43. Definitions of certain terms relevant to income from profits
and gains of business or profession.- In sections
28 to 41 and in this section, unless the context otherwise
requires —
(1) “actual cost” means the actual cost of the
assets to the assessee, reduced by that portion of the cost
thereof, if any, as has been met directly or indirectly by
any other person or authority:
Provided that where the actual cost of an asset, being a
motor car which is acquired by the assessee after the 31st
day of March, 1967, but before the 1st day of March, 1975,
and is used otherwise than in a business of running it on
hire for tourists, exceeds twenty-five thousand rupees, the
excess of the actual cost over such amount shall be ignored,
and the actual cost thereof shall be taken to be twenty-five
thousand rupees.
Explanation 1.—Where an asset is used in the business
after it ceases to be used for scientific research related
to that business and a deduction has to be made under clause
(ii) of sub-section (1)] of section 32 in respect of that
asset, the actual cost of the asset to the assessee shall
be the actual cost to the assessee as reduced by the amount
of any deduction allowed under clause (iv) of sub-section
(1) of section 35 or under any corresponding provision of
the Indian Income-tax Act, 1922 (11 of 1922).
Explanation 2.—Where an asset is acquired by the assessee
by way of gift or inheritance, the actual cost of the asset
to the assessee shall be the actual cost to the previous owner,
as reduced by—
(a) the amount of depreciation actually allowed under this
Act and the corresponding provisions of the Indian Income-tax
Act, 1922 (11 of 1922), in respect of any previous year relevant
to the assessment year commencing before the 1st day of April,
1988; and
(b) the amount of depreciation that would have been allowable
to the assessee for any assessment year commencing on or after
the 1st day of April, 1988, as if the asset was the only asset
in the relevant block of assets.
Explanation 3.—Where, before the date of acquisition
by the assessee, the assets were at any time used by any other
person for the purposes of his business or profession and
the Assessing Officer is satisfied that the main purpose of
the transfer of such assets, directly or indirectly to the
assessee, was the reduction of a liability to income-tax (by
claiming depreciation with reference to an enhanced cost),
the actual cost to the assessee shall be such an amount as
the Assessing Officer may, with the previous approval of the
Joint Commissioner, determine having regard to all the circumstances
of the case.
Explanation 4.—Where any asset which had once belonged
to the assessee and had been used by him for the purposes
of his business or profession and thereafter ceased to be
his property by reason of transfer or otherwise, is re-acquired
by him, the actual cost to the assessee shall be—
(i) the actual cost to him when he first acquired the asset
as reduced by—
(a) the amount of depreciation actually allowed to him under
this Act or under the corresponding provisions of the Indian
Income-tax Act, 1922 (11 of 1922), in respect of any previous
year relevant to the assessment year commencing before the
1st day of April, 1988; and
(b) the amount of depreciation that would have been allowable
to the assessee for any assessment year commencing on or after
the 1st day of April, 1988, as if the asset was the only asset
in the relevant block of assets; or
(ii) the actual price for which the asset is re-acquired by
him,
whichever is less.
Explanation 4A.—Where before the date of acquisition
by the assessee (hereinafter referred to as the first mentioned
person), the assets were at any time used by any other person
(hereinafter referred to as the second mentioned person) for
the purposes of his business or profession and depreciation
allowance has been claimed in respect of such assets in the
case of the second mentioned person and such person acquires
on lease, hire or otherwise assets from the first mentioned
person, then, notwithstanding anything contained in Explanation
3, the actual cost of the transferred assets, in the case
of first mentioned person, shall be the same as the written
down value of the said assets at the time of transfer thereof
by the second mentioned person.
Explanation 5.—Where a building previously the property
of the assessee is brought into use for the purpose of the
business or profession after the 28th day of February, 1946,
the actual cost to the assessee shall be the actual cost of
the building to the assessee, as reduced by an amount equal
to the depreciation calculated at the rate in force on that
date that would have been allowable had the building been
used for the aforesaid purposes since the date of its acquisition
by the assessee.
Explanation 6.—When any capital asset is transferred
by a holding company to its subsidiary company or by a subsidiary
company to its holding company, then, if the conditions of
clause (iv) or, as the case may be, of clause (v) of section
47 are satisfied, the actual cost of the transferred capital
asset to the transferee-company shall be taken to be the same
as it would have been if the transferor-company had continued
to hold the capital asset for the purposes of its business.
Explanation 7.—Where, in a scheme of amalgamation, any
capital asset is transferred by the amalgamating company to
the amalgamated company and the amalgamated company is an
Indian com-pany, the actual cost of the transferred capital
asset to the amalga-mated company shall be taken to be the
same as it would have been if the amalgamating company had
continued to hold the capital asset for the purposes of its
own business.
Explanation 7A.—Where, in a demerger, any capital asset
is transferred by the demerged company to the resulting company
and the resulting company is an Indian company, the actual
cost of the transferred capital asset to the resulting company
shall be taken to be the same as it would have been if the
demerged company had continued to hold the capital asset for
the purpose of its own business :
Provided that such actual cost shall not exceed the written
down value of such capital asset in the hands of the demerged
company.
Explanation 8.—For the removal of doubts, it is hereby
declared that where any amount is paid or is payable as interest
in connection with the acquisition of an asset, so much of
such amount as is relatable to any period after such asset
is first put to use shall not be included, and shall be deemed
never to have been included, in the actual cost of such asset.
Explanation 9.—For the removal of doubts, it is hereby
declared that where an asset is or has been acquired on or
after the 1st day of March, 1994 by an assessee, the actual
cost of asset shall be reduced by the amount of duty of excise
or the additional duty leviable under section 3 of the Customs
Tariff Act, 1975 (51 of 1975) in respect of which a claim
of credit has been made and allowed under the Central Excise
Rules, 1944.
Explanation 10.—Where a portion of the cost of an asset
acquired by the assessee has been met directly or indirectly
by the Central Government or a State Government or any authority
established under any law or by any other person, in the form
of a subsidy or grant or reimbursement (by whatever name called),
then, so much of the cost as is relatable to such subsidy
or grant or reimbursement shall not be included in the actual
cost of the asset to the assessee :
Provided that where such subsidy or grant or reimbursement
is of such nature that it cannot be directly relatable to
the asset acquired, so much of the amount which bears to the
total subsidy or reimbursement or grant the same proportion
as such asset bears to all the assets in respect of or with
reference to which the subsidy or grant or reimbursement is
so received, shall not be included in the actual cost of the
asset to the assessee.
Explanation 11.—Where an asset which was acquired outside
India by an assessee, being a non-resident, is brought by
him to India and used for the purposes of his business or
profession, the actual cost of the asset to the assessee shall
be the actual cost to the assessee, as reduced by an amount
equal to the amount of depreciation calculated at the rate
in force that would have been allowable had the asset been
used in India for the said purposes since the date of its
acquisition by the assessee.
Explanation 12.—Where any capital asset is acquired
by the assessee under a scheme for corporatisation of a recognised
stock exchange in India, 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), the actual
cost of the asset shall be deemed to be the amount which would
have been regarded as actual cost had there been no such corporatisation;
Explanation 13.—The actual cost of any capital asset
on which deduction has been allowed or is allowable to the
assessee under section 35AD, shall be treated as ‘nil’,—
(a) in the case of such assessee; and
(b) in any other case if the capital asset is acquired or
received,—
(i) by way of gift or will or an irrevocable trust;
(ii) on any distribution on liquidation of the company;
and
(iii) by such mode of transfer as is referred to in clauses
(i), (iv), (v), (vi), (vib), (xiii), (xiiib) and (xiv) of
section 47;
(2) “paid” means actually paid or incurred according
to the method of accounting upon the basis of which the profits
or gains are computed under the head “Profits and gains
of business or profession”;
(3) “plant” includes ships, vehicles, books ,
scientific apparatus and surgical equipment used for the purposes
of the business or profession but does not include tea bushes
or livestock or buildings or furniture and fittings;
(4) (i) “scientific research” means any activities
for the extension of knowledge in the fields of natural or
applied science including agriculture, animal husbandry or
fisheries;
(ii) references to expenditure incurred on scientific research
include all expenditure incurred for the prosecution, or the
provision of facilities for the prosecution, of scientific
research, but do not include any expenditure incurred in the
acquisition of rights in, or arising out of, scientific research;
(iii) references to scientific research related to a business
or class of business include—
(a) any scientific research which may lead to or facilitate
an extension of that business or, as the case may be, all
businesses of that class;
(b) any scientific research of a medical nature which has
a special relation to the welfare of workers employed in that
business or, as the case may be, all businesses of that class;
(5) “speculative transaction” means a transaction
in which a contract for the purchase or sale of any commodity,
including stocks and shares, is periodically or ultimately
settled otherwise than by the actual delivery or transfer
of the commodity or scrips:
Provided that for the purposes of this clause—
(a) a contract in respect of raw materials or merchandise
entered into by a person in the course of his manufacturing
or merchanting business to guard against loss through future
price fluctuations in respect of his contracts for actual
delivery of goods manufactured by him or merchandise sold
by him; or
(b) a contract in respect of stocks and shares entered into
by a dealer or investor therein to guard against loss in his
holdings of stocks and shares through price fluctuations;
or
(c) a contract entered into by a member of a forward market
or a stock exchange in the course of any transaction in the
nature of jobbing or arbitrage to guard against loss which
may arise in the ordinary course of his business as such member;
or
(d) an eligible transaction in respect of trading in derivatives
referred to in clause (ac) of section 2 of the Securities
Contracts (Regulation) Act, 1956 (42 of 1956) carried out
in a recognised stock exchange;
shall not be deemed to be a speculative transaction.
Explanation.—For the purposes of this clause, the expressions—
(i) “eligible transaction” means any transaction,—
(A) carried out electronically on screen-based systems through
a stock broker or sub-broker or such other intermediary registered
under section 12 of the Securities and Exchange Board of India
Act, 1992 (15 of 1992) in accordance with the provisions of
the Securities Contracts (Regulation) Act, 1956 (42 of 1956)
or the Securities and Exchange Board of India Act, 1992 (15
of 1992) or the Depositories Act, 1996 (22 of 1996) and the
rules, regulations or bye-laws made or directions issued under
those Acts or by banks or mutual funds on a recognised stock
exchange; and
(B) which is supported by a time stamped contract note issued
by such stock broker or sub-broker or such other intermediary
to every client indicating in the contract note the unique
client identity number allotted under any Act referred to
in sub-clause (A) and permanent account number allotted under
this Act;
(ii) “recognised stock exchange” means a recognised
stock exchange as referred to in clause (f) of section 2 of
the Securities Contracts (Regulation) Act, 1956 (42 of 1956)
and which fulfils such conditions as may be prescribed and
notified by the Central Government for this purpose;
(6) “written down value” means—
(a) in the case of assets acquired in the previous year,
the actual cost to the assessee;
(b) in the case of assets acquired before the previous year,
the actual cost to the assessee less all depreciation actually
allowed to him under this Act, or under the Indian Income-tax
Act, 1922 (11 of 1922), or any Act repealed by that Act, or
under any executive orders issued when the Indian Income-tax
Act, 1886 (2 of 1886), was in force:
Provided that in determining the written down value in respect
of buildings, machinery or plant for the purposes of clause
(ii) of sub-section (1) of section 32, “depreciation
actually allowed” shall not include depreciation allowed
under sub-clauses (a), (b) and (c) of clause (vi) of sub-section
(2) of section 10 of the Indian Income-tax Act, 1922 (11 of
1922), where such depreciation was not deductible in determining
the written down value for the pur-poses of the said clause
(vi);
(c) in the case of any block of assets,—
(i) in respect of any previous year relevant to the assessment
year commencing on the 1st day of April, 1988, the aggregate
of the written down values of all the assets falling within
that block of assets at the beginning of the previous year
and adjusted,—
(A) by the increase by the actual cost of any asset falling
within that block, acquired during the previous year;
(B) by the reduction of the moneys payable in respect of
any asset falling within that block, which is sold or discarded
or demolished or destroyed during that previous year together
with the amount of the scrap value, if any, so, however, that
the amount of such reduction does not exceed the written down
value as so increased; and
(C) in the case of a slump sale, decrease by the actual cost
of the asset falling within that block as reduced—
(a) by the amount of depreciation actually allowed to him
under this Act or under the corresponding provisions of the
Indian Income-tax Act, 1922 (11 of 1922) in respect of any
previous year relevant to the assessment year commencing before
the 1st day of April, 1988; and
(b) by the amount of depreciation that would have been allowable
to the assessee for any assessment year commencing on or after
the 1st day of April, 1988 as if the asset was the only asset
in the relevant block of assets,
so, however, that the amount of such decrease does not exceed
the written down value;
(ii) in respect of any previous year relevant to the assessment
year commencing on or after the 1st day of April, 1989, the
written down value of that block of assets in the immediately
preceding previous year as reduced by the depreciation actually
allowed in respect of that block of assets in relation to
the said preceding previous year and as further adjusted by
the increase or the reduction referred to in item (i).
Explanation 1.—When in a case of succession in business
or profession, an assessment is made on the successor under
sub-section (2) of section 170 the written down value of any
asset or any block of assets shall be the amount which would
have been taken as its written down value if the assessment
had been made directly on the person succeeded to.
Explanation 2.—Where in any previous year, any block
of assets is transferred,—
(a) by a holding company to its subsidiary company or by
a subsidiary company to its holding company and the conditions
of clause (iv) or, as the case may be, of clause (v) of section
47 are satisfied; or
(b) by the amalgamating company to the amalgamated company
in a scheme of amalgamation, and the amalgamated company is
an Indian company,
then, notwithstanding anything contained in clause (1), the
actual cost of the block of assets in the case of the transferee-company
or the amalgamated company, as the case may be, shall be the
written down value of the block of assets as in the case of
the transferor-company or the amalgamating company for the
immediately preceding previous year as reduced by the amount
of depreciation actually allowed in relation to the said preceding
previous year.
Explanation 2A.—Where in any previous year, any asset
forming part of a block of assets is transferred by a demerged
company to the resulting company, then, notwithstanding anything
contained in clause (1), the written down value of the block
of assets of the demerged company for the immediately preceding
previous year shall be reduced by the written down value of
the assets transferred to the resulting company pursuant to
the demerger.
Explanation 2B.—Where in a previous year, any asset
forming part of a block of assets is transferred by a demerged
company to the resulting company, then, notwithstanding anything
contained in clause (1), the written down value of the block
of assets in the case of the resulting company shall be the
written down value of the transferred assets of the demerged
company immediately before the demerger.
Explanation 2C.—Where in any previous year, any block
of assets is transferred by a private company or unlisted
public company to a limited liability partnership and the
conditions specified in the proviso to clause (xiiib) of section
47 are satisfied, then, notwithstanding anything contained
in clause (1), the actual cost of the block of assets in the
case of the limited liability partnership shall be the written
down value of the block of assets as in the case of the said
company on the date of conversion of the company into the
limited liability partnership.
Explanation 3.—Any allowance in respect of any depreciation
carried forward under sub-section (2) of section 32 shall
be deemed to be depreciation “actually allowed”.
Explanation 4.—For the purposes of this clause, the
expressions “moneys payable” and “sold”
shall have the same meanings as in the Explanation below sub-section
(4) of section 41.
Explanation 5.—Where in a previous year, any asset
forming part of a block of assets is transferred by a recognised
stock exchange in India to a company under a scheme for 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), the written down value of the block
of assets in the case of such company shall be the written
down value of the transferred assets immediately before such
transfer.
Explanation 6.—Where an assessee was not required to
compute his total income for the purposes of this Act for
any previous year or years preceding the previous year relevant
to the assessment year under consideration,—
(a) the actual cost of an asset shall be adjusted by the amount
attributable to the revaluation of such asset, if any, in
the books of account;
(b) the total amount of depreciation on such asset, provided
in the books of account of the assessee in respect of such
previous year or years preceding the previous year relevant
to the assessment year under consideration shall be deemed
to be the depreciation actually allowed under this Act for
the purposes of this clause; and
(c) the depreciation actually allowed under clause (b) shall
be adjusted by the amount of depreciation attributable to
such revaluation of the asset.
Explanation 7.—For the purposes of this clause, where
the income of an assessee is derived, in part from agriculture
and in part from business chargeable to income-tax under the
head “Profits and gains of business or profession”,
for computing the written down value of assets acquired before
the previous year, the total amount of depreciation shall
be computed as if the entire income is derived from the business
of the assessee under the head “Profits and gains of
business or profession” and the depreciation so computed
shall be deemed to be the depreciation actually allowed under
this Act.
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