Sharma acquired 600 shares of 200 each of infisifi

Mr. Sharma acquired 600 shares of ` 200 each of InfiSifi
Ltd. He acquired them at a premium of 50% on 1
st
august 2007. On
September 2012, InfiSifi divides each share of ` 200 each into 20 shares
of ` 10 each. On January 1, 2013, Mr. Sharma gets 600 X 20 = 12000
shares. Find the cost of acquisition of these shares.
Solution:
= Cost of acquisition of 600 shares / number of subdivided shares.
= 600 X 300 / 12000
= ` 15/share
Illustration 3: Mr. Sharma subscribed 300 debentures which are part-
ly convertible. The face value of debentures is ` 100 each. One third of
the debentures are convertible. A debenture may be converted into 2
equity shares of ` 10 each and at a premium of ` 5/ share. Mr. Sharma
writes to the debenture issuing authority to convert his 1/3
rd
deben-
tures into equity shares. Calculate the cost of acquisition of the shares.
Solution: Cost of acquisition = Cost of unconvertible debentures to
be converted into shares / no. of shares to be issued after conversion
= (100X 100) / (2 X 10 X 5)
= ` 100/share
8. For ____________, deemed acquisition cost is the cost of such
stock or shares from which asset is derived.
SELF ASSESSMENT QUESTIONS
Explain in brief the cost of acquisition of:
a. Right shares
b. Cost of new asset
c. Cost of bonus shares
ACTIVITY
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182 TAXATION- DIRECT AND INDIRECT
7.8
COST OF IMPROVEMENT AND
TRANSFER
Cost of improvement refers to the capital expenditure incurred by an
assessee in making any additions/improvements to the capital asset.
It also includes any expenditure incurred in the protection or com-
pletion of title to the capital assets. In other words, any expenditure
incurred to increase the value of the capital asset is treated as the cost
of improvement. Special provisions under the Income Tax Act with
respect to cost of improvement are as follows:
Expenditure incurred before April 1, 1981 is not considered: Any
cost of improvement incurred before April 1, 1981 is not consid-
ered for calculating capital gain chargeable to tax. There is no ex-
ception to this rule. In simple words, cost of improvement includes
only expenditure on improvement incurred on or after April 1,
1981. Expenditure incurred on improvement of a capital asset be-
fore April 1, 1981 would be considered as equal to zero.
Double deduction is not permitted: Cost of improvement does
not contain any expenditure which is deductible in computing the
income chargeable under the heads “Interest on securities”, “In-
come from house property”, “Profits and gains of business or pro-
fession” and “Income from other sources”.
The cost of improvement in different situations shall be determined as
shown in Table 7.2:
Different Situations When the capital asset
was acquired by gift, will,
etc., under the provisions
of section 49(1)
In any other case
Cost of improvement in
relation to goodwill of
a business or a right to
manufacture, produce or
process any article/thing
or right to carry on any
business
When these assets are
self-generated
NIL NIL
When these assets are
purchased and later on
transferred
NIL NIL
Cost of improvement in
relation to any other asset