Section 55:
Meaning of adjusted, cost of improvement and cost of acquisition.
(1) For the
purposes of 1
sections 48 and 49,
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(b) cost of any improvement,
(1) in relation to a capital asset being goodwill of a business 4
or a right to manufacture,
produce or process any article or thing 5
or right to carry on any business 6or profession 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 71st 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
9sub-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,
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(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 thing14
or
right to carry on any business 15
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 ;
(aa) 16
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;
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(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;
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(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 19demutualisation 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:
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(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;
(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.
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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;
(b) in relation to any other capital asset,—
(i) where the capital asset became the property of the assessee before the 22
1st day of
April, 2001, means the cost of acquisition of the asset to the assessee or the fairmarket value of
the asset on the 22
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 23
sub-section (1) of section 49, and the capital asset became the property of the previous
owner before the 22
1st day of April, 2001, means the cost of the capital asset to the previous
owner or the fairmarket value of the asset on the 22
1st day of April, 2001, at the option of the
assessee;
(iii) where the capital asset became the property of the assessee on the distribution of the
capital assets of a company on itsliquidation and the assessee has been assessed to income-tax
under the head “Capital gains” in respect of that asset under section 46, means the fairmarket
value of the asset on the date of distribution;
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(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 sharecapital 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. Subs. by Act 46 of 1986, s. 32, for sections 48, 49 and 50 (w.e.f. 1-4-1988).
2. Clause (a) omitted by s. 32, ibid. (w.e.f. 1-4-1988).
3. Subs. by 11 of 1987, s. 25, for clause (b) (w.e.f. 1-4-1988).
4. Ins. by Act 26 of 1997, s. 19 (w.e.f. 1-4-1998).
5. Ins. by Act 20 of 2002, s. 26 (w.e.f. 1-4-2003).
6. Ins. by Act 28 of 2016, s. 34 (w.e.f. 1-4-2017).
7. Subs. by Act 7 of 2017, s. 28, for 1st day of April, 1981 (w.e.f. 1-4-2018). Earlier 1st day of April, 1974 was
substituted by Act 23 of 1986, s. 13, for 1st day of January, 1964 (w.e.f. 1-4-1987) and later 1981 was substituted
by Act 18 of 1992, s. 34, for 1974 (w.e.f. 1-4-1993).
8. The 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 s. 34, ibid. (w.e.f. 1-4-1993).
9. Subs. by Act 20 of 1967, s. 21, for section 49 (w.e.f. 1-4-1967).
10. Subs. by Act 11 of 1987, s. 25, for the For the purposes of sections 48 and 49, cost of acquisition, in relation to a
capital asset, (w.e.f. 1-4-1988).
11. Subs. by Act 32 of 1994, s. 18, for clause (a) (w.e.f. 1-4-1995).
12. Ins. by 14 of 2001, s. 34 (w.e.f. 1-4-2002).
13. Ins. by Act 26 of 1997, s. 19 (w.e.f. 1-4-1998).
14. Ins. by 20 of 2002, s. 26 (w.e.f. 1-4-2003).
15. Ins. by Act 28 of 2016, s. 34 (w.e.f. 1-4-2017).
16. Subs. by Act 22 of 1995, s. 14, for in a case where, and ending with sub-clauses (i) and (ii) of clause (b)
(w.e.f. 1-4-1996).
17. Ins. by Act 22 of 1995, s. 14 (w.e.f. 1-4-1996).
18. Ins. by Act 14 of 2001, s. 34 (w.e.f. 1-4-2002).
19. Subs. by Act 32 of 2003, s. 31, for corporatisation (w.e.f. 1-4-2004).
20. Ins. by Act 13 of 2018, s. 22 (w.e.f. 1-4-2018).
21. Ins. by Act 32 of 2003, s. 31 (w.e.f. 1-4-2004).
22. Subs. by Act 7 of 2017, s. 28, for “1st day of April, 1981” (w.e.f. 1-4-2018). Earlier “1st day of April, 1974” was
substituted by Act 23 of 1986, s. 13, for “1st day of January, 1964” (w.e.f. 1-4-1987) and later “1981” was substituted
by Act 18 of 1992, s. 34, for “1974” (w.e.f. 1-4-1993).
23. Subs. by Act 20 of 1967, s. 21, for “section 49” (w.e.f. 1-4-1967).
24. Clause (iv) omitted by Act 13 of 1966, s. 14 (w.e.f 1-4-1967).
25. Ins. by Act 5 of 1964, s. 14 (w.e.f. 1-4-1964).