Where any Scientific Research Asset (on which 100% deduction claimed u/s 35) ceases to be used as Scientific research asset and is instead used in normal business as fixed asset, what will be the tax treatment of the above transaction?
(i) Will such asset be added to block of assets with actual cost u/s 43(1) being NIL, so that on its sale, any moneys payable be subtracted from its block; or
(ii) Will such asset be kept out of block and any moneys payable on its sale/transfer etc. be charged to P/L directly as recovery of earlier deductions/expenses u/s 41(1) ?
Thanks in advance.
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Section 35 r.w. Sec 41(1)
Replies (3)
Dear Sandeep Goyal
If a scientific research asset ceases to be used as scientific research asset and used in normal business operation then it will be added to relevant block of asset with the actual cost taken to be NIL (Actual cost is considered as nil by virtue of Explanation 1 to Clause 1 of Section 43).
And if that asset is sold in the future, the value of the block will be reduced by the sale value of asset.
In case of any assets purchase for scientific research,
then you have claim 100%deduction
1. Yes, this assets is added to block but it's value will be nil, as you earlier claim 100% , so now you cannot take deperciation.
2.yes , when this assets is sold then such income will be charged under PGBP income on gross imcome ,
as you mention sec 41(1) , no this not correct it's apply only in case if we earlier claim any exp now this exp are waive off
the sale of assets of scientific research treatment is given in sec 35
then you have claim 100%deduction
1. Yes, this assets is added to block but it's value will be nil, as you earlier claim 100% , so now you cannot take deperciation.
2.yes , when this assets is sold then such income will be charged under PGBP income on gross imcome ,
as you mention sec 41(1) , no this not correct it's apply only in case if we earlier claim any exp now this exp are waive off
the sale of assets of scientific research treatment is given in sec 35
See, there are two treatments
1. When scientific research asset is sold after being used for normal business operation.
In this case, when the scientific research asset is used for normal business operation, the assets would have been made a part of the block of the asset when it ceases to be used for scientific research with a nil value as per Explanation 1 to Sec 43(1) and when the scientific research asset is sold, the money receivable will be reduced from bock of the asset as per Section 50.
2. When the scientific research asset is sold without having been used for the purpose of business.
In this case, As per Sec 41(3), PGBP = Sale Price or Deduction Claimed earlier, whichever is less.
And capital Gain will also arise if the Sales price is greater than the cost of the asset.
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