Dedcution of cost of acquisition and cost of improvement

[DEV KUMAR KOTHARI]

Natural improvemtn in quality of land- by conversion of rural land into urban land, agricultural land into non-agricultural land,development in locality etc. takes place without any cost of improvement incurred by assessee. When ther is no cost of improvement or it is not computed and when the date of improvement is also not ascertainable, the gain on transfer of such asset may not at all be taxable. This is becasue cost of acquisition and cost of improvement bothe are necessary to be deducted from sale value, otehrwise there will be no profit or gain in context of S. 45 read with S.48. Readers may refer to judgments in case of B.C.Sriniwas Setty 128 ITR 294(SC), Home Industries (BBY),Evans Fraser (BBY), Octovious Steel ITR (Cal), Suman Tea and Plywood (Cal),and other cases on the point of computation of capital gain and send feed back. Article on this website on this issue can also be referred to.

AI Summary

Cost of improvement: natural owner-incurred improvements may negate taxable capital gain when no acquisition cost exists.
Deduction of cost of acquisition and cost of improvement is essential to compute capital gain; where value rises due to natural or external factors without owner-incurred expenditure, no cost of improvement may be available to deduct and a taxable profit may not arise. Statutory deeming provisions for specified assets recognise factual appreciation but do not relieve the need for proper application of the charging provision. Distinguish price fluctuation from improvement; taxpayers may preserve objections or pay under protest while contesting tax liability.