Report No. 12
42. Interpretation.-
In sections 28 to 41 [all sections incorporating any part of section 10] and in this section, unless the context otherwise requires,-
(1) "actual cost" means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by Government or by any public or local authority.
["Actual cost"] [Section 10(5) Expin., at the end, earlier part]
Explanation 1.-Where an asset is used in the business after it ceases to be used for scientific research related to that business, and a deduction has to be made under section 32(1), clause (i)(ii) or (iv) [Section 10(2)(vi) or (vii)] in respect of that asset, the actual cost of the asset to the assessee shall be the actual cost to the assessee as reduced by the amount of any deduction allowed under section 35(1)(iv) [10(2)(xiv)] or under any corresponding provision of the Indian Income-tax Act, 1922 (11 of 1922).
[Section 10(2)(xiv), 2nd proviso (c), latter part.]
Explanation 2.-Where an asset is acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be the written down value thereof as in the case of the previous owner for the previous year in which the asset is so acquired or the market value thereof on the date of such acquisition, whichever is the less.
[Section 10(5)(c)]
Explanation 3.- Where, before the date of acquisition by the assessee, the assets were at any time used by any other person for the purposes of his business, profession or vocation and the Income-tax Officer is satisfied that the main purpose of the transfer of such assets, directly or indirectly to the assessee, was the reduction of a liability to income-tax (by claiming depreciation with reference to an enhanced cost), the actual cost to the assessee shall be such an amount as the Income-tax Officer may, with the previous approval of the Inspecting Assistant Commissioner, determine having regard to all the circumstances of the case.
[Section 10(5)(a), 1st proviso]
Explanation 4.- Where assets which had once belonged to the assessee and had been used by him for the purposes of his business, profession or vocation and thereafter ceased to be his property by reason of transfer or otherwise, are re-acquired by him, the actual cost to the assessee shall be the actual cost to him when he first acquired the assets less all depreciation actually allowed to him under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), or under any Act repealed by that Act or under executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force.
[Section 10(5)(a), 2nd proviso]
Explanation 5.-When any capital asset is transferred, by a company to its subsidiary company, then, if the conditions of section 47(iii) [section 12B(1), 2nd proviso, earlier half] are satisfied, the actual cost of the transferred capital asset to the subsidiary company shall be taken to be the same as it would have been if the parent company had continued to hold the capital, asset for the purposes of its business.
[Section 12B(1), 2nd proviso latter half, part]
(2) "paid" means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business, profession or vocation";
["Paid") [Section 10(5), first para., part.]
(3) "plant" includes ships, vehicles, books, scientific apparatus and surgical equipment purchased for the purposes of the business, profession or vocation;
["Plant"] [Section 10(5), first para., part]
(4) "received" means received according to the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business, profession or vocation";
["Received"] [New]
(5) (i) "scientific research" means any activities in the fields of natural or applied science for the extension of knowledge;
[Section 10(2)(xiv), Expin. (i)]
(ii) references to expenditure incurred on scientific research include all expenditure incurred for the prosecution of, or the provision of facilities for the prosecution of, scientific research, but do not include any expenditure incurred in the acquisition of rights in, or arising out of, scientific research;
[Section 10(2)(xiv), Expin].
(iii) references to scientific research related to a business or class of business include-
(a) any scientific research which may lead to or facilitate an extension of that business or, as the case may be, all businesses of that class;
(b) any scientific research of a medical nature which has a special relation to the welfare of workers employed in that business or, as the case may be, all businesses of that class;
["Scientific research") [Section 10(2)(xiv), Expin. (iii)]
(6) "speculative transaction" means a transaction in which a contract for purchase and sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips:
Provided that for the purposes of this clause-
(a) a contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or
(b) a contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or
(c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; shall not be deemed to be a speculative transaction;
[Section 24(1), Expin. (2)]
(7) "written down value" means-
(a) in the case of assets acquired in the previous year, the actual cost to the assessee;
["Written down value"] (Section 10(5)(a), main partl
(b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indian Income-tax Act, 1922 (11 of 1922), or any Act repealed by that Act, or under executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886) was in force:
[Section 10(5)(b), main part]
Provided that in the case of a building previously the property of the assessee and brought into use for the purposes of the business, profession or vocation after the 28th day of February, 1946, "written down value" means the actual cost to the assessee reduced by an amount equal to the depreciation calculated at the rate in force on that date that would have been allowable had the building been used for the aforesaid purposes since the date of its acquisition by the assessee and had the provisions of this Act relating to the allowance for depreciation been in force on and from the date of acquisition.
[Section 10(5)(b), 1st proviso]
Explanation 1.-When in a case of succession in business, profession or vocation, an assessment is made on the successor under section 180(2) [Section 26(2) proviso], the written down value of any asset shall be the amount which would have been taken as its written down value if the assessment had been made directly on the person succeeded to.
[Section 10(5)(b), 2nd proviso]
Explanation 2.-When any capital asset is transferred by a company to its subsidiary company, then, if the conditions of section 47(iii) [section 12B(1), 2nd proviso, earlier half] are satisfied, the written down value of the transferred capital asset to the subsidiary company shall be taken to be the same as it would have been if the parent company had continued to hold the capital asset for the purposes of its business.
[Section 12B(1), 2nd proviso, latter half part]
Explanation 3.-Any allowance in respect of any depreciation carried forward under Chapter VI [chapter on Aggregation and set off] shall be deemed to be depreciation "actually allowed".
[Section 10(5), Expin. latter half]
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