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Re: {Amresh's CA's} Treatment of Capital subsidy & its taxability

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  • lalit jain
    Dear Sir,            Please deduct the amount of Plant & Machinery from written down value for Rs.150000/- in the F.Y.2011-12 by giving the effect of
    Message 1 of 4 , Nov 15, 2012
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      Dear Sir,
                  Please deduct the amount of Plant & Machinery from written down value for Rs.150000/- in the F.Y.2011-12 by giving the effect of capital subsidy.Since it is a capital receipt hence question of tax liability is not arise.

      Thanks & Regards,
      CA LALIT LUNKAD
      DHAMTARI
      9425139860 

      --- On Sat, 10/11/12, Raj Kumar <fursati70@...> wrote:

      From: Raj Kumar <fursati70@...>
      Subject: {Amresh's CA's} Treatment of Capital subsidy & its taxability
      To: icai_circ_meerut_ca@yahoogroups.com
      Cc: ThaneCAs@yahoogroups.com
      Date: Saturday, 10 November, 2012, 2:30 PM

       

      Dear all,
       
      One of my client has received capital subsidy of Rs. 150000/- during the f.y. 2011-12. WDV of the plant & machinery as on 01-04-2011 was Rs. 112999/-. What should be the accounting treatment for such transaction.
       
      Whether he is liable to pay Income tax & if yes under which head of income & on what amount ?
       
      Raj

    • Vikas Lalwani
      It seems that there is some facts missing in the data provided. In actual practice, subsidy cannot exceed the amount of original investment. Is it the fact
      Message 2 of 4 , Nov 16, 2012
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        It seems that there is some facts missing in the data provided.

        In actual practice, subsidy cannot exceed the amount of original investment.

        Is it the fact that the P&M has been bought long back and the subsidy has been received at a later date (may be after years)?
        If this is the case, then, as far as taxation is considered, to the extent depreciation has been debited on such subsidy element, it should be credited to P&L Account under the provisions of Sec 41- Deemed Profits. The Balance portion of subsidy should be reduced from the cost of Block of Plant & Machinery. If the Net result in such block is Negative then it results in short term capital Gains (combined reading of Sec 43 & Ssec 50)

        Text of relevant sections is as follows:
        43. In sections 28 to 41 and in this section, unless the context otherwise requires5
        (1) "actual cost" means the actual cost5 of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met5 directly or indirectly by any other person or authority

        50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications :—
         (1) where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely :—
          (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers;
         (ii) the written down value of the block of assets at the beginning of the previous year; and
        (iii) the actual cost of any asset falling within the block of assets acquired during the previous year,
        such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;
         (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.]


        Good day,
        CA Vikas Lalwani
        +91 9479 555 250


        From: lalit jain <lalit_jain05@...>
        To: ICAI_CIRC_MEERUT_CA@yahoogroups.com
        Sent: Friday, November 16, 2012 10:20 AM
        Subject: Re: {Amresh's CA's} Treatment of Capital subsidy & its taxability

         
        Dear Sir,
                    Please deduct the amount of Plant & Machinery from written down value for Rs.150000/- in the F.Y.2011-12 by giving the effect of capital subsidy.Since it is a capital receipt hence question of tax liability is not arise.

        Thanks & Regards,
        CA LALIT LUNKAD
        DHAMTARI
        9425139860 

        --- On Sat, 10/11/12, Raj Kumar <fursati70@...> wrote:

        From: Raj Kumar <fursati70@...>
        Subject: {Amresh's CA's} Treatment of Capital subsidy & its taxability
        To: icai_circ_meerut_ca@yahoogroups.com
        Cc: ThaneCAs@yahoogroups.com
        Date: Saturday, 10 November, 2012, 2:30 PM

         
        Dear all,
         
        One of my client has received capital subsidy of Rs. 150000/- during the f.y. 2011-12. WDV of the plant & machinery as on 01-04-2011 was Rs. 112999/-. What should be the accounting treatment for such transaction.
         
        Whether he is liable to pay Income tax & if yes under which head of income & on what amount ?
         
        Raj


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