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 NMIMS
N O T E S NMIMS Global Access - School for Continuing Education 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
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