Determination of Cost of Acquisition

Cost of Acquisition (COA) means any capital expense at the time of acquiring capital asset under transfer, i.e., to include the purchase price, expenses incurred up to acquiring date in the form of registration, storage etc. expenses incurred on completing transfer.

Cost of Acquisition with Reference to Certain Modes of Acquisition (Section – 49)

1. Where the capital asset became the property of the assessee:
2. on any distribution of assets on the total or partial partition of a Hindu undivided family;
3. under a gift or will;
4. by succession, inheritance or devolution;
5. on any distribution of assets on the dissolution of a firm, body of individuals, or other association of persons, where such dissolution had taken place at any time before 1.04.1987;
6. on any distribution of assets on the liquidation of a company;
7. under a transfer to a revocable or an irrevocable trust;
8. by transfer from its holding company or subsidiary company;
9. by transfer in a scheme of amalgamation;
10. by an individual member of a Hindu Undivided Family giving his separate property to the assessee HUF anytime after 31.12.1 969.

cost of acquisition of the asset shall be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the asset incurred or borne by the previous owner or the assessee, as the case may be, till the date of acquisition of the asset by the assessee.

If the previous owner had also acquired the capital asset by any of the modes above, then the cost to that previous owner, who had acquired it by mode of acquisition other than the above, should be taken as cost of acquisition.

2. Where shares in an amalgamated Indian company became the property of the assessee in a scheme of amalgamation the cost of acquisition of the shares of the amalgamated company shall be the cost of acquisition of the shares in the amalgamating company.
3. Where a share or debenture in a company, became the property of the assessee on conversion of bonds or debentures the cost of acquisition of the asset shall be the part of the cost of debenture, debenture stock or deposit certificates in relation to which such asset is acquired by the assessee.
4. Where shares, debentures or warrants are acquired by the assessee under Employee Stock Option Plan or Scheme and they are taken as perquisites u/s 1 7(2) the Cost of Acquisition would be the valuation done u/s 17(2).

The cost of acquisition of the original shares held by the share holder in the demerged company will be reduced by the above amount.

6. Where Capital Gains is not levied on a transfer of capital asset between a Subsidiary Company and a Holding Company or vice-versa but the conditions laid down are violated subsequently and Capital Gains is to be levied, the cost of acquisition to the transferee company would be the cost for which such asset was acquired by it.
7. Where the capital asset is goodwill of a business or a Trade Mark or Brand Name associated with a business, right to manufacture, produce or process any article or thing, right to carry on any business, tenancy rights, stage carriage permits or loom hours, the cost of acquisition is the purchase price paid by the assessee and in case no such purchase price is paid it is nil.
8. 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.
9. Where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation cost of acquisition of such asset is the Fair Market Value of the asset on the date of distribution.
10. Where share or a stock of a company became the property of the assessee on:

• the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares;
• the conversion of any shares of the company into stock;
• the re-conversion of any stock of the company into shares;
• the sub-division of any of the shares of the company into shares of smaller amount; or
• the conversion of one kind of shares of the company into another kind. Cost of acquisition of the share or stock is as calculated from the cost of acquisition of the shares or stock from which it is derived.

11. The cost of acquisition of rights shares is the amount which is paid by the subscriber to get them. In case a subscriber purchases the right shares on renunciation by an existing share holder, the cost of acquisition would include the amount paid by him to the person who has renounced the rights in his favor and also the amount which he pays to the company for subscribing to the shares. The person who has renounced the rights is liable for capital gains on the rights renounced by him and the cost of acquisition of such rights renounced is nil.

12. The cost of acquisition of bonus shares is nil.
13. Where equity share(s) are allotted to a share holder of a recognised stock exchange in India under a scheme of demutualisation or corporotisation approved by SEBI, the cost of acquisition of the original membership of the exchange is the cost of acquisition of the equity share(s). The cost of acquisition of trading or clearing rights acquired under such scheme of demutualisation or corporatisation is nil.
14. Where any other capital asset has become the property of the assessee before 1st day of April, 1981, the cost of acquisition of the asset to the assessee or the previous owner (depending upon the mode of acquisition) or the fair market value of the asset on 1.4.1981, at the option of the assessee would be its cost of acquisition.
15. Where the capital gain arises from the transfer of specified security or sweat equity shares, the cost of acquisition of such security or shares shall be the fair market value which has been taken into account while computing the value of the respective fringe benefit.
16. Where the capital asset, being a share or debenture of a company, became the property of the assessee in consideration of transfer of bonds or debentures or Global Depository Receipts purchased in foreign currency, the cost of acquisition shall be deemed to be that part of the cost of debentures or bond or deposit certificate in relation to which such asset is acquired by the assessee.

Cost of Acquisition of Depreciable Assets [Section 50]:

As already discussed under the chapter on ‘Profits and gains of business and profession’, all depreciable assets except in case of electricity companies are part of block of assets.

Where the full value of the consideration as a result of the transfer of any part or entire block of asset exceeds the cost of acquisition of that block of depreciable assets, there will be a capital gain, which will always be a short-term capital gain. The cost of acquisition of a block of depreciable assets is the written down value of the block at the beginning of the year plus actual cost of any asset falling within the same block, acquired during the year.

In other words, the excess of the sale consideration over the aggregate of the following three amounts shall be the short-term capital gain:

• Expenditure in connection with the transfer;
• The written down value of the block of assets in the beginning of the year;
• The actual cost of any asset falling within the block of asset acquired during the previous year.