Section 43 of Income Tax Act "Definitions of certain terms relevant to income from profits and gains of business or profession"
43. 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:
Provided further that where the assessee incurs any
expenditure for acquisition of any asset or part thereof in
respect of which a payment or aggregate of payments made to
a person in a day, otherwise than by an account payee cheque
drawn on a bank or an account payee bank draft or use of
electronic clearing system through a bank account 76[or
through such other electronic mode as may be prescribed],
exceeds ten thousand rupees, such expenditure shall be
ignored for the purposes of determination of actual cost.
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 1A.-Where a capital asset referred to in clause
(via) of section 28 is used for the purposes of business or
profession, the actual cost of such asset to the assessee
shall be the fair market value which has been taken into
account for the purposes of the said clause.
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 company, the actual cost of the transferred capital
asset to the amalgamated 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:
Provided that where any capital asset in respect of which
deduction or part of deduction allowed under section 35AD is
deemed to be the income of the assessee in accordance with
the provisions of sub-section (7B) of the said section, 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 for the
purpose of business since the date of its acquisition;
(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; or
(e) an eligible transaction in respect of trading in
commodity derivatives carried out in a 77[recognised stock
exchange], which is chargeable to commodities transaction
tax under Chapter VII of the Finance Act, 2013 (17 of 2013),
shall not be deemed to be a speculative transaction:
Provided further that for the purposes of clause (e) of the
first proviso, in respect of trading in agricultural
commodity derivatives, the requirement of chargeability of
commodity transaction tax under Chapter VII of the Finance
Act, 2013 (17 of 2013) shall not apply.
Explanation 1.-For the purposes of clause (d), 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;
Explanation 2.-For the purposes of clause (e), the
expressions-
(i) "commodity derivative" shall have the meaning as
assigned to it in Chapter VII of the Finance Act, 2013;
(ii) "eligible transaction" means any transaction,-
(A) carried out electronically on screen-based systems
through member or an intermediary, registered under the
bye-laws, rules and regulations of the 78[recognised stock
exchange] for trading in commodity derivative in accordance
with the provisions of the Forward Contracts (Regulation)
Act, 1952 (74 of 1952) and the rules, regulations or
bye-laws made or directions issued under that Act on a
78[recognised stock exchange]; and
(B) which is supported by a time stamped contract note
issued by such member or intermediary to every client
indicating in the contract note, the unique client identity
number allotted under the Act, rules, regulations or
bye-laws referred to in sub-clause (A), unique trade number
and permanent account number allotted under this Act;
79[(iii) "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
purposes 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 ex-change 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.