05 July 2008
I want to know the answer for the following question
Suppose 1 machinery amounting to rs. 100000 has been purchased on 01.01.2002 and the W.D.V of the machinery on 31.03.2008 is Rs. 40000 and now this machinery is being sold for Rs. 150000.
Someone says that Rs. 50000 is a capital profit and Rs. 60000 is revenue profit whereas sopmeone contends that Rs. 110000 is a revenue profit . the clarification given by them is that nothing has beemn specified in As-10 that there is capital profit above the historical cost . however one of the expert said that it has also been held by the institute in the journal of june 2000.(copy of journal is not available to me so i am not able to verify the same)
05 July 2008
AS PER SECTION 50 OF THE INCOME TAX ACT, THE PROVISION IS AS FOLLOWS:
Special provision for computation of capital gains in case of depreciable assets.
50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications :—
(1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely :—
(i) expenditure incurred wholly and exclusively in connection with such transfer or transfers;
(ii) the written down value of the block of assets at the beginning of the previous year; and
(iii) the actual cost of any asset falling within the block of assets acquired during the previous year,
such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;
(2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.]
07 July 2008
i am not satisfued with the replies of the experts as reply provided by CA Awanish has no backing. and Mr. Sampat jain has replied my queries in accordance with income tax act wheereas i wanted to know it from the accounts view point.
30 April 2009
The entire amount is a revenue receipt as per accunting perspective and for tax purpose this will be short term capital gain if the sale consideration exceeds the WDV as per IT Act and this is the only assets in the block.
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