Concept:
According to IS 1498 (Indian Standard Soil Classification System), fine-grained soils are classified based on their liquid limit.
For clays:
\[ \begin{array}{|c|c|} \hline \textbf{Liquid Limit (\%)} & \textbf{Classification} \\ \hline 35-50 & \text{CI} \\ \hline >50 & \text{CH} \\ \hline \end{array} \]
Step 1: Identify the liquid limit range.
Given,
\[ w_L = 40\%. \]
Since
\[ 35\% < 40\% < 50\%, \]
the soil belongs to the medium compressibility group.
Step 2: Determine the classification.
Hence,
\[ \boxed{\text{CI = Clay of Intermediate Compressibility}} \]
Answer:
\[ \boxed{(B)\ \text{CI}} \]