Ravi (Audit Assistant) (48 Points)
19 March 2010Hi All,
A client of mine met with an accident. He got insurance claim from the insurance agencies, apart from this he got few lakhs as compensation from the person who caused the accident. Can any one explain the tax consequence of the insurance claim and additional compensation ??
Its urgent.......
CA AYUSH AGRAWAL
(Kolkata-Pune-Mumbai)
(26986 Points)
Replied 19 March 2010
Amir
(Learner)
(4016 Points)
Replied 19 March 2010
Dear Ravi,
Can u plz clarify whether that Insurance claim is in respect of medical/health/accidental insurance or in respect of a vehicle..
Further, if in respect of vehicle den whether dat vehicle is used in businesss/profession or for personal purpose........
Ashish M
(Chartered Accountant)
(2731 Points)
Replied 20 March 2010
pls clarify, in what respects the insurance claims were recieved!!!!!!!!!!!!
Ravi
(Audit Assistant)
(48 Points)
Replied 24 March 2010
He has got accidental relief under an accident insurance cover. He has no business of his own. The vehicle in which he met wit an accident was his personal vehicle.
Now this year he is supposed to get compensation from Travel agencies which caused the accident. I have a doubt whether such compensation is taxable in his hands ??
Any more information on this, pls feel free to ask
Amir
(Learner)
(4016 Points)
Replied 24 March 2010
Dear Ravi,
For me, It cannot be taxed simply because it is a receipt which is capital in nature...........
Now second question that comes is what will be the treatment in the hands of company/travel agency making the payment?
They will get the deduction of this amount paid as compensation since for them it is revenue in nature........
Mere fact that payment is capital receipt in payee’s hands is not relevant - The fact that a certain payment constitutes incomes or capital receipt in the hands of the recipient is not material in determining whether the payment is revenue or capital disbursement qua the payer. Whether it is capital expenditure or revenue expenditure would have to be determined having regard to the nature of the transaction and other relevant factors - Empire Jute Co. Ltd. v. CIT (SC)
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