Direct tax c a ( final)

This query is : Resolved

Narinder Kumar (Querist)
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14 February 2014 A non resident wins a car in a crossword puzzle and market price is Rs 240000. Tax under section 115BB @30.90%=74160.A company can recover tax from winner and release the car to winner. A company deposit tax of Rs.74160 and give a tds certificate of Rs. 74160 to the winner.

in case if tax is not recovered from the winner,then company have to bear the tax, in such case company have to pay tds
(240000+x)*30.90/100= tax
Tax = 107323
in the hands of winner income shall be 240000+107323=347323.
My questions are
1. what is logic behind grossing up?
2.Difference of 107323-74160=33163 as excess tax in case II ,why.
3. is it loss to the payee?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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14 February 2014 well grossing up is done to make sure that taxes are paid on the right value. where the winner of the puzzle was paying tax, he was receiving value worth Rs 240000 including tax. however, where he is not paying tax, then the actual value is more than Rs 2.4 lakhs. 2.4 lakhs becomes the net of tax value. therefore grossing up is required.

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