32. Computation of capital gains.-

(1) The income under the head "Capital gains" shall be computed after making the following deduction from the full value of the consideration received or accruing from the transfer of the capital asset or the fair market value thereof, whichever is higher, namely:-

(a) any expenditure incurred solely in connection with the transfer of the capital asset; or

(b) the cost of acquisition of the capital asset and any capital expenditure incurred for any improvements thereto but excluding any expenditure in respect of which any allowance is admissible under any provisions of sections 23,29 and 34

¹[(1A)]   No deduction in respect of cost of acquisition as contemplated in sub-section(1) shall be allowed for the purpose of computation of income under the head “Capital gains” on account of the transfer of any capital asset acquired by the assessee as a bonus share];

(2) For the purpose of this section, "cost of acquisition of the capital asset" means-

(i) where it was acquired by the assessee by purchase, the actual cost of acquisition; and

(ii) where it became the property of the assessee-

²[(a) by succession, inheritance or devolution; or];]

[(b) under a deed of gift, bequest or will; or];]

 ³[(c) by succession, inheritance or devolution; or ];]

 ⁴[(cc) under a deed of gift, bequest or will; or

(ccc) under a transfer on a revocable or irrevocable trust; or

(d) on any distribution of capital assets on the liquidation of a company; or     

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¹ Ins. by F.A. 1995 and subsequently omitted by F.A. 1996
² Omitted by F.O. 1986
³ Subs. by F.A. 1990 and subsequently omitted by F.A. 1993
⁴ Ins. by F.A. 1990

(e)   on any distribution of capital assets on the dissolution of a firm or other association of persons or the partition of a Hindu undivided family ;

the actual cost of acquisition to the previous owner of the capital asset as reduced by the amount of depreciation, if any, allowed to the previous owner; and where the actual cost of acquisition to the previous owner cannot be ascertained, the fair market value at the date on which the capital asset became the property of the previous owner:

Provided that where the capital asset is an asset in respect of which  the  assessee  has  obtained  depreciation  allowance  in any  year,  the  cost  of  acquisition  of  the  capital  asset  to  the assessee  shall  be  its  written  down  value  increased  or diminished,  as  the  case  may  be,  by  any  adjustment  made under section 19(16) or (17) or section 27 (1) (j) or section 29(1) (xi):

¹[Provided  further  that  where  the  capital  asset  became  the property  of  the  assessee  by  succession,  inheritance  or devolution, the actual cost of acquisition of the capital asset to the assessee shall be the fair market value of the property prevailing at the time the assessee became the owner of such property.]

 (3) Where in the opinion of the Deputy Commissioner of Taxes the fair market value of a capital asset transferred by an assessee as on the date of transfer exceeds the full value of the consideration declared by the assessee by an amount of not less than fifteen per cent of the value so declared, the fair market value of the capital asset shall be determined with the previous approval of the Inspecting Joint Commissioner.

(4) Where in the opinion of the Deputy Commissioner of Taxes the fair market value of a capital asset transferred by an assessee as on the date of the transfer exceeds the declared value thereof by more than twenty five per cent of such declared value, the Government may offer to buy the said asset in such manner as may be prescribed.

(5) Notwithstanding anything contained in this section or section 31, where a capital gain arises from the transfer of a 1[plant, machinery, equipment, motor vehicle, furniture, fixture, and computer] capital asset which immediately before the date on which the transfer took place was being

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¹ Ins. by F.O. 1986, subsequently omitted by F.A. 1990 and restored by F.A. 1993

used by the assessee for the purposes of his business or profession and the assessee has, within a period of one year before or after that date, purchased a new  2[plant, machinery, equipment, motor vehicle, furniture, fixture, and computer] capital asset for the ¹[same] purposes of his business or profession, then, instead of the capital gain being charged to tax as income of the income year in which the transfer took place, it shall, if the assessee so elects in writing before the assessment is made, be dealt with in accordance with the following provisions of this sub-section, that is to say-

(a) if the amount of the capital gains is greater than the cost of acquisition of the new asset,-

(i) the difference between the amount of the capital gain and the cost of acquisition of the new asset shall be charged under section 31 as income of the income year, and

(b) if the amount of the capital gain is equal to or less than the cost of acquisition of the new asset,-

(i) the capital gain shall not be charged under section 31, and

(ii)  for the purposes of computing in respect of the new asset any allowance under the Third Schedule or any income under section 19(16) or the amount of any capital gain arising from its transfer, the cost of acquisition or the written down value, as the case may be, shall be reduced by the amount of the capital gain:

Provided that where in respect of the purchase of a new capital asset consisting of plant or machinery, the assessee satisfies the Deputy Commissioner of Taxes that despite the exercise of due diligence it has not been possible to make the purchase within the period specified in this sub-section, the Deputy Commissioner of Taxes may, with the prior approval of the Inspecting Joint Commissioner, extend the said period to such date as he considers reasonable.

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¹Omitted by F.A. 1995

¹[(6) Notwithstanding anything contained in this section or section 31, where a capital asset being buildings or lands appurtenant thereto the income of which is chargeable under the head “Income from house property”, which in the two years immediately preceding the date on which the transfer took place was being used for the purpose of residence, and the assessee has within a period of one year before or after that date purchased, or has within a period of one year before or after that date purchased, or has within a period of two years after that date constructed, a house property for the purpose of residence then instead of the capital gain being charged to tax as income of the income year in which the transfer took place, it shall, if the assessee so elects in writing before the assessment is made, be dealt with in accordance with the following provisions of this sub-section, that is to say-

(a) if the amount of the capital gains is greater than the cost of acquisition of the new asset—

      (i) the difference between the amount of the capital gain charged under section 31 as income of the ²[income year],and