Capital Gains Chapter- 12
Solution
(i) Capital assets
There are two categories of capital assets: 1. Capital assets other than specified in section 37A, 2.
Capital assets specified in section 37A.
(a) Capital assets other than specified in section 37A.
Capital asset has been defined as property of any kind, connected with business or not, but
does not include:
(i) Stock in trade, consumable stores or raw materials held for business
(ii) Depreciable asset or amortizable asset (i.e. fixed assets and intangibles for business use)
(iii) Movable property held for personal use of the person or any dependent family member
excluding capital assets mentioned in section 38(5)
(b) Capital assets specified in section 37A.
A separate section 37A has been introduced by the Finance Act 2010 to cater the disposal
transactions of the following securities:
(i) Shares of a public company;
(ii) Vouchers of PTCL;
(iii) Modaraba certificates;
(iv) Unit of exchange traded fund;
(v) An instrument of redeemable capital, debt securities as defined in the Companies
Ordinance 1984; and
(vi) Derivative products(ii) Valuation of Capital assets: If a person receives a capital asset under Gift, Bequest, Will,
Succession, Inheritance, Devolution, Dissolution of AOP or Liquidation of Company, then cost of
transferor on the date of transfer shall be treated as cost of the capital asset for the transferee while
in other cases value of capital asset shall be equal to its purchase price.
(iii) Capital gain: Capital gain is computed as consideration received less cost of the capital asset +
expenses incurred exclusively for earning capital gains (including incidental expenses for acquiring
and disposing the capital asset).
Consideration received is the higher of actual amount received or fair market value. In case, an asset
is lost or destroyed, consideration received shall be scrap value along with any compensation,
indemnity or damages received under an insurance policy, agreement, settlement or judicial decision.
(iv) Adjustment of capital loss against capital gains: Capital loss can be c/f only against future capital
gains up to 6 years next following the tax year in which the loss occurred.
Loss on disposal of securities u/s 37A shall be set off only against the gain from any other securities
u/s 37A and any unadjusted loss shall be carried forward to the subsequent three tax years.
Q # 5 Briefly explain the income tax implications in respect of each of the following independent situations
for the tax year 2023.
(a) Mr. Mobeen has also paid a sum of Rs. 60,000 for purchase of dining table set on 15 January 200 6
for his personal use. He sold the said set to Mr Gufran for a sum of Rs. 90,000 on 27 June, 20 23.(b) 15 February 20 23 Bilal discarded a machine which he had imported from China for Rs. 1,000,000
on 1 January 20 23 to start the business. However, the machine was badly damaged during the
shipment, rendering it unfit for use. The shipping company paid him Rs. 850,000 as damages. The
scrap value of the machine on the date it was discarded was estimated to be Rs. 200,000. The
documentation charges incurred in connection with the claim for damages were Rs. 25,000