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Section 50 implication

Devendra (Chartered Accountant) (4780 Points)

24 August 2011

M/s ABC Pvt. Ltd. has sold a machinery for Rs. 3.80 lacs. WDV of the machinery is Rs. 2.50 Lacs. The Profit on Sale of Fixed Asset is Rs. 1.30 lacs. While calculating the Income from Business the Profit on sale of Fixed Asset shall be deducted. Then profit shall be taxed as Capital gain u/s 50 of the IT Act, 1961. ie Rs 1.30 x 30% = Rs. 39000. Whether the above calculation is correct.

Please guide.

Regards,

Devendra

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4 Replies

neeraj tyagi (CA) (33 Points)
Replied 24 August 2011

Dear Devendra

As per section 32 sale proceeds should be deducted from block of assets.

CA. ANKUR JAIN (CA.....) (2800 Points)
Replied 25 August 2011

Your calculation OF short term cap gains u/s 50 is correct subject to the followings:-

There is no other machinery in the P&M BLOCK
Any other asset exist but the sale proceeds exceeds the WDV of WHOLE BLOCK.

CHECK IT

Devendra (Chartered Accountant) (4780 Points)
Replied 25 August 2011

Is it correct that in case of a Pvt. Ltd. Co. the profit / loss on the sale of asset cannot be transferred to other Asset in the same block, and the net result should be credited / debited to the P&L A/c?

Regards,

Devendra

Max Payne (employed) (2574 Points)
Replied 25 August 2011

As far as IT is concerned,

reduce the amount realised on sale of the asset from the concerned block.

Section 50 implication arises when:

1. Not a single asset left in the block; or

2. Value of the block becomes negative.

While preparing P&L under companies act, only the gain/loss on disposal will come to the P&L.... Gross block and provision for depreciation should be adjusted....

Pass the foll entries:

Bank Dr. 3,80,000

to WDV 2,50,000

to Profit on sale of machinery 1,30,000

Profit on sale of machinery Dr. 1,30,000

to P&L 1,30,000

Instead of WDV, you actually have to pass the entry as crediting the provision for depreciation and debiting the gross value of the P&M... then you can use in sch VI depreciation schedule format.