The taxation of contingent consideration (earn-outs) remains legally unsettled under the Income-tax Act, 2025. Indian courts maintain that contingent amounts do not accrue in the transfer year because no enforceable right yet exists. Drawing from the UK’s Marren v. Inglis ruling, this contingent right could be treated as a separate capital asset taxed upfront at fair market value, with subsequent gains taxed upon crystallization. Alternatively, taxpayers may argue it is a non-taxable capital receipt if the acquisition cost is indeterminable, despite recent legislative amendments. Additionally, earn-outs tied to continued employment risk being recharacterized and taxed as salary. Legislative clarity is ultimately required to resolve these ambiguities.
In the first part of this article1, the discussion focused on consideration placed in escrow and the difficulties that arise under the Income-tax Act, 2025 (IT Act) where a portion of the sale consideration does not accrue to the seller in the year of transfer, but only becomes receivable later upon fulfillment of stipulated conditions. The present part turns to a related, but conceptually distinct, issue: contingent consideration.
Unlike escrow, which ordinarily involves a retained portion of an already agreed consideration being held back as a risk-allocation mechanism, contingent consideration is typically an additional amount that itself becomes payable only upon the occurrence of uncertain future events (i.e., to say the quantum of the consideration itself depends on the future event). In modern M&A transactions, such earn-out structures are frequently used to bridge valuation gaps and align post-closing incentives. Their tax treatment, however, remains doctrinally unsettled. The issues do not concern timing alone. They extend to the character of the seller’s contractual right, the possible relevance of the English decision in Marren (Inspector of Taxes) v. Inglis2, the implications of the amendment to Section 55(2)(a) of the Income-tax Act, 1961 (ITA 1961) by the Finance Act, 2023, and the risk that what is labelled as contingent consideration may, in substance, be recast as salary or business income where it is linked to continued employment or post-closing services.
1 Published in BCAJ 58 (2026) 255.
2 [1980] 1 WLR 983 (HL) cited by HMRC in their capital gains manual,
available at CG14950 -https://www.gov.uk/hmrc-internal-manuals/capital-gains manual/cg14950 (Last accessed 12th July 2026).
This distinction also assumes practical significance at the drafting stage. In a share purchase agreement (SPA), the precise manner in which the earn-out is documented may materially affect its eventual tax treatment. For instance, language that more clearly evidences that the earn-out is part of the negotiated capital value for the shares—rather than compensation for future services—may support capital gains treatment. Similarly, the formulation of the contingency, the length of the earn-out period, and the extent to which the payout is linked to post-closing employment or managerial functions may significantly influence the characterization analysis. These practical aspects are revisited later in this article.
The concept of accrual, relevance of Section 5 and its interplay was discussed in the first part of this article.3 This principle—that contingent consideration does not accrue in the year of transfer if the contingency has not materialized—was clearly articulated by the Bombay High Court in CIT v. Mrs. Hemal Raju Shete4. In this case, consideration for the sale of shares was capped at a maximum of INR 20 crores, but the actual amount payable was dependent on future profits. The Revenue sought to tax the entire INR 20 crores in the year of transfer.
The High Court rejected this view, observing that the consideration was not assured but was merely the maximum that could be received. The Court held that since the amount was contingent upon future profits, no right to claim any particular amount had vested in the assessee during the assessment year. Consequently, the amount could not be said to have accrued.
This view—that the test of accrual is whether there is a legally enforceable right to receive the amount—has been followed in subsequent decisions.5
3 BCAJ 58 (2026) 256, 257.
4 [2016] 239 Taxman 176 (Bom.).
5 Dinesh Vazirani v. PCIT [2022] 445 ITR 110 (Bom.); Modi Rubber Ltd v. DCIT [TS-81-ITAT-2024(DEL)].
Cf. Ajay Gulia v ACIT [2012] 209 Taxman 295 (Delhi), wherein it was held that capital gains are chargeable
in the year of transfer and, therefore, contingent consideration was includible in the full value of consideration,
even though it had not accrued. It was further observed that Section 48 could not curtail the operation of Section 45(1).
These observations, particularly regarding the interplay between Sections 45(1) and 48, may warrant reconsideration.
It is well settled that any income sought to be taxed must first fall within the ambit of Section 5. Although,
a solitary reading of Section 67(1), a conclusion may be drawn that once the contingent consideration accrues,
the gains are referable to and thus taxable in the year of transfer, the reasoning adopted in the judgment may nonetheless
invite closer scrutiny given that Section 5 covers only accruals during the year. The referability condition of Section 2(108)
would not be met in the year of transfer.
THE LACUNA: TAXATION UPON CRYSTALLIZATION
The current framework of Section 5, Section 67(1)6, and Section 727 does not specifically provide for the taxability of contingent consideration in the year in which the contingency is fulfilled and the additional amount becomes payable.
More specifically, should the additional consideration be subjected to tax as capital gains, retaining the character of the original transfer, but in the year of realization? If so, would this approach conflict with Section 67(1), which mandates that capital gains be charged to tax in the year in which the transfer takes place? Alternatively, should the gain be characterized independently at the time the contingent consideration crystallizes? It may also be argued that the amount received as contingent consideration constitutes a capital receipt falling outside the ambit of Section 67(1), since there is no separate transfer of a capital asset upon the crystallization of the contingency.
At this juncture, it is apposite to acknowledge the prevailing market practice: taxpayers generally offer contingent consideration to tax in the year of its accrual, characterizing it as capital gains of the same nature as the original transfer8 (i.e., if the original gains were long term (LTCG), contingent consideration is also treated as long term, though not in the year of transfer, but in the year of accrual).
The issue, therefore, is not whether the market has adopted a pragmatic convention, but whether that convention is supported by the statute on a strict construction. In addressing this question, one may refer to Section 2(108) of the IT Act,9 which defines “total income”10 to mean the total amount of income referred to in Section 5, computed in the manner as laid down in the IT Act. Accordingly, it is not sufficient that the referability requirement under Section 5—whether by way of accrual or receipt—is satisfied. The computation of such income must also be possible in the manner contemplated by the IT Act.
The objective of the discussion that follows is to examine whether a more technically coherent framework may be derived from English jurisprudence, particularly from the decision in Marren v. Inglis, and whether an alternative argument remains available that the receipt may, in certain circumstances, not be chargeable to tax at all.
6 Section 45(1) of ITA 1961
7 Section 48 of ITA 1961
8 See Footnote 11 on BCAJ 58 (2026) 258.
9 Section 2(45) of ITA 1961.
10 On which Section 4 of the IT Act creates the charge.
Section 4(1) provides that where any Central Act enacts that income-tax shall
be charged for any tax year at any rate or rates, income-tax for such tax year
shall be charged at that rate or those rates in accordance with and subject to
the provisions of the IT Act. Section 4(2) further provides that the charge of
income-tax under sub-section (1) shall be on the total income of the tax year of
every person as determined in accordance with the provisions of the IT Act.
THE ENGLISH POSITION: MARREN V. INGLIS
In the absence of direct Supreme Court / High Court rulings11 on the subsequent taxability of crystallized contingent consideration, the House of Lords decision in Marren (Inspector of Taxes) v. Inglis (supra) could provide instructive guidance.
In Marren, the taxpayer, Inglis, transferred 69 shares of J. L. Inglis (Holdings) Ltd. to Industrial and Commercial Finance Corporation Ltd. (ICFC) under a share sale agreement dated 15 September, 1970. The consideration was structured in two parts: (i) For 41 shares, a fixed consideration of £1,500 per share was paid upfront; and (ii) For the remaining 28 shares, the consideration comprised an immediate cash payment of £750 per share, plus a deferred and contingent amount described as “one-half of the profit”. This deferred amount was contingent upon the flotation of the Company on a recognized stock exchange by 31 December 31, 1975. The Company was floated in November 1972, and the deferred consideration was quantified at £2,825 per share. The Revenue argued that the right to receive the future consideration was a distinct asset (a chose in action) acquired at the time of the original share transfer, and the subsequent receipt of money in 1972 was as a result disposal of that separate asset.
The House of Lords held that the right to receive contingent consideration constituted “property” and therefore an “asset” under the UK Finance Act, 1965 (1965 Act).12 Consequently, the transaction involved the acquisition of this separate asset at the time of the original sale. When the contingency materialized and funds were received, it constituted a disposal of this right, attracting capital gains tax.13 The Court rejected the argument that the receipt was merely the realization of a debt, noting that a contingent right to an unascertainable sum is not a debt until crystallized.14
Lord Fraser noted that the correct approach was to value the contingent right (the chose in action) as of the date of the original transfer and tax that value as part of the initial consideration. Any subsequent gain upon the realization of that right would be a separate taxable event.15
11 See also discussion on Sunil’s decision (infra).
12 The House of Lords referred to Section 22(1) of the 1965 Act which defined asset as
“All forms of property shall be assets for the purposes of this Part of this Act...
including— (a) options, debts and incorporeal property generally...”.
One may note the similarities between this definition and the definition of
capital asset under Section 2(22) of the IT Act [erstwhile Section 2(14)].
13 The House of Lords referred to Section 22(3) which provided that there is
disposal of assets by their owner where any capital sum is derived from assets
notwithstanding that no asset is acquired by the person paying the capital sum.
One may draw parallels to the concept of extinguishment of rights in the capital asset
under Section 2(109)(b) of the IT Act [erstwhile Section 2(47)(ii)].
14 For context, Para 11(1) of Schedule 7 of the 1965 Act provided that where a person incurs a debt to another
... no chargeable gain shall accrue to that (that is the original) creditor... on a disposal of the debt...”
It was held that no debt existed at the time of the initial transfer because a contingent right to an
unascertainable sum could not be regarded as a debt. When the contingency materialized, while a debt
may then have arisen, the sum received was “derived from” the asset (the chose in action) that crystallized,
and was chargeable on that basis. Full text of the 1965 Act can be accessed at https://www.legislation.gov.uk/ukpga/1965/25/contents/enacted,
Part III therein dealt with capital gains (Last accessed 12th July 2026).
15 Marren v. Inglis (supra), at p. 988. Basis the question raised before the House of Lords
(as noted on p. 984 and 985), these observations should be regarded as an obiter dictum and not the ratio decidendi.
APPLICABILITY TO INDIA
Given the similarities between the 1965 Act and the IT Act regarding the definitions of “capital asset” and “transfer”, the ratio in Marren v. Inglis may have significant persuasive value in India.16 If this principle is applied, the “right to receive” contingent consideration should be treated as a separate capital asset distinct from the shares originally transferred.
16 Sampath Iyengar’s Law of Income Tax (13th Ed., Vol. 1, p. 207) notes
“English statutes may appear superficially to be similar but on deeper scrutiny may reveal differences...
In some matters, however... the Indian law is in no way different from the English law and
English decisions can be of assistance in interpretation... English decisions are continued
to be cited and even followed in Indian Law.” Recently, the Supreme Court, in Jindal Equipment
Leasing Consultancy Service Ltd v. CIT [2026] 484 ITR 641 (SC), relied on an English precedent
while examining the taxability of shares received in an amalgamated company in exchange for shares
held as stock-in-trade in the amalgamating company. In this context, the Court referred to
Royal Insurance Co Ltd v Stephen [1928] 14 TC 22 (KB), which addressed a comparable issue (see para 19 on p.680).
PROPOSED APPROACH FOR TAXATION
A technically sustainable approach under the IT Act, aligned with Marren v. Inglis, is as follows:
1. Year of Transfer: The full value of consideration should include the initial cash consideration, the deferred consideration (at full value), and the Fair Market Value (FMV) of the contingent right (the separate asset);
2. Valuation: The FMV of the contingent right can be determined using Scenario-Based Methods (for simple structures) or Option Pricing Models such as Black–Scholes (for complex, non-linear structures).17 If the FMV is indeterminable, Section 8018 of the IT Act may be invoked to deem the FMV of the transferred shares as the full value of consideration. As no specific rules are prescribed for the determination of FMV under Section 80, the term must be understood in the context of Section 2(44)19 of the IT Act—i.e., the price that the asset would ordinarily fetch if sold in the open market on the relevant date. In the absence of specific statutory guidance under the IT Act, the valuation could be determined based on a reasonably acceptable date (such as within 180 days prior to the date of transfer, drawing parallels from FEMA pricing guidelines and Rule 15(8)(l) of the Income-tax Rules, 2026)20. Furthermore, the method of valuation should align with generally accepted valuation principles, and reliance may be placed on the valuation standards issued by the ICAI;
• The valuation of the contingent right for the purposes of Section 72, or the underlying shares for the purposes of Section 80, may be carried out by a Chartered Accountant, a Registered Valuer, or a Merchant Banker. It is pertinent to note that, in both instances, there is no strict statutory prescription regarding the specific method, the exact valuation date, or the designated professional required to conduct the valuation21;
• Lord Fraser in Marren (supra)22 also observed that there is a suggestion that it may be impossible to assess the value of the right and nothing that he said was intended to indicate any opinion on the valuation of the right as at the date of transfer of shares; and
3. Year of Crystallization: When the contingency is met and money is received, capital gains should be computed as the difference between the amount received and the cost of acquisition of the right (i.e., the FMV taxed in the year of transfer).
This approach resolves the difficulty of taxing an unknown future sum in the year of transfer while ensuring the income does not escape the tax net. It also addresses the characterization of the gain. If the right is held for more than 24 months before the contingency materializes, the subsequent gain should be long term; otherwise, it is short term.
17 See Grant Thornton, Valuation of Complex Financial Instruments.
https://www.grantthornton.in/globalassets/1.-member firms/india/assets /pdfs/valuation_and_accounting_complex_fin_instruments.pdf
(Last accessed on 12th July 2026).
18 Section 50D of ITA 1961.
19 Section 2(22B) of ITA 1961.
20 Rule 3(8) of the Income-tax Rules, 1962.
21 It may not be out of context to quote Viscount Simon from Gold Coast
Selection Trust Ltd v Humphrey (Inspector of Taxes) [1949] 17 ITR(Supp.) 19 (HL)
wherein he observed that “valuation is an art, not an exact science. Mathematical
certainty is not demanded, nor indeed it is possible”. Valuation thus is a subjective issue which cannot be quantified or narrowed down.
22 On p. 988(E).
AN ALTERNATIVE PERSPECTIVE: COULD CONTINGENT CONSIDERATION BE A CAPITAL RECEIPT NOT CHARGEABLE TO TAX?
For the sake of brevity, the discussion around definition of income, requirement of strict construction, sine qua non for Section 67(1) and the statutory lacunae in the IT Act are not discussed in this article.23 These arguments could very well apply even in the context of contingent consideration. The discussion that follows proceeds in the alternative, assuming that the dictum of the House of Lords in Marren v. Inglis (supra) were to apply.
Notwithstanding the conceptual attractiveness of Marren, a substantial line of argument remains available that contingent consideration may, in some cases, constitute a capital receipt not chargeable to tax. This argument may be approached in stages.
23 See BCAJ 58(2026) 258, 259, 260 and 261 for discussion on the same.
CHARACTERIZATION OF THE CONTRACTUAL RIGHT AS A “CAPITAL ASSET”
Section 2(22) of the IT Act defines a capital asset to mean “property of any kind held by an assessee.” The expression “property” is not defined in the IT Act and must, therefore, be understood in its ordinary legal sense and in light of judicial authority. The term is one of the widest amplitude. It is commonly understood as a thing or aggregate of rights belonging to a person, and is often described as a “bundle of rights”.24 Property is nomen generalissimum, and extends to every species of valuable right and interest including real and personal property, easements, franchises, and other incorporeal hereditaments.25 Judicially too, the Supreme Court in CWT v. Ahmed G. Arif26 recognized that “property” is a term of the widest import and, subject to contextual limitations, signifies every possible interest which a person can clearly hold or enjoy.
At first principle, therefore, a right under an agreement to receive additional money in future may readily answer the description of “property”. The real difficulty lies not in the width of the word “property”, but in determining whether an earn-out right, while still contingent and inchoate, is sufficiently vested in law to qualify as a distinct capital asset at the time of the original transfer. This question assumes significance because, if the right itself constitutes a separate capital asset, the subsequent receipt upon crystallization may be analyzed as consideration derived from, or on extinguishment of, that asset rather than merely as a delayed fragment of the original sale price.27
In this regard, the Bombay High Court’s reasoning in CIT v. Abbasbhoy A. Dehgamwalla is relevant. The Court held, in the context of Section 2(14) of the ITA 1961, that an item incapable of transfer under Section 6 of the Transfer of Property Act, 1882 (TOPA) may fall outside the conception of a capital asset.28 Section 6(e) of the TOPA specifically prohibits the transfer of a “mere right to sue”. Drawing from this reasoning, it may be argued that a purely contingent and unenforceable right to receive earn-out consideration, prior to fulfilment of the stipulated conditions, is analogous to a right that lacks present transferability and therefore does not yet attain the status of a capital asset.
Certain allied concepts help illustrate the point. A legacy before the death of the testator (spes successionis), an unvested employee stock option, or a mere right to sue all involve a form of expectation or contingent entitlement; yet these are not treated as capital assets for the lack of transferability, no present enforceable right or on account of the restriction contained in TOPA. On this line of reasoning, one may contend that, until the contingency is satisfied, the seller has no more than a contractual expectancy and not “property” in the capital asset sense. A similar argument may also be sought to be drawn, by analogy, from the escrow discussion—namely, that some contractual stipulations may be better viewed as part of the mechanics of the bargain rather than as giving rise to an independent asset in the hands of the seller.29
That said, this argument faces substantial difficulty in light of Marren v. Inglis. The House of Lords unanimously treated the seller’s right under the agreement to receive contingent consideration as a distinct chose in action and therefore as “property”. Lord Fraser expressly observed that incorporeal rights to money’s worth can constitute property and further noted that such rights could, in principle, be assigned or otherwise disposed of.30 Given the breadth of the expression “property of any kind” in Section 2(22), and absent any express statutory exclusion, the reasoning in Marren offers a strong basis to regard the earn-out right itself as a separate capital asset, notwithstanding that the amount receivable is uncertain and conditional.
In the author’s view, therefore, while the transferability objection provides an argument at the inception stage, it is ultimately difficult—especially after Marren and the wide judicial understanding of “property”—to maintain that the earn-out right is merely a contractual promise and not an asset at all.31 The utility of this discussion lies elsewhere. It helps frame the argument that, until crystallization, the right may not appropriately be brought to tax upfront as part of the full value of consideration; and, more importantly, it provides a conceptual basis for examining whether, upon a later waiver, cancellation, or mutual surrender of that right (prior to crystallization), there is an extinguishment of rights in a capital asset capable of having independent tax consequences.32 Once the contingency is fulfilled, the right ceases to be inchoate; at that stage, it much more clearly answers the description of “property”, and the argument that no capital asset exists becomes materially harder to sustain.
24 Concise Oxford English Dictionary, 12th edition, p. 1150, Black’s Law Dictionary, 12th Edition, p. 1472.
25 Advanced Law Lexicon by P. Ramanatha Aiyar, Seventh Edition, Volume 3, pp. 5085-5097.
26 [1970] 76 ITR 471 (SC).
27 See discussion on the possible treatment of contingent consideration upon crystallization
and the relevance of analyzing the right itself as a distinct asset in Marren v. Inglis (supra).
28 CIT v. Abbasbhoy A. Dehgamwalla [1992] 195 ITR 28 (Bom.).
29 See BCAJ 58(2026) 259, 260 where this was discussed.
30 Marren v Inglis (supra) at p. 988.
31 See paragraph 4 of Sunil’s decision (infra).
This records the reasoning of the CIT(A) as part of the factual background
leading up to the lis before the Court. In the author’s view, however,
the treatment of the asset as a short-term capital asset, without granting the
benefit of the holding period from the date of receipt of such right, may not be
correct and is not free from doubt. In this regard, one may refer to the observations
of Bangalore ITAT in N.R. Ravikrishnan v ACIT [2018] 68 ITR(T) 457 (paras 4.4.1-4.4.4).
32 See Section 2(109)(b) of the IT Act [corresponding to Section 2(47)(ii) of the ITA 1961],
which includes the extinguishment of rights in a capital asset within the ambit of “transfer”.
EXCLUSION FROM THE “FULL VALUE OF CONSIDERATION” UPFRONT
Foregoing analysis gives a robust defense for taxpayers to argue that the FMV of the right to receive contingent consideration should not be included in the full value of consideration accruing or received as a result of the initial transfer of shares or business. Since the contractual right is contingent and unenforceable on the date of the primary transfer, treating it as “consideration” would amount to taxing notional income—income that has neither accrued to nor been received by the taxpayer. This could assist the taxpayer in not paying taxes on the FMV of the right in the year of transfer and overcome the obiter dictum of Lord Fraser.33 It is reiterated that the issue for consideration before the House of Lords was the taxability in the year of receipt of contingent consideration and not the year of transfer of shares. Hence, the observation of Lord Fraser should be understood in that context.
33 Marren v Inglis (supra) at p. 988.
THE “TRANSFER” ELEMENT AND THE TRANSFER OF PROPERTY ACT
The next aspect for consideration is whether the assessee “transfers” any capital asset upon the receipt of the contingent consideration. Section 2(109) of the IT Act defines “transfer” in the widest possible manner, explicitly including the “extinguishment of any rights therein.” Accordingly, the Revenue may argue that the assessee realizes the contingent consideration as a direct result of the extinguishment of their contractual right under the agreement.
MUTUAL EXTINGUISHMENT OF RIGHTS AND GAAR IMPLICATIONS
The practical benefit of the above discussion (with regard to requirement of transferability element for existence of a capital asset) may be evaluated in instances where a taxpayer mutually agrees with the buyer to give up or cancel their right to receive the contingent consideration prior to the achievement of the performance conditions.
However, a strong note of caution is warranted: this mechanism should not be utilized as a colourable device to avoid tax where there is no genuine commercial rationale for cancelling the right. In such scenarios, the tax authorities are highly likely to invoke the General Anti-Avoidance Rules (GAAR) under Chapter XI of the IT Act to scrutinize the transaction. The Revenue may recharacterize the purported capital receipt as a revenue receipt and contend that the income should be taxed as “Income from Other Sources” (IFOS) under Section 92(1) of the IT Act34, thereby attracting the highest applicable tax rates and denying the benefit of lower capital gains rates. It is pertinent to note that substantive jurisprudence on GAAR recharacterization remains nascent; currently, the reported cases stem from writ petitions filed against the directions of the Approving Panel rather than final appellate rulings on the merits of recharacterization.35
34 Section 56(1) of ITA 1961.
35 See Ayodhya Rami Reddy Alla v. PCIT [2024] 466 ITR 497 (Telangana) and Anvida Bandi v. DCIT [2025] 177 taxmann.com 726 (Telangana)
on the issue of bonus stripping and the applicability of GAAR (prior to the amendment to Section 94(8) of the ITA 1961,
extending its scope to shares). Subject to one factual distinction—the shares were listed in the latter case—the decisions are diametrically opposed.
While the former held that GAAR was applicable, the latter ruled that GAAR did not apply.
Further, in Anvida Bandi, the Court does not appear to have been informed of the 2019 bonus issue,
as the judgment contains no discussion of that fact. It will be interesting to see whether the Court provides
an exposition on GAAR and its applicability in Hinduja Global Solutions Limited v. PCIT [WP No. 4867 of 2025 (Bom.)].
FAILURE OF THE COMPUTATION MECHANISM: COST OF ACQUISITION AND THE FINANCE ACT, 2023 AMENDMENT
The final, and perhaps most critical, argument against the taxability of contingent consideration rests on the inability to determine the cost of acquisition. It is crucial to note that the cost of acquisition of this contractual right is not nil. The taxpayer surely incurs a cost to acquire this right (though inchoate / contingent as on the date of transfer, and later getting vested on satisfaction of the conditions / veracity of the promises made), which may include a commercial discount on the initial upfront consideration (accepting a price lower than the FMV of the shares / business on the date of transfer) or the ongoing efforts of the shareholder in assisting the company to achieve the performance thresholds. Therefore, the contractual right is acquired for a cost, but such cost is inherently incapable of precise mathematical determination.
Prior to the amendment of Section 55(2)(a) by the Finance Act, 2023, taxpayers could successfully rely on the Supreme Court judgment in B.C. Srinivasa Setty.36 The Court held that the charging section (Section 45 of ITA 1961) and the computation section (Section 48 of ITA 1961) constitute an integrated code. If the cost of acquisition cannot be determined, the computation mechanism fails and, consequently, the charge under Section 67(1) must also fail.
To counter this, specific amendments were made by successive Finance Acts to gradually expand the scope of assets specified in Section 55(2)(a) of the ITA 1961, with the recent amendment being made by the Finance Act, 2023 to deem the cost of acquisition even in case of “other intangibles” or “other rights”. The amended provision reads as follows:37
“2) For the purposes of sections 48 and 49, ‘cost of acquisition’,-
(a) in relation to a capital asset, being goodwill of a business or profession, or a trade mark or brand name associated with a business or profession, or any other intangible asset or right to manufacture, produce or process any article or thing, or right to carry on any business or profession, or tenancy rights, or stage carriage permits, or loom hours, or any other right.”
(emphasis supplied)
To determine if the position discussed above would still continue post the Finance Act, 2023 amendment, it would be apposite to understand the connotation of the words “any other intangible asset” or “any other right”. The denotation of ‘intangible asset’ and ‘right’ is as under:
A. Intangible asset
Not constituting or represented by a physical object and not precisely measurable in value.38
Any non-physical asset or resource that can be amortized or converted to cash, such as patents, goodwill, and computer programs, or a right to something, such as services paid for in advance. 39
An item of value whose true worth is hard or almost impossible to determine, such as goodwill, reputation, patents and so on.40
B. Right
A moral or legal entitlement to have or do something. 41
The term “right”, in a civil society, is defined to mean that which a man is entitled to have or to do, or to receive from others, within the limits prescribed by law. ‘Right’ is an interest recognized and protected by moral or legal rules. Such right may be a vested right or accrued right or an acquired right. The nature of such right would depend upon and also vary from statute to statute.42
Something that is due to a person by just claim, legal guarantee, or moral principle. A legally enforceable claim that another will do or will not do a given act; a recognized and protected interest the violation of which is wrong. The interest, claim, or ownership that one has in tangible or intangible property. 43
The dictionary meaning of the term “intangible asset” and “right” is sufficiently broad enough to cover the rights under the SPA / Business Transfer Agreement (BTA) (as held in Marren v Inglis) and, accordingly, the cost may be deemed to be nil under Section 90(3) of the IT Act44, thereby making the computation mechanism workable.
However, the terms, viewed in context, may assist in discerning that their scope could be interpreted ejusdem generis. Essentially, the terms “any other intangible asset” and “any other right” should be understood based on the terms that precede them.
The rule of ejusdem generis has been explained thus:45 when particular words pertaining to a class, category or genus are followed by general words, the general words are construed as limited to things of the same kind as those specified. This rule, known as the rule of ejusdem generis, reflects an attempt to reconcile incompatibility between the specific and general words in view of the other rules of interpretation: that all words in a statute are to be given effect if possible, that a statute is to be construed as a whole, and that no words in a statute are presumed to be superfluous.
The rule applies when (1) the statute contains an enumeration of specific words; (2) the subjects of enumeration constitute a class or category; (3) that class or category is not exhausted by the enumeration; (4) the general terms follow the enumeration; and (5) there is no indication of a different legislative intent. If the subjects of enumeration belong to a broad-based genus as also to a narrower genus, there is no principle that the general words should be confined to the narrower genus.
The rule of ejusdem generis dictates that where general words follow specific words in a statute, the general words must be construed as taking their meaning and colour from the specific words preceding them. The specific assets listed in Section 90(3)—goodwill, trademarks, brand name, right to manufacture, tenancy rights, stage carriage permits, loom hours—are all distinct, commercial, business-related intangible assets or rights (except tenancy, which may be acquired for non-business purposes also). Tenancy rights are also acquired pursuant to a rental agreement / lease agreement, which has an element of continuity. A mere contractual right to receive contingent consideration does not share the same genus or commercial character as the specified business intangibles or rights. Therefore, the phrase “any other intangible asset” and “any other right” should be read down to exclude such contractual rights. If this interpretation holds, the cost of acquisition remains indeterminable (and not statutorily nil), meaning the B.C. Srinivasa Setty principle continues to apply, rendering the contingent consideration not chargeable to capital gains tax.
The author wishes to acknowledge that two views are reasonably possible here.46 The interpretation of the above terms may be contended to be wide by applying the mischief rule of interpretation as propounded by Lord Coke in Heydon’s case.47 The Memorandum explaining the provisions of the Finance Bill, 2023 provides as follows:48
“The existing provisions of the section 55 of the Act, inter alia, defines the ‘cost of any improvement’ and ‘cost of acquisition’ for the purposes of computing capital gains. However, there are certain assets like intangible assets or any sort of right for which no consideration has been paid for acquisition. The cost of acquisition of such assets is not clearly defined as ‘nil’ in the present provision. This has led to many legal disputes and the courts have held that for taxability under capital gains there has to be a definite cost of acquisition or it should be deemed to be nil under the Act. Since there is no specific provision which states that the cost of such assets is nil, the chargeability of capital gains from transfer of such assets has not found favour with the Courts.”
(emphasis supplied)
While the usage of “any other right” after specified rights and similarly “any other intangible asset” after specified intangible assets may, if the memorandum, CBDT circular explaining the amendment and the mischief rule were not considered, have reasonably invited the application of the rule of ejusdem generis to determine the scope of the amendment, the legislative intent would have been put beyond doubt if the words “any other right whatsoever” or “any sort of right” had been used in the statute itself rather than such words being employed only in the memorandum and circular explaining the amendment.
However, the Explanatory Memorandum to the Finance Bill, 2023 specifically uses the words “any sort of right” while explaining the legislative intent underlying the introduction of the expression “any other right” in the aforesaid provisions. Thus, the introduction of “any other right” in context may be understood as expressly meant to widen the concept and, therefore, suggests a somewhat contrary intention to the application of the ejusdem generis rule. If this interpretation were to hold good, the amendment would be understood broadly and, hence, the cost of acquisition of the right to receive contingent consideration would be deemed to be nil and capital gains tax would be payable as per the dictum of Marren v Inglis (supra).
For the sake of completeness, if the receipt of contingent consideration escapes the charge of capital gains tax (for the reasons discussed above), the Revenue may attempt to tax such receipts under the residuary head, “Income from Other Sources”. This approach should not be tenable. For the sake of brevity, the reasons supporting this conclusion are not elaborated upon in this section, as they have already been discussed in detail in the first part of this article.49 Additionally, it may be contended that the contingent sum received is a composite payment for the satisfaction and extinguishment of the seller’s rights under the contract, which constitutes consideration for the purposes of Section 92(2)(m).50
To conclude on this branch, the non-taxability position primarily hinges upon the applicability of the ratio of Marren v Inglis (supra) in India. If the ‘right to receive contingent consideration’ is not considered a capital asset, the receipts thereunder would be capital receipts not liable to tax in the absence of a specific fiction to tax the same. However, if it is considered a distinct capital asset, one may have to argue on the non-applicability of Section 90(3) to these rights in order to defend the non-taxability position. It will have to be seen how the Courts would address this line of argument when raised in future.
Given the above discussion, it is pertinent to draw attention to the recent judgment of the Bombay High Court in Sunil Pran Sikand, on an issue akin to contingent consideration.51 In Sunil, the assessee along with his two sons had entered into a development agreement in 1992, under which the property was agreed to be developed by the builder. On the same date, the developer also issued a letter of commitment stating that, if it was able to obtain and load additional transferable development rights (TDR) on the property, it would pay further compensation to the assessee at the agreed rate. During the course of development, the builder obtained TDRs and paid the additional consideration in the previous year relevant to AY 1997-98. Such sums were offered to tax as LTCG in AY 1997-98.
The AO rejected this position and taxed the amount as IFOS on the basis that the original property had already been transferred under the 1992 development agreement and, therefore, no capital asset belonging to the assessee existed when the additional sum was received. In appeal, the Commissioner (Appeals), while substantially agreeing with the Assessing Officer’s reasoning, held that the amount was taxable instead as short-term capital gains, on the footing that the enforceable right arose only when the contingency materialized. The Income-tax Appellate Tribunal (ITAT), however, restored the characterization as income from other sources, inter alia, on the basis that the commitment letter was unilateral and could not be read as part of the original development agreement.
The lis before the High Court was threefold: (i) whether the ITAT was justified in holding that, upon receipt of consideration under the development agreement, the assessee had ceased to be the owner of the property; (ii) without prejudice, whether the additional compensation was a capital receipt not liable to tax; and (iii) whether, if no cost had been incurred to acquire the additional FSI / TDR-related entitlement, the amount could at all be brought to tax, essentially on the applicability of the principle in B.C. Srinivasa Setty. The Court held that the development agreement and the letter of commitment, both dated 29 September 1992, ought to be read as one composite arrangement and that the additional amount paid upon loading of TDR was to be regarded as payment under the development agreement itself. Accordingly, the Court held that the ITAT was not correct in treating the sum as IFOS and accepted the assessee’s stand that the amount was taxable as LTCG in the year of receipt. Further, in view of the Court’s answer to question (i), the assessee did not press question nos. (ii) and (iii) pertaining to the capital receipt plea and the no-cost-of-acquisition argument.52
Essentially, it should be borne in mind that the Court never had an occasion to analyze the plea that the additional compensation constituted a capital receipt not chargeable to tax, since that contention was expressly not pressed and the fact that “A case is only an authority for what it actually decides and not what may come to follow logically from it”.53 Equally, one may still contend that the taxability of such additional compensation as LTCG in the year of receipt is not free from difficulty having regard to the definition of “total income” under section 2(108). As discussed in the first part of this article, such consideration could not have been included in the full value of consideration in the year of transfer because, at that stage, the right to receive the same had not accrued and the referability requirement under section 5 was therefore not satisfied. Conversely, in the year of accrual or receipt, the difficulty arises from the charging provision itself, namely section 67(1), under which capital gains are taxable only in the year in which the transfer of the capital asset takes place. Where, as the Court itself recognized, there is no separate transfer of a distinct capital asset at the stage of receipt of the additional amount, the computation in the manner laid down in the IT Act also becomes problematic. In that sense, one limb fails in the year of transfer for want of accrual, while the other fails in the year of receipt for want of a transfer in that year. This statutory lacuna was discussed in detail in the first part of the article and is not reproduced here for the sake of brevity.54 Reference is also drawn to the observations made in Decoding Section 5 (pp. 151-152), wherein it is noted that:
“The same [contingent consideration] cannot be taxed under Section 45(1) as no transfer is taking place in the year of receipt. It is not possible to revisit the taxation for the year of transfer as this part of the consideration did not accrue at all in the year of transfer. Therefore, there appears to be a legislative gap in dealing with this type of situation.”
36 CIT v B.C. Srinivasa Setty [1981] 128 ITR 294 (SC).
37 Section 90(3) of the IT Act corresponds to Section 55(2)(a) of ITA 1961.
38 Concise Oxford English Dictionary, 12th edition, p. 737.
39 Black’s Law Dictionary, 12th Edition, p. 144.
40 Advanced Law Lexicon by P. Ramanatha Aiyar, Seventh Edition, Volume 2, pp. 3248-3249.
41 Concise Oxford English Dictionary, 12th edition, p. 1238.
42 Advanced Law Lexicon by P. Ramanatha Aiyar, Seventh Edition, Volume 4, pp. 5601-5603.
43 Black’s Law Dictionary, 12th Edition, p. 1584.
46 “Such is the character of human language,
that no word conveys to the mind, in all situations,
one single definite idea…” per CJ Marshall in McCulloch v Maryland, 17 U.S. (4 Wheat.) 316, 414 (1819).
47 [1584] 76 ER 637. For the sure and true interpretation of all statutes in general,
be they penal or beneficial, restrictive or enlarging of the common law, four things are to be discerned and considered,
(a) what was the common law before the making of the Act (in context of statutes, understood as the law before the amendment),
(b) what was the mischief and defect for which the common law (in context of statutes, understood as the pre-amended law) did not provide,
(c) what remedy Parliament hath resolved and appointed to cure the disease of the Commonwealth (in context of statutes, understood as the pre-amended law),
and (d) the true reason of the remedy.
48 Also see Circular 1/2024 explaining the amendments carried out by Finance Act, 2023, p. 78.
49 See BCAJ 58(2026) 261, 262.
50 Section 56(2)(x) of ITA 1961.
51 Sunil Pran Sikand v ACIT [2024] 466 ITR 770 (Bom),
the case pertained to AY 1997-98 and appeal was admitted by the Court on 13th June 2006
against the ITAT order dated 20th September 2002. The appellant herein was the son of the deceased assessee.
52 Ibid. para 9.
53 See Lord Halsbury LC, in Quinn v Leathem [1901] AC 495,
wherein he inter alia observed that a case is only an authority for what it actually decides and
that it cannot be quoted for a proposition that may seem to follow logically from it,
quoted and endorsed by Justice Katju in Sarva Shramik Sanghatana (KV) Mumbai v State of Maharashtra [2008] 1 SCC 494 (SC) (para 15);
Ambica Quarry Works v State of Gujarat & Others [1987] 1 SCC 213 (para 18); See also CIT v Sun Engineering Works P Ltd [1992] 198 ITR 297 (SC)
and CIT v Thana Electricity Supply Ltd [1994] 206 ITR 727 (Bombay).
54 See BCAJ 58(2026) 258-261.
NATURE OF INCOME – UNDER WHAT HEAD WOULD THE CONTINGENT CONSIDERATION BE TAXED
Contingent consideration is an obligation on the acquirer to transfer additional assets or equity interests to the former owners of an acquiree if specified future events occur or conditions are met. Common conditions or triggers for such payments include:
- Financial Performance: Achieving specified performance targets, such as exceeding a certain level of revenue, earnings, or EBITDA within a set period. [akin to the facts of Hemal Raju (supra)];
- Operational Milestones: Reaching a specific milestone on a research and development project or obtaining regulatory approvals for a product;
- Share Price Targets: Reaching a specified share price for the acquirer’s stock. [akin to the facts of Inglis (supra)]; or
- Continuing Employment: Payments linked to the continued employment of selling shareholders who become key employee’s post-acquisition.
While the first three categories generally retain the character of capital receipts55, the fourth category—payments linked to continued employment—exposes the transaction to characterization risks. In practice, particularly involving individual promoters, share purchase agreements often stipulate cumulative conditions: the satisfaction of financial metrics (e.g., achieving ‘X’ EBITDA or a specific share price) coupled with a requirement for continued employment for a defined tenure (Y’ years). In such hybrid scenarios, a critical question arises: should the contingent consideration be regarded as capital receipts (may be taxable as capital gains) or as compensation for services rendered (salary)?56
In the absence of a specific test under the IT Act, the principles laid down in Ind AS 103 (Business Combinations) could be referred to for distinguishing between “purchase consideration” and “remuneration for post-combination services”.57 The distinction turns on the substance of the arrangement. The primary litmus test is the linkage to service: if the contingent payment is automatically forfeited upon termination of employment, it is likely to be treated as remuneration. Conversely, if the payment is unaffected by the cessation of employment, it supports the characterization as additional purchase consideration. Other determinative factors include the reasonableness of the employee’s standalone salary, the proportionality of payments relative to shareholding, and the specific formula used for valuation.58
These propositions are equally applicable under the IT Act. The factors delineated in Ind AS 103 are fundamentally commercial in nature and grounded in the doctrine of substance over form. Accordingly, they would serve as a critical guide in ascertaining the true character of the payment and determining the specific head of income to which it is inextricably connected.
In this regard, reference may be made to the decision of the Madras High Court in Anurag Jain59 and the Authority for Advance Rulings (AAR) ruling in Moody’s Analytics.60 The judgment in Anurag Jain should not be treated as laying down a blanket principle applicable to all situations where a promoter or individual shareholder receives contingent consideration while also being required to continue in employment with the company for a specified period. The mere existence of a continued employment condition should not, by itself, operate as an embargo against characterizing contingent payments as consideration for the transfer of assets. Instead, a holistic evaluation of the surrounding facts and commercial arrangements is warranted. One may refer to Ind AS 103 for the relevant factors, as discussed above.
Notably, such a comprehensive analysis appears to be absent in both the AAR ruling and the decision of the Madras High Court. Considerable emphasis was placed on the forfeiture or restitution of contingent consideration upon termination for cause. However, even where “cause” encompassed failure to achieve specified EBITDA thresholds, the contingent consideration was not, in fact, returnable in such circumstances. This nuance does not appear to have received adequate judicial attention.
55 Taxability as capital gains depending on the discussion undertaken above.
56 It may also be regarded as business income, in the absence of an employer-employee relationship.
57 This distinction is critical for accounting purposes:
remuneration is recognized as a compensation expense in the post-combination period,
whereas consideration is measured at its fair value on the acquisition date and forms part of the initial calculation of goodwill.
58 In this regard one may refer to Appendix B of Ind AS 103. Para B54 and Para B55 provide detailed guidance in this regard.
Broadly, factors such as forfeiture on termination, alignment with employment period, below-market salary,
disproportionate payouts, or profit-sharing style formulas point toward remuneration, while valuation-linked formulas and
fair market compensation more strongly support treatment as additional consideration.
59 Anurag Jain v. AAR [2009] 308 ITR 302 (Madras), arising from an AAR order (277 ITR 1).
60 Moody’s Analytics Inc., USA, In re [2012] 348 ITR 205 (AAR).
A SHORT PRACTITIONER’S PERSPECTIVE
To preserve capital gains treatment, earn-out provisions should be drafted as an integral part of the negotiated share consideration, with a consistent commercial narrative across the SPA, employment documents, valuation materials, board papers, and correspondence. Post-closing compensation for sellers who remain involved in the business should be separately documented and benchmarked at arm’s length, and the earn-out should ideally be linked to objective business or valuation metrics rather than continued employment or service-based conditions; drafting should also avoid language suggesting bonus, incentive, or reward, and instead clearly state that the earn-out is part of the share purchase price and not remuneration for services, the following protective clause may be incorporated into the SPA:
DRAFT CLAUSE FOR SPA
“The Parties mutually acknowledge and agree that the Contingent Consideration (as defined herein) payable to the Sellers under Clause [Insert Clause Number] constitutes an integral component of the Purchase Price for the transfer of the Sale Shares and represents the deferred capital value of the Company negotiated between the Parties.
It is expressly clarified that the Contingent Consideration is strictly linked to the achievement of the Financial Milestones and does not, in any manner, constitute remuneration, compensation, bonus, or reward for any past, present, or future employment, consultancy, or other services rendered or to be rendered by the Sellers (or their affiliates) to the Acquirer, the Company, or any of their respective affiliates.
The Parties further acknowledge that any post-closing services provided by the Sellers to the Company shall be governed exclusively by a separate [Employment Agreement / Consultancy Agreement] dated [Insert Date], under which the Sellers shall be independently compensated at an arm’s-length fair market value, which is entirely distinct from and independent of the Sellers’ entitlement to receive the Contingent Consideration under this Agreement.”
APPLICABILITY OF SECTION 92(2)(M)
Section 92(2)(m)(iii)(B) of the IT Act provides that where a person receives any specified property (such as shares) for a consideration that is less than its FMV, the difference between such FMV and the consideration paid is taxable as income from other sources in the hands of the recipient (buyer).
In the context of contingent consideration, a question arises: what constitutes the “consideration” paid by the buyer? Is it merely the upfront cash, or does it include the obligation to pay future contingent amounts?
The term “consideration” is not defined under the IT Act and must be understood in its contextual sense. Section 2(d) of the Indian Contract Act, 187261 defines consideration to include past, executed, and executory consideration. For the purposes of Section 92(2)(m), consideration would ordinarily include the initial purchase consideration and deferred consideration (being executory consideration) at their full value.
However, a promise to pay contingent consideration is conditional and cannot be equated with executory consideration simpliciter. Given the uncertainty, the FMV of the obligation to pay (or the corresponding right to receive, in the hands of the seller) should be included in determining the value of consideration.
In essence, the full value of consideration accruing to the transferor may be regarded as the consideration due from the transferee. This aggregate value (Upfront + Deferred + FMV of Contingent Obligation) should be benchmarked against the FMV of the shares received to determine if any deemed income arises under Section 92(2)(m).
61 Section 2(d) reads: “When, at the desire of the promisor,
the promisee or any other person has done or abstained from doing or does or abstains from doing,
or promises to do or the abstain from doing something, such an act or abstinence or promise is called a consideration for the promise”.
OBLIGATION TO WITHHOLD TAXES
Section 393(2), Table: Sl. No.1762 casts an obligation on any person responsible for paying to a non-resident any sum chargeable to tax under the IT Act to withhold tax at the rates in force at the time of credit of such income to the account of the payee or at the time of payment thereof, whichever is earlier.
For initial and deferred consideration, the withholding obligation is clear. However, for contingent consideration, the issue is whether withholding is required prior to accrual. Even where contingent consideration is recognized in the books of account (e.g., as a provision under Ind AS), the mere credit of such amount may not be sufficient to trigger withholding obligations if the income has not legally accrued to the payee.
A tenable view is that income has not accrued until the contingency materializes. This position is reinforced by the language of Section 393(2), Table: Sl. No.17, which applies only to sums “chargeable to tax.” If the income has not accrued, it is not yet chargeable.
This is also the practice followed generally and finds mention in the decision of the Mumbai ITAT in Huntsman Investments (Netherlands) B.V.63 In this case, the buyer withheld taxes on the contingent consideration only upon its crystallization, distinct from the closing date consideration.
However, if the rationale of Marren v. Inglis (supra) is adopted—treating the contingent right as a separate asset transferred at closing—it may be prudent, from a risk-mitigation perspective, to withhold tax on the FMV of that right at the time of the initial transfer. Given the ambiguity, the prevailing practice remains to withhold tax on contingent consideration only upon crystallization.
62 Section 195 of ITA 1961.
63 Huntsman Investments (Netherlands) B.V. v DCIT [2024] 166 taxmann.com 63 (Mum Trib).
While not a direct ruling on the timing of tax withholding, a factual finding was recorded in Para 7,
wherein it was noted that the buyer had withheld taxes on the contingent consideration only upon its crystallization,
distinct from the consideration paid at closing. In this case, Huntsman had sold the shares of Huntsman Advanced Materials Solution Private Limited
to the Pidilite Industries Ltd. for an aggregate consideration of USD 285 million bifurcated into two components:
‘closing date consideration’ of USD 256.9 million and the ‘contingent consideration’ of USD 28.1 million.
CONCLUSION
The taxation of contingent consideration remains one of the more unresolved areas of capital gains law under the IT Act. Judicial authority clearly supports the proposition that such consideration does not accrue in the year of transfer so long as the seller has no enforceable right to receive it. The real controversy lies in what follows thereafter.
The principles in Marren v. Inglis provide a conceptually elegant framework by treating the contingent right as a separate capital asset and taxing the value of that right at inception, with further gains computed upon realization. Yet the Indian position is complicated by fundamental questions as to whether the right is itself a capital asset, how such a right is to be valued, and whether Section 90(3), is broad enough to deem the cost of acquisition of such rights to be nil. The issue is therefore far from free from doubt.
“The taxation of contingent consideration remains one of the more unresolved areas of capital gains law under the IT Act. “
A substantial counter-argument remains available that, depending on the nature of the right and the application of B.C. Srinivasa Setty, some receipts may still fall outside the charge to capital gains tax in the absence of a clear statutory fiction. Added to this are practical characterization risks where earn-outs are linked with continued employment and may, in substance, represent remuneration rather than purchase consideration.
Until legislative clarity is provided, the issue is likely to remain contested between literal and purposive readings of the statute. From a policy standpoint, a specific framework—similar in spirit to Section 67(12)—for contingent consideration, escrow releases, and claw backs would greatly reduce uncertainty and litigation. As Chief Justice of India S.H. Kapadia64 observed, “Certainty is integral to the rule of law. Certainty and stability are fundamental to any fiscal system, and tax policy clarity is crucial for taxpayers (including foreign investors) to make rational economic decisions in the most efficient manner”.
Additionally, readers may consider the taxability of contingent consideration in cases involving non-residents who have invested in shares of Indian companies and are residents of countries with which India has a Double Taxation Avoidance Agreement (DTAA). In such cases, while India retains the right to tax gains arising from the transfer of shares in an Indian company, the right to tax gains from the transfer of other assets may lie with the country of residence.65 For instance, in a joint development agreement, where a landowner (a company) parts with a portion of land to a developer in exchange for a right to a share in the project, the consideration for the transfer of land is the right to receive a share in the project. If the landowner transfers this right before receiving the completion certificate, what is being transferred is the right itself, not the land or building. Therefore, in such cases, Section 7866 of the IT Act, which applies only to the transfer of land or building, should not apply.67 A similar distinction should be drawn between the share and the right to receive contingent consideration when applying the DTAA.
64 In Vodafone International Holdings B.V. v Union of India [2012] 341 ITR 1 (SC), para 91. Similarly, refer to the observations of Justice Radhakrishnan in para 3 of his concurring judgment.
65 Illustratively refer to India-Singapore DTAA [Article 13(4B) and 13(5)] and India-Mauritius DTAA [Article 13(3A), Article 13(4)].
66 Section 50C of ITA 1961.
67 The decision of the Bombay High Court in Vidarbha Veneer Industries Ltd, (in liquidation) v ITO [2026] 484 ITR 132 (Bom)
extending the scope of Section 50C to all immovable properties (not just land and building)
may warrant reconsideration based on the literal language of the deeming provision. For a detailed critique on the judgment,
one may refer to 484 ITR (Journal) 1-12.
