A residential plot bought in 1995 for Rs 30,000 had a fair market value of Rs 1,40,000 and a stamp duty value of Rs 1,20,000 as on 1.4.2001. If the assessee opts for the substitution, the cost of acquisition for computing capital gains is:
ARs 30,000
BRs 1,40,000
CRs 1,20,000
DRs 1,30,000
Answer & Solution
Correct answer: C. Rs 1,20,000
1. For assets acquired before 1.4.2001, section 55(2)(b) lets the assessee substitute FMV as on 1.4.2001 for actual cost.
2. For land or building, a proviso caps that substituted FMV at the stamp duty value as on 1.4.2001.
3. FMV Rs 1,40,000 exceeds SDV Rs 1,20,000, so the substitutable value is limited to Rs 1,20,000.
4. Rs 1,20,000 is higher than actual cost Rs 30,000, so opting for substitution is beneficial: COA = Rs 1,20,000.
5. Option B is the trap — the uncapped FMV; the cap applies specifically to land and building. Option A ignores the option altogether; option D averages the two figures, which the law never does.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 4 Capital Gains, PDF p. 46_
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