Opinion Of Eminent Legal Luminaries On Controversial Issues

Whether Exchange Of The Vacant Land For Another Land Is Liable To Capital Gains Tax?

QUERY: Y wishes to sell his vacant land. The real estate agent is offering him another piece of land in exchange. Y want to retain the land as an investment and not construct any building. Will the exchange be subject to capital gains even though Y had not received any monetary consideration.
ANSWER: The definition of transfer under section 2(47) of the Act is an inclusive definition and includes an “exchange”. So, here Y is exchanging his land with another land.

However, section 48 provides that the amount of capital gain can be arrived by deducting two items from the “full value of consideration”.

The Supreme Court in CIT vs. George Hemderson & Co. Ltd. [66 ITR 622] and CIT cs. Gillanders Arbuthnot & Co. [87 ITR 407] held that the expression “full value of consideration” means the entire consideration received by the assessee and not the market value of the capital assets transferred.

Therefore, in case of an exchange, it would be necessary to value the property or goods received in exchange. Unless there is clear material to show that an asset of higher value has been exchanged for one of a lower value, there can be no capital gain [See Nila Products Ltd. vs. CIT [148 ITR 99 (Bom) and CIT v. Mrs. Shrinbai P. Pumdole [129 ITR 448 (Bom.)]

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