Accounting entry & capital gain

“Company” as per section 2(17) of the Income Tax Act includes any body corporate incorporated under laws of a country outside India.

Therefore, the monies received on winding up of the Srilankan Company would be liable for Capital Gains tax in India u/s 46(2).

46(2) mandates monies received to be treated as full value of consideration for the purpose of determining the Capital Gains.

If on receipt of Rs.80 in 12-13 the loss of Rs.20 per share has been claimed then itself, then, on receipt of Rs.25 per share in 16-17 will have to be treated as full value of consideration with no cost of acquisition available against it.

In view of this, the accounting treatment in 16-17 would depend on the entries passed in 12-13 for recording the receipt of Rs.80.

Thank you verymuch sir

on accounting  - 1. Investment -Dr-100, Bank Cr-100 in 2006-07

2. bank Cr- 80, Investment -80 in 2012-13

3. Now Investment A/C - balance in 20 only but we received 25 how trateed ?

If in 2012-13 or in the year in which the winding up procedures were initiated no claim of loss of Rs.100 ( if the winding up was prior to 2012-13) or loss of Rs.20 on receipt of Rs.80 in 2012-13, then Rs.5 will be capital gain on receipt of Rs.25 in current financial year.

Please note that treatment in Income tax is different from accounting the receipt in books.

The accounting entry will be,

Bank a/c      dr       25

   To Investment a/c                              20

    To profit on sale of investment  a/c     5