This section is applicable in following cases:
(a) When transfer of a capital asset is by way of compulsory acquisition, or,
(b) When a capital asset is transferred and consideration of transfer is to be determined by Central government or RBI.
[Section 45(5)(a)] Treatment of Initial Compensation received :
(1) Sale consideration : Total compensation/ consideration received or receivables
(2) Taxable in the year when such consideration is first received.
(3) Legal expenses incurred to recover claim shall be allowed as deduction.
[Section 45(5)(b)] Treatment of Enhanced compensation :
(1) Where assessee has received enhanced compensation, then such enhanced compensation shall be taxable in the year when it is received.
(2) Sale Consideration will be total enhanced compensation or consideration received.
(3) Litigation expenses for getting enhanced compensation are deductible.
(4) Interest on Enhanced Compensation shall be taxable as "Income from other sources".
[Section 45(5)(c)] Reduced Compensation
Where compensation or consideration is reduced by any court or other authority, then capital gain of that year shall be recomputed by considering such reduced compensation or consideration.
NOTES:
(a) Cost of Acquisition will be higher of the following:
(i) Original cost of acquisition
OR
(ii) Fair Market Value as on 01/04/2001
(b) Cost of Improvement incurred before 01/04/2001 shall be ignored.
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