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Capital
Gains
Cost
of acquisition of the asset
The
Act defines the cost of acquisition in section 55(2) of the Income
Tax Act and there is also a provision of calculating the notional
cost of acquisition in certain specific cases . The cost of acquisition
of an asset is in simple terms the value for which it was acquired
and which mainly involve a capital expense.
The
cost of acquisition in the following cases is deemed by section
55(2) as under :
(a)
in case of goodwill of a business, or a right to manufacture, produce
or process any article or thing , tenancy right , stage carriage
permits, or loom hours the cost of acquisition is taken as nil unless
the same were purchased from a previous owner in which case the
cost of acquisition shall be the purchase price paid. The value
of cost of acquisition is to be taken as nil in all the cases not
falling in the circumstances enumerated in the details of notional
cost of acquisition.
(b)
in the case where the assessee becomes entitled to subscribe any
additional financial asset or is allotted any additional financial
asset (for example Bonus Shares) without any payment by virtue of
his holding a share or shares or any other securities ( original
financial asset) the cost of acquisition of the capital assets is
to be calculated as under :
- in
relation to the original financial asset the amount actually paid
for acquiring the original asset.
- in
relation to any right to renounce the said entitlement to subscribe
to the financial asset and where the right is renounced the cost
of acquisition of such right is taken as nil.
- in
relation to the financial asset to which the assessee has subscribed
on the basis of the said entitlement the cost of acquisition means
the amount actually paid by him for acquiring such asset.
- in
relation to the financial asset allotted to the assessee without
any payment and on the basis of holding of any other financial
asset the cost of acquisition of the new asset allotted shall
be taken as nil.
- where
a person purchases the right to subscribe to such asset by way
of renunciation of rights then the cost of the asset in the hands
of the buyer shall be the aggregate cost of purchase of the right
and the cost incurred for acquiring the asset in terms of the
payment to the company or institution.
(c) in
relation to any other asset where the assessee became the owner before
the 1st day of April ,1981, then the cost of acquisition of such asset
shall be deemed to be cost of acquisition of the asset or the fair
market value of the asset as on 1st day of April, 1981 at the option
of the assessee. This applies also to the assets in which case the
notional value of cost of acquisition is required to be taken.
(d)
where the capital asset ,being a share or a stock of a company,
became the property of the assessee on account of the consolidation
of or the division of all or any of the share capital of the company
into shares of larger amount than its existing shares ; or on account
of conversion of any shares of the company into stock; or on account
of the reconversion of any stock of the company into shares; or
on account of sub division of any of the shares of the company into
shares of smaller amount ; or on account of the conversion of one
kind of shares of the company into another kind, then the cost of
acquisition of the asset is calculated with reference to the cost
of acquisition of the stock or shares from which such asset is derived.
(e)
in case where the cost for which the previous owner acquired the
property cannot be ascertained , in such a case the cost of acquisition
to the previous owner means the fair market value on the date on
which the capital asset became the property of the previous owner.
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