Liquidated damages
This query is : Resolved
Mohit Bhandari
(Querist)
14 April 2015
respected members,
what is the treatment of liquidated damages received in connection with capital asset?
that is whether explanation 10 to section 43(1) applicable or not? that is whether it would reduce the actual cost of asset or not?
thanks in advance
CA.Sourabh Sethia
(Expert)
14 April 2015
No need to refer explanation 10
Section 43 (1) states that actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority.
explanation 10 is about subsidy or grants
Section 43 (1) states that actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority.
explanation 10 is about subsidy or grants
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Mohit Bhandari
(Querist)
14 April 2015
Thanks alot sir,
So it would mean that the liquidated damages received are,
(1) Neither taxable as revenue item,
(2) Nor to be deducted from the actual cost of asset for the purpose of depreciation u/s 32.
That is it has no treatment in income tax.
Correct me if I am wrong. Thanks in advance.
So it would mean that the liquidated damages received are,
(1) Neither taxable as revenue item,
(2) Nor to be deducted from the actual cost of asset for the purpose of depreciation u/s 32.
That is it has no treatment in income tax.
Correct me if I am wrong. Thanks in advance.
CA Mohit Bansal
(Expert)
14 April 2015
Liquidated damages are to be taxable under the head other incomes in the P&L.
CA.Sourabh Sethia
(Expert)
14 April 2015
Liquidated Damages are not taxable as revenue items they are treated as capital receipts and are not taxable.
However they same should be deducted from the actual cost if the same was met before the asset was put to use as the same is met by other person
However they same should be deducted from the actual cost if the same was met before the asset was put to use as the same is met by other person
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