Section 2(14) — Capital Asset

Section 2(14) of the Income-tax Act, 1961 defines the term 'capital asset'. It is a crucial definition as it determines what constitutes a capital asset for the purposes of capital gains tax. According to this section, a capital asset includes property of any kind held by an assessee, whether or not connected with their business or profession. However, it excludes certain items such as stock-in-trade, personal effects (except jewelry, archaeological collections, drawings, paintings, sculptures, or any work of art), agricultural land in India (subject to certain conditions), and certain specified bonds. The significance of this section lies in its broad definition, which encompasses a wide range of properties, thus impacting the computation of capital gains tax. The burden of proof typically lies with the taxpayer to demonstrate that an asset falls within or outside the definition of a capital asset. This section is pivotal in determining tax liabilities arising from the transfer of assets.

Common Litigation Flashpoints

1. Classification of an asset as a capital asset
2. Exclusion of agricultural land from capital assets
3. Determination of personal effects
4. Valuation of jewelry and art as capital assets

Judgments on Section 2(14) — Capital Asset

• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Commissioner of Income Tax, Bangalore vs B. C. Srinivasa Setty — SC,
  Goodwill generated in a newly commenced business cannot be described as an 'asset' within the terms of Section 45 and therefore its transfer is not subject to income-tax under the head 'capital gains'