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New Chapter 9: Section 65F - Disposal and Acquisition of Capital Asset


Finance (No. 2) Act 2023 proposes that New Chapter 9 be introduced.


Part III of the Income Tax Act 1967 is amended by inserting after Chapter 8 the following chapter: “Chapter 9 – Gains or Profits from the Disposal of Capital Asset"


Disposal and Acquisition of Capital Asset


Section 65F. (1) Except where this section provides otherwise, a disposal of a capital asset shall be deemed to take place:-

(a) where there is a written agreement for the disposal of the capital asset, on the date of such agreement; or

(b) where there is no written agreement, on the date of the completion of the disposal of the capital asset.


(2) Except where this section provides otherwise, where there is a disposal of a capital asset, the date of acquisition of the capital asset by the person which acquires the capital asset (in this section referred to as “acquirer”) shall be deemed to coincide with the date of disposal of that capital asset by the person which disposes the capital asset (in this section referred to as “disposer”) to the acquirer.


(3) For the purposes of this section—

  1. the date of completion of a disposal means—

    1. the date on which the ownership of the capital asset disposed of is transferred by the person who disposes the capital asset; or

    2. the date on which the whole of the amount or value of the consideration (in money or money’s worth) for the transfer has been received by the person who disposes the capital asset, whichever is the earlier;

  2. a transfer of ownership of a capital asset is deemed to take place on the date when the last of all such things shall have been done under any written law as are necessary for the transfer of ownership of the capital asset.

(4) Where a contract for the disposal of a capital asset is conditional and the condition is satisfied (by the exercise of a right under an option or otherwise), the acquisition and disposal of the capital asset shall be regarded as taking place at the time the contract was made, unless—

  1. the acquisition or disposal requires the approval by the Government or a State Government, the date of disposal shall be the date of such approval; or

  2. the approval referred to in subparagraph (a) is conditional, the date of disposal shall be the date when the last of all such conditions is satisfied.


(5) Where a capital asset is acquired by a company, limited liability partnership, trust body or co-operative society (hereinafter referred to as “the acquirer”) with a financing facility provided by an Islamic bank in accordance with the Syariah, the acquisition price of the capital asset shall be the amount or value of the consideration given by or on behalf of the acquirer to the person disposing that asset other than such Islamic bank or in the case where the capital asset is owned by such bank, the amount or value of the consideration given to the bank, for the acquisition of the capital asset (together with the incidental costs to him of the acquisition) less the sum of the kind referred to in subparagraph 65E(2)(b)(i), (ii) or (iii) received by or forfeited, as the case may be, to that acquirer.


(6) Notwithstanding any other provisions of this Act:-

  1. if a capital asset acquired or held by a company, limited liability partnership, trust body or co-operative society is taken into the trading stock of the company, limited liability partnership, trust body or co-operative society, there shall be deemed to be a disposal of the capital asset on the date that capital asset is taken into the trading stock; and

  2. the amount or value of the consideration in money or money’s worth of the capital asset shall be equal to the market value on the date the capital asset is taken into the trading stock.


(7) There is a part disposal of a capital asset where, on a person making a disposal, any description of property derived from the capital asset remains undisposed of.


(8) Subject to other provisions of this Act, where at any time the owner of a capital asset disposes of a part of that capital asset, whenever necessary, the amount or value of consideration for acquisition of the capital asset if the capital asset had been disposed of at that time shall each be apportioned between that part of the capital asset and the remainder thereof on whatever basis is most appropriate, and so much of that price and of those amounts as are so apportioned to the part of the capital asset disposed of shall be taken in applying subsection 65E(2) to the acquisition and disposal of that part.”


Overview

The Finance (No. 2) Act 2023 introduces a new chapter, Chapter 9, into the Income Tax Act 1967, focusing on gains or profits from the disposal of capital assets.


This chapter provides a framework for determining the chargeable income of entities such as companies, limited liability partnerships, trust bodies, or co-operative societies arising from the gains or profits obtained through the sale or transfer of capital assets.

This section (Section 65F - Disposal and Acquisition of Capital Asset) defines when a disposal of a capital asset is deemed to take place, considering factors like a written agreement or completion of the disposal. It also addresses scenarios where a contract for disposal is conditional, and approval is required.


Additionally, it introduces the concept of part disposal and outlines how the consideration for acquisition should be apportioned in case of part disposal.

Example: If a company sells a portion of its land, the date of disposal and the consideration for acquisition would be determined based on the specific terms of the agreement and applicable conditions.

Tax Impact: The introduction of Chapter 9 brings clarity to the taxation of gains or profits from the disposal of capital assets.


Entities subject to this chapter will need to meticulously calculate their adjusted income, considering various factors.


The new provisions aim to ensure a fair and comprehensive assessment of tax liabilities associated with the disposal of capital assets, promoting transparency and accuracy in taxation.

It's crucial for affected entities to familiarize themselves with these provisions to comply with the updated tax regulations and make informed financial decisions regarding the disposal of capital assets.


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