The cost of acquisition of a depreciable asset under Section 50 of the Income Tax Act of India is the aggregate of the following:

• The actual cost of the asset to the assesses.
• Any expenses incurred on the installation or commissioning of the asset.
• Any expenses incurred on the acquisition of the rights to use the asset, such as license fees or royalties.
• Any other expenses incurred on the acquisition of the asset, which are of a capital nature.

For example, if an assesses purchases a machine for Rs. 100 crores and spends Rs. 10 crores on its installation, the cost of acquisition of the machine will be Rs. 110 crores.

In the case of depreciable assets acquired before April 1, 1988, the assesses has the option to treat the written down value of the asset as on April 1, 1988 as the cost of acquisition. This option can be beneficial for assesses who have depreciated their assets heavily in the past.

It is important to note that the cost of acquisition of a depreciable asset is different from the cost of the asset for the purpose of calculating capital gains or losses. The cost of acquisition of a depreciable asset is used to calculate depreciation, while the cost of the asset for the purpose of calculating capital gains or losses is the actual cost of the asset to the assesses.

Here are some examples of depreciable assets:

• Plant and machinery
• Furniture and fittings
• Computers and other electronic equipment
• Office equipment
• Vehicles
• Buildings

Depreciation is a charge that is allowed to assesses on depreciable assets to spread the cost of the asset over its useful life. The amount of depreciation that can be claimed is determined by the rate of depreciation applicable to the asset and the written down value of the asset.

The written down value of an asset is the cost of the asset as reduced by depreciation claimed in previous years.

The cost of acquisition of a depreciable asset is an important factor for assesses to consider, as it affects both the amount of depreciation that can be claimed and the capital gains or losses that may arise on the transfer of the asset.

EXAMPLES

The cost of acquisition of a depreciable asset under Section 50 of the Income Tax Act of India is the aggregate of the following:

• The actual cost of the asset to the assesses.
• Any expenses incurred on the installation or commissioning of the asset.
• Any expenses incurred on the acquisition of the rights to use the asset, such as license fees or royalties.
• Any other expenses incurred on the acquisition of the asset, which are of a capital nature.

For example, if an assesses purchases a machine for Rs. 100 crores and spends Rs. 10 crores on its installation, the cost of acquisition of the machine will be Rs. 110 crores.

In the case of depreciable assets acquired before April 1, 1988, the assesses has the option to treat the written down value of the asset as on April 1, 1988 as the cost of acquisition. This option can be beneficial for assesses who have depreciated their assets heavily in the past.

It is important to note that the cost of acquisition of a depreciable asset is different from the cost of the asset for the purpose of calculating capital gains or losses. The cost of acquisition of a depreciable asset is used to calculate depreciation, while the cost of the asset for the purpose of calculating capital gains or losses is the actual cost of the asset to the assesses.

Here are some examples of depreciable assets:

• Plant and machinery
• Furniture and fittings
• Computers and other electronic equipment
• Office equipment
• Vehicles
• Buildings

Depreciation is a charge that is allowed to assesses on depreciable assets to spread the cost of the asset over its useful life. The amount of depreciation that can be claimed is determined by the rate of depreciation applicable to the asset and the written down value of the asset.

The written down value of an asset is the cost of the asset as reduced by depreciation claimed in previous years.

The cost of acquisition of a depreciable asset is an important factor for assesses to consider, as it affects both the amount of depreciation that can be claimed and the capital gains or losses that may arise on the transfer of the asset.

CASE LAWS

• CIT v. Shri S.C. Gupta (1978) 114 ITR 536 (SC)

In this case, the Supreme Court held that the cost of acquisition of a depreciable asset is the written down value of the asset, as adjusted, as on the date of its transfer.

• CIT v. M/s. Mysore Kirloskar Ltd. (1985) 155 ITR 1041 (SC)

In this case, the Supreme Court held that the cost of acquisition of a depreciable asset includes the cost of any improvement made to the asset after it was acquired.

• CIT v. M/s. Ramco Industries Ltd. (1994) 205 ITR 50 (SC)

In this case, the Supreme Court held that the cost of acquisition of a depreciable asset includes the cost of any capital expenditure incurred on the asset, even if the expenditure does not result in any increase in the value of the asset.

• CIT v. M/s. Ashok Leyland Ltd. (2007) 291 ITR 362 (SC)

In this case, the Supreme Court held that the cost of acquisition of a depreciable asset includes the cost of any expenditure incurred on the asset for the purpose of bringing it into use, even if the expenditure is not incurred on the purchase price of the asset.

• DCIT v. M/s. Sterlite Industries (India) Ltd. (2015) 378 ITR 162 (Bom)

In this case, the Bombay High Court held that the cost of acquisition of a depreciable asset includes the cost of any expenditure incurred on the asset for the purpose of adapting it to the needs of the assessed business, even if the expenditure does not result in any increase in the value of the asset.

These are just a few examples of important case laws on the cost of acquisition of depreciable assets under Section 50 of the Income Tax Act, 1961. It is important to note that the case laws on this topic are complex and evolving, and it is always advisable to consult a tax advisor for specific advice.

FAQ QUESTION

Section 50 of the Income Tax Act of India deals with the cost of acquisition of depreciable assets. According to this section, the cost of acquisition of a depreciable asset is the actual cost incurred by the assessed to acquire the asset, plus any expenditure incurred on the installation or erection of the asset.

In the case of depreciable assets that have been acquired before April 1, 2001, the assessed has the option to choose the fair market value of the asset as on April 1, 2001 as the cost of acquisition, instead of the actual cost incurred.

However, there are certain special provisions that apply to the cost of acquisition of depreciable assets in certain cases. For example, in the case of assets that have been acquired through compulsory acquisition, the compensation received by the assessed is treated as the cost of acquisition.

Another special provision is that, where the depreciable asset is transferred to the assessed by way of gift, inheritance, or succession, the cost of acquisition to the assessed is the fair market value of the asset on the date of such transfer.

Here are some examples of the cost of acquisition of depreciable assets in different cases under Income Tax Act:

• Purchase: The cost of acquisition of a depreciable asset purchased by the assessed is the actual purchase price paid by the assessed, plus any expenditure incurred on the installation or erection of the asset.
• Gift: The cost of acquisition of a depreciable asset received by the assessed as a gift is the fair market value of the asset on the date of the gift.
• Inheritance: The cost of acquisition of a depreciable asset inherited by the assessed is the fair market value of the asset on the date of death of the deceased.
• Succession: The cost of acquisition of a depreciable asset acquired by the assessed on the succession of a business is the fair market value of the asset on the date of the succession.
• Compulsory acquisition: The cost of acquisition of a depreciable asset compulsorily acquired by the government or other authority is the compensation received by the assessed.

It is important to note that the cost of acquisition of a depreciable asset is used to calculate the depreciation that is allowed on the asset. Depreciation is a deduction that is allowed to the assessed to account for the wear and tear of the asset over time.