Capital gain under and depreciation

This query is : Open

Querist : Anonymous

Querist : Anonymous (Querist)

18 January 2012 Dear Sir,
We seek your opinion on the matter on deprection under Income Tax Law and issue related to capital gain.
The company purchased assets under deferral payment basis (installment system) and capitalised assets for2.50 crores cosisting furniture and interiors work. After some time the assets was taken back by the hire seller. Under block of assets of Furniture there were some other items. Now the furniture which were purchased under hire purchase has been transferred back at50 Lacs.
WDV of the block of assets of furniture as on 01/04/2010:-1.82 Crores
A) Furniture:- 2.00 Lacs
B) Furniture purchased under Hire Purchase:- 1.80 Crores
Addition made under furniture during the year :- NIL
Sale consideration for transfered of funiture back :- 50Lacs
How to taken care for provision of depreciation under income tax act and income under the head capital gain.

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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18 January 2012 The sale price of Rs. 50 lakhs shall be reduced from the WDV of Rs. 1.82 crores.

Since the block continues to exist (you still have other furniture with you), depreciation shall be allowed on the remaining WDV of Rs. 1.32 crores.

There will be no capital gain since the block continues to exist and has a positive WDV.

Querist : Anonymous

Querist : Anonymous (Querist)

18 January 2012 Dear Mr. Siddhartha

I hope while forming your opinion you have taken in to account the fact that this is hire purchase transaction.

Will your opinion be valid even if this falls under hire purchase?

IS it possible to avail benefit of depreciation even if the Major portion of the block has been sold?

CA Siddhartha Bhardwaj

CA Siddhartha Bhardwaj (Expert)
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18 January 2012 Benefit of depreciation can be availed as long as the block exists. There must be atleast 1 asset in the block even though it may be of a nominal amount.

Even if major portion of the block has been sold, but:

1. Sale price is less than WDV, and
2. There is atleast 1 asset in the block

depreciation will be claimed because the block continues to exist.

Capital gain/loss arises only when the sale price exceeds the WDV or the block ceases to exist, i.e., ALL the assets forming part of block of assets are sold.

Querist : Anonymous

Querist : Anonymous (Querist)

18 January 2012 Dear Sir

Please confirm whether you are taking in to consideration that the fact pertains to Assets purchased on Hire Purchase Basis and the same transferred back with whom hire purchase agreement was made.

Request you to please confirm sothat we can go ahead accordingly

CA PARAS BAFNA

CA PARAS BAFNA (Expert)
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18 January 2012 Your company owns the asset, which has been used for business purpose and depreciation has been claimed by the company.
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This asset was acquired prior to 1.4.2010 on hire.
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This asset is being transferred back to the original vendor.
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If you go through Explanation 4A to Section 43(1), it states that for the vendor the value for such transferred asset shall be taken as the WDV as stated in the books of your company.
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In case the above reply is meeting the situation please revert back for further
input from your side.
.

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