My Client recently received compensation from State Government for acquiring plant & machinery & lease land ,come within the area of hydal Project. State Government deduct TDS @ 0.75% from Compensation amount.Depreciate value of plant & machinery approx. 30% of compensation amount.
Is it taxable in the hand of client .
According to Accounting Standard 12 'Accounting for Government Grants', the grant / subsidy received from the State / Central Government is to be deducted from the Fixed Asset for which the same is given. Further the depreciation is to be charged on the amount arising after the deduction of the Subsidy / Grant received.
Secondly, the Grant / subsidy received is not a regular income received by the Co., but it is an extra-ordinary income. Hence, the same shall not be taxable.
But in your client's case, TDS has been deducted, which shall be refunded by the Income Tax Department, if there is no further liability to the client.
Regards,
Devendra Kulkarni
CAclubindia
