Capital gains in Case

of Self Generating
Assets
w.r.t
B.C Srinivas Shetty
Case

Capital Gains

Capital gain is an increase in the value

of acapital asset
(investment or real estate ) that gives it
a higher worth than the purchase price.
The gain is not realized until the asset is
sold. A capital gain may beshort-term
(one year or less) orlong-term(more
than one year) and must be claimed on
income taxes.

How to calculate Capital

Gain?
In simple words, Gain= Net Sale Proceeds Cost.
Formula:
Full Value of Consideration
Less
Expenditure on transfer, Cost of Acquisition,
Cost of Improvement.
Less
Exemption u/s54 (if any)

= CAPITAL GAIN

Tax Consequences of Capital Gains and Losses

Tax-conscious mutual fund investors should determine a

mutual fund'sunrealized accumulated capital gains, which
are expressed as a percentage of its net assets, before
investing in a fund with a significant unrealized capital gain
component. This circumstance is referred to as a fund's
capital gains exposure. When distributed by a fund, capital
gains are a taxable obligation for the fund's investors.

Short-term capital gains occur on securities held for one

year or less. These gains are taxed as ordinary income
based on the individual's tax filing status and adjusted
gross income. Long-term capital gains are usually taxed at
a lower rate than regular income. The long-term capital
gains rate is 20% in the highest tax bracket. Most taxpayers
qualify for a 15% long-term capital gains tax rate. However,
taxpayers in the 10% and 15% tax brackets would pay a 0%

Meaning of a Self
Generated Asset
The financial accounting termselfconstructed assetsrefer to those
built by the company and appearing
on its balance sheet. The cost
ofself-constructed assetswould
include direct costs such as materials
and labor associated with its
construction.

B.C Srinivasa Shetty

case:
The cost of acquisition of a self
generated asset is not determinate,
Therefore, capital gains not possible
to be computed when a self
generated asset is transferred.
Hence ,no capital gains will arise on
the sale of self generated asset. The
amount received will be a
capitalreceiptnot chargeable to
income tax.

POINTS TO BE NOTED:
In view of the amendment in section
55,the above judgment will not apply
to the sale of

Good will of business

Tenancy right,
Stage carriage permits
Loom hours

 The right to manufacture, produce

and process any article or thing
A trade mark orbrandname
associated with a business, and
A right to carry on any business.

Section 28 has been amended retrospectively to

provide that the following shall be charged to tax
under head P/G/B/P :
(i) Cash assistance against exports.
(ii) Any duty of customers or excise repaid or
repayable as duty drawback against exports.
(iii) Profits on sale oflicensesgranted under imports
(control) order against exports.
The judgment of supreme court in B.C.
Srinivasashettywill till apply to self
generatedassetsother than those mentioned in
section 55.

It has been held in the case of

suman tea &plywoodindustries
(P) Ltd. that the spontaneously
growntreescan be said to be self
generatedassetsand their cost of
acquisition and cost of
improvement is indeterminate.
Therefore no capital gains shall
arise on sale of such
spontaneously growntrees.

The amendment in section 55 does not

cover goodwill of profession,
Therefore ,if self generated goodwill of
profession is sold, then no capital gains
shall arise in view of supreme court
judgment in B.C.Srinivasashetty.
The amount received on sale of such
goodwill is a capitalreceiptnot taxable.
Similarly, if goodwill of profession
which was purchased is subsequently
solf,then it can be argued that the cost

Thank You