Budget 2015- Cost of acquisition of a capital asset in the hands of resulting company to be the cost for which the demerged company acquired the capital asset
Under clause (vib) of section 47 of the Income-tax Act any capital asset transferred by the demerged company to the resulting company in the scheme of demerger is not regarded as transfer if the resulting company is an Indian company. In such cases the cost of such asset in the hands of resulting company should be cost of such asset in the hands of demerged company as increased by the cost of improvement, if any, incurred by the demerged company. Further, the period of holding of such asset in the hands of resulting company should include the period for which the asset was held by the demerged company. Under the existing provisions of the Income-tax Act, there is no express provision to this effect. Accordingly, it is proposed to amend sub-clause (e) of clause (iii) of sub-section (1) of section 49 of the Income-tax Act to include transfer under clause (vib) of section 47 and to provide that the cost of acquisition of an asset acquired by resulting company shall be the cost for which the demerged company acquired the capital asset as increased by the cost of improvement incurred by the demerged company.
This amendment will take effect from 1st April, 2016 and will accordingly apply, in relation to the assessment year 2016-17 and subsequent assessment years.
Clause 14 of the Bill seeks to amend section 49 of the Income-tax Act relating to cost with reference to certain modes of acquisition.
The existing provisions contained in sub-section (1) of the aforesaid section provide that where the capital asset became the property of the assessee under certain situations the cost of acquisition of the asset shall be deemed to be cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.
It is proposed to amend sub-clause (e) of clause (iii) of said sub-section (1) so as to include the transfer referred to in clause (vib) of section 47.
It is proposed to amend the aforesaid sub-clause (e) to provide for determination of cost of acquisition in respect of shares or interest of foreign company or entity in certain cases.
It is also proposed to amend the said section so as to provide that where the capital asset, being a unit or units in a consolidated scheme of a mutual fund, became the property of the assessee in consideration of a transfer referred to in clause (xviii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the unit or units in the consolidating scheme of the mutual fund.
These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016- 17 and subsequent years.
14. Amendmentof section 49.
In section 49 of the Income-tax Act, with effect from the 1st day of April, 2016,—
(I) in sub-section (1), in clause (iii), in sub-clause (e), for the words, brackets, figures and letters “or clause (viaa) or clause (vica) or clause (vicb)”, the words, brackets, figures and letters “or clause (viaa) or clause (viab) or clause (vib) or clause (vica) or clause (vicb) or clause (vicc)” shall be substituted;
(II) after sub-section (2AC), the following sub-section shall be inserted, namely:—
“(2AD) Where the capital asset, being a unit or units in a consolidated scheme of a mutual fund, became the property of the assessee in consideration of a transfer referred to in clause (xviii) of section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the unit or units in the consolidating scheme of the mutual fund.”.
