Under which of the following circumstances may “capital gains” arise? 1. When there is an increase in the sales of a product 2. When there is a natural increase in the value of the property owned 3. When you purchase a painting and there is a growth in its value due to increase in its popularity Select the correct answer using the codes given below :

Capital gains refer to the profit realized from the sale of a capital asset when its selling price exceeds its purchase price. Statement 1 is incorrect because an increase in the sales of a product leads to higher business revenue or operational profit, which is taxed as business income rather than capital gains. Statement 2 is correct as capital gains arise from the appreciation in the value of capital assets like real estate or property. Statement 3 is also correct because collectibles, such as paintings and works of art, are considered capital assets; an increase in their value due to popularity results in a capital gain when the asset is sold or exchanged. These gains can be 'unrealized' as the asset appreciates or 'realized' upon its actual sale.