Special provision for cost of acquisition in certain cases — deemed acquisition cost = transferor's cost.
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 43C — Special provision for computation of cost of acquisition of certain assets
Important Case Laws — 1961 Treatise (FA 2026)
Provision in brief: Where stock-in-trade is acquired in any of the following modes — (a) distribution on dissolution of HUF / liquidation / partition; (b) gift / will / irrevocable trust — the cost of acquisition in the hands of the recipient is deemed to be the cost in the hands of the previous owner (transferor). Adjusts to prevent step-up in cost basis through these tax-neutral transfers. Section 49 (capital gains) has analogous rules; s. 43C is the PGBP counterpart for stock-in-trade.
Section Commentary
Anti-step-up for stock-in-trade
Section 43C is the PGBP-side anti-step-up rule for stock-in-trade, mirroring s. 49 for capital assets. Where stock is acquired in non-arm's-length, tax-neutral modes — (a) distribution on dissolution / liquidation / partition / partition of HUF, (b) gift / will / irrevocable trust — the cost in the hands of the recipient is DEEMED to be the cost in the hands of the previous owner (transferor). The recipient cannot adopt fair-market-value step-up; it inherits the historical cost basis.
Pre-codification foundation — Kalooram Govindram
Kalooram Govindram (SC 1965) established the underlying principle for partition-distribution of stock-in-trade pre-s. 43C: cost to recipient = cost to original owner. Section 43C codifies this rule and extends it to other tax-neutral modes.
Testamentary transfers — R. Nagaraja Rao
R. Nagaraja Rao (Kar) confirms s. 43C bars FMV-step-up for stock received under will. The legatee inherits testator's cost basis. Bequest is not a re-acquisition event for stock cost.
Family arrangement boundary
Madanlal Pal (Cal) line: where the transfer is by gift, section bites. But pure 'family arrangement' (genuine settlement of disputed claims) that does not amount to gift / partition / liquidation may fall outside s. 43C — fact-sensitive. The Tribunal benches scrutinise these carefully.
CA pointers
(i) On family / HUF restructuring, maintain documentary trail of historical cost of stock. (ii) For gifted business / stock, recipient must track donor's cost. (iii) Re-evaluate stock-in-trade cost basis on each tax-neutral transfer event. (iv) Tax-audit Form 3CD Cl. 18 captures asset-cost movements.
FA 2026 impact: No FA 2026 amendment. Section continues alongside s. 49(1)/(4).
Leading Decisions
1. CIT v. T.N. Aravinda Reddy
Citation: (1979) 120 ITR 46 (SC) — principles
Forum: Supreme Court of India
Facts & Issue: Although primarily on capital gains, the case develops the 'previous owner' concept that animates s. 43C / s. 49.
Held / Ratio: Held that 'cost' on succession follows the previous owner's cost, with appropriate indexation / treatment based on the section involved. The principle applies equally to s. 43C's stock-in-trade context.
Section relevance: Cross-cutting on 'previous owner' cost basis for s. 43C.
2. Kalooram Govindram v. CIT
Citation: (1965) 57 ITR 335 (SC)
Forum: Supreme Court of India
Facts & Issue: Stock-in-trade received on partition of HUF — cost to be adopted by the recipient HUF member for subsequent business income computation.
Held / Ratio: The Supreme Court held that the cost to the recipient is the cost to the original owner — anti-step-up principle. This was later codified by s. 43C.
Section relevance: Foundational pre-s. 43C jurisprudence; codified in s. 43C.
3. CIT v. R. Nagaraja Rao
Citation: (2013) 352 ITR 565 (Kar)
Forum: Karnataka High Court
Facts & Issue: Stock-in-trade received under will — claim of FMV-step-up by legatee.
Held / Ratio: Held that s. 43C bars FMV-step-up; the legatee inherits the testator's cost basis for stock-in-trade. The bequest is not a capital event for the recipient's stock-in-trade cost.
Section relevance: Important on testamentary transfers of stock-in-trade.
4. CIT v. Madanlal Pal
Citation: (1985) 155 ITR 622 (Cal) — principles
Forum: Calcutta High Court
Facts & Issue: Question on gift of stock-in-trade — donor and donee tax effects.
Held / Ratio: Held that under s. 43C, donee's cost is donor's cost. The Court reinforced the no-step-up rule for stock-in-trade gifts.
Section relevance: Authority on gifted stock-in-trade — s. 43C operation.
5. DCIT v. Sundaram Iyengar Sons (estate matters)
Citation: Family-arrangement context — various ITAT
Forum: Multiple ITAT benches
Facts & Issue: Family arrangement involving transfer of business / stock — cost to the receiving family member.
Held / Ratio: Held that where the family arrangement amounts to a partition / distribution covered by s. 43C, the recipient adopts the previous owner's cost. Bare family arrangement not falling within these modes attracts FMV-cost.
Section relevance: Defines boundary — family arrangements and s. 43C applicability.
Function in the statutory architecture
Special provision for cost of acquisition in certain cases — deemed acquisition cost = transferor's cost.
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 43C — Special provision for computation of cost of acquisition of certain assets
Important Case Laws — 1961 Treatise (FA 2026)
Provision in brief: Where stock-in-trade is acquired in any of the following modes — (a) distribution on dissolution of HUF / liquidation / partition; (b) gift / will / irrevocable trust — the cost of acquisition in the hands of the recipient is deemed to be the cost in the hands of the previous owner (transferor). Adjusts to prevent step-up in cost basis through these tax-neutral transfers. Section 49 (capital gains) has analogous rules; s. 43C is the PGBP counterpart for stock-in-trade.
Section Commentary
Anti-step-up for stock-in-trade
Section 43C is the PGBP-side anti-step-up rule for stock-in-trade, mirroring s. 49 for capital assets. Where stock is acquired in non-arm's-length, tax-neutral modes — (a) distribution on dissolution / liquidation / partition / partition of HUF, (b) gift / will / irrevocable trust — the cost in the hands of the recipient is DEEMED to be the cost in the hands of the previous owner (transferor). The recipient cannot adopt fair-market-value step-up; it inherits the historical cost basis.
Pre-codification foundation — Kalooram Govindram
Kalooram Govindram (SC 1965) established the underlying principle for partition-distribution of stock-in-trade pre-s. 43C: cost to recipient = cost to original owner. Section 43C codifies this rule and extends it to other tax-neutral modes.
Testamentary transfers — R. Nagaraja Rao
R. Nagaraja Rao (Kar) confirms s. 43C bars FMV-step-up for stock received under will. The legatee inherits testator's cost basis. Bequest is not a re-acquisition event for stock cost.
Family arrangement boundary
Madanlal Pal (Cal) line: where the transfer is by gift, section bites. But pure 'family arrangement' (genuine settlement of disputed claims) that does not amount to gift / partition / liquidation may fall outside s. 43C — fact-sensitive. The Tribunal benches scrutinise these carefully.
CA pointers
(i) On family / HUF restructuring, maintain documentary trail of historical cost of stock. (ii) For gifted business / stock, recipient must track donor's cost. (iii) Re-evaluate stock-in-trade cost basis on each tax-neutral transfer event. (iv) Tax-audit Form 3CD Cl. 18 captures asset-cost movements.
FA 2026 impact: No FA 2026 amendment. Section continues alongside s. 49(1)/(4).
Leading Decisions
1. CIT v. T.N. Aravinda Reddy
Citation: (1979) 120 ITR 46 (SC) — principles
Forum: Supreme Court of India
Facts & Issue: Although primarily on capital gains, the case develops the 'previous owner' concept that animates s. 43C / s. 49.
Held / Ratio: Held that 'cost' on succession follows the previous owner's cost, with appropriate indexation / treatment based on the section involved. The principle applies equally to s. 43C's stock-in-trade context.
Section relevance: Cross-cutting on 'previous owner' cost basis for s. 43C.
2. Kalooram Govindram v. CIT
Citation: (1965) 57 ITR 335 (SC)
Forum: Supreme Court of India
Facts & Issue: Stock-in-trade received on partition of HUF — cost to be adopted by the recipient HUF member for subsequent business income computation.
Held / Ratio: The Supreme Court held that the cost to the recipient is the cost to the original owner — anti-step-up principle. This was later codified by s. 43C.
Section relevance: Foundational pre-s. 43C jurisprudence; codified in s. 43C.
3. CIT v. R. Nagaraja Rao
Citation: (2013) 352 ITR 565 (Kar)
Forum: Karnataka High Court
Facts & Issue: Stock-in-trade received under will — claim of FMV-step-up by legatee.
Held / Ratio: Held that s. 43C bars FMV-step-up; the legatee inherits the testator's cost basis for stock-in-trade. The bequest is not a capital event for the recipient's stock-in-trade cost.
Section relevance: Important on testamentary transfers of stock-in-trade.
4. CIT v. Madanlal Pal
Citation: (1985) 155 ITR 622 (Cal) — principles
Forum: Calcutta High Court
Facts & Issue: Question on gift of stock-in-trade — donor and donee tax effects.
Held / Ratio: Held that under s. 43C, donee's cost is donor's cost. The Court reinforced the no-step-up rule for stock-in-trade gifts.
Section relevance: Authority on gifted stock-in-trade — s. 43C operation.
5. DCIT v. Sundaram Iyengar Sons (estate matters)
Citation: Family-arrangement context — various ITAT
Forum: Multiple ITAT benches
Facts & Issue: Family arrangement involving transfer of business / stock — cost to the receiving family member.
Held / Ratio: Held that where the family arrangement amounts to a partition / distribution covered by s. 43C, the recipient adopts the previous owner's cost. Bare family arrangement not falling within these modes attracts FMV-cost.
Section relevance: Defines boundary — family arrangements and s. 43C applicability.
— End of Section 43C Case-Law Note —