Section 90 — Cost Definitions | ITA 2025

Section 90 — COST DEFINITIONS (THE PRACTICAL ENGINE OF CG COMPUTATION)

Section 90 is the substantive equivalent of 1961 s. 55 — the definitional bedrock of the Capital Gains chapter. Every CG computation under ss. 67-89 ultimately resolves to the variables defined here. The section is structured into TWELVE sub-sections covering: (1) cost of improvement; (2) the exclusion-rule for amounts already deducted under HP/PGBP/IFOS heads; (3) cost of acquisition for self-generated intangibles; (4) goodwill depreciation reduction (FA 2021 link to 1961 s. 32(1)); (5)-(6) cost of acquisition for rights/bonus issues; (7)-(8) the FA 2018 grandfathering rule for pre-1-Feb-2018 listed equity / equity-MF / business-trust units; (9) cost of acquisition by reference to FMV-as-on-1-Apr-2001 / liquidation distributions / share consolidation-conversion-subdivision; (10) FA 2020 SDV cap on FMV-2001 for land/building; (11) fallback when previous-owner cost cannot be ascertained; (12) demutualisation share-cost. Key point: the choice of base-year cost (actual vs FMV-2001) and the post-FA-2018 grandfathering for listed equity drive the bulk of taxpayer-side dispute exposure.

Statutory text — Income-tax Act, 2025

Marginal note — Meaning of 'adjusted', 'cost of improvement' and 'cost of acquisition'

(1) For the purposes of sections 72 and 73, “cost of improvement”,—

(a) in relation to a capital asset being goodwill or any intangible asset of a business, or a right to manufacture, produce or process any article or thing, or right to carry on any business or profession, or any other right, shall be taken to be nil; and

(b) in relation to any other capital asset,—

(i) if the capital asset became the property of the previous owner or the assessee before the 1st April, 2001, means all expenditure of a capital nature incurred on or after the said date in making any additions or alterations to the capital asset by the previous owner or the assessee; and

(ii) in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in section 73 (Table: Sl. No. 1), by the previous owner.

(2) For the purposes of sub-section (1)(b), the cost of improvement does not include any expenditure which is deductible in computing the income chargeable under the head “Income from house property”, “Profits and gains of business or profession” or “Income from other sources”.

(3) For the purposes of sections 72 and 73, “cost of acquisition” of a capital asset (being goodwill of a business or profession, or a trade mark or brand name associated with a business or profession, or any other intangible asset, or a right to manufacture, produce or process any article or thing, or a right to carry on any business or profession, or tenancy rights, or stage carriage permits, or loom hours, or any other right) means—

(a) the purchase price, if acquisition of such asset by the assessee is by purchase from the previous owner; and

(b) the purchase price for the previous owner, in the case covered in section 73 (Table: Sl. No. 1), where such asset was acquired by purchase by the previous owner as defined in sub-section (2) of the said section; and

(c) nil, in any other case.

(4) For the purposes of sub-section (3)(a) or (b), if—

(a) the capital asset is goodwill of a business or profession; and

(b) the assessee has obtained a deduction on account of depreciation under section 32(1) of the Income-tax Act, 1961 (43 of 1961) in a tax year preceding the tax year commencing on the 1st April, 2020, then the total amount of depreciation obtained before the tax year commencing on the 1st April, 2020 shall be reduced from the amount of purchase price.

(5) For the purposes of sections 72 and 73, and subject to the provisions of sub- section (9)(a) and (b), “cost of acquisition” shall be as per sub-section (6), in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of section 2(h) of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (herein referred to as the financial asset), the assessee—

(a) becomes entitled to subscribe to any additional financial asset; or

(b) is allotted any additional financial asset without any payment.

(6) In a case referred to in sub-section (5), “cost of acquisition”, in relation to—

(a) the original financial asset, on the basis of which the assessee becomes entitled to any additional financial asset, means the amount actually paid for acquiring the original financial asset;

(b) any right to renounce the said entitlement to subscribe to the financial asset, when such right is renounced by the assessee in favour of any person, shall be taken to be nil in the case of such assessee;

(c) the financial asset, to which the assessee has subscribed on the basis of the said entitlement, means the amount actually paid by him for acquiring such asset;

(d) the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil; and

(e) any financial asset purchased by any person in whose favour the right to subscribe to such asset has been renounced, means the total amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, for acquiring such financial asset.

(7) For the purposes of sections 72 and 73, “cost of acquisition”, subject to sub-section (9)(a) and (b), in relation to a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 198, acquired before the 1st February, 2018, shall be higher of—

(a) the cost of acquisition of such asset; and

(b) lower of—

(i) the fair market value of such asset; and

(ii) the full value of consideration received or accruing as a result of the transfer of the capital asset.

(8) For the purposes of sub-section (7),—

(a) “Cost Inflation Index”, shall have the meaning assigned to it in section 72(8)(a);

(b) “fair market value” means,—

(i) in a case where the capital asset is listed on any recognised stock exchange as on the 31st January, 2018, the highest price of the capital asset quoted on such exchange on that date;

(ii) in a case where there is no trading in such asset on such exchange on the 31st January, 2018, as mentioned in sub-clause (i) the high- est price of such asset on such exchange on a date immediately preceding the 31st January, 2018 when such asset was traded on such exchange shall be the fair market value;

(iii) if the capital asset is a unit which is not listed on a recognised stock exchange as on the 31st January, 2018, the net asset value of such unit as on that date;

(iv) if the capital asset is an equity share in a company which is—

(A) not listed on a recognised stock exchange as on the 31st Janu- ary, 2018 but listed on such exchange on the date of transfer;

(B) not listed on a recognised stock exchange as on the 31st Jan- uary, 2018, or which became the property of the assessee in consideration of share which is not listed on such exchange as on the 31st January, 2018 by way of transaction not regarded as transfer mentioned in section 70, but listed on such excha- nge subsequent to the date of transfer (where such transfer is in respect of sale of unlisted equity shares under an offer for sale to the public included in an initial public offer);

(C) listed on a recognised stock exchange on the date of transfer and which became the property of the assessee in consideration of share which is not listed on such exchange as on the 31st January, 2018 by way of transaction not regarded as transfer mentioned in section 70, an amount which bears to the cost of acquisition the same proportion as Cost Inflation Index for the tax year 2017-18 bears to the Cost Inflation Index for the first year in which the asset was held by the assessee or for the year beginning on the 1st April, 2001, whichever is later.

(9) For the purposes of sections 72 and 73, cost of acquisition in relation to any other capital asset,—

(a) if the capital asset became the property of the assessee before the 1st April, 2001, subject to sub-section (10), shall be the cost of acquisition of the asset to the assessee or its fair market value on the 1st April, 2001, at the option of the assessee;

(b) if the capital asset became the property of the assessee by any of the modes specified in section 73 (Table: Sl. No. 1), and the capital asset became the property of the previous owner before the 1st April, 2001, subject to sub-section (10), shall be the cost of the capital asset to the previous owner or its fair market value on the 1st April, 2001, at the option of the assessee;

(c) if the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head “Capital gains” in respect of that asset under section 68, means the fair market value of the asset on the date of distribution;

(d) if the capital asset, being a share or a stock of a company, became the property of the assessee on—

(i) the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares; or

(ii) the conversion of any shares of the company into stock; or

(iii) the re-conversion of any stock of the company into shares; or

(iv) the sub-division of any of the shares of the company into shares of smaller amount; or

(v) the conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived.

(10) In case of a capital asset referred to in sub-section (9)(a) and (b), being land or building, or both, the fair market value of such asset on the 1st April, 2001 for the said sub-section (9)(a) and (b) shall not exceed the stamp duty value, wherever available, of such asset as on the 1st April, 2001.

(11) If the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner shall be the fair market value on the date on which the capital asset became the property of the previous owner.

(12) For the purposes of sections 72 and 73, cost of acquisition in relation to a capital asset—

(a) being equity share or shares allotted to a shareholder of a recognised stock exchange in India under a scheme for demutualisation or cor- poratisation 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), shall be the cost of acquisition of his original membership of the exchange;

(b) bring trading or clearing rights of the recognised stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualisation or corporatisation, shall be deemed to be nil.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 — s. 90	INCOME-TAX ACT, 1961 — s. 55
s. 90(1) — 'cost of improvement' definitions for goodwill/intangibles (NIL) and other capital assets	1961 s. 55(1)(b)
s. 90(2) — exclusion of expenditure already deductible under HP / PGBP / IFOS head	1961 s. 55(1)(b) Explanation
s. 90(3) — 'cost of acquisition' for self-generated intangibles / tenancy / loom hours / stage-carriage permit / other rights	1961 s. 55(2)(a) and 55(2)(aa)
s. 90(4) — reduction of pre-FY 2020-21 depreciation on goodwill from purchase price (FA 2021)	1961 s. 55(2)(a) proviso (FA 2021)
s. 90(5)-(6) — cost of acquisition for rights issue / bonus / right-to-renounce / financial assets allotted on holding	1961 s. 55(2)(aa)
s. 90(7)-(8) — grandfathering for pre-1-Feb-2018 listed equity / equity-fund / business-trust units (FA 2018 carry-forward)	1961 s. 55(2)(ac) (FA 2018 grandfathering for s. 112A)
s. 90(9) — FMV-as-on-1-Apr-2001 election / liquidation FMV / share consolidation-conversion-sub-division	1961 s. 55(2)(b) and (b)(v)
s. 90(10) — FMV-2001 capped at SDV-2001 for land/building (FA 2020 anti-abuse)	1961 s. 55(2)(b) proviso (FA 2020)
s. 90(11) — previous-owner cost ascertainment fallback = FMV on date of acquisition by previous owner	1961 s. 55(3)
s. 90(12) — demutualisation: equity shares = original membership cost; trading/clearing rights = NIL	1961 s. 55(2)(ab)
Reference to ss. 72 and 73 throughout	1961 ss. 48 and 49

STATUTORY ARCHITECTURE — TWO BIG QUESTIONS

Sections 72 and 73 are the COMPUTATION engines (mode of computation; cost in special modes); s. 90 supplies the INPUTS those engines consume. The section is best read by asking two questions in order: (a) WHICH ASSET CLASS — because cost rules differ for self-generated intangibles, rights/bonus issues, demutualisation shares, and grandfathered listed equity; (b) WHICH ACQUISITION DATE — because pre-1-Apr-2001 (FMV-2001 election + FA 2020 SDV cap), pre-1-Feb-2018 listed equity (FA 2018 grandfathering), and post-23-Jul-2024 (FA 2024 indexation withdrawal) all carve out distinct regimes. Sub-sections (1)-(2) handle improvement-cost; sub-sections (3)-(12) handle acquisition-cost. The architecture roughly mirrors the order of a CG computation: identify asset → identify holding period → lay down cost variables → plug into ss. 72/73 mechanics.

SUB-SECTION (1) — 'COST OF IMPROVEMENT'

Sub-section (1) splits improvement-cost into two pathways: (a) goodwill / intangibles / right-to-manufacture / right-to-carry-business / other rights — NIL improvement cost (no genuine 'improvement' is identifiable for self-generated reputational assets, so the fiction of NIL prevents bogus claims); and (b) other capital assets — only CAPITAL expenditure on ADDITIONS / ALTERATIONS qualifies. Two further filters apply within pathway (b): (i) for assets owned by previous-owner-or-assessee BEFORE 1-Apr-2001, only post-1-Apr-2001 capital additions count (pre-2001 improvement cost is folded into the FMV-2001 election under sub-s. 9); (ii) for other assets, all capital additions by the assessee POST-acquisition count, plus capital additions by the PREVIOUS OWNER if the asset came through a s. 73 (Table Sl. No. 1) mode (gift/will/inheritance/HUF-partition/transfer-to-100%-subsidiary/amalgamation, etc.) — this preserves continuity of cost-basis through tax-neutral transfers. 'Improvement' (capital nature) is distinct from 'repairs / maintenance' (revenue nature): only the former is cost-of-improvement; the latter is either deductible elsewhere or not allowable.

SUB-SECTION (2) — ANTI-DOUBLE-DIPPING EXCLUSION

Improvement cost CANNOT include any expenditure already deductible under HP, PGBP or IFOS heads. This is a critical anti-double-dipping rule: e.g., if interest on home-loan was claimed as deduction under s. 25 (Interest on borrowed capital for HP), it cannot be re-claimed as cost-of-improvement on sale. Similarly, repairs claimed as PGBP expense cannot be added to capital-asset cost. This codifies CIT v. Sir Kameshwar Singh (Patna HC) and aligns with Indian Hotels SC precedent on tax-shielding.

SUB-SECTION (3) — SELF-GENERATED INTANGIBLES (CIT v. B.C. SRINIVASA SETTY)

Sub-section (3) defines cost-of-acquisition for an enumerated list: goodwill (business or profession), trade-mark, brand-name, other intangible asset, right-to-manufacture-produce-process, right-to-carry-business-or-profession, tenancy rights, stage-carriage permits, loom hours, and 'any other right'. The cost regime: (a) PURCHASE PRICE if acquired by purchase from previous owner; (b) PURCHASE PRICE TO PREVIOUS OWNER if acquired through s. 73 Sl. No. 1 mode (gift/inheritance/will/HUF-partition/100%-subsidiary transfer/amalgamation) AND the previous owner had purchased it; (c) NIL in any other case (i.e., self-generated). This codifies CIT v. B.C. Srinivasa Setty (SC, 1981) which had held that self-generated goodwill is not chargeable to CG because cost was indeterminate — the deeming of NIL cost reverses Setty's effect and brings self-generated goodwill into the CG net. NB: Tenancy rights and loom hours are explicitly within the list — prior controversy over tenancy-rights cost (CIT v. D.P. Sandu Bros) is now resolved by statutory NIL.

SUB-SECTION (4) — FA 2021 GOODWILL DEPRECIATION REDUCTION

Where goodwill of a business / profession was held BEFORE FY 2020-21 AND the assessee claimed depreciation on it under 1961 s. 32(1) for any pre-FY 2020-21 year, the AGGREGATE depreciation so claimed is REDUCED from the purchase-price cost-of-acquisition computed under sub-s. (3)(a)/(b). Background: FA 2021 retroactively withdrew goodwill depreciation (block-of-asset treatment) effective FY 2020-21 by amending 1961 s. 2(11), s. 32(1)(ii), s. 50, s. 55(2)(a) etc. To prevent dual-benefit (depreciation already enjoyed PLUS full cost on sale), this reduction was inserted. Worked example: A acquired goodwill for INR 10 cr in FY 2017-18; claimed depreciation aggregating INR 4 cr over FY 2017-18 to FY 2019-20; sells goodwill in FY 2026-27. Cost-of-acquisition u/s 90(3)(a) = INR 10 cr; reduced under sub-s. (4) by INR 4 cr depreciation = INR 6 cr CG cost basis. Note: in FY 2020-21 itself, the FA 2021 forced a deemed STCG / income on the goodwill block-of-asset on the WDV reduction — that prior treatment is not counted twice on a subsequent goodwill sale.

SUB-SECTIONS (5)-(6) — RIGHTS, BONUS AND RIGHT-TO-RENOUNCE

These provisions cover the SHARES / SECURITIES SUITE (financial assets within s. 2(h) SCRA, 1956). Five distinct micro-cases: (a) ORIGINAL FINANCIAL ASSET (e.g., the existing equity share that triggered the rights entitlement) — cost = ACTUAL AMOUNT PAID for original; (b) RIGHT TO RENOUNCE the rights entitlement, when renounced in favour of another — cost in the renouncing assessee's hands = NIL (codifies Miss Dhun Dadabhoy Kapadia SC, 1967, where rights renunciation was held to give rise to CG with NIL cost); (c) RIGHTS-SUBSCRIBED ASSET (assessee paid the rights-issue price) — cost = AMOUNT ACTUALLY PAID; (d) BONUS ISSUE / FREE ALLOTMENT (no payment) — cost = NIL (codifies Esso Standard Inc v. CIT SC, 1975, that bonus shares carry NIL cost); and (e) RIGHTS PURCHASED FROM RENOUNCER — cost in purchaser's hands = SUM of (price paid to renouncer) + (price paid to company for rights subscription). This last case prevents the renouncer from escaping CG entirely while the purchaser claims full deduction — the system tracks the value-flow chain. Common error: confusing 'rights renunciation in market' (which is itself a transfer of CG-eligible right) with 'rights subscription' — the cost / transfer treatment differs.

SUB-SECTIONS (7)-(8) — FA 2018 GRANDFATHERING FOR LISTED EQUITY (KEY POST-2018 RULE)

FA 2018 reintroduced LTCG tax on listed equity / equity-MF / business-trust units (over INR 1 lakh annual exemption, raised to INR 1.25 lakh by FA 2024) at 10% (post-FA 2024: 12.5%) under 1961 s. 112A / 2025 Act s. 198. To protect pre-1-Feb-2018 unrealised gains, the legislature carved out a GRANDFATHERING formula now in s. 90(7)-(8). For long-term capital assets being equity share / equity-fund unit / business-trust unit referred to in s. 198, ACQUIRED BEFORE 1-FEB-2018, cost-of-acquisition = HIGHER of: (a) actual cost; AND (b) lower of [FMV on 31-Jan-2018 (or last-traded-day before)] and [full value of consideration on transfer]. The 'higher of (a)' floor protects taxpayers whose actual cost exceeded 31-Jan-2018 FMV (loss preserved). The 'lower of [FMV] and [FVC]' cap prevents creating notional losses where FMV-31-Jan-2018 exceeds sale consideration (the grandfathering shouldn't create losses; only protect gains). Sub-s. (8) defines FMV: (i) listed-as-on-31-Jan-2018: highest quoted price on 31-Jan-2018; (ii) listed but not traded on 31-Jan-2018: highest price on most-recent trade-date before 31-Jan-2018; (iii) units not listed on 31-Jan-2018: NAV on 31-Jan-2018; (iv) UNLISTED equity later listed (incl. IPO scenarios): special CII-proportionate formula — cost-of-acquisition × (CII for FY 2017-18) ÷ (CII for first-year-of-holding or 2001-02, whichever later). This last formula handles the pre-IPO holding-period and is litigation-rich. Worked example: A bought 1000 listed equity shares at INR 100 each on 1-Apr-2010 (cost INR 1L); 31-Jan-2018 highest-quoted price INR 800; sold 1-May-2026 at INR 1500. (i) Higher of [actual cost INR 1L] vs [lower of [FMV INR 8L] and [FVC INR 15L] = INR 8L] = INR 8L. (ii) LTCG = INR 15L − INR 8L = INR 7L; tax @ 12.5% beyond INR 1.25L = 12.5% of INR 5.75L = INR 71,875 (post-FA 2024 rate and exemption limit).

SUB-SECTION (9) — FMV-AS-ON-1-APR-2001 ELECTION + LIQUIDATION + SHARE-CONVERSION

Four micro-cases: (a) Asset became property of ASSESSEE before 1-Apr-2001: cost = [actual cost-of-acquisition] OR [FMV-as-on-1-Apr-2001], at the OPTION of the assessee — this is the assessee's familiar 'FMV-2001 election'. (b) Asset became property of ASSESSEE through s. 73 Sl. No. 1 mode AND PREVIOUS OWNER acquired it before 1-Apr-2001: same election, but using 'cost to previous owner OR FMV-on-1-Apr-2001'. (c) Asset received on LIQUIDATION of a company AND assessee was already taxed under s. 68 / 1961 s. 46(2) on the distribution: cost = FMV-on-date-of-distribution (prevents double-taxation — once on liquidation, again on subsequent sale). (d) Asset received on share consolidation / share-conversion / share-sub-division / re-conversion of stock-into-shares (i.e., five sub-clauses): cost = referenced-back to original-shares cost (cost-trace). The election under (a)/(b) is per-asset — may be different for different assets in the same return. NB: For pre-2001 assets, a Registered-Valuer report is the usual evidence of FMV-as-on-1-Apr-2001.

SUB-SECTION (10) — FA 2020 SDV CAP ON FMV-2001 (LAND / BUILDING)

For land or building (or both) where the assessee invokes the FMV-2001 election under sub-s. (9)(a) or (b), the FMV-2001 SHALL NOT EXCEED the SDV (stamp-duty value) wherever available as on 1-Apr-2001. Background: FA 2020 introduced this cap because Registered-Valuer reports on FMV-2001 had been routinely inflated to extract higher cost-of-acquisition (and therefore lower CG). Procedure: (i) an RV report gives the FMV-as-on-1-Apr-2001; (ii) the stamp-duty rate-tariff or Sub-Registrar circle-rate for the specific area as on 1-Apr-2001 gives the SDV-2001; (iii) the LOWER of RV-report-FMV and SDV-2001 is the 'FMV-2001 for cost purposes'; (iv) at the assessee's option, the higher of [actual cost vs capped-FMV-2001] is the cost-of-acquisition. NB: Where SDV-2001 is unavailable (e.g., remote rural land, area not within stamp-duty notification at that date), the unrestricted RV-FMV applies — a Sub-Registrar 'no-rate' certificate evidences this.

SUB-SECTION (11) — PREVIOUS-OWNER COST FALLBACK

If the cost at which the PREVIOUS OWNER acquired the property cannot be ascertained (e.g., very old properties; partition records lost), the cost-to-previous-owner = FMV on the DATE the asset became the property of the previous owner. This is a curative provision — the alternative would be NIL cost, which would over-tax the legatee/inheritor. Sub-s. (11) establishes a practical fallback. Important: 'cannot be ascertained' is a question of fact — an affidavit detailing the search efforts (will/probate/registration records) is the usual evidence for invoking sub-s. (11).

SUB-SECTION (12) — DEMUTUALISATION SHARE-COST

Sub-s. (12) addresses the SEBI-approved demutualisation of stock exchanges (BSE, NSE in mid-2000s; later regional exchanges). Each member-broker received: (a) EQUITY SHARES of the corporatised exchange entity — cost = ORIGINAL MEMBERSHIP-CARD cost (preserves the broker's stake-value into the equity tranche); and (b) TRADING / CLEARING RIGHTS — cost = NIL (these rights are residual after the equity allocation). Effect: when the broker subsequently sells either tranche, the equity-share CG = sale price — original membership cost; the trading-rights CG = full sale price (NIL cost). Codifies the position taken in BSE Ltd v. CIT (Bom HC) and circulars issued at demutualisation. Relevance: legacy NSE/BSE / regional-exchange members holding the original 2005-08 era share-and-rights tranches — these are now being sold at significant gains (post-NSE listing rumours / regional-exchange wind-up) and the cost-allocation under sub-s. (12) is foundational.

INDEXATION (POST-FA 2024) — INTERACTION WITH s. 90

Although s. 90 fixes the COST variable, the INDEXATION of that cost is governed by s. 72 (and CII series under s. 72(8)(a)). FA 2024 watershed change: For LTCG on LAND / BUILDING (acquired before 23-Jul-2024 by individuals/HUF), assessee may CHOOSE between [20% with indexation] OR [12.5% without indexation], take the LOWER. For all other LTCG assets, indexation is generally WITHDRAWN post 23-Jul-2024 — flat 12.5% applies. Key point for s. 90 application: even if cost-of-acquisition is computed under s. 90 with FMV-2001 election (and SDV-2001 cap), the post-23-Jul-2024 transferor of land/building pays the lower of the 20%-indexed and 12.5%-flat computations. Manjula J. Shah (Bom HC, 2009) ratio still applies under the indexed-route: for assets received through s. 73 Sl. No. 1 mode, CII-of-first-year-of-holding-by-PREVIOUS-OWNER is the denominator, NOT CII of inheritance year.

CASE LAW — LEADING DECISIONS

(i) CIT v. B.C. Srinivasa Setty (SC, 1981, 128 ITR 294) — self-generated goodwill not chargeable absent ascertainable cost; reversed by statutory NIL deeming, now codified in s. 90(3)(c). (ii) Esso Standard Inc v. CIT (SC, 1975, 86 ITR 23) — bonus shares carry NIL cost-of-acquisition; codified in s. 90(6)(d). (iii) Miss Dhun Dadabhoy Kapadia v. CIT (SC, 1967, 63 ITR 651) — renunciation of rights entitlement is itself transfer of capital asset; NIL cost-of-acquisition for the right-to-renounce; codified in s. 90(6)(b). (iv) CIT v. Manjula J. Shah (Bom HC, 2009, 318 ITR 416) — for assets received through tax-neutral mode (gift/will/inheritance), CII denominator = year of FIRST holding by previous owner, NOT year of inheritance. Followed by ITAT/HC widely; FA 2024 has restricted indexation but Manjula principle still operative within the 20%-indexed route. (v) CIT v. D.P. Sandu Bros (SC, 2005, 273 ITR 1) — surrender of tenancy rights for compensation is CG; cost-NIL controversy now resolved by s. 90(3) inclusion of 'tenancy rights'. (vi) CIT v. Mohanbhai Pamabhai (SC, 1987, 165 ITR 166) — retiring partner share-of-firm-assets: cost issues. (vii) BSE Ltd v. CIT (Bom HC) — demutualisation share-cost allocation; codified in s. 90(12). (viii) PCIT v. Equinox Solution Pvt Ltd (SC, 2017) — conversion of stock-in-trade to capital asset: cost basis questions. (ix) Cadell Weaving Mill v. CIT (Bom HC, 2001, 249 ITR 265) — surrender of tenancy interpreted broadly; relevant to s. 90(3) tenancy-rights inclusion. (x) CIT v. T.K. Mudaliar (SC) — retiring partner's interest CG: cost NIL where self-generated. (xi) Recent FA 2024 transition cases: B.A. Mohota Textiles Traders (Bom HC, 2017) — distinction between revenue and capital character of receipts in CG computation.

PRACTICAL POINTS (8 AREAS)

(i) PRE-2001 LAND/BUILDING — an RV report on FMV as on 1-Apr-2001 and a Sub-Registrar SDV-2001 certificate are needed; the LOWER is the FMV-2001 under sub-s. (10). For pre-2001 OTHER assets (shares/jewellery/gold), no SDV cap — unrestricted RV-FMV applies. (ii) PRE-1-FEB-2018 LISTED EQUITY — the s. 90(7)-(8) grandfathering uses the bhav copy / NSE historical price for 31-Jan-2018 (the scrip's highest traded price); for unlisted-then-listed shares the CII-proportionate formula applies. (iii) FA 2024 LAND/BUILDING TRANSFERS (post-23-Jul-2024) — for individuals/HUF on land/building acquired before 23-Jul-2024, tax is computed BOTH (a) at 20% with indexation and (b) at 12.5% flat, and the LOWER applies. For other assets, only flat 12.5% applies (no indexation). (iv) GOODWILL POST-FA 2021 — aggregate depreciation claimed on goodwill before FY 2020-21 reduces cost of acquisition under sub-s. (4) on a later sale; the FY 2020-21 deemed STCG already taxed is not counted twice. (v) RIGHTS / BONUS / RENUNCIATION — cost rests on the complete chronology: original purchase price, rights-subscription amount, bonus dates (NIL cost), renunciation transactions (sub-s. 6(b) NIL for renouncer; sub-s. 6(e) sum-of-payments for purchaser-from-renouncer). (vi) GIFTED / INHERITED ASSETS — previous-owner cost applies; if untraceable, the sub-s. (11) FMV fallback applies, supported by affidavit. The Manjula J. Shah CII rule governs the indexation denominator. (vii) DEMUTUALISATION SHARES — for legacy NSE/BSE/regional-exchange members, the original membership cost is allocated to the equity tranche (sub-s. 12(a)) and NIL to the trading-rights tranche (sub-s. 12(b)). (viii) DOUBLE DEDUCTION — expenditure already claimed under the HP / PGBP / IFOS heads is not claimed again as cost of improvement under sub-s. (1)/(2). Common pitfall: home-loan interest claimed both under s. 25 (HP) and as cost of improvement on sale.

DOCUMENTATION

The cost computation rests on: (a) asset class (with reference to specific sub-section of s. 90 invoked); (b) acquisition mode (purchase / s. 73 Table Sl. No. 1 / liquidation / consolidation); (c) acquisition date; (d) actual cost (with bills/contract); (e) FMV-2001 (RV-report + SDV-2001 certificate where land/building); (f) FMV-31-Jan-2018 (where listed equity / pre-Feb-2018 acquisition); (g) improvement expenditure with capital/revenue character analysis; (h) depreciation reduction (where goodwill); (i) rights/bonus/renunciation chronology; (j) FA 2024 indexation-vs-flat comparison sheet (where land/building / individual or HUF). The choice of FMV-election or grandfathering route is a matter of record. AO is required to accept the assessee's election; but cost claims must be supported by paper trail.

CROSS-REFERENCES

Section 67 — Capital Gains charge.
Section 72 — Mode of computation (uses cost from s. 90 + CII).
Section 73 — Cost in special modes (24-row Table) — sub-s. (1) Sl. No. 1 referenced repeatedly within s. 90.
Section 89 — Reference to Valuation Officer (when FMV disputed).
Section 197 / 198 — LTCG rates (interaction with FA 2024 indexation choice for land/building / listed equity).
Section 68 — Liquidation distribution chargeability (link to sub-s. 9(c)).
CBDT — annual CII notification (base year 2001-02 = 100; FY 2024-25 = 363; FY 2025-26 — await notification).
Income-tax Rules, 2026 — Rule 11U / 11UA equivalent for FMV computation / unquoted shares.
Securities Contracts (Regulation) Act, 1956 — s. 2(h) definition of 'securities' invoked in s. 90(5).
SEBI Act, 1992 — s. 3 demutualisation framework invoked in s. 90(12).

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