Profit from business and profession

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Abhijit Sawarkar (Querist)

07 November 2012 Hi,

Assessee is public ltd company.
Assessee company had ordered machinary from Germany and given 5% advance money but due to some business problem assessee had decided to cancel the order. During cancellation and receipt of advance given, company had made profit?

Please let me know taxability of the same as it seems to be capital recepit.

Regards,
Abhijit

Amol S Joglekar

Amol S Joglekar (Expert)

07 November 2012 yes, it is a capital profit. Refer the case of Sandvik Asia Ltd.

Abhijit Sawarkar

Abhijit Sawarkar (Querist)

07 November 2012 Dear Amol,

Can you please mention detailed name of case law..? Gain on recept of advance is due to Foreign exchange diffrence.

Regards,
Abhijit

Amol S Joglekar

Amol S Joglekar (Expert)

07 November 2012 There are good many number of cases decided by Bombay (Mumbai) High Court. The oldest one is I think that of Telco... (now tata motors), Kirloskar Asiatic Ltd. The principle followed by the court was, exchange gain arising out of "capital expenditure (including advance thereof)" is of capital nature. Even there is one case law where, advance was sent for purchase of machinery, the same got cancelled and then some spare parts were imported out of the same advance. In that it was decided that exchange gain is revenue... (spare parts are revenue)

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