[Section 55(2)(a)]Capital Gain in case of Self Generated Assets
Following assets are self generated assets if they are not purchased:
(i) Goodwill of a business,
(ii) Tenancy rights,
(iii) Trademark / Business name,
(iv) Route permits,
(v) Right to manufacture, produce or process of any article or thing,
(vi) Loom hours,
(vii) Right to carry on business or profession.
As per Section 55(2)(a), cost of acquisition shall be determined in these cases, if:
(i) Acquisition of asset by purchase, then cost of acquisition shall be Purchase Price,
(ii) In any other case, not being a case falling under section 49(1)(i) to (iv), then cost of acquisition shall be Nil.
Self Generated asset before 01-04-2001
If assets are developed or purchased before 01-04-2001, option of adopting Fair Market Value shall not be available, and cost of acquisition shall be computed as per above method.
[Section 55(1)(b)] Cost of Improvement:
In case of goodwill, right to manufacture or produce any article or right to carry any business or profession, cost of improvement shall always be nil.
Treatment of other self generated assets:
Section 55(2)(a) gives complete list of self generated assets which are liable to tax. Any other self generated asset, not mentioned above, shall be fully exempted.
Self Generated assets, transfer of which does not amount to capital gain:
(1) Transfer of goodwill for profession,
(2) Transfer of trees grown automatically,
(3) If cost of acquisition or improvement cannot be reasonably ascertained.
Tax treatment - in case of goodwill of a business, right to carry on business/profession, to manufacture/process any article:
Capital Gain = Sale consideration - Expenses on transfer
Tax treatment - in case of tenancy right , route permit, loom hours, trade mark & brand name:
Capital Gain = Sale consideration - Expenses on transfer - Cost of improvement
Example: Check the image below
Solution:
[Section 55(2)(aa)] Capital gain in case of Right share:
Where by virtue of holding certain shares, assessee become entitled to get any additional shares, then such additional share can be termed as right shares.
Cost of acquisition shall be amount actually paid by him for acquiring such right shares.
Right entitlement: When assessee endorse his right to acquire right shares in favour of other person, such endorsement of right is termed as right renouncement.
Cost of acquisition of such right shares shall be taken as NIL.
Tax treatment in the hands of Right renouncee:
(a) Cost of acquisition in the hands of Right renouncee:
= Amount paid for acquisition + Amount paid to company for right share
(b) Period of Holding: Date of allotment of right shares
(c) Sale consideration: Amount charged from transferee
Illustration: Check the image below
[Section 55(2)(aa)(iiia)] Capital Gain in case of Bonus Share alloted without payment
There are two cases to know the cost of acquisition of bonus shares alloted to assessee on the basis of holding of original shares without any payment :
(a) Bonus share alloted before 01-04-2001,
(b) Bonus share alloted after 01-04-2001.
(a) Bonus share alloted before 01-04-2001:
Cost of acquisition shall be Fair market value as on 01-04-2001.
(b) Bonus share alloted after 01-04-2001:
Cost of acquisition shall be NIL.
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