ITA 1961 · Section 43

Section 43 — Definitions of certain terms relevant to income from profits and gains of busine

Chapter IV-D — Profits and Gains of Business or ProfessionITA 1961Up to AY 2025-26

Function in the statutory architecture

Statutory text — Income-tax Act, 1961

CHAPTER IV

COMPUTATION OF TOTAL INCOME / D. PGBP

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 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

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

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 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 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;

(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);

(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

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,—

(A) the increase or the reduction referred to in item (i), not being increase on

account of acquisition of goodwill of a business or profession;

(B) the reduction by an amount which is equal to the actual cost of the

goodwill falling within that block as decreased by—

(a) the amount of depreciation actually allowed to the assessee

under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922) for such goodwill 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 such goodwill for any assessment year commencing on or after the 1st day of April, 1988 as if the goodwill was the only asset in the relevant block of assets,

in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 2021, in a case where the goodwill of a business or profession was part of the block of assets on which depreciation was obtained by the assessee for the immediate preceding previous year, so, however, that the amount of such reduction does not exceed the written down value.

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 exchange 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

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.

— Footnotes (gazette text) —

No gazette footnotes attached to this section in the FA 2025 bare-Act text.

— Source —

Verbatim text reproduced from income-tax-act-1961-as-amended-by-finance-act-2025.pdf (full layout extract, 0-indexed lines 11200-11589). Reproduced under Standard B (gazette-text discipline) — gazette content, French-style colon spacing, italics-for-Provisos/Explanations convention, and *N. footnote-numbering preserved.

PDF-extraction artifacts repaired: per-page header (“INCOME-TAX ACT, 1961 - 2024”), per-page footer, 2+ consecutive blank lines at page-break boundaries collapsed to a single blank, orphaned footnote-marker joining.

Finance Act 2026 overlay: not applicable. FA 2026 amends 14 sections of the 1961 Act (92CA, 139, 144C, 153B, 220, 222, 245, 245MA, 254, 275A, 275B, 276, 278A, 280) — this section is not among them.

Function in the statutory architecture

Definitions of certain terms relevant to PGBP — 'actual cost', 'paid', 'plant', 'scientific research', 'speculative transaction', 'transfer', etc.

Historical context / FA amendment trail

Substantively stable / sunset by Finance Act; see source-block FA-amendment trail (where applicable).

Operative consequences

• Operates within the Chapter IV-D PGBP computational framework.

• Cross-references operative companion sections.

Case Laws & Commentary

SECTION 43 — Definitions of certain terms relevant to income from profits and gains of business or profession

Important Case Laws — 1961 Treatise (FA 2026)

Provision in brief: Definition section for PGBP terms: (1) 'actual cost' — cost of asset to assessee, with adjustments via Explanations (subsidy, second-hand transfers within group, conversion of capital asset to stock or stock to capital asset, gift/inheritance, exchange-rate impact for s. 43A, finance-lease, slump sale, capitalized borrowing cost — Expln 8); (2) 'paid' — actually paid OR incurred (mercantile); (3) 'plant' — includes ships, vehicles, books, scientific apparatus, surgical equipment — but excludes tea bushes/live stock/buildings/furniture (anti-Anand-Theatres clarification); (4) 'scientific research' — definition; (5) 'speculative transaction' — settled otherwise than by actual delivery (with carve-outs for hedging, jobbing, currency F&O traded on recognised stock exchange).

Section Commentary

Definitions section — operational backbone

Section 43 is the operational backbone — it defines key terms used throughout the PGBP chapter. Mis-definition cascades through every computation. The five-clause structure: (1) 'actual cost' (the most-litigated; eight Explanations); (2) 'paid' (actually paid OR incurred per method of accounting); (3) 'plant' (codified post-Anand Theatres to exclude buildings, furniture etc.); (4) 'scientific research' (broad — natural / applied sciences); (5) 'speculative transaction' (the trader's gateway to s. 43(5) treatment).

'Actual cost' — multi-layered

Section 43(1) defines 'actual cost' as the cost of the asset to the assessee, REDUCED by any portion met directly or indirectly by any other person or authority. Eight Explanations refine: (i) Expln 1 — asset acquired by gift / will / inheritance — cost to previous owner; (ii) Expln 3 — used asset acquired from another person — actual cost as reduced by depreciation that would have been allowed (anti-step-up); (iii) Expln 4 — capital asset converted to stock-in-trade — FMV on date of conversion; (iv) Expln 5 — stock converted to capital — book value; (v) Expln 6 — slump sale; (vi) Expln 7 — re-acquisition (anti-circular-trade); (vii) Expln 8 — borrowing-cost capitalisation cut-off at date 'first put to use' (codifies Challapalli Sugars and its restriction); (viii) Expln 10 — government / authority grant or subsidy directly relatable to acquisition reduces actual cost (modified scope by FA 2015 to include all general grants relatable to the asset).

'Plant' — Anand Theatres + statutory exclusion

Anand Theatres (SC 2000) rejected the 'functional test' for treating buildings as plant — building per se is not plant; specially-equipped buildings have their equipment as plant. The Legislature codified by amending s. 43(3) to expressly exclude buildings, tea bushes, livestock, furniture from 'plant'. Scientific Engineering House (SC) — drawings / designs / blueprints which function as the apparatus of business qualify as plant. Modern practitioner question: does intangible IP (algorithms, software) qualify as plant? Generally yes if it is the operative apparatus and not pure goodwill (Smifs Securities prospectively negated for goodwill by FA 2021).

Subsidy treatment — P.J. Chemicals + FA 2015

P.J. Chemicals (SC 1994) distinguished 'subsidy on/for the asset' (reduces actual cost — Expln 10) from 'incentive computed by reference to asset' (does not reduce cost). FA 2015 amended Expln 10 to widen scope — any grant by government / authority / agency that is relatable to acquisition reduces actual cost. This significantly displaced P.J. Chemicals prospectively. Practitioners must analyse each subsidy / grant against the amended Expln 10.

'Speculative transaction' — s. 43(5)

Defined as a transaction in which a contract for purchase / sale of any commodity / stocks / shares is settled otherwise than by actual delivery / transfer. Five exceptions: (i) hedging in raw material / stock; (ii) jobbing / arbitrage on stock exchange by member; (iii) hedging of stocks / shares held; (iv) eligible derivative transaction in shares / securities on a recognised stock exchange (post-FA 2005); (v) eligible commodity derivative on a recognised stock exchange (post-FA 2013, requiring CTT-paid). Critical: F&O equity / index trades on NSE / BSE are non-speculative — get ordinary loss carry-forward (s. 72), not the restrictive s. 73.

Practical compliance

(i) Maintain a 'block of assets' computation with each Explanation's adjustment captured. (ii) For subsidy receipts, apply Expln 10 (post-FA 2015 broad) to reduce actual cost. (iii) Categorise trading activity correctly — speculative vs non-speculative; misclassification affects set-off / carry-forward dramatically. (iv) For inter-company asset transfers, evaluate Expln 3 and the FA 1986 anti-step-up provisions. (v) Form 3CD Cl. 18 captures critical asset-cost movements.

FA 2026 impact: No FA 2026 amendment. Definitions stand. Note FA 2021's amendment to Expln 3 of s. 32 (excluding goodwill from depreciable block) interacts with s. 43(1) Explanations.

Leading Decisions

1. CIT v. Anand Theatres

Citation: (2000) 244 ITR 192 (SC) — partly displaced by Expln to s. 43(3)

Forum: Supreme Court of India

Facts & Issue: Whether a cinema theatre building qualifies as 'plant' for purposes of higher depreciation. The argument was that the building was specially designed and was the apparatus by which business was carried on (functional test).

Held / Ratio: The Supreme Court denied 'plant' status — building per se is not plant; if a building is specially equipped, the equipment is plant, not the building. The Court rejected the 'functional test' to that extent. The Legislature later codified this by amending s. 43(3) to expressly exclude buildings, furniture, etc., from 'plant'.

Section relevance: Cardinal on definition of 'plant' u/s 43(3); now read with the statutory exclusion.

2. Scientific Engineering House (P) Ltd. v. CIT

Citation: (1986) 157 ITR 86 (SC)

Forum: Supreme Court of India

Facts & Issue: Whether documentation (engineering drawings, designs, blueprints) acquired from a foreign collaborator constitutes 'plant' eligible for depreciation.

Held / Ratio: The Supreme Court held that drawings/designs/blueprints which are the apparatus of business and are used to manufacture products qualify as 'plant' u/s 43(3) and are eligible for depreciation. The 'functional test' was endorsed for intangible-like assets that function as plant.

Section relevance: Important — confirms intangibles-as-plant under s. 43(3), where they are an active apparatus of business.

3. CIT v. Karjan Co-operative Cotton Sales Ginning and Pressing Society Ltd.

Citation: (1992) 199 ITR 17 (Guj)

Forum: Gujarat High Court

Facts & Issue: Question of treatment of subsidy received from State Government for setting up a plant — whether to reduce 'actual cost' u/s 43(1) Expln 10.

Held / Ratio: Held that subsidy linked to a specific asset reduces the actual cost u/s 43(1) (now codified by Expln 10 inserted by FA 1998). General subsidies (not asset-linked) do NOT reduce cost.

Section relevance: Defines treatment of subsidies under s. 43(1) / Expln 10.

4. P.J. Chemicals Ltd. v. CIT

Citation: (1994) 210 ITR 830 (SC)

Forum: Supreme Court of India

Facts & Issue: Subsidy received under central scheme — whether to reduce cost of asset u/s 43(1).

Held / Ratio: The Supreme Court held that where subsidy is granted as incentive (not as direct payment for the asset), it does NOT reduce 'actual cost' u/s 43(1). The Court drew a fine line between 'subsidy on/for the asset' (reduces cost) and 'incentive computed by reference to asset' (does not). FA 2015 amended Expln 10 to make ALL grants/subsidies asset-cost-reducing — partially displacing P.J. Chemicals prospectively.

Section relevance: Cardinal on subsidy treatment under s. 43(1); modified by FA 2015 amendment to Expln 10.

5. Challapalli Sugars Ltd. v. CIT

Citation: (1975) 98 ITR 167 (SC)

Forum: Supreme Court of India

Facts & Issue: Pre-production interest on borrowings used to install plant — whether to capitalise into 'actual cost' u/s 43(1).

Held / Ratio: The Supreme Court held that pre-production interest is part of actual cost, applying commercial accountancy. Later codified by Explanation 8 to s. 43(1) (FA 1986) which excludes interest after asset is 'first put to use'.

Section relevance: Foundational on 'actual cost' interpretation; codified by Expln 8.

6. CIT v. Smifs Securities Ltd.

Citation: (2012) 348 ITR 302 (SC)

Forum: Supreme Court of India

Facts & Issue: Whether 'goodwill' arising on amalgamation falls within 'asset of the like nature' in Expln 3 to s. 32(1) read with s. 43(6).

Held / Ratio: Held that goodwill is depreciable. (Reversed prospectively by FA 2021 excluding goodwill from depreciable block and tweaking s. 43(6) Expln 7.)

Section relevance: Connects to s. 43(6) 'block of assets' computation; goodwill carve-out post-FA 2021.

7. CIT v. Sun Engineering Works (P) Ltd.

Citation: (1992) 198 ITR 297 (SC)

Forum: Supreme Court of India

Facts & Issue: While primarily on reassessment, the case establishes that the AO cannot re-open settled issues; relevant for s. 43(1) actual-cost determinations.

Held / Ratio: Held that once 'actual cost' is determined and depreciation calculated based on it, the AO cannot revisit cost in a later year except via the prescribed re-assessment route. The cost in the block is sacrosanct subject to Explanations.

Section relevance: Stability principle for s. 43(1) determinations across years.

— End of Section 43 Case-Law Note —

← All sections (939)Act 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025 / Allied Sources
s. 43 — Definitions of certain terms relevant to PGBP — 'actual cost', 'paid', 'plant', 'scientific research', 'speculative transaction', 'transfer', etc.	Corresponding provision in the 2025 Act preserves the same framework where the section remains operative; superseded for omitted sections.