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CA Final · Direct Tax Laws & International Taxation · Capital Gains

A specified fund (resultant fund) transferred shares of an Indian company that it received in relocation from the original fund. Capital gains on those shares were ₹80 crore, and these would not have been chargeable to tax had the relocation not taken place. The fund also earned ₹20 crore of other capital gains on shares not received in relocation. From the date of acquisition to the date of transfer of these shares, the aggregate of daily assets under management held by non-resident unit holders (not permanent establishments in India) was 45,000 units and the aggregate of daily total assets under management was 60,000 units. The fund has filed Form No. 178 as required. Under Rule 285, what is the exempt income in the nature of capital gains?

The exempt income is ₹60 crore. Rule 285 applies the formula A × B / C. Only the ₹80 crore gain on relocated shares counts as A, and the non-resident proportion is 45,000 / 60,000, or 75 percent. Hence 80 × 0.75 equals ₹60 crore.

  1. A₹60 croreCorrect
  2. B₹20 crore
  3. C₹75 crore
  4. D₹80 crore

Explanation

Exempt income = (A × B) / C. A is only the relocation-related gain of ₹80 crore; the other ₹20 crore is excluded. B/C = 45,000/60,000 = 0.75. So exempt income = 80 × 0.75 = ₹60 crore. Using the resident share (0.25) gives ₹20 crore, which is wrong.

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