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

[Admin TMI]

Question - What are the amendment proposed in section 49 of the Income-tax Act in Finance Bill 2015 ?

[Admin TMI]

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.

AI Summary

Cost of acquisition rule amended to treat demerged assets as acquired at the demerged company's cost plus improvements. Amendment provides that where a demerged company transfers a capital asset to a resulting company under the demerger provisions, the cost of acquisition in the hands of the resulting company shall be the cost for which the demerged company acquired the asset, increased by any cost of improvement incurred by the demerged company, and the holding period of the asset in the hands of the resulting company shall include the period for which the demerged company held the asset.