Section 55 - Meaning of adjusted, cost of improvement and cost of acquisition - Income-tax Act, 1961

Meaning of adjusted , cost of improvement and cost of acquisition . 55. (1) For the purposes of 1 [ sections 48 and 49 ] ,- ( a ) 2 [ *** ] 3 [ ( b ) cost of any improvement ,- ( 1 ) in relation to a capital asset being goodwill 41 [ or any other intangible asset ] of a business 4 [ or a right to manufacture, produce or process any article or thing ] 5 [ or right to carry on any business ] 31 [ or profession ] 42 [ or any other right ] shall be taken to be nil ; and ( 2 ) in relation to any other capital asset,- ] ( i ) where the capital asset became the property of the previous owner or the assessee before the 33 [ 1 st day of April, 2001 ] ], 8 [ *** ] means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and ( ii ) in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in 9 [ sub-section (1) of ] section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head Interest on securities , Income from house property , Profits and gains of business or profession , or Income from other sources , and the expression improvement shall be construed accordingly. (2) 10 [ For the purposes of sections 48 and 49, cost of acquisition ,- 40 [ (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 43 [ profession, or any other intangible asset or a 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 44 [ hours, or any other right ] - (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and (ii) in the case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49 and where such asset was acquired by the previous owner (as defined in that section) by purchase, means the amount of the purchase price for such previous owner; and (iii) in any other case, shall be taken to be nil: Provided that where the capital asset, being goodwill of a business or profession, in respect of which a deduction on account of depreciation under sub-section (1) of section 32 has been obtained by the assessee in any previous year preceding the previous year relevant to the assessment year commencing on or after the 1st day of April, 2021, the provisions of sub-clauses (i) and (ii) shall apply with the modification that the total amount of depreciation obtained by the assessee under sub-section (1) of section 32 before the assessment year commencing on the 1st day of April, 2021 shall be reduced from the amount of purchase price; ] ( aa ) 15 [ in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause ( h ) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee- ( A ) becomes entitled to subscribe to any additional financial asset ; or ( B ) is allotted any additional financial asset without any payment, then, subject to the provisions of sub-clauses ( i ) and ( ii ) of clause ( b ) ] ,- ( i ) in relation to the original financial asset, on the basis of which the assessee becomes entitled to any additional financial asset, means the amount actually paid for acquiring the original financial asset ; ( ii ) in relation to any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil in the case of such assessee ; ( iii ) in relation to the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset ; 16 [ ( iiia ) in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee ; ] and ( iv ) in relation to any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case may be, for acquiring such financial asset ; ] 17 [ ( ab ) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for 18 [ demutualisation or ] corporatisation approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange: ] 19 [Provided that the cost of a capital asset, being trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil ; ] 38 [(ac) subject to the provisions of sub-clauses (i) and (ii) of clause (b), in relation to a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 112A, acquired before the 1st day of February, 2018, shall be higher of- (i) the cost of acquisition of such asset; and (ii) lower of- (A) the fair market value of such asset; and (B) the full value of consideration received or accruing as a result of the transfer of the capital asset. Explanation.-For the purposes of this clause,- (a) fair market value means,- (i) in a case where the capital asset is listed on any recognised stock exchange as on the 31st day of January, 2018, the highest price of the capital asset quoted on such exchange on the said date: Provided that where there is no trading in such asset on such exchange on the 31st day of January, 2018, the highest price of such asset on such exchange on a date immediately preceding the 31st day of January, 2018 when such asset was traded on such exchange shall be the fair market value; (ii) in a case where the capital asset is a unit which is not listed on a recognised stock exchange as on the 31st day of January, 2018, the net asset value of such unit as on the said date; (iii) in a case where the capital asset is an equity share in a company which is- (A) not listed on a recognised stock exchange as on the 31st day of January, 2018 but listed on such exchange on the date of transfer; 45 [ (AA) not listed on a recognised stock exchange as on the 31st day of January, 2018, or which became the property of the assessee in consideration of share which is not listed on such exchange as on the 31st day of January, 2018 by way of transaction not regarded as transfer under section 47, as the case may be, but listed on such exchange subsequent to the date of transfer (where such transfer is in respect of sale of unlisted equity shares under an offer for sale to the public included in an initial public offer); ] (B) listed on a recognised stock exchange on the date of transfer and which became the property of the assessee in consideration of share which is not listed on such exchange as on the 31st day of January, 2018 by way of transaction not regarded as transfer under section 47, an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the financial year 2017-2018 bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the first day of April, 2001, whichever is later; (b) Cost Inflation Index shall have the meaning assigned to it in clause (v) of the Explanation to section 48; (c) recognised stock exchange shall have the meaning assigned to it in clause (ii) of Explanation 1 to clause (5) of section 43.] ( b ) in relation to any other capital asset,- ] ( i ) where the capital asset became the property of the assessee before the 34 [ 1st day of April, 2001 ] ], means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 35 [ 1st day of April, 2001 ] ], at the option of the assessee ; ( ii ) where the capital asset became the property of the assessee by any of the modes specified in 24 [ sub-section (1) of ] section 49, and the capital asset became the property of the previous owner before the 36 [ 1st day of April, 2001 ] ] , means the cost of the capital asset to the previous owner or the fair market value of the asset on the 37 [ 1st day of April, 2001 ] ], at the option of the assessee ; 39 [Provided that in case of a capital asset referred to in sub-clauses (i) and (ii), being land or building or both, the fair market value of such asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001. Explanation .-For the purposes of this proviso, stamp duty value means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property. ] ( iii ) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head Capital gains in respect of that asset under section 46, means the fair market value of the asset on the date of distribution ; ( iv ) 29 [ *** ] 30 [ ( v ) where the capital asset, being a share or a stock of a company, became the property of the assessee on- ( a ) the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares, ( b ) the conversion of any shares of the company into stock, ( c ) the re-conversion of any stock of the company into shares, ( d ) the sub-division of any of the shares of the company into shares of smaller amount, or ( e ) the conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived. ] (3) Where the cost for which the previous owner acquired the property cannot be ascertained, 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. ******************** Notes :- 1. Substituted for sections 48, 49 and 50 by the Taxation Laws (Amendment Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. 2. Omitted, by the Taxation Laws (Amendment Miscellaneous Provisions) Act, 1986. Prior to its omission, clause (a) was amended by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978 and the Finance Act, 1986, w.e.f. 1-4-1987. 3. Substituted for ' cost of any improvement , in relation to a capital asset,-' by the Finance Act, 1987, w.e.f. 1-4-1988. 4. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998. 5. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003. 6. Substituted for 1st day of January, *1964 by the Finance Act, 1986, w.e.f. 1-4-1987. * 1964 was substituted for 1954 by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 7. Substituted for 1974 by the Finance Act, 1992, w.e.f. 1-4-1993. 8. Words and the fair market value of the asset on that day is taken as the cost of acquisition at the option of the assessee, omitted by the Finance Act, 1992, w.e.f. 1-4-1993. 9. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 10. Substituted for 'For the purposes of sections 48 and 49, cost of acquisition , in relation to a capital asset,-' by the Finance Act, 1987, w.e.f. 1-4-1988. 11. Substituted for clause (a) by the Finance Act, 1994, w.e.f. 1-4-1995. 12. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002. 13. Inserted by the Finance Act, 1997, w.e.f. 1-4-1998. 14. Inserted by the Finance Act, 2002, w.e.f. 1-4-2003. 15. Substituted for the portion beginning with the words in a case where, and ending with the words sub-clauses (i) and (ii) of clause (b) by the Finance Act, 1995, w.e.f. 1-4-1996. Prior to its substitution, the quoted portion read as under : in a case where, by virtue of holding a capital asset, being a share or any other security within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in this clause referred to as the financial asset), the assessee becomes entitled to subscribe to any additional financial asset, then, subject to the provisions of sub-clauses (i) and (ii) of clause (b) . 16. Inserted by the Finance Act, 1995, w.e.f. 1-4-1996. 17. Inserted by the Finance Act, 2001, w.e.f. 1-4-2002. 18. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004. 19. Inserted by the Finance Act, 2003, w.e.f. 1-4-2004. 20. Substituted for 1st day of January, *1964 by the Finance Act, 1986, w.e.f. 1-4-1987. * 1964 was substituted for 1954 by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 21. Substituted for 1974 by the Finance Act, 1992, w.e.f. 1-4-1993. 22. Substituted for 1st day of January, *1964 by the Finance Act, 1986, w.e.f. 1-4-1987. * 1964 was substituted for 1954 by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 23. Substituted for 1974 by the Finance Act, 1992, w.e.f. 1-4-1993. 24. Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1967. 25. Substituted for 1st day of January, *1964 by the Finance Act, 1986, w.e.f. 1-4-1987. * 1964 was substituted for 1954 by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 26. Substituted for 1974 by the Finance Act, 1992, w.e.f. 1-4-1993. 27. Substituted for 1st day of January, *1964 by the Finance Act, 1986, w.e.f. 1-4-1987. * 1964 was substituted for 1954 by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 28. Substituted for 1974 by the Finance Act, 1992, w.e.f. 1-4-1993. 29. Omitted by the Finance Act, 1966, w.e.f. 1-4-1966. Original clause (iv) was inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 30. Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 31. Inserted vide THE FINANCE ACT, 2016 w.e.f. 1st day of April, 2017 32. Inserted vide THE FINANCE ACT, 2016 w.e.f. 1st day of April, 2017 33. Substituted vide THE FINANCE ACT, 2017 w.e.f. 1st day of April, 2018 before it was read as, 6 [ 1st day of April, 7 [ 1981 ] 34. Substituted vide THE FINANCE ACT, 2017 w.e.f. 1st day of April, 2018 before it was read as, 20 [ 1st day of April, 21 [ 1981 ] 35. Substituted vide THE FINANCE ACT, 2017 w.e.f. 1st day of April, 2018 before it was read as, 22 [ 1st day of April, 23 [ 1981 ] 36. Substituted vide THE FINANCE ACT, 2017 w.e.f. 1st day of April, 2018 before it was read as, 25 [ 1st day of April, 26 [ 1981 ] 37. Substituted vide THE FINANCE ACT, 2017 w.e.f. 1st day of April, 2018 before it was read as, 27 [ 1st day of April, 28 [ 1981 ] 38. Inserted vide THE FINANCE ACT, 2018 w.e.f. 1st day of April, 2018 39. Inserted vide Finance Act, 2020 dated 27-03-2020 w.e.f. 01-04-2021 40. Substituted vide THE FINANCE ACT, 2021 dated 28-03-2021 w.e.f. 01-04-2021 before it was read as 11 [ ( a ) in relation to a capital asset, being goodwill of a business 12 [ or a trade mark or brand name associated with a business ] 13 [ or a right to manufacture, produce or process any article or thing ] 14 [ or right to carry on any business ], 32 [ or profession ] tenancy rights, stage carriage permits or loom hours,- ( i ) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and ( ii ) in any other case [ not being a case falling under sub-clauses ( i ) to ( iv ) of sub-section (1) of section 49 ], shall be taken to be nil ; 41. Inserted vide THE FINANCE ACT, 2023 dated 31-03-2023 w.e.f. 01-04-2024 42. Inserted vide THE FINANCE ACT, 2023 dated 31-03-2023 w.e.f. 01-04-2024 43. Substituted vide THE FINANCE ACT, 2023 dated 31-03-2023 w.e.f. 01-04-2024 before it was read as, profession, or a right 44. Substituted vide THE FINANCE ACT, 2023 dated 31-03-2023 w.e.f. 01-04-2024 before it was read as, hours, 45. Inserted vide Section 22 of the Finance (No. 2) Act, 2024 dated 16-08-2024 w.e.f. 01-04-2018