Meaning of “Full value of consideration”

The meaning of full value of consideration under section 48 of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of full value of consideration.

Meaning of full value of consideration

The phrase ‘full value of consideration‘ used in section 48 of the Income Tax Act came up before various high courts as detailed under :

1. Hon’ble Supreme Court explained the meaning of ‘full value of consideration‘ while delivering judgment in CIT Vs. Gillanders Arbuthnot & Co. [1973] 87 ITR 407 (SC) as under :

Meaning : The expression ‘full value of the consideration’ cannot be construed as the market value but as the price bargained for by the parties to the sale. The dictionary meaning of the word ‘full’ is ‘whole or entire, or complete’ (shorter oxford english dictionary). The word ‘full’ has been used in this section in contrast to ‘a part of the price’. Consequently, the words ‘full price’ mean ‘the whole price’. Clause (2) of section 12b of the 1922 act itself clearly suggests that if no deductions are made as mentioned in sub-clause (ii) thereof, then that amount represents the full value of the consideration or the full price.

In other words, when deductions are made as specified in sub-clauses (i) and (ii), then that amount does not represent the full value. The expression ‘full value’ means the whole price without any deduction whatsoever and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor has it any necessary reference to the market value of the capital asset which is the subject-matter of the transfer.

2. Hon’ble Andhra Pradesh High Court explained the meaning of ‘full value of consideration‘ while delivering judgment in CIT Vs. Smt. Bilquis Jahan Begum [1984] 150 ITR 508/19 TAXMAN 135 (AP) as under :

Meaning : The expression ‘full value of the consideration received as a result of the transfer’ of the capital asset occurring in section 48 represents the full sale price actually paid. The sale price actually received is not subject to any artificial deduction except those specified in section 48.

3. Hon’ble Bombay High Court explained the meaning of ‘full value of consideration‘ while delivering judgment in CIT Vs. Shakuntala Kantilal [1991] 58 TAXMAN 106/190 ITR 56 (BOM.) as under :

Meaning : The legislature, while using the expression ‘full value of consideration’ has contemplated both additions to as well as deductions from the apparent value. What it means is the full and effective consideration.

4. Hon’ble Bombay High Court explained the meaning of ‘full value of consideration‘ while delivering judgment in CIT Vs. Texspin Engg. & Mfg. Works [2003] 129 TAXMAN 1/263 ITR 345 (BOM.) as under :

Meaning : One has to read the expression ‘full value of the consideration received/accruing’ under section 48 de hors section 45(4) and if one reads section 48 with section 45(1) de hors section 45(4), then the expression ‘full value of consideration’ in section 48 cannot be the market value of the capital asset on the date of transfer.

Section 48 of Income Tax Act

Mode of computation.

48.The income chargeable under the head “Capital gains” shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :— (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto;

(iii) in case of value of any money or capital asset received by a specified person from a specified entity referred to in subsection (4) of section 45, the amount chargeable to income-tax as income of such specified entity under that sub-section which is attributable to the capital asset being transferred by the specified entity, calculated in the prescribed manner:]

Provided that in the case of an assessee, who is a non-resident, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and

the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company :

Provided further that where long-term capital gain arises from the transfer of a long-term capital asset, other than capital gain arising to a non-resident from the transfer of shares in, or debentures of, an Indian company referred to in the first proviso, the provisions of clause (ii) shall have effect as if for the words “cost of acquisition” and “cost of any improvement”, the words “indexed cost of acquisition” and “indexed cost of any improvement” had respectively been substituted:

Provided also that nothing contained in the first and second provisos shall apply to the capital gains arising from the transfer of a long-term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 112A:

Provided also that nothing contained in the second proviso shall apply to the long-term capital gain arising from the transfer of a long-term capital asset, being a bond or debenture other than—

(a) capital indexed bonds issued by the Government; or

(b) Sovereign Gold Bond issued by the Reserve Bank of India under the Sovereign Gold Bond Scheme, 2015:

Provided also that in case of an assessee being a non-resident, any gains arising on account of appreciation of rupee against a foreign currency at the time of redemption of rupee denominated bond of an Indian company held by him, shall be ignored for the purposes of computation of full value of consideration under this section:

Provided also that where shares, debentures or warrants referred to in the proviso to clause (iii) of section 47 are transferred under a gift or an irrevocable trust, the market value on the date of such transfer shall be deemed to be the full value of consideration received or accruing as a result of transfer for the purposes of this section :

Provided also that no deduction shall be allowed in computing the income chargeable under the head “Capital gains” in respect of any sum paid on account of securities transaction tax under Chapter VII of the Finance (No. 2) Act, 2004.

Explanation.—For the purposes of this section,—

(i) “foreign currency” and “Indian currency” shall have the meanings respectively assigned to them in section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999);

(ii) the conversion of Indian currency into foreign currency and the reconversion of foreign currency into Indian currency shall be at the rate of exchange prescribed in this behalf;

(iii) “indexed cost of acquisition” means an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st day of April, 2001, whichever is later;

(iv) “indexed cost of any improvement” means an amount which bears to the cost of improvement the same proportion as Cost Inflation Index for the year in which the asset is transferred bears to the Cost Inflation Index for the year in which the improvement to the asset took place;

(v) “Cost Inflation Index”, in relation to a previous year, means such Index as the Central Government may, having regard to seventy-five per cent of average rise in the Consumer Price Index (urban) for the immediately preceding previous year to such previous year, by notification31 in the Official Gazette, specify, in this behalf.

In this article, you can get guidance from high courts on the meaning of full value of consideration under section 48 of the Income Tax Act.

Updated up to Finance Act 2021