax Act, 1961

Fair market value deemed to be full value of consideration in certain cases.

50D. Where the consideration received or accruing as a result of the transfer of a capital asset by an assessee is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.

From notes to the budget proposal we can read as follows:

Clause 17 of the Bill seeks to insert section 50D of the Income-tax Act relating to fair market value deemed to be full value of consideration in certain cases.

The existing provisions of the Income-tax Act provide that on the transfer of a capital asset, capital gains are calculated as the difference between the sale consideration and the cost of acquisition.


It is proposed to insert a new section 50D so as to provide that where the consideration received or accruing as a result of the transfer of a capital asset by an assessee, is not ascertainable or cannot be determined, then, for the purpose of computing income chargeable to tax as capital gains, the fair market value of the said asset on the date of transfer shall be deemed to be the full value of the consideration received or accruing as a result of such transfer.

This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-2014 and subsequent assessment years.

An analysis of the new provision:

The provision is applicable for current previous year which will end on 31.03.2013. Therefore, a special attention is required for tax payers to avoid missing the provision due to novelty and ignorance, as many times happens in case of new and not very popular provisions newly inserted.

The conditions for applicability of provision are:

Consideration must be received or accruing –if consideration is not received or accrued in the previous year, then provision will not apply. For example, if a consideration or part of consideration shall be received or accrued in future, then the provision will not apply. In case a developer will provide some of constructed area, to land owner, on completion of project, then the consideration to be received in kind in future, is not consideration received or accrued, therefore, in such cases the provision of S.50D will not be applicable.

There must be transfer of capital asset –if there is no transfer, then section will not apply. Here transfer of capital asset can mean a definite and absolute transfer. A transfer of some of rights for limited purposes cannot be regarded as transfer of capital asset in the context of tax on capital gains. There should not be a situation of contingent transfer which can be revert back on some contingencies. The transfer must be full and final. Readers are requested to go through definition of ‘transfer’  in relation to a capital asset provided  in section 2(47) of the Income-tax Act, 1961 and also to see exemption from meaning of transfer as provided in section 47 of the Act.

Consideration should not be ascertainable or cannot be determined,  - thus if consideration can be ascertained or determined,  even in  future, then this provision may not be applicable. For example, if a part of consideration will be given in kind- say some of constructed area in a project, then the situation is one in which consideration will be received and it will be  ascertainable in future so in such situation S.50D may  not be applicable depending on facts of the case.

Capital gains- This provision is only for the purpose of computing income chargeable to tax as capital gains. This provision is not applicable in case of business income or income falling under head ‘other sources’ or income from house property’ etc.

Therefore, first of all applicability of provisions need to be ascertained. The section may not be applicable in many situations.

Only in case this provision apply then  the fair market value of the capital asset transferred   on date of transfer  of said asset, shall be deemed to be the full value of the consideration received or accruing as a result of such transfer even though consideration is not otherwise ascertainable.

Review and corrective steps required as soon as possible:

Any taxpayer who find that the provisions of S. 50D may be attracted in his case, can take timely study, find out implications of the same by ascertaining fair market value of capital asset and estimate his tax liability. In case advance tax has not been paid, the same can be paid as soon as possible to meet obligations for payment of installments of advance tax.

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