Section 45 (1A)

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This query is : Resolved

Vivek Khanna (Querist)

18 December 2008 I am writing down a pratical problem :-

(i) Opening WDV of Machinery on 01.04.2005 : 1300552/-

(ii) Assets destroyed due to fire & Insurance Claim received on
On 01.10.2005 : 5540639/-

(iii) New Machinery purchased after 01.10.2005 to 31.03.2006 : 6464630/-

Due to fire the whole machinery was not destroyed and few machinery was left intact after fire. What will be my WDV on 31.03.2006? Also whether any STCG will be levied as I have purchased machinery after receiving the Insurance claim? Whether the block will be counted at the end of the year?

CA Parvin Ahuja

CA Parvin Ahuja (Expert)

18 December 2008 WDV of the machinery destroyed is Rs.13,00,552/- and the insurance claim received is Rs.64,64,630/-. The excess amount received over and above WDV has to be considered in two parts. To the extent of depriciation claimed in earlier years it will be treated as business profit under section 41(2) of The Income Tax Act,1961 and the balance(Excess of Original Cost) will be taxed under the head Capital Gains. Whether short term or long term depends on the period for which the machinery has been held by the assesee. WDV as on 31.03.2006 will be cost of new machinery only since it has been been acquired after the old machinery has been destroyed and insurance claim received.

CA Tilak Raj Sharma

CA Tilak Raj Sharma (Expert)

18 December 2008 Here is the computation of capital gain in your case:
Block of Assets:
Opening balance as on 01.04.2005 (a) 1300552.00
Add: Cost of assets acquired during the P.Y. (b) 6464630.00
Less: Money payable in respect of assets sold, discarded, demolished or destroyed (subject to maximum of (a)+(b)) 5540639.00

WDV as on 31.03.2006 2224543.00

CA Tilak Raj Sharma

CA Tilak Raj Sharma (Expert)

18 December 2008 capital Gain:

Sale Consideration (Insurance Claim) 5540639.00
Less: Cost of Acquisiton as per section 50 2224543.00

Short term Capital gain 3316096.00

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