 COST OF ACQUISITION [SECTION 55].

Cost of Acquisition is the value for which the asset is acquired by

the assessee.

Judicial Pronouncements:

 CIT vs. Shri Hariram Hotels P Ltd [2010] 188 Taxxmann 170

Ker

Held: Interest on borrowed capital to purchase the asset is

included in the cost of acquisition.

 CIT vs. Bengal Assam Investors Ltd. [1969] 72 ITR 48 Delhi

Held: Litigation Expenses incurred for registration of Shares

are included within the meaning of capital asset.

 S. Sudha vs. CIT [2011] 48 SOT 335

Held: Expenses of advocates fees or brokerage in relation to

the purchase of property shall be treated as cost of

acquisition.
 In case of acquisition from previous owner:

In case of acquisition from previous owner: In the case

of the capital assets, if the assessee has purchased them from

a previous owner, the cost of acquisition means the amount

of the purchase price.

 Self-Generated Goodwill as Capital Asset:

Self-generated goodwill is such a type of capital asset

where it is not possible to visualize cost of acquisition. The

goodwill which is self-generated is certainly a capital asset and

hence it is difficult to calculate the cost of its acquisition.

 CIT v. B.C. Srinivasa Shetty [1981] 128 ITR 294 (SC)

The Supreme Court in case of CIT v. B.C. Srinivasa

Shetty [1981] 128 ITR 294 (SC) held that in order to bring the

gains on sale of capital assets to charge under section 45, it is

necessary that the provisions dealing with the levy of capital

gains tax must be read as a whole.

Section 48 deals with the mode of computing the capital

gains. Unless the cost of acquisition is correctly

 ascertainable, it is not possible to apply the provisions of

section 48. Self-generated goodwill is such a type of capital

asset where it is not possible to visualise cost of acquisition.

Once section 48 cannot be applied, the gains thereon cannot

be brought to charge.

 Accordingly, in case of self-generated assets namely,

goodwill of a business or a trademark or brand name

associated with a business or a right to manufacture,

produce or process any article or thing, or right to carry on

any business or profession, tenancy rights, stage carriage

permits, or loom hours, the cost of acquisition will be

taken to be nil.

 Cost of Improvement:

Cost of improvement is capital expenditure incurred by an

assessee in making any additions/improvement to the

capital asset. Cost of acquisition includes any expenditure

to protect or to complete the title.