One time settlement
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
15 October 2013
Please advise whether at the time of One time settlement with the lender, the difference between the actual liability and the amount actually paid should be transfer to Profit & Loss account or it should be transferred to capital reserve. In case it is routed through P/L, the tax liability will be huge.
16 October 2013
The difference between actual liability and the settlement amount needs to be tri-furcated into:
1. Interest in respect of which any deduction as been claimed as expense in earlier assessment years
2. Interest in respect of which deduction was not claimed in earlier assessment years
3. The principal amount
tax treatment
Part 1 should be transferred to Profit and Loss
part 2 and 3 should be transferred to capital reserve.
Logic Part 1 is taxable under 41(1).
Part 2 and 3 don't amount to any income or benefit to the assessee. Refer CIT vs. Chetan Chemicals (P) Ltd. [(2004) 267 ITR 770 (Guj)]
1. Interest in respect of which any deduction as been claimed as expense in earlier assessment years
2. Interest in respect of which deduction was not claimed in earlier assessment years
3. The principal amount
tax treatment
Part 1 should be transferred to Profit and Loss
part 2 and 3 should be transferred to capital reserve.
Logic Part 1 is taxable under 41(1).
Part 2 and 3 don't amount to any income or benefit to the assessee. Refer CIT vs. Chetan Chemicals (P) Ltd. [(2004) 267 ITR 770 (Guj)]
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