Cost of Improvement mean all expenditure of capital nature incurred in making additions or alterations to the capital asset. However, any expenditure which is deductible in computing the income under the heads Income from House Property, Profits and gains from Business and Profession or Income from other sources would not be taken as Cost of Improvement.
Cost of Improvement for Goodwill of a business, right to manufacture, produce or process any article or thing or right to carry on any business is NIL.
As Per Income Tax Act 1961 “Cost of improvement” includes:
S. 55 of the IT Act, 1961—Capital gains—The only condition which must be satisfied in order to attract the charge to tax under s. 45 is that the property transferred must be capital asset on the date of transfer and that it is not necessary that it should have capital asset also on the date of its acquisition by the assessee—Arun Sunny vs. Dy. CIT
S. 55 of IT Act, 1961—Capital gains—After calculating the average cost of bonus shares which are included in the total holding consisting of original shares and bonus shares, the average cost of original shares must inevitably get reduced pro tan to. There are two consequences if the principal of averaging, namely; (i) to attribute to the bonus share a cost when for that share there is no actual cost of acquisition, and (ii) to reduce the actual cost of the original share to the extent that a notional cost is attributed to the bonus share. In other words, the cost of the original share will be reduced pro tan to the extent of the cost attributed to the bonus share—M.B. & Co. Ltd. vs. ACIT
S. 55 of IT Act, 1961—Capital gains—The guideline value collected from the sub-registrar office is one among the guiding factors and such guideline values need not be the market value all the time. The market value is determined by so many external factors including the prevalent market conditions. Experience and wisdom are very precious and at the same time, it is necessary to bring on record certain parameters based on which it is possible for anybody to say that the value has been worked out on the basis of certain materials. Mentioning the location of the property alone is not sufficient. Since there is no case of any comparable sales or any other relevant information which would support the value adopted by the approved valuer, it is not possible to uphold the fair market value adopted by the such valuer as well as the assessee—ITO vs. Smt. Usha Ramesh (2011) 133 ITD 67 (ITAT-Chennai)
Limitation Act, section 5—Condonation of Delay—Circular of Central Board of Direct Taxes dated 27.3.2000—While dismissing the application as well as appeal, the Rajasthan High Court held that:—Simply because at a belated hour department has taken decision to file the appeal, it cannot be said that if furnishes any sufficient ground to the appellant to seek condo nation of delay. CIT Vs. D.M.R.A.W.A. Trust (Raj.)…..260
S. 55 of IT Act, 1961—Firm—Once the claim of the assessee for the previous year had not been determined finally in the appeal before the return for the assessment year in question was filed, there is no occasion for the assessee to claim the benefit thereof at the time of filing return. Sec. 155 of the Act enables an assessee to move an application for rectification under s. 154 of the Act in case there is a change in the income of the firm—Naranjan Singh vs. ITO (2009) 311 ITR 362 (P&H)
S. 55—Capital Gains—IT ACT, 1961—MANOHAR PYARELAL SADANE vs. ITO.  138 ITD 250 (ITAT-PUNE)
S.48, 54F, 55 of IT Act, 1961 — Capital gains — Sec.54 of the Act exempts capital gain to the extent that consideration is paid for the purpose of a residential house. Where assessee has acquired one residential house consisting of two flats, it cannot be said that the assessee has purchased two residential houses. — CIT Vs. Raman Kumar Suri.
S.45, 48 & 55(2)(a), of IT Act, 1961 — Capital gains — Amendment to sec.55(2)(a) w.e.f. 1st April, 2002, brings self generated intangible assets as trade mark to capital gains tax only w.e.f asst. year 2002-03 onwards. Therefore, the sale of self generated trademarks during the asst. year 1999-2000 is not chargeable to capital gains tax. — CIT Vs. Fernhill Laboratories & Industrial Establishment  254 CTR 357 (Bom)
S.55, r/w S.2(47), 45 and 48, of IT Act, 1961 — Capital gains — In case of acquisition of tenancy rights, unless the costs thereof can be ascertained there would be no question of charging capital gain tax. — Amora Chemicals (P.) Ltd. Vs. CIT
S.2(22B), 45, 48 & 55(2)(b)(i) of IT Act, 1961 — Capital gains — ‘Fair market value’ envisage existence of a hypothetical seller and a hypothetical buyer in a hypothetical market. Consideration as shown in the registered sale deed cannot be equated with ‘fair market value’, as defined in the Act under s.2(22B) of the 1961 Act. Therefore adoption of average value of the land in question at Rs.27,030 per acre on 1st April 1981, as ‘fair market value’ of the land for the purpose of computation of capital gains, is not legally and factually tenable. ‘Fair market value’ represents the price that a seller is willing to accept and a buyer is willing to pay in the open market. — Manjit Singh Vs. Dy. CIT  151 TTJ (UO) 1 (ITAT-Chd)
S.2(14) 45, 55 of IT Act, 1961 — Capital gains — Under s.15A, inserted by the Maharashtra Act, 17 of 1973, certain licensees in occupation on February 1, 1973 would become tenants. By the provisions of s.55(2) of IT Act, tenancy rights have been considered to be a capital asset. The assessee was enjoying possession of the property and for peaceful vacation thereof it had received the amount which was described by the parties as amount paid for surrender of tenancy rights. The rights of the assessee is undisputed and the nature thereof is “property of any kind” which is held by the assessee and thus is a capital asset within the meaning of s.2(14) of the Act and, therefore, the amount received by the assessee is assessable under the head “capital gains”. — Kewal Silk Mills Vs. A. CIT  21 ITR 121 (ITAT-Mum)
S. 55 of IT Act, 1961—Capital gains—Amendment made of s. 55(2)(a) by bringing in terms ‘trademark’ and ‘brand name’ is only prospective and applicable from assessment year 2002-03—Kwality Biscuits (P.) Ltd. vs. ACIT (2012) 135 ITD 35 (ITAT-Banglore)
S.48, 50C & 55(2)(a) of IT Act, 1961 — Capital gains — As s.50C applies only to a capital asset, being land or building or both, it cannot be made applicable to lease rights in a land. Assessing Officer has not taken into consideration the objections of assessee while invoking the provisions of s.50C. Under s.50C(2), the Assessing Officer has to give an opportunity to assessee to make submissions. Since this exercise has not been done by the Assessing Officer and the Assessing Officer has to follow the provisions of s.50C(2) of the act when the provisions of s.50C are made applicable, the matter deserves to be remitted to Assessing Officer for fresh consideration. — Shavo Norgren (P) Ltd. Vs. Dy. CIT (2013) 152 TTJ 482 (ITAT-Mum)
S.48 & 55(2)(a) of IT Act, 1961 — Capital gains — The provision of s.55(2)(a)(ii) would not be applicable while valuing the “cost of acquisition” of the land for the purpose of computation of “long-term capital gain” of the assessee. Accordingly, the value of the leasehold rights in the land in question has to be determined in accordance with the provision of s.48 by determining the “fair market value” of the land as on 1st April, 1981 and the indexed cost of acquisition has to be determined in order to assess long-term capital gains in the hands of the assessee. — Natraj Vs. Dy. CIT (2013) 152 TTJ 619 (ITAT-Ahd)
S. 45, 55(2) of IT Act, 1961—Capital gains—For interpreting the facts of the case in hands in the light of the amended law, where the “tenancy rights” attained legal cognizance vide the amended s. 55(2), there is need for first deciding if the assessee’s right in the property constitutes a “tenancy rights” within the meaning of s. 55(2) of the Act.—Kishori lal Basanti Lal Patodia Vs. A. CIT.  23 ITR (Trib) 42 (ITAT-MUM)
S. 55, 131 of IT Act, 1961—Capital Gains—Sec. 55 mandates that valuation to be taken as “nil” in the case of a self-acquired asset which includes the amount paid on termination of tenancy.—P. Kunhiraman Nair Vs. CIT.  354 ITR 141 (KER)
S. 28(va), 55(2) of IT Act, 1961 — Capital gains or business income — Sec.28(va), inserted by the Finance Act, 2002, w.e.f. April 1, 2003, Provides that any sum, whether received or receivable, in cash or kind, under an agreement, for not carrying out any activity in relation to any business, or not sharing any know-how or technique likely to assist in the manufacture or processing of goods or provision for services is chargeable to tax under the head “Profits and gains of business or profession”. Prior to this amendment, which came into force w.e.f. April 1, 2003, the amount was not chargeable to tax either under s.28 or under any other provisions of the Act. Therefore, the amount received by the assessee prior to April 1, 2003, towards non-competition fee is not taxable — CIT Vs. Sunil Kini K.  354 ITR 623 (Karn)
Reference: – As Per Section 55 of the Income Tax Act 1961
Meaning of “adjusted”, “cost of improvement” and “cost of acquisition”.
55. (1) For the purposes of [sections 48 and 49],—
(a) “Cost of any improvement”,—
(1) In relation to a capital asset being goodwill of a business [or a right to manufacture, produce or process any article or thing] [or right to carry on any business] 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 [1st day of April, ], 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 [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 accordingl