Determining of cost of acquisition and taxability in the case of self generating assets - Applicability of clause (a) of sub-section (2) of section 55.

Income Tax Circular Clarifies Cost Acquisition and Taxability for Self-Generated Intangible Assets and Non-Compete Agreements.

The circular addresses the determination of cost acquisition and taxability concerning self-generating assets under the Income-tax Act. It highlights the amendments effective from April 1, 1999, which expanded the definition of intangible assets eligible for depreciation. It clarifies the tax treatment of compensation for non-compete agreements and restrictive covenants, emphasizing that taxability depends on the nature of the capital asset, such as goodwill or manufacturing rights. For intangible assets acquired at a cost, capital gains are calculated accordingly, but self-generated assets were not taxable until the assessment year 1998-99. The circular instructs officers to note these guidelines.