Income Tax Act

Official PDF pages 76–80

SOURCE PDF PAGE 76
( iv )   where a firm carrying on a business or profession is succeeded by
another firm, that other firm.
Computation of actual cost.
39.   (1) The actual cost of an asset used for the purposes of the business or
profession shall be the actual cost to the assessee, as reduced by the following
amounts:—
( a )   part of cost of asset, if any, met by any other person or authority,
directly or indirectly;
( b )   goods and services tax paid in respect of which credit of input tax has
been claimed and allowed under the relevant law;
( c )   duty of excise or additional duty leviable under section 3 of the Customs
Tariff Act, 1975 (51 of 1975) in respect of which a claim of credit has
been made and allowed under the Central Excise Rules, 1944;
( d )   subsidy, grant or reimbursement, by whatever name called, if any,
relatable to the acquisition of the asset, received, directly or indirectly,
by the assessee from—
( i )   the Central Government;
( ii )   a State Government;
( iii )   any authority established under any law; or
( iv )   any other person.
(2) The payment or aggregate of payments exceeding   `   10,000 in a day for acquisition
of an asset or part thereof, made to a person in a mode otherwise than by specified
banking or online mode, shall be excluded from the actual cost of that asset.
(3) In a case where the subsidy, grant or reimbursement referred to in sub-section
(1)( d ) is not directly relatable to the asset acquired, the amount of reduction under
sub-section (1)( d ) shall be determined as under:—
A  
B
C
× 




where,—
A = total amount of subsidy, grant or reimbursement not directly relatable to
the asset;
B = cost of the asset acquired for which actual cost is to be determined;
C = cost of all the assets in respect of or in reference to which the subsidy or
grant or reimbursement is so received.
(4) In circumstances specified under column B of the Table below, the actual cost
of the asset shall be as specified in column C thereof.

──────────

SOURCE PDF PAGE 77
TABLE
Sl.
No.
Specified circumstances   Determination of actual cost
A   B   C
1.   Where capital asset is transferred
by an amalgamating company to
an amalgamated company being
an Indian company in a scheme
of amalgamation.
Actual cost to amalgamated company
shall be the same as it would have been
if   the   amalgamating   company   had
continued to hold such capital asset for
the purpose of its own business.
2.   Where capital asset is transferred
by   a   demerged   company   to   a
resulting company being an Indian
company in a demerger.
Actual cost to resulting company shall
be the same as it would have been, if
the demerged company had continued
to hold such asset for the purpose of its
own business, which shall not exceed
the written down value of such capital
asset in the hands of demerged company.
3.   Where inventory is converted into
or treated as a capital asset.
Fair Market Value of such inventory as
on date of conversion, as determined in
the manner as may be prescribed.
4.   Where   asset   is   acquired   by
the assessee by way of gift or
inheritance.
Actual cost to the previous owner as
reduced by—
( a )   depreciation actually allowed in
respect of tax year commencing
on 1st April, 1986 or any earlier
tax year; and
( b )   depreciation allowable for tax year
commencing on or after 1st April,
1987 under this Act or under the
Income-tax Act, 1961(43 of 1961),
as if such asset was the only asset
in the relevant block of asset.
5.   Where   a   building,   being   the
property of the assessee, is put to
use for the purpose of business or
profession during the tax year.
Actual cost of the building as reduced
by the depreciation—
( a )   that would have been allowable
had the building been used for the
purpose of business or profession
from the date of acquisition; and
( b )   calculated at the rate in force on the
date on which such asset was put
to use for the purpose of business
or profession.

──────────

SOURCE PDF PAGE 78
Sl.
No.
Specified circumstances   Determination of actual cost
A   B   C
6.   Where capital asset is transferred
by—
( a )   a holding company to its
subsidiary company; or
( b )   a subsidiary company to its
holding company,
and   the   conditions   of   section
70(1)( c ) and ( d ), as the case may
be, are satisfied.
Actual cost to the transferee company
shall be the same as it would have been,
if the transferor company had continued
to hold such asset for the purpose of its
own business.
7.   Where an asset, which previously
belonged to the assessee and had
been used by him for the purpose
of his business or profession, is
reacquired by the assessee.
( a )   Actual cost of the asset in the
hands of assessee, when it was first
acquired, as reduced by—
( i )   depreciation actually allowed
in respect of tax year com -
mencing on 1st April, 1986
or any earlier tax year; and
( ii )   depreciation allowable for tax
year commencing on or after
1st April, 1987 under this Act
or under the Income-tax Act,
1961 (43 of 1961), as if such
asset was the only asset in the
relevant block of asset; or
( b )   actual price for which such asset
is reacquired by the assessee,
whichever is lower.
8.   Where an asset is acquired by the
assessee from previous owner and
subsequently asset is given back to
the previous owner by way of lease,
hire or otherwise, and—
( a )   the asset was being used for
the purpose of business or
profession by the previous
owner; and
( b )   depreciation has been clai-
med by the previous owner.
Actual cost of asset to the assessee shall
be the written down value of the asset in
the hands of the previous owner at the
time of transfer by the previous owner.

──────────

SOURCE PDF PAGE 79
Sl.
No.
Specified circumstances   Determination of actual cost
A   B   C
9.   Where an asset is used in business
after   it   ceases   to   be   used   for
scientific   research   related   to
that business and a deduction is
allowable under section 33(3).
Actual   cost   of   asset   as   reduced   by
deduction allowed for the capital asset
under   section   45(1)( a )( i )   or   under
section 35(1)( iv ) of the Income-tax Act,
1961 (43 of 1961).
10.   Where the assessee had acquired
an asset outside India, as a non-
resident, and the asset is brought
by him to India and put to use in
his business or profession in India.
Actual cost of the asset as reduced by
the depreciation—
( a )   that would have been allowable
had the asset been used for the
purpose of business or profession
in India since the date of its acqui -
sition; and
( b )   calculated at the rate in force.
11.   Where capital asset is acquired
under the scheme of corporatisa-
tion of a recognised stock exchange
approved by the Securities and
Exchange Board of India.
Actual cost of the asset, as if there was
no corporatisation.
12.   ( a )   Where   deduction   under
section 46 was allowed or
allowable in respect of the
capital asset—
( i )   to the assessee; or
( ii )   to   any   person   and
the assessee acquires
or receives such asset
through special modes
of   acquisition   from
such person.
( a )   Actual cost shall be deemed to be
nil .
( b )   Where   deduction   allowed
under section 46 in respect
of a capital asset becomes
deemed income as per sec-
tion 46(9)( b ).
( b )   Actual cost of the asset as reduced
by the depreciation,—
( i )   that would have been allow -
able had the asset been used
for the purpose of business
since date of acquisition; and
( ii )   calculated   at   the   rate   in
force.
13.   Where   any   amount   is   paid   or
payable as interest in connection
with the acquisition of an asset.
Actual cost shall not include so much of
such amount as is relatable to any period
after such asset is first put to use.

──────────

SOURCE PDF PAGE 80
(5) Irrespective of anything contained in sub-section (4), other than serial number
8 of the Table in the said sub-section, in a case where the asset is acquired by the
assessee, its actual cost shall be such amount as may be determined by the Assessing
Officer having regard to all the circumstances of the case, where—
( a )   the asset was used by any other person for the purposes of his business,
before such acquisition; and
( b )   the Assessing Officer is satisfied that the main purpose of the transfer of
the asset, directly or indirectly, was to reduce tax liability (by claiming
depreciation on enhanced actual cost).
(6) The determination of actual cost under sub-section (5) shall be made with the
prior approval of the Joint Commissioner.
(7) For the purposes of this section, “special modes of acquisition” means acquisition—
( a )   by way of a gift or will or an irrevocable trust; or
( b )   upon distribution on the liquidation of a company; or
( c )   by such mode of transfer as is referred to in section 70(1)( a ), ( c ),
( d ), ( e ), ( j ), ( zd ), ( ze ) and ( zf ).
Special provision for computation of cost of acquisition of certain assets.
40.   (1) For the purposes of computation of income under the head “Profits and
gains of business or profession”, cost of acquisition of an asset which becomes
property of—
( a )   an amalgamated company under a scheme of amalgamation; or
( b )   an assessee, under a gift, or will, or an irrevocable trust, or on total or
partial partition of a Hindu undivided family,
when sold as stock-in-trade shall be the sum of—
( i )   cost of acquisition of the said asset in the hands of the amalgamating
company in case of clause ( a ), or the transferor or donor in case of clause
( b );
( ii )   any cost of improvement made;
( iii )   any expenditure incurred by the amalgamating company or transferor
or donor, as the case may be, wholly and exclusively in connection with
such transfer.
(2) This section shall not apply to an asset referred to in section 67(6).
Written down value of depreciable asset.
41.   (1) For the purposes of computation of income under the head “Profits and
gains of business or profession”, written down value means—
( a )   in case the asset is acquired in the tax year, the actual cost to the assessee;
( b )   in case the asset is acquired before the tax year, actual cost to the
assessee less depreciation actually allowed under this Act or under the
Income-tax Act, 1961 (43 of 1961);