Defining the cost of acquisition in case of certain assets for computing capital gains
BUDGET 2023-24 MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2023
The existing provisions of the section 55 of the Act, inter alia, defines the ‘cost of any improvement’ and ‘cost of acquisition’ for the purposes of computing capital gains. However, there are certain assets like intangible assets or any sort of right for which no consideration has been paid for acquisition. The cost of acquisition of such assets is not clearly defined as ‘nil’ in the present provision. This has led to many legal disputes and the courts have held that for taxability under capital gains there has to be a definite cost of acquisition or it should be deemed to be nil under the Act. Since there is no specific provision which states that the cost of such assets is nil, the chargeability of capital gains from transfer of such assets has not found favour with the Courts.
2. Therefore, to define the term ‘cost of acquisition’ and ‘cost of improvement’ of such assets, it is proposed to amend the provisions of sub-clause (1) of the Clause (b) of the subsection (1) and clause (a) of sub-section (2) of section 55 so as to provide that the ‘cost of improvement’ or ‘cost of acquisition’ of a capital asset being any intangible asset or any other right ( other than those mentioned in the said sub-clause or clause, as the case may be) shall be ‘Nil’.
3. This amendment is will take effect from the 1st day of April, 2024 and shall accordingly, apply in relation to the assessment year 2024-25 and subsequent assessment years.