Capital / revenue receipt

Save Share

This query is : Resolved

Ram Bhuvnesh (Querist)

13 August 2007 Kindly clear my doubts about following :

1. In a collaboration agreement with builder , an advance is received by the party before the execution under the agreement. If contract is not executed by the builder and advance is forfeited, what will be the treatment of advance received by the party.Will it be a capital receipt- not taxable or revenue receipt taxable in the hands of party? If the contract is given to some other party subsequently , will it change character of the advance received from the earlier builder ?

2.A security deposit is received from the tenant with a condition that landlord will construct a floor in the market place on his building and let it out to him for a period of at least 3 years on a particular monthly rent.On completion of floor, the tenant does not take the possession and security deposit is forfeited and building is let out to some other party after some time . What will the treatment of security deposit forfeited ?

From
Ram Bhuvnesh
Email- rambhuvneshfca@yahoo.co.in

Raj

Raj (Expert)

13 August 2007 Definately in yours 1st case it will be treated as revenue receipt because after forfeiture ,receipt as advance will loose its charaterstic i.e party can not claim for its recovery.

In second case also response will be same.

* But it must clear that Advance/security deposit should not substitute as an advance from second party.

Ram Bhuvnesh

Ram Bhuvnesh (Querist)

13 August 2007 Why the advance received and forfeited will not be a capital receipt non taxable?

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now