Meaning of “Actual cost”

Case Name : Arvind mills ltd. Vs. CIT

Citation : [1978] 112 ITR 64 (guj.)

Court : Gujarat high court

Section : 43(1)

Meaning :  The expression ‘actual cost’ in the context of the statutory provisions under consideration must be understood in the sense in which no commercial man would misunderstand. The word ‘cost’ is not synonymous with ‘price’. Besides the price of machinery or plant, it takes in many other items of expenditure such for instance as freight, warehouse or insurance charges legal expenses incurred in connection with its acquisition and interest incurred before the commencement of production on capital contributed or borrowed to acquire such asset. In other words, in determining the actual cost of a fixed asset, all expenditure necessary to bring such asset into existence and to put it in working condition may legitimately be taken into account.

Case Name : Challapalli sugars ltd. Vs. CIT

Citation : [1975] 98 ITR 167 (sc)

Court : Supreme court

Section : 43(1)

Meaning : As the expression ‘actual cost’ has not been defined, it should be construed in the sense in which no commercial man would misunderstand it. For this purpose, it would be necessary to ascertain the connotation of the expression in accordance with the normal rules of accountancy prevailing in commerce and industry. The accepted accountancy rule for determining cost of fixed assets is to include all expenditure necessary to bring such assets into existence and to put them in working condition.

Case Name : CIT  Vs. Challapalli sugars ltd. 

Citation :[1970] 77 ITR 392 (ap)

Court : Andhra pradesh high court

Section :43(1)

Meaning : The ordinary dictionary meaning of the word ‘actual’ is ‘existing in fact or fact as opposed to imaginary or past state of things’. Likewise the dictionary meaning of the word ‘cost’ is ‘what is laid out or suffered to obtain anything’. The phrase ‘actual cost’, therefore, plainly indicates that the section is intended to confine the relief to an aggregate equal to the sum of money which the person has expended out of his own resources, called cost, of which the burden has ultimately fallen upon him. In other words, what a person expends on machi-nery seems to be the actual cost to him of acquiring and installing that machinery.

Case Name : Habib hussein Vs. CIT

Citation : [1963] 48 ITR  859 (bom.)

Court :  Bombay high court

Section : 43(1)

Meaning : The ordinary dictionary meaning of the word ‘actual’ is ‘existing in fact or fact as opposed to imaginary or past state of things’. The dictionary meaning of the word ‘cost’ is ‘what is laid out or suffered to obtain anything’. Therefore, the meaning of the expression ‘actual cost to the assessee’ as used in sub-section (5) of section 10 of the 1922 act would be what the assessee has, in fact, expended or laid out for the purpose of acquiring the depreciable assets.

Case Name : CIT Vs. Lothian jute mills co. Ltd. 

Citation : [1967] 66 ITR  630 (cal.)

Court :  Kolkata high court

Section : 43(1)

Meaning :  In using the expression ‘actual cost to the assessee’, the legislature wanted to indicate the sum of money or money’s worth which it cost the assessee to acquire the asset. In special cases, however, the legislature indicated that the ‘actual cost to the assessee’ might be determined at some other figure. The word ‘actual’ means according to the oxford dictionary ‘existing in act or fact, really acted or acting, carried out, real as opposed to potential possible, virtual, theoretical, ideal, etc’. Again it may mean ‘in action or existence at the time, present, current,’ ‘actual cost’ means ‘real cost’ – the cost which the assessee incurred in act or fact. This can only mean the cost at which the assessee acquired the asset, namely, the original cost.

Case Name : CIT  Vs. Buckingham & carnatic co. Ltd. 

Citation : [1935] 3 ITR 384 (pc)

Court : Provincial Court

Section : 43(1)

Meaning : Actual cost’ for the purpose of calculation of depreciation is the original cost of the person by whom the income-tax is payable.

Case Name : Asstt. CIT Vs. Richa industries ltd. 

Citation : [2014] 52 Taxmann.Com 16 (delhi – trib.)

Court / Tribunal : Itat- delhi

Section : 43(1)

Meaning : Sub-section (1) of section 43 defines ‘actual cost’ to mean ‘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 any other person or authority.’ Thus, explanation 10 to section 43(1) was introduced to ensure appropriate computation of actual cost of assets in case subsidy is received. Thus, the contentions of the revenue and the approach of the assessing officer that the introduction of explanation 10 supports the action of the assessing officer that subsidy given by the government, by whatever name called, cannot be reduced from the actual cost of the assets in terms of section 43(1) for the purpose of allowing depreciation was not proper.

Case Name : Shah granites (p.) Ltd. Vs. ITO

Citation : [1987] 21 ITD 282 (bom.-Trib.)

Court : Itat- bombay

Section : 80J

Meaning : The words ‘actual cost’ and ‘written down value’ to an assessee as defined in clauses (1) and (6) of section 43 and as adopted by explanations 1 and 3 to section 80j(1a), have to have the same meaning, namely, ‘actual cost of the asset’ and ‘actual cost less all depreciation actually allowed’ but with contextual adaptation of section 80j they would mean ‘actual cost of the asset to the industrial undertaking’ and ‘actual cost to industrial undertaking less all depreciation allowed to it’.