Profts and Gains o Business or Proession
Profts and Gains o Business or Proession [Ss.
[Ss.
28 to 44 DB]
28 to 44 DB]
Under Section 28 of the Income Tax Act, the followin t!"es of Under Section 28 of the Income Tax Act, the followin t!"es of incomes are charea#le to tax $nder the head %&ro'ts and
incomes are charea#le to tax $nder the head %&ro'ts and (ains of B$siness or &rofession).
(ains of B$siness or &rofession). *i+
*i+ &r&ro'ts ao'ts and aind ains of anns of an! #$si! #$siness oness or "ror "rofessifession whion which wasch was carried on #! the assessee at an! time
carried on #! the assessee at an! time d$rin the "reio$sd$rin the "reio$s
!ear-Proession
Proession [S. 2 */+] [S. 2 */+] 0 "rofession incl$des ocation.0 "rofession incl$des ocation. (ii) Compensations due to or received:
(ii) Compensations due to or received:
An! com"ensation or other "a!ment d$e to or receied for An! com"ensation or other "a!ment d$e to or receied for termination of an a""ointment or modi'cation of its
termination of an a""ointment or modi'cation of its terms #! 0terms #! 0 *a+ A "erson, manain the whole or s$#stantiall! the whole of *a+ A "erson, manain the whole or s$#stantiall! the whole of the a1airs of an Indian
the a1airs of an Indian
com"an!-*#+ a "erson, manain the whole or s$#stantiall! the whole of *#+ a "erson, manain the whole or s$#stantiall! the whole of the a1airs in India of a non 0
the a1airs in India of a non 0 Indian com"an!-Indian
com"an!-*c+ a "erson, holdin an aenc! in India for an! "art
*c+ a "erson, holdin an aenc! in India for an! "art of theof the actiities relatin to the #$siness of an!
actiities relatin to the #$siness of an! other "erson-other
"erson-*d+ an! com"ensation "aid or d$e for or in connection with the *d+ an! com"ensation "aid or d$e for or in connection with the
Income derived by a trade, professional or similar association from specific Income derived by a trade, professional or similar association from specific services performed for
services performed for itsits members; members;
(iv) Receipts in connection with oreign trade: (iv) Receipts in connection with oreign trade: *a+ &ro'ts on sale of a licence ranted $nder the
*a+ &ro'ts on sale of a licence ranted $nder the ImportsImports (Control) Order, 1955
(Control) Order, 1955 $s$all! called as Im"ort $s$all! called as Im"ort ntitlementntitlement
3icences-*#+ ash assistance *#! whateer name
*#+ ash assistance *#! whateer name called+ receied orcalled+ receied or
receia#le #! an! "erson aainst ex"orts $nder an! scheme of receia#le #! an! "erson aainst ex"orts $nder an! scheme of the (oernment of
the (oernment of
India-*c+ 5e"a!ment of an! $stoms or xcise D$t! to an! "erson *c+ 5e"a!ment of an! $stoms or xcise D$t! to an! "erson aainst ex"orts $s$all! called as draw #ac6 of
aainst ex"orts $s$all! called as draw #ac6 of $stoms or$stoms or xcise D$ties for
xcise D$ties for ex"orts-*d+ An! "ro't on the
*d+ An! "ro't on the transfer of the transfer of the D$t! ntitlement &ass Boo6D$t! ntitlement &ass Boo6 scheme, #ein d$t! 5emiss
scheme, #ein d$t! 5emission Scheme $nder ion Scheme $nder the x"ort andthe x"ort and Im"ort
Im"ort
&olic!-(v) Value o any Beneft or Peruisite: (v) Value o any Beneft or Peruisite: The al$e of an! #
The al$e of an! #ene't or "er7$isiene't or "er7$isite, whether conerti#le intote, whether conerti#le into mone! or not, arisin from #$siness or the exercise of a
mone! or not, arisin from #$siness or the exercise of a
"rofession-(vi) Receipts o a partner rom the frm: (vi) Receipts o a partner rom the frm: An! interest, salar!, #on$s,
An! interest, salar!, #on$s, commission or rem$nerationcommission or rem$neration receied #! a "artner from 'rm
Income derived by a trade, professional or similar association from specific Income derived by a trade, professional or similar association from specific services performed for
services performed for itsits members; members;
(iv) Receipts in connection with oreign trade: (iv) Receipts in connection with oreign trade: *a+ &ro'ts on sale of a licence ranted $nder the
*a+ &ro'ts on sale of a licence ranted $nder the ImportsImports (Control) Order, 1955
(Control) Order, 1955 $s$all! called as Im"ort $s$all! called as Im"ort ntitlementntitlement
3icences-*#+ ash assistance *#! whateer name
*#+ ash assistance *#! whateer name called+ receied orcalled+ receied or
receia#le #! an! "erson aainst ex"orts $nder an! scheme of receia#le #! an! "erson aainst ex"orts $nder an! scheme of the (oernment of
the (oernment of
India-*c+ 5e"a!ment of an! $stoms or xcise D$t! to an! "erson *c+ 5e"a!ment of an! $stoms or xcise D$t! to an! "erson aainst ex"orts $s$all! called as draw #ac6 of
aainst ex"orts $s$all! called as draw #ac6 of $stoms or$stoms or xcise D$ties for
xcise D$ties for ex"orts-*d+ An! "ro't on the
*d+ An! "ro't on the transfer of the transfer of the D$t! ntitlement &ass Boo6D$t! ntitlement &ass Boo6 scheme, #ein d$t! 5emiss
scheme, #ein d$t! 5emission Scheme $nder ion Scheme $nder the x"ort andthe x"ort and Im"ort
Im"ort
&olic!-(v) Value o any Beneft or Peruisite: (v) Value o any Beneft or Peruisite: The al$e of an! #
The al$e of an! #ene't or "er7$isiene't or "er7$isite, whether conerti#le intote, whether conerti#le into mone! or not, arisin from #$siness or the exercise of a
mone! or not, arisin from #$siness or the exercise of a
"rofession-(vi) Receipts o a partner rom the frm: (vi) Receipts o a partner rom the frm: An! interest, salar!, #on$s,
An! interest, salar!, #on$s, commission or rem$nerationcommission or rem$neration receied #! a "artner from 'rm
(vii)
(vii) An! s$m whether receied or receia#le in cash or 6ind An! s$m whether receied or receia#le in cash or 6ind $nder an areement for not carr!in o$t an! actiit! in relation $nder an areement for not carr!in o$t an! actiit! in relation to an! #$siness or not to share an! 6now how, "atent, to an! #$siness or not to share an! 6now how, "atent, co"!riht, trademar6, licence, franchise or an! other #$siness co"!riht, trademar6, licence, franchise or an! other #$siness or commercial riht of similar nat$re- or information or or commercial riht of similar nat$re- or information or techni7$e li6el! to assist in the man$fact$re or "rocessin of techni7$e li6el! to assist in the man$fact$re or "rocessin of oods or "roision for serices.
oods or "roision for serices. (viii)
(viii) An! s$m receied $nder An! s$m receied $nder "eyman #nsurance Policy"eyman #nsurance Policy (i$)
(i$) Income from Income from speculative transactionspeculative transaction m$st #e deemedm$st #e deemed as distinct and se"arate from an! other #$siness. [x"lanation as distinct and se"arate from an! other #$siness. [x"lanation 2]
2]
%ection &'()
%ection &'() de'nes s"ec$latie transactionde'nes s"ec$latie transaction CIT vs. Shantilal (P) Ltd.,
CIT vs. Shantilal (P) Ltd., [98] 44 IT5 :; *S+ < "a!ment [98] 44 IT5 :; *S+ < "a!ment of damaes for #reach of contract is not the same thin as of damaes for #reach of contract is not the same thin as settlement of contract otherwise than act$al delier! of settlement of contract otherwise than act$al delier! of commodities.
commodities.
Business %* +(,')-:
Business %* +(,')-: incl$des an! trade, commerce,incl$des an! trade, commerce, man$fact$re or an! adent$re or concern in the nat$re of man$fact$re or an! adent$re or concern in the nat$re of trade, commerce or man$fact$re.
trade, commerce or man$fact$re. .rade:
.rade: State of Punjab vs. Bajaj Electricals Ltd.State of Punjab vs. Bajaj Electricals Ltd. [9/8] ;= [9/8] ;= IT5 ;=*S+
Commerce: If a "erson "$rchases oods with a iew to sellin them at "ro't, it is an ordinar! case of trade. If s$ch transactions are re"eated on a lare scale, it is called commerce.
/anuacture:
U.o.I. vs. elhi Cloth ! "eneral #ills Co. Ltd. AI5 9/ S ;9
0dventure in the nature o .rade:
". $en%atas&a'i aidu ! Co. vs. C.I.T. *9:9+ : IT5 :94 *S+> .ests for determination>
. Is the "$rchaser a trader and are the "$rchases of the commodities and its resale, allied to his $s$al trade or #$siness, incidental to it?
2. @hat was the nat$re and 7$antit! of the commodit! "$rchased and resold?
. Did the "$rchaser #! an act s$#se7$ent to the "$rchase im"roe the 7$alit! of the commodit! to ma6e that readil! resala#le?
4. @ere the transactions re"eated?
#ncomes though appear to 1e 1usiness
income 1ut not ta$a1le under the head
2Profts and Gains o Business or
Proession3:
. 5ent of o$se "ro"ert! een if "ro"ert!
constit$tes stoc6 0 in 0 trade
2. Diidends on shares in case of a dealer in shares
. @innins from lotteries, races etc..
4. Interests receied on com"ensation or interest on
enhanced com"ensation een if it "ertains to a
re$lar #$siness actiit!
:. S$ms receied after discontin$ance of a B$siness
or &rofession 0 Taxa#le $Cs ;/ *A+
#ncome rom letting out 1usiness asset:
C.E.P.T. vs. La%sh'i Sil% #ills Ltd. *9:+ 2= IT5 4: *S+ 0 Assessee doin #$siness of man$fact$rin sil6 cloth and d!ein sil6 !arn, let o$t his assets on monthl! rent in the releant acco$ntin !ear 0 held #$siness income.
Universal Plast Ltd. vs. CIT [999] 2; IT5 4:4 *S+ 0 held, where all the assets of the #$siness are let o$t, the "eriod for which the assets are let o$t is a releant factor to 'nd o$t whether the intention of the assessee is to o o$t of #$siness altoether or to come #ac6 and restart the same. In former case rent will #e taxa#le $nder the head Income from ther So$rces, in latter case as #$siness income.
#ncome rom #llegal Business:
#inister of inance vs. S'ith *92;+ A 9 *&+ 0 Assessee ma! #e "rosec$ted for the o1ence #$t income is taxa#le.
CIT vs. *othari *9;+ 82 IT5 ;94 *S+ 0 Income is taxa#le and not the ross recei"t
CIT vs Piara Sin+h *98=+24 IT5 4= *S+ 0 3oss s$stained d$e to con'scation of old or c$rrenc! in sm$lin #$siness is ded$cti#le.
T.. -ureshi vs. CIT [2==/] 28; IT5 :4;
*S+ < 3oss arisin as a res$lt of seiE$re and
con'scation of illeal stoc6 0 in 0 trade is
allowa#le as a #$siness loss aainst income
from illeal #$siness. In this case heroin
worth 5s. 2 3a6h was seiEed. eld>
x"lanation to Section ;*+ has no
a""lication to this case as the claim was of a
#$siness loss and not #$siness ex"endit$re.
x"lanation to S. ; *+ 0 sa!s> %For the
remoal of do$#ts, it is here#! declared that
an! ex"endit$re inc$rred #! the assessee for
an! "$r"ose which is an ofence or which is
prohibited by law shall not #e deemed to
hae #een inc$rred for the "$r"ose of
4
.
Section 29 la!s down that income referred to in Section 28
shall #e com"$ted in accordance with the "roisions
contained in sections = to 4D.
%ections
'5
to
'6
la!
down
s"eci'c
ded$ctionsCallowances admissi#le.
%ection '7(,) is a resid$ar! section which allows
ded$ctions of #$siness ex"endit$res not coered $nder
Sections = to /. This is on the #asis of acce"ted
commercial "rinci"les.
%ection '8 la!s down that where an! #$ildin, "lant,
machiner! or f$rnit$re is not excl$siel! $sed for the
"$r"oses of #$siness or "rofession, ded$ctions in res"ect
thereof $nder Sections =, or 2 will #e restricted to a
fair "ro"ortionate "art thereof which is attri#$ta#le to the
$se for #$siness or "rofession.
%ections '7(+B)4 &54 &50 and &'B coer ex"enses
which are
not
deducti1le, e.. ex"endit$res on
adertisements "$#lished in so$enir, #roch$re etc.
"$#lished #! a "olitical "art!, salar!, interest ro!alt! or fee
so$rce, "a!ments made in a da! to a "erson oer 5s.
2=,===C< otherwise than #! an acco$nt "a!ee che7$e or
acco$nt "a!ee #an6 draft etc.
%ection &, deals with deemed "ro'ts in cases where
loss, ex"endit$re, or tradin lia#ilit! was allowed as
ded$ction #$t later an! amo$nt or #ene't in res"ect
thereof has #een receied #! the assessee or his
s$ccessor.
%ection &+ la!s down s"ecial "roision for ded$ctions
in case of #$siness for "ros"ectin, etc. for mineral oil.
%ections &'C and &'9 la! down s"ecial "roisions for
com"$tation of cost of ac7$isition of certain assets and
s"ecial "roisions in case of income of "$#lic 'nancial
instit$tions, "$#lic com"anies etc. res"ectiel!.
%ection && la!s down that &ro'ts and (ains of
Ins$rance B$siness will #e com"$ted in accordance with
r$les contained in the
irst %chedule.
%ection &&00 casts a d$t! on certain "ersons
carr!in on "rofession or #$siness to maintain
acco$nts. For exam"le, those whose income from
#$siness or "rofession exceeds la6h 2= tho$sand
r$"ees or total sales, t$rnoer or ross recei"ts
exceeds ten la6h r$"ees in an! of the three !ears
immediatel! "recedin the "reio$s !ear.
%ections &&0B casts a d$t! on certain "ersons
carr!in on #$siness or "rofession to et his
acco$nts a$dited.
%ections && 09 to &&B9 la! down s"ecial
"roisions for com"$tation of "ro'ts and ains or for
ded$ctions in cases of certain #$sinesses or
"rofessions.
General Principles regarding admissi1ility o
0llowances and 9eductions:
. 3ist of allowances is not exha$stie
2.
Allowances are c$m$latie and not m$t$all!
excl$sie
. x"endit$re and losses in $nlawf$l #$siness>
CIT vs. Piara Sin+h *98=+ 24 IT5 4= *S+ H AI5
98= S
2;-r. T.. -uereshi vs. C.I.T *2==/+ :; Taxman :4
*S+].
4. o allowance in res"ect of exha$stion of ca"ital or
wastin assets
:. x"endit$re claimed sho$ld hae #een inc$rred in
the "reio$s !ear. xce"tions> Ss. 4 and ;/.
/. B$siness sho$ld #e carried on d$rin the "reio$s
!ear
;. x"endit$re sho$ld hae #een inc$rred in
connection with assesseeJs own #$siness
9eductions ;$pressly 0llowed:
,* ;$penses in respect o Business Premises
[Section =]
*i+ 5ent "aid for "remises
*ii+ 5e"air chares inc$rred #$t not of ca"ital
nat$re
*iii+ An! s$ms "aid as land reen$e, local taxes
or K$nici"al Taxes
*i+ &remi$m "aid in res"ect of an! ins$rance
aainst ris6 of damae or destr$ction of
"remises.
<ote:
*i+ 5ent "aid to "artner #! the Firm also allowed
*ii+ If the assessee is a tenant and "art of the
"remises is $sed as dwellin ho$se, ded$ction
will #e allowed "ro"ortionatel!.
'* 9epreciation 0llowance [Section 2]
Reason or 0llowance:
Conditions:
*i+ con'ned to #$ildins, machiner!, "lant or
f$rnit$re #ein tani#le assets- or Lnow<how,
"atents, co"!rihts, trade mar6s, licences,
franchises or an! other #$siness or commercial
rihts of similar nat$re, #ein intani#le assets
ac7$ired on or after
.4.998-*ii+ The asset m$st #e owned #! the assessee
either wholl! or
"artl!-*iii+ The asset m$st hae #een $sed for the "$r"ose
of #$siness or "rofession in the acco$ntin !ear.
Building:
C.I.T. vs. ls Theatre [9/;] /: IT5 ;; *S+ 0
held cost of land sho$ld #e excl$ded from total cost
of #$ildin.
Machinery and Plant:
CIT vs. #ir #oha''ad [9/4]: IT5 /: *S+ 0 #oth
words #ear the same meanin.
%* &' (') de'nes "lant as incl$din shi"s, ehicles,
#oo6s, scienti'c a""arat$s and s$rical e7$i"ments #$t
does not incl$de tea #$shes or lie stoc6s *e.. animals
and h$man #od!+.
Plant in its ordinar! sense incl$des whateer
apparatus is $sed #! a #$sinessman or &rofessional for
carr!in on his #$siness or "rofession not #ein his
stoc6 0 in 0 trade.
Th$s "lant has #een held to incl$de 6nies, loose tools,
#ottles and shells $sed #! the man$fact$rer of soft
drin6s, as c!linders, sanitar! and "i"eline 'ttins,
electric 'ttins, ceilin and "edestal fans, internal
tele"hone s!stem, air 0 conditionin e7$i"ments, wells,
fencin aro$nd a re'ner! etc. 0 ma! #e in residential
7$arters or on "remises of a #$siness.
en #$ildins or rooms ma! #e "lant e.. cold storae
room in case of ice<cream man$fact$rer
In decidin whether a str$ct$re is
1uilding or
plant4 f$nctional test sho$ld #e a""lied i.e. is it an
apparatus with which the #$siness is carried on, or
a
part o the premises in which the #$siness is
carried on. Former is a "lant, latter is not.
Co''issioner of Inco'e Ta/ vs. nand
Theatres [2===] 244 IT5 92 *S+
otel #$ildins and cinema theatres are not "lants.
arlier case
CIT vs. r. B. $en%ata 0ao [2===]
24 IT5 8 where #$ildin in which n$rsin home
was carried on was held as a "lant has #een
oerr$led.
5ecentl! the S$"reme o$rt in CIT vs. $ictor1
2ua ar' Ltd. decided on Se"t. 4, 2=: held that
a "ond desined for rearin C#reedin "rawns is a
%"lant).
(ii) Asset must be owned by the Assessee:
(a) So, if assessee is a lessee of the assets, he is not entitled.
(b) Assessee may be lessee of the land but he may be owner of the building
(c) Assessee, a lessee of the building if makes any alteration or extension of permanent nature, he can claim depreciation on that part. [Explanation to S. !" ()
(d) #1sore #inerals Ltd. vs. CIT [999] 29 IT5 ;;: *S+ 0 held if ownershi" has #een ac7$ired $nder an areement #$t leal title is not transferred #eca$se of non 0 reistration still transferee will #e owner.
(e) #epreciation in $ire %urchase agreements & depends upon terms of the agreement & if effect is immediate transfer of ownership, depreciation may be claimed as if asset purchased on installment. 'n such cases lessor under the agreement can sue for arrears of installments due but not to recoer the asset back. 'f the agreement is that hirer will become owner when the last installment is paid or has option to purchase, the installments paid will be allowed as business expenditure.
(a) ot necessary to be used throughout the %reious *ear
(b) +rial production as well as ommercial production both amount to use (c) Actie use and passie use
(d) -se of asset for less than / days in the year (%.*.) of ac0uisition & #epreciation 1 2/3 of normal rate [Second %roiso to S.!"4
(e) Additional Depreciation Allowance on Plant or Machinery [!"#($) (iia)%:
*i+ If &lant or Kachiner! has #een ac7$ired or installed after
.=.2==: #! an assessee enaed in #$siness of
man$fact$re or "rod$ction of an! article or thin or
eneration and C or distri#$tion of "ower, additional
de"reciation shall #e allowed M 2=N of the act$al cost.
*ii+ If assessee sets $" an $nderta6in or enter"rise after
.=.2=: #$t #efore .4.2=2= in noti'ed #ac6ward area
of State of Andhra &radesh, Bihar, Telenana or @est
Benal, additional de"reciation will #e allowed M :N of
act$al cost.
In the aforesaid cases if asset is "$t to $se for less than
8= da!s in the "reio$s !ear in which it is ac7$ired,
.
well as for some other purpose (say personal use of the assessee) the depreciation shall be proportionately reduced.
Computation o 9epreciation:
Two methods>*i+ Straiht 3ine Kethod> A""lica#le in case of assets $sed in eneration or eneration and distri#$tion of "ower w.e.f. .4.998 *F.A. 998+
*ii+ @ritten Down Oal$e Kethod> In this method De"reciation is calc$lated as certain "ercentae of the written down al$e of the #loc6 of the assets as is "rescri#ed.
There are #loc6s of assets *$t of which 2 #loc6s are for tani#le assets and one #loc6 is for intani#le assets+ and for each #loc6 di1erent "ercentae has #een "rescri#ed as rate of de"reciation. *e.. :N, =N, :N, 2=N, 2:N, 4=N, :=N, /=N, 8=N, and ==N+
=ritten 9own Value:
[S. 4 */+]@ritten down al$e of a #loc6 of assets means the de"reciated al$e of that #loc6 of assets on st da! of the ".!. as increased #!
act$al cost of an! asset ac7$ired in that #loc6 d$rin the said ".!. and red$ced #! the sale "roceeds of an! assets dis"osed of d$rin the said ".!. of that #loc6. If the sale "rice of the assets exceeds the written down al$e of the #loc6, the excess will #e
S.
No.
BLOCKS OF ASSETS
Rate of
Dereciation
Tan!i"#e Assets:
$.
B%i#din!s:
(i) Buildings which are mainly used for
residential purposes except Hotels and Boarding
Houses
5
(ii) Buildings other than those used mainly for
residential purposes and not covered by (i) and
(iii)
!"
(iii) Buildings ac#uired after $!%"&%'""' for
installing machinery and plant forming part of
water supply proect or water treatment system
and which is put to use for the purpose of
business of providing infrastructure facilities
!""
(iv) urely temporary erections such as wooden
structure
&.
F%rnit%re and Fittin!s:
*urniture and fittings including electrical
fittings, electric fittings include electrical
wiring, switches, soc+ets, other fittings and
fans, etc%
!"
'.
aciner* and +#ant
A. ,enera# Rate:
pplicable to all machinery
or plant other than certain specified machines
and plants
!5
B. Secia# Rates:
(i) -otor Buses, motor lorries and motor taxies
used in a business of running them on hire
$"
(ii) eroplanes and aeroengines
."
(iii) -otor cars (other than those used in a
business of running them on hire) ac#uired or
put to use on or after !
stpril, !//"
(iv)
Boo-s for rofessiona# %se:
(a) Boo+s being annual publication
!""
(b)
0ther
boo+s
1"
(v) 2omputers (including computer software) 1"
(vi) 3ife saving medical e#uipments
."
(vii)
4hips
and
boats
'"
.%
INTAN,IBLE ASSETS
now6how, atents, 2opyrights, 7rade6
-ar+s, licences, franchises or any other
business or commercial rights of similar
nature
0ctual Cost: [S. 4*+] 0 means the act$al cost of
the assets to the assessee as red$ced #! that
"ortion of the cost thereof, if an!, as has #een met,
directl! or indirectl! #! an! other "erson or
a$thorit!.
Chellaalli Su+ar #lls Ltd. vs. CIT *9;:+ 98 IT5
/; *S+ 0 held act$al cost incl$des all ex"endit$re
necessar! to #rin s$ch assets into existence and to
"$t them in wor6in conditions, e.. interest "aid
#efore "rod$ction started, xcise D$t!, Sales Tax,
ctroi, railwa! freiht, ins$rance, trans"ort chare,
"reliminar! ex"enses e.. stam" d$t!, reistration
fee, isit of em"lo!ees to forein co$ntr! in res"ect
to installation of "lant or machiner! etc.
&ases in which Actual &ost is ta'en at a notional figures: 5arious explanations to S. 6! &
$! 7here asset is used in business after it ceases to be used for scientific research & as reduced by the amount of any deduction allowed (e.g. u8s !2) [planation $4
#! 7here an asset is ac0uired by 9ift or inheritance & Actual cost to assessee will be actual cost to the preious owner as reduced by amount of depreciation deemed to hae been allowed on such asset. [ planation #4 "! 7here before the date of ac0uisition by the assessee, the assets were used by any other person for the purpose of his business or profession and the A. :. is satisfied that the main purpose of transfer of such asset to the assessee is the reduction of tax liability, the actual cost of the assets will be such amount as the A.:. may, with preious approal of #y. ommr. determine haing regard to all circumstances of the case. [ planation "4 *! 7here a business asset is transferred by the assessee to another person and is subse0uently reac0uired by him, the actual cost would be the actual cost to the assessee when he first ac0uired it as reduced by the amount of depreciation deemed to hae been allowed in respect of such asset or actual cost at the time of reac0uisition whicheer is less. [ planation *4
+! 7here a building, preiously the property of the assessee, is brought into use for the purpose of business or profession, the actual cost of the asset to the assessee will be actual cost of the building to the assessee as reduced by depreciation which would hae been allowable had the building been used for business or profession since the date of its ac0uisition by the assessee. [planation +%
,! 7here a parent company transfers any asset to its //3 subsidiary 'ndian ompany or ice ersa, the actual cost of the asset to transferee company will be the same as it would hae been in the hands of transferor company. [planation ,4
-! 7here an asset is transferred in a scheme of amalgamation to an 'ndian ompany, the actual cost of asset to the amalgamated company will be the same as it would hae been to the amalgamating company [planation -4
.! Explanation makes it clear that any interest paid or payable in connection with ac0uisition of an asset which relates to a period after the asset is first put to use shall not form part of actual cost of the asset. [planation .4
et off and carry /orward of unabsorbed depreciation
[ection "# (#)%
*i+ The $na#sor#ed de"reciation has to #e set o1 aainst the "ro'ts and ains *if an!+ of an! #$siness or "rofession carried on #! the assessee. If the amo$nt !et remains $na#sor#ed, it can #e set o1 aainst an! other income *exce"t income $nder the head %Salaries)+ of the tax"a!er for the same !ear.
*ii+ If the $na#sor#ed de"reciation cannot #e wholl! set o1, the amo$nt of allowance not set o1 shall #e carried forward to the followin assessment !ear. o time limit is 'xed for the "$r"ose of carr!in forward of $na#sor#ed de"reciation. It can #e carried forward for inde'nite "eriod, if necessar!.
*iii+ In the s$#se7$ent !ear*s+, $na#sor#ed de"reciation can #e set o1 aainst an! income whether charea#le $nder the head %&ro'ts and (ains of B$siness or &rofession) or $nder an! other head [xce"t income $nder the head %Salaries)].
#n the matter o set o>4 the ollowing order o
priority is ollowed in the su1seuent year(s)*
*a+ $rrent
de"reciation-*#+ Bro$ht forward #$siness
loss-*c+ Una#sor#ed de"reciation.
(i) A com"an! enaed in the #$siness of man$fact$re
or "rod$ction of an! article or thin ac7$ires a new
"lant or machiner! *excl$din shi" or aircraft+ and
installed after ..2= #$t #efore .4.2=: and
actual cost of new asset e$ceeds one hundred
crore r$"ees, Inestment Allowance will #e allowed at
the rate of :N of the act$al cost for A.P. 2=4 0 : and
:N of the act$al cost as red$ced #! Inestment
allowance allowed *for A.P. 2=4 0 :+ in the A.P. 2=: 0
/. o ded$ction will #e allowed after A.P. 2=: 0 /
*i.e. from A.P. 2=/ 0 ;+.
(ii) If a com"an! ac7$ires and installs s$ch new assets
after ..2=4 #$t #efore .4.2=;, Inestment
Allowance M :N will #e aaila#le for the A.P. releant
to the &.P. in which asset is installed, if act$al cost
e$ceeds + crore rupees. o ded$ction will #e
allowed from A.P. 2=8 0 9.
2ithdrawal of 0n1estment Allowance:
If the assessee sells or transfers the new asset within
a "eriod of
years from the date of installation, the
amo$nt of ded$ction allowed shall #e deemed to #e
the income from #$siness of the &.P. in which the asset
is sold or transferred . S$ch income shall #e taxa#le in
addition to taxa#ilit! of a"ital (ains which arises $Cs
4:.
oweer, if transfer is as a res$lt of amalamation or
demerer, then tax lia#ilit! will not arise "roided that
the Amalamated om"an! or Demered om"an!
sho$ld not transfer the new asset within : !ears.
(iii) 0n1estment Allowance (for inestment in new plant or
machinery) w.e.f. A.*. "/; & <) [S. !" A#4
An! assessee who sets $" an $nderta6in or
enter"rise for man$fact$re or "rod$ction of an!
article or thin after ..2=: #$t #efore .4.2=2= in
a noti'ed #ac6ward area of State of Andhra &radesh,
Bihar, Telenana or @est Benal, :N of the act$al
cost will #e allowed as Inestment Allowance for the
A.P. releant to the &.P. in which s$ch new asset is
installed.
The "roisions relatin to sale or transfer of new "lant
or machiner! are the same as $CsC2A.
e uc on n respec o epos n ea e1e opmen ccoun 4 o ee De1elopment Account and 5ubber De1elopment Account: [S. !! A=4
This ded$ction is aaila#le for assessees rowin and
man$fact$rin tea, co1ee or r$##er if de"osit is made in a
S"ecial Acco$nt with the ational Ban6 for Aric$lt$re and 5$ral Deelo"ment in accordance with the scheme a""roed #! the Tea Board, or the o1ee Board or the 5$##er Board. The amo$nt
of ded$ction will #e least of the followin> *i+ act$al amo$nt so de"osited- or
*ii+ 4=N of the "ro'ts of s$ch #$siness.
The de"osit sho$ld #e made within a "eriod of / months from the end of the &.P. or #efore f$rnishin ret$rn whicheer is earlier.
The amo$nt standin to the credit of S"ecial Acco$nt ma! #e withdrawn onl! for the "$r"ose s"eci'ed in a""roed scheme. If amo$nt withdrawn in an! &.P. is not $tiliEed for s"eci'ed "$r"ose, the amo$nt not so $tiliEed will #e treated as taxa#le "ro't of the said !ear.
oweer, if the amo$nt is withdrawn on clos$re of the #$siness #eca$se of death of the assessee or on dissol$tion of the Firm or #eca$se of "artition of UF or li7$idation of the om"an!, the amo$nt will not #e treated as income.
Deduction in respect of Prospecting for4 or etraction or production of Petroleum or natural gas or both in 0ndia [! ""A6A%
If the assessee is enaed in an! of the aforesaid #$siness $nder an areement with the entral (ot. of India for s$ch #$siness and de"osits in the &.P. an! s$m in a S"ecial Acco$nt or in a Site 5estoration Acco$nt with SBI in accordance with the scheme
a""roed #! the Kinistr! of &etrole$m and at$ral (as then he shall #e allowed ded$ction as $nder>
*i+ a s$m e7$al to the amo$nt de"osited- or *ii+ 2=N of the "ro'ts of s$ch #$siness
@hicheer is less.
Th$s the aforesaid amo$nt sho$ld #e de"osited #efore the end of the &.P. The amo$nt standin to the credit of s$ch S"ecial Acco$nt or Site 5estoration Acco$nt ma! #e withdrawn onl! for the
"$r"ose s"eci'ed in the Scheme *e.. for remoal of e7$i"ments and installations, to restore the site and to "reent haEards to life, "ro"ert! or enironment conse7$ent to s$ch remoal.+ else the amo$nt will #e treated as income of the &.P. in which it is
;$penditure on %cientifc Research %*
'-Followin ded$ctions are allowed in res"ect of Scienti'c
5esearch>
(i) 5een$e x"endit$re inc$rred #! the assessee himself
if he carries on Scienti'c 5esearch in relation to his own
#$siness. ==N ex"endit$re is ded$cti#le.
(ii) ontri#$tions made to o$tsiders> @here assessee
contri#$tes an! s$m to a 5esearch Association, Uniersit!,
ollee or Instit$tion a""roed for scienti'c research, a
ded$ction of ;:N of the amo$nt so "aid will #e allowed as
ded$ction. It is immaterial whether the Scienti'c 5esearch
is related or not to the assesseeJs #$siness.
(iii) S$ms "aid for Social or Statistical 5esearch to a
5esearch Association, Uniersit!, ollee or Instit$tion
a""roed for s$ch research> Ded$ction will #e allowed
2:N of the s$m "aid whether the research is related or
not with the assesseeJs #$siness.
(iv) a"ital x"endit$re on scienti'c 5esearch
a"ital x"endit$re inc$rred on scienti'c research in the &.P. #! the assessee himself related to his #$siness is allowed in f$ll as ded$ction exce"t the ex"endit$re for ac7$isition of an! land. If the ex"endit$re co$ld not #e a#sor#ed owin to ins$Qcienc! of "ro't, the $na#sor#ed "art can #e carried forward as
$na#sor#ed de"reciation.
(v) S$ms "aid to a ational 3a#orator! or a reconiEed
Uniersit! or an Indian Instit$te of Technolo! for a""roed Scienti'c 5esearch &roramme> 2==N of the s$m so "aid is allowed as ded$ction. ational 3a#orator! means scienti'c
la#orator! f$nctionin at national leel $nder Indian o$ncil of Aric$lt$ral 5esearch or the Indian o$ncil of Kedical 5esearch or the o$ncil of Scienti'c and Ind$strial 5esearch and a""roed #! "rescri#ed a$thorit! as ational 3a#orator!.
(vi) x"endit$re on in<ho$se 5esearch> This ded$ction is aaila#le onl! to a com"an! e7$al to 2==N of ex"endit$re inc$rred "roided that ex"endit$re is not inc$rred on land or #$ildin. This ded$ction shall not #e allowed for ex"endit$res inc$rred after .=.2=;.
er1ices: [! "+A66%
An! ca"ital ex"endit$re inc$rred on the ac7$isition of an! riht to o"erate telecomm$nication serices either #efore the commencement of the #$siness or thereafter is allowed as ded$ction in e7$al installments oer the "eriod startin from the !ear in which s$ch "a!ment has #een act$all! made and endin in the !ear in which licence comes to an end. If the licence fee is act$all! "aid #efore commencement of the #$siness, amo$nt is ded$cti#le from the &.P. in which the #$siness is commenced.
;$penditure on eligi1le Pro?ect or %cheme: %* '0C-==N ded$ction is allowed.
9eduction in respect o ;$penditure on %pecifed Business:
%*'09-@hole of an! ex"endit$re of ca"ital nat$re excl$din
ex"endit$re inc$rred on ac7$isition of land or ood will is
allowed to #e ded$cted in the &.P. in which the ex"endit$re is inc$rred. For exam"le, settin $" and o"eratin wareho$sin facilit! for storae of aric$lt$ral "rod$ce, Deelo"in and #$ildin a ho$sin "roect, &rod$ction of fertiliEer in India etc. Payment in Rural 9evelopment und: %* 'CC0- ==N ded$ction.
Amorti8ation of certain preliminary epenses: [! "+D%
For exam"le, ex"endit$re in connection with 0
*i+ &re"aration of &roect
5e"ort-*ii+ ond$ctin mar6et s$re!
*iii+ 3eal chares for draftin of an! areement,
Kemorand$m of Association- Articles of Association etc.
!ther 9eductions: %* '6- 0 xam"les>
*i+ Ins$rance &remi$m "aid>
*a+ aainst destr$ction or damae to stoc6 or stores $sed
for "$r"oses of
#$siness-*#+ for cattle #! a Federal Kil6 oo"eratie Societ!
*c+ for health of
em"lo!ees-*ii+ Bon$s or commission "aid to em"lo!ee
*iii+ Interest on #orrowed ca"ital
*i+ ontri#$tion to &.F. of the em"lo!ee #! the em"lo!er
*+ Bad de#ts s$#ect to certain
9eneral Deduction [S.!<4
S.;*+ An! ex"endit$re *not #ein ex"endit$re of the nat$re descri#ed in Ss. = to / and not #ein in the nat$re of ca"ital ex"endit$re or "ersonal ex"enses of the assessee+, laid o$t or ex"ended wholl! and excl$siel! for the "$r"oses of the #$siness or "rofession shall #e allowed in com"$tin the income charea#le $nder the head %&ro'ts and (ains of B$siness or &rofession).
F$rther im"lied onditions>
*i+ x"endit$re Sho$ld hae #een inc$rred in the &.P.
*ii+ x"endit$re sho$ld #e in res"ect of #$siness or "rofession carried on #! the assessee.
,* ot of the nat$re descri#ed in Ss. = to />
*i+ 5ationale #ehind the condition is that if a "artic$lar ex"endit$re is coered $nder an! of the sections = to / it sho$ld not #e claimed $nder resid$ar! section #eca$se an allowance ranted $nder s"eci'c section ma! #e s$#ect to certain ex"ress or im"lied conditions and those conditions sho$ld not #e n$lli'ed #! claimin ded$ction $nder this section.
+* ot #ein in the nat$re of a"ital x"endit$re> &oints of Distinctions>
(iii) 'mproements or >aintenance
apital expenditure improes the earning capacity of a business. ?eenue expenditure maintains the profit making capacity of a business.
(i) ?ecurring or non recurring expenditure
%ome @udicial Rulings on Capital and Revenue
;$penditures:
(i) Removal o deect in title:
In $. 3a+a'ohan 0ao vs. C.I.T. [9;=] ;: IT5 ; *S+ 0 held where mone! is "aid to "erfect a title or remoe defects in title, the ex"endit$re is ca"ital ex"endit$re.
(ii) 0cuisition o Goodwill:
In evidas $ithaldas ! Co. vs. CIT [9;2] 84 IT5 2;; *S+ 0 held ex"endit$re on ac7$isition of oodwill is a ca"ital ex"endit$re irres"ectie of the fact whether "a!ment is made in a l$m" s$m at one time or in installments. oweer, where transaction is not one for ac7$isition of oodwill #$t the riht to $se it, the ex"endit$re will #e reen$e ex"endit$re.
(iii) /ining Aease:
In 0.B. Seth #oolchand Su+anchand vs. CIT [9;2] 8/ IT5 /4; *S+ 0 held ex"endit$re for ac7$irin riht oer or in the land
e&
Shorroc%
Sinnin+
and
#anufacturin+
Co'an1Ltd. $s. C.I.T. [9:/] = IT5 8 *S+- in #4s.
Balli'al aval *ishore vs. C.I.T [99;] 224 IT5 44
*S+ 0 If the assessee is owner of the "remises, renoation
of the "remises will #e ca"ital ex"endit$re.
CIT vs. #adras auto Services (P.) Ltd. [998]2 IT5
4/8 *S+ < If assessee is lessee of the "remises and $nder
the lease areement whateer constr$ction will #e done on
the lease "remises will #elon to the lessor from the da! of
constr$ction, ex"endit$re inc$rred #! the lessee will #e
reen$e ex"endit$re.
(v) Contri1ution made or construction o roads:
B$ildin incl$des roads, #rides, c$lerts, wells and t$#e<
wells. ence, constr$ction of roads inside the factor! or
s$rro$ndin the factor! is ca"ital ex"endit$re on which
de"reciation can #e claimed.
La%sh'iji Su+ar #ills Co. (P.) Ltd. vs. C.I.T. [9;] 82
IT5 ;/ *S+ 0 ontri#$tion made #! s$ar mill $nder a
stat$tor! o#liation towards deelo"ment of (ot. owned
Travancore 5 Cochin Che'ical Ltd. vs. CIT [9;;] =/ IT5 9== *S+ 0 The assessee alon with three other "$#lic $nderta6ins a""roached the (ot. of Lerala to constr$ct new road and $nder areement to meet certain "ercentae of the cost of constr$ction "aid the amo$nt. eld that since the road to #e constr$cted was new and contri1ution was made under the agreement and not under a statutory o1ligation4 the ex"endit$re was ca"ital in nat$re.
In L.6. Su+ar actor1 ! 7ils #ills (P.) Ltd. vs. CIT [98=] 2: IT5 29 *S+ 0 The assessee made two contri#$tions on re7$est of ollector, one was for constr$ction of a dam and road connectin to dam and another contri#$tion was for constr$ction of roads aro$nd its factor!. It was fo$nd that constr$ction of dam and road connectin the dam was nothin to do with assesseeJs #$siness and not adantaeo$s to assesseeJs #$siness, hence that amo$nt was not ded$cti#le. B$t constr$ction of road in the area aro$nd the factor! of the assessee was adantaeo$s to the assesseeJs #$siness and rel!in on La%sh'iji Su+ar #ills case the ex"endit$re was held reen$e ex"endit$re.
'* <ot 1eing personal e$penses o assessee:
&ersonal ex"enses means to satisf! "ersonal needs
e.-food, cloth, shelter, medical ex"endit$re, defendin
oneself from "rosec$tion or "enalt! "aid for iolation of
law etc.
#. Subra'ania' Bros. vs. CIT [2==] 2:= IT5 ;/9
*Kad.+ < @here in a "artnershi" 'rm com"risin father and
his three sons as "artners, the father sent one of the sons
a#road for hiher st$dies $nder an areement with the
'rm that on ret$rn he will sere the 'rm for : !ears 0
x"enses inc$rred #! the 'rm on ed$cation of son was not
allowed as #$siness ex"endit$re.
oweer, on similar facts contrar! o"inion had #een
ex"ressed in
CIT vs. *ohinoor Paer Products [99;]
22/ IT5 22= *K.&.+ rel!in on
C.I.T. vs. Southern Leather
Industries [98;] /4 IT5 94 *Kad+ wherein three
"artners of a 'rm $ndertoo6 forein to$rs for attendin
the International Trade Fair with intent to adance
*! penditure should ha1e been laid out wholly and eclusi1ely for the purpose of business or profession
9uidelines:
(i) 0ncurred as trader or ouse holder
(ii) ;oluntary ependiture without compelling need
CIT vs. hanaraj+iri 0aja arasin+iriji [9;] 9 IT5
:44 *S+ < Assessee com"an! loded a com"laint with
"olice allein misa""ro"riation of the com"an!Js f$nds
#! its manain aent. onse7$entl! (ot. instit$ted a
criminal case aainst the Kanain Aent. The assessee
also em"lo!ed his own law!er to "rosec$te the case. eld
the ex"endit$re was ded$cti#le altho$h (ot. was
cond$ctin "rosec$tion and assessee had no need to
enae his own law!er.
It was also held that it is not o"en to the de"artment to
"rescri#e what ex"endit$re an assessee sho$ld inc$r and
in what circ$mstances he sho$ld inc$r that ex"endit$re.
er! #$sinessman 6nows his interest #etter.
(iii) #irect concern and #irect purpose@
:ne has to look at direct purpose of expenditure and not remote or indirect results, e.g. in Malayala Manorama Co. vs. CIT ["//;4 2/ +axman 2/2 (er) & assessee company engaged in business of printing and publishing newspapers and periodicals contributed a sum of money to a trust which undertook work of rehabilitation of ictims of earth0uake & held not related to business of assessee & not deductible though indirectly would hae impact on readers of its Bournals etc.
Similarly donations to political party for non & business consideration was held not deductible. [CIT vs. Scindia Steam Navigation Co. Ltd. [C/4 "2 '+? (=om).
$oweer, such donations are now deductible under Sections /99= and /99 (inserted in "//!) if donations are made by companies or any other persons respectiely.
(i1) -nremuneratie expenditure@
Expression Dfor the purpose of business is wider in scope than expression Dfor the purpose of earning profit. =usiness or commercial expediency may re0uire proiding facilities like schools, hospitals for employees8exF employees8their children, expenditure for protection of assets from expropriation.
Badridas a+a vs. C.I.T. [9:8] 4 IT5 = *S+- ssociated Ban%in+ Corn. 7f India Ltd. vs CIT [9/:] :/ IT5 *S+ 0 held losses arisin from misa""ro"riation of mone! #! the em"lo!ee cannot #e claimed as ded$ction $nder Section ; *+ #$t if the amo$nt is irrecoera#le, it can #e claimed as loss incidental to carr!in on the #$siness. S$ch loss can #e claimed of the &. P. in which amo$nt #ecomes irrecoera#le.
Same will a""l! for losses occ$rred d$e to theft, ro##er!, dacoit!, loss d$e to non 0 recoer! of adances etc.
(vi) !ther e$amples o Business e$penditures
3eal and acco$ntanc! ex"enses, Fees "aid for "rosec$tin a""eals, ta6in "roceedins for red$cin tax lia#ilities, leal ex"endit$res relatin to #reach of tradin contract, termination of disadantaeo$s tradin relationshi", to defend title to #$siness assets s$ch as land, #$ildins, shares, oodwill etc. *sho$ld #e distin$ished from ex"enses for "erfectin title which is ca"ital ex"endit$re+.
x"enses inc$rred #! an indiid$al assessee in defendin himself in a criminal "roceedin *een if ended in ac7$ittal+ e.. sellin oods on excessie "rice 0 are not allowa#le. oweer, leal ex"enses inc$rred #! a com"an! to "rotect the ood name of its #$siness, defendin directors, oQcers and other em"lo!ees
x"lanation to S. ; *+ 0 sa!s %For the remoal of
do$#ts, it is here#! declared that an! ex"endit$re
inc$rred #! the assessee for an! "$r"ose which is an
o1ence or which is "rohi#ited #! law shall not #e
deemed to hae #een inc$rred for the "$r"ose of
#$siness or "rofession and no ded$ction or allowance
shall #e made in res"ect of s$ch ex"endit$re).
Section ; *2B+ 0 otwithstandin an!thin contained
in s$# 0 section *+, no allowance shall #e made in
res"ect of ex"endit$re inc$rred #! an assessee on
adertisement in an! so$enir, #roch$re, tract,
"am"hlet or the li6e "$#lished #! a "olitical "art!.
penses pressly Disallowed under ection *<
%ection &5 ex"ressl! disallows man! ex"enses. For
exam"le 0
*a+ &a!ment o$tside India of an! salar!, interest, ro!alt!,
fee for technical serices etc. on which tax has not #een
ded$cted at
so$rce-*#+ &a!ments to residents if tax is not ded$cted at so$rce 0
=N of s$ch s$m shall #e disallowed $Cs 4=A.
*c+ xcessie "a!ments [S. 4=A] 0 &a!ments to relaties or
to an associate concern if A.. considers it to #e excessie
or $nreasona#le.
*d+ &a!ment in cash> in a da! made to a "erson oer 5s.
2=,===C< otherwise than #! an acco$nt "a!ee che7$es or
acco$nt "a!ee #an6 draft s$#ect to certain exce"tions e..,
"a!ment made to a "erson liin in r$ral area where no
#an6in facilit! is aaila#le- "a!ments made to c$ltiator ,
rower of aric$lt$ral "rod$ce, forest "rod$ce or "rod$ce of
animal h$s#andr! on "$rchase of "rod$cts from
them-&a!ments to Ban6 or 3I etc.
Capital Gains RSs. 4: to ::]
/eaning:
An! "ro't or ain arisin from the transfer of a
ca"ital asset is 6nown as ca"ital ain.
Chargea1ility: [S. 4: *+]
B! irt$e of Section 4: *+ of the Income Tax Act an!
"ro't or ain arisin from the transfer of a ca"ital
asset is charea#le to tax $nder the head %a"ital
(ains) and is deemed to #e income of the "reio$s
!ear in which the transfer ta6es "lace.
;ssentials or chargea1ility:
. There m$st #e a a"ital Asset. 2. a"ital Asset
m$st hae #een transferred in the "reio$s !ear. .
An! &ro't or (ain sho$ld arise from s$ch transfer. 4.
The &ro't or (ain sho$ld not #e exem"t $nder
Sections :4, :4B, :4D, :4, :4A, :4B, :4, :4F,
:4(, :4(A and :4.
ean ng o ap a sse :
.
@ means &
"ro"ert! of an! 6ind held #! an assessee, whether or not
connected with his #$siness or "rofession, #$t does not
incl$de>
*i+ an! stoc6 0 in 0 trade, cons$ma#le stores or raw
materials held for the "$r"oses of his #$siness or
"rofession-*ii+ &ersonal e1ects of the assessee, that is to sa!,
moa#le "ro"ert! incl$din wearin a""arel and f$rnit$re,
held for "ersonal $se #! the assessee or an! mem#er of
his famil! de"endent on him #$t excl$din eweller!,
archaeoloical collections, drawins, "aintins, sc$l"t$res
or an! wor6 of art.
Th$s eweller! etc. are treated as ca"ital asset, een
tho$h the! are meant for "ersonal $se of the assessee.
a n an! area w
n e $r s c on o a $n c "a ! or a
antonment Board hain a "o"$lation of =,=== or
more-or
*#+ within a distance of 2 Lms from the local limits of a
K$nici"alit! or a antonment Board hain a "o"$lation of
more than =,=== #$t not more than one 3a6h- or
*c+ within a distance of / Lms from the local limits of a
K$nici"alit! or a antonment Board hain a "o"$lation of
more than one 3a6h #$t not more than ten 3a6h- or
*d+ within a distance of 8 Lms from the local limits of a
K$nici"alit! or a antonment Board hain a "o"$lation of
more than ten 3a6h.]
(iv) /N (old Bonds, 9;; or ;N (old Bonds, 98= or
ational Defence (old Bonds 98= iss$ed #! the entral
(oernment-(v) S"ecial Bearer Bonds, 99 iss$ed #! the entral (ot.
and
(vi) (old De"osit Bonds iss$ed $nder the (old De"osit
Scheme, 999.
Personal ffects:
&ersonal e1ects are not ca"ital assets $nder section 2 *4+, if the followin conditions are satis'ed>
. It sho$ld #e moa#le
"ro"ert!-2. It sho$ld #e held for "ersonal $se #! the assessee or an! mem#er of his famil! de"endent on
him-. it sho$ld not #e eweller!, archaeoloical collections, drawins, "aintins, sc$l"t$res or an! wor6 of art.
ar, c!cle, scooter, motor 0 c!cle owned and $sed #! the assessee are "ersonal e1ects.
@ewellery:
eweller! is a ca"ital asset. eweller! incl$des the followin>
*i+ ornaments made of siler, old, "latin$m or an! other "recio$s metal or an! allo! containin one or more of s$ch "recio$s metals, whether or not containin an! "recio$s or semi "recio$s stones and whether or not stitched in an! wearin a""arel.
*ii+ "recio$s or semi "recio$s stones, whether or not set in an! f$rnit$re, $tensil or wearin a""arel.
3ypes of &apital Assets: +here are two types of capital assets@
. Gong & term capital asset [Section " ("CA)4H and ". Short & term capital asset [Section " (6"A)4.
%hort term Capital 0sset:
Accordin to Section 2 *42A+ a short 0 term ca"ital asset
means ca"ital asset held #! an assessee for not more than
/ months immediatel! "rior to its date of transfer.
oweer, in the case of shares held in a com"an!, listed
sec$rities, $nits of UTI or $nits of m$t$al f$nds s"eci'ed
$nder Section = *2D+, the asset is treated as short term
ca"ital asset if the share, sec$rit! or $nit as the case ma!
#e is held #! the assessee for not more than 2 months
immediatel! "rior to its transfer and not / months.
Aong term Capital 0sset:
Accordin to Section 2 *29A+ asset other than short 0 term
ca"ital asset is rearded as lon 0 term ca"ital asset.
'n determining the period for which any capital asset is held by the assessee &
*a+ In the case of a share held in a com"an! in li7$idation, the "eriod s$#se7$ent to the date on which the com"an! oes into li7$idation is excl$ded.
*#+ In the case of a ca"ital asset which #ecomes the "ro"ert! of the assessee in the circ$mstances mentioned in Section 49 *+ of the Act for exam"le, #! wa! of inheritance, ift, "artition etc. the "eriod for which the asset was held #! the "reio$s owner sho$ld #e incl$ded.
*c+ In the case of a share in an Indian om"an!, which #ecomes the "ro"ert! of the assessee in a scheme of amalamation, the "eriod for which the share in the amalamatin com"an! was held #! the assessee sho$ld #e incl$ded.
*d+ In case of iss$e of shares #! the res$ltin com"an! in a scheme of demerer to the shareholder of the demered com"an!, the "eriod of holdin shares in demered com"an! will #e incl$ded in total "eriod of holdin of share in res$ltin com"an!.
3ransfer of &apital Asset [ection # (*-)%
Transfer in relation to a ca"ital asset incl$des>
*i+ the sale, exchane or relin7$ishment of the
asset-*ii+ the extin$ishment of an! rihts therein.
*iii+ the com"$lsor! ac7$isition thereof $nder an!
law-*i+ the conersion of an asset into stoc6 0 in 0 trade or the
treatment of it as
s$ch-*+ Allowin "ossession of an immoa#le "ro"ert! to #e
ta6en in "art "erformance of a contract. [Section :A of
the Transfer of &ro"ert! Act, 882.
*i+ An! transaction *whether #! wa! of #ecomin a
mem#er of, or ac7$irin shares in a co 0 o"eratie societ!,
com"an! or other association of "ersons or #! wa! of
areement or an! arranement or in an! other manner
whatsoeer+ which has the e1ect of transferrin or
ena#lin the eno!ment of an! immoa#le "ro"ert!.
Capital Gains rom #nsurance Claim on 9estruction o Capital 0sset: [S. 4: *A+]
B! irt$e of Section 4: *A+ "ro'ts or ains arisin from an! com"ensation *whether in terms of mone! or in 6inds+ receied #! an! "erson $nder an ins$rance from an ins$rer in the "reio$s !ear on acco$nt of damae to or destr$ction of an! ca"ital asset is charea#le to a"ital (ains tax, if the damae or destr$ction occ$rs as a res$lt of>
*i+ ood, t!"hoon, h$rricane, c!clone, earth7$a6e or other con$lsion of nat$re- or
*ii+ riot or ciil
diso#edience-*iii+ accidental 're or ex"losion- or
*i+ action #! an enem! or action ta6en in com#atin an enem! *whether with or witho$t a declaration of war+.
The "ro'ts or ains will #e deemed to #e the income of the "reio$s !ear in which the com"ensation is receied.
In $ania Sil% #ills Ltd. vs. C.I.T. *99+ 9 IT5 /4; *S+ the S$"reme o$rt had held that ins$rance claim receied on acco$nt of destr$ction of asset is not charea#le to tax as destr$ction does not amo$nt to transfer. The e1ect of this $dment has #een n$lli'ed to some extent #! insertin s$#
