Expense to be claimed in books of accounts

This query is : Resolved

Rajendra Mehta (Querist)
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14 September 2012 Dear Sir,

One of our client deals with new computers & accessories whose turnover is above Rs.3,00,000,00.

He wants to introduce a scheme in which he will give a new car to the winner of the scheme.

My query is that expense incurred for the purchase of new car can be treated as business promotion expense or not. If yes, then TDS will be applicable or not & vat on the new car purchased can be taken as set-off in our vat tax liability or not?

How the winner of the car will show this transaction in his books of accounts & depreciation will be allowed or not?

Thanks & Regards
R.H.Mehta & Co.

Dear Sir,
Thanks for your reply.

I want to know futher that in case, if my client who deals in computer wants to give commission to the person for obtaining maximum sale for his company in the form of car instead of cash, then what will be the treatment for TDS & applicable rate for deduction.

Thanks & Regards

Pankaj Gupta

Pankaj Gupta (Expert)
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14 September 2012 * purchase of car is allowable as business promotion expense u/s 37(1).
* in the hands of winner of car it will be taxable as winning from lottery etc u/s 56(2)(ib). @30+ education cess.
* tds on such car need to be deducted @ 30% on the fair market value of such car. The winner is required to pay such tds in cash.

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Amol S Joglekar

Amol S Joglekar (Expert)
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14 September 2012 VAT set off (Credit) can not be claimed.

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Rajendra Mehta

Rajendra Mehta (Querist)
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15 September 2012 Dear Sir,
Thanks for your reply.

I want to know futher that in case, if my client who deals in computer wants to give commission to the person for obtaining maximum sale for his company in the form of car instead of cash, then what will be the treatment for TDS & applicable rate for deduction.

Thanks & Regards

Pankaj Gupta

Pankaj Gupta (Expert)
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15 September 2012 Then.... the fair market value of car will be taken for tds deduction
.

Rajendra Mehta

Rajendra Mehta (Querist)
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15 September 2012 Dear Sir,
Thnks for your coordination.
I want to clear my doubts as if my client is considering it as a commission given to the person who is obtaining maximum sale in the form of car instead of cash, then also 30% TDS + cess is applicable U/s 56(2)(ib) as per consideration for lottery as you said above.What exactly the rate of TDS deduction will be applicable under lottery or commission. Please mention it clearly.

Thanks & Regards.

Pankaj Gupta

Pankaj Gupta (Expert)
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15 September 2012 Are you giving car in addition to the commission. Or the car is given in lieu of commission? Pls first clarify this.

Rajendra Mehta

Rajendra Mehta (Querist)
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15 September 2012 Dear Sir,
Our client is giving car in lieu of commission...No cash will be paid.

Thanks & Regards

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Pankaj Gupta

Pankaj Gupta (Expert)
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16 September 2012 Then.....to your client the fair market value of the car will be allowed as business expense. While in the hands of the receiver the fair market value will be treated as business income. Your client is not required to deduct any tds then. And one more thing, pls do not call the car as commission given. It is reward for achieving target/boosting sales. Commission is that which is directly related to the quantity of sales, or which can be calculated per unit of goods sold.
Hope your query is now solved......
Have a good day.