Section 55 — Cost of Acquisition and Improvement

Section 55 of the Income-tax Act, 1961, deals with the determination of the cost of acquisition and cost of improvement for capital assets. This section is crucial for calculating capital gains tax, as it helps in determining the cost base of an asset, which is subtracted from the sale price to compute the gain. The section specifies how to ascertain the cost of acquisition for various types of assets, including those acquired before April 1, 2001, where the fair market value as of that date can be considered. It also outlines the treatment of improvements made to the asset, which can be added to the cost base. The burden of proof lies with the taxpayer to substantiate the cost of acquisition and improvement with appropriate documentation. This section is significant as it directly impacts the capital gains tax liability and requires careful consideration of historical costs and improvements.

Common Litigation Flashpoints

1. Disagreement over fair market value as of April 1, 2001
2. Challenges in proving cost of improvement with documentation
3. Disputes over classification of expenses as improvements
4. Determination of cost for assets acquired through inheritance

Judgments on Section 55 — Cost of Acquisition and Improvement

• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax — HC,
  The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.
• Dilip N. Shroff vs Joint Commissioner of Income Tax, Mumbai & Anr — SC,
  Penalty under Section 271(1)(c) requires a deliberate act of furnishing inaccurate particulars or concealment of income.
• Commissioner of Income Tax, Bangalore vs B. C. Srinivasa Setty — SC,
  Goodwill generated in a newly commenced business cannot be described as an 'asset' within the terms of Section 45 and therefore its transfer is not subject to income-tax under the head 'capital gains'