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Pgbp doubt

NISHA AGARWAL (Chartered Accountant) (454 Points)

24 September 2016

sec 41(2) states that in case of an asset on which depreciation has been allowed on SLM then, if S.P> W.D.V then balance taxed as PGBP and Sec 50A says that in case of an asset on which depreciation has been allowed on SLM then if S.P. > Actual Cost, balance will be STCG.

my question is on what basis will the asset be taxed?

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9 Replies

attika (Article assistant) (179 Points)
Replied 24 September 2016

See while following slm Basis if sp is more then wdv then

difference between sp and cost is capital gain(lt/st)

balance difference is notional gain.

1 Like

CA Saba Naaz (Chartered Accountant) (8487 Points)
Replied 24 September 2016

In case SP exceeds WDV ,but is less than the actual cost.. difference between SP and WDV is taxed as business income (called balancing charge).
And in case , SP exceeds the actual cost, then difference between SP and actual cost is taxed under capital gains and the difference between actual cost and WDV is taxed as business income u/s 41(2).
And the capital gain can be either STCG or LTCG, depending upon the holding period.

2 Like

Satish kumar (Student CA Final ) (56 Points)
Replied 24 September 2016

For depreciable assets there is no long term gain. It is always short term capital gain. For depreciable assets there is no indexation and tany gain arises,should be treated as short term capital gain.

1 Like

CA Ajay Thakkar (Others) (148 Points)
Replied 24 September 2016

SEC 41 (2) IS APPLICABLE IN RESPECT OF ASSESSMENT YEARS BEFORE THE CONCEPT OF BLOCK OF ASSETS WAS INTRODUCED.

BLOCK OF ASSETS

OP WDV XXX

+ ADDITION (COST) XXX

XXX

-- DEDUCTION (SP) XXX

WDV BEFORE DEP XXX

AS PER SEC 32 WDV BEFORE DEP IS TO BE TAKEN AS NIL IN THE FOLLOWING CASES:

WHEN WDV BERFORE DEP IS NEGATIVE
WHEN BLOCK OF ASSETS IS EMPTY

IN FIRST CASE THERE IS SHORT TERM CAPITAL GAIN

IN SECOND CASE THERE IS SHORT TERM CAPITAL LOSS

EXAMPLE: IN FIRST TWO CASES ONLY PART OF ASSETS OF BLOCK ARE SOLD AND IN CASE - III ALL ASSETS OF BLOCK ARE SOLD(ie BLOCK IS EMPTY THOUGH IT SHOWS POSITIVE WDV BEFORE DEP)

BLOCK OF ASSETS (10% ) I II III

OP WDV 200000 200000 200000

+ ADDITION (COST) 50000 50000 50000

250000 250000 250000

-- DEDUCTION (SP) 100000 300000 150000 (CASE - III ALL ASSETS ARE SOLD)

WDV BEFORE DEP 150000 (50000) 100000

CASE -1: PROVIDE DEP ON 150000

CASE - 2: SHORT TERM CAPITAL GAIN 50000

CASE - 3: SHORT TERM CAPITAL LOSS 100000.

IN CASE - 3, WE CAN NOT PROVIDE DEP ON 100000 AS BLOCK IS EMPTY

1 Like

CA Ajay Thakkar (Others) (148 Points)
Replied 24 September 2016

EXAMPLE:

IN FIRST TWO CASES ONLY PART OF ASSETS OF BLOCK ARE SOLD AND IN CASE - III ALL ASSETS OF BLOCK ARE SOLD(ie BLOCK IS EMPTY THOUGH IT SHOWS POSITIVE WDV BEFORE DEP)

BLOCK OF ASSETS (10% ) I II III

OP WDV 200000 200000 200000

+ ADDITION (COST) 50000 50000 50000

250000 250000 250000

-- DEDUCTION (SP) 100000 300000 150000 (CASE - III ALL ASSETS ARE SOLD)

WDV BEFORE DEP 150000 (50000) 100000

CASE -1: PROVIDE DEP ON 150000

CASE - 2: SHORT TERM CAPITAL GAIN 50000

CASE - 3: SHORT TERM CAPITAL LOSS 100000.

IN CASE - 3, WE CAN NOT PROVIDE DEP ON 100000 AS BLOCK IS EMPTY

1 Like

CA Saba Naaz (Chartered Accountant) (8487 Points)
Replied 24 September 2016

This is the case of electricity companies. Under Sec.50A , there can be long term capital gain where the asset is held for more than 36 months.

1 Like

NISHA AGARWAL (Chartered Accountant) (454 Points)
Replied 24 September 2016

Thank u all for the response!!

CA Goutam Sharma (Chartered Accountant in Practice) (468 Points)
Replied 06 October 2016

Nisha..none of the answer is suitable..although all are correct

CA Goutam Sharma (Chartered Accountant in Practice) (468 Points)
Replied 06 October 2016

it is not merely the electricity com. but in many other case the same treatment is observed. This differential treatment is based on specific concept. You shall get it understood by separating all such case from the case of Wdv.. then try to observe the difference.

otherwise wait for some days..I will explain ..