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Capital gain in case of stolen assets

govind kumar (student) (27 Points)

10 October 2011

All C.A & C.A students pls. consider following situation & comment.........
A capital asset of Mr. A was stolen on 5/6/2011,he got insurance claim of 500000 on 5/8/2011,what will be the tax treatment if the said asset forms part of 15% block whose WDV on 1/4/2011 was 450000 the said block still contains 3 more other assets as on 31-3-2012.

Please consider whether loss of asset due to theft in which insurance compensation is received will be transfer or not.
Please give due reference of revelant sections & Case laws.

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5 Replies

C.A SHASHANK GOYAL (Chartered Accountant) (362 Points)
Replied 10 October 2011

Hi , I am of the opinion that the provision of section 45(1A) is not applicable in case of stolen assets , so it can be very well concluded that insurance compensation received will not be the full value consideration for the purpose of section 48 i.e computation of capital gain .Also for the computation of WDV of block we need not to deduct insurance compensation so received as per the provision of section 43(6)(c) , as theft of an asset does not fall under the category of "sold , discarded , demolished , destroyed ."So , you can definitely go for claiming the benefit under the case law vania silk mill pvt. ltd (supreme court judgement ) , that it is capital receipt not taxable .

To override this case law section 45(1A) was inserted but that only of damage and destruction and not for theft so go for claiming the above benefit .

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CA Hardik Bunha (self) (2121 Points)
Replied 10 October 2011

Hi,

It is a capital receipt (Insurance Claim) - not taxable........

u have to write off block will nil value and balancing will be short term capital loss........

WDV 450000

less -

---------------

STCG 450000 (LOSS)

CA Ksheerabthi Nathan (CA in practise) (167 Points)
Replied 10 October 2011

According to section 451(A)only compensation received from insurance companies in respect of capital asset destroyed by natural calamities or civil distiurbance or in combat operation shall be taxed as capital gains.but the word "stolen" does not form part of it.hence it is not to be taxed.moreover as three more assets are available in the block on mar2012, the wdv will be as follows

opening wdv: 450000

less:sale consideration: nil

net of sales 450000

depre @ 15% 67500

closing wdv 382500

please correct if i am wrong.

Mayank kharbanda (Risk Advisory Services) (409 Points)
Replied 11 October 2011

Originally posted by : ksheerabthinathan
	According to section 451(A)only compensation received from insurance companies in respect of capital asset destroyed by natural calamities or civil distiurbance or in combat operation shall be taxed as capital gains.but the word "stolen" does not form part of it.hence it is not to be taxed.moreover as three more assets are available in the block on mar2012, the wdv will be as follows opening wdv: 450000 less:sale consideration: nil net of sales 450000 depre @ 15% 67500 closing wdv 382500 please correct if i am wrong.

agreed.

It will be a capital receipt not chargeable to tax.

Ganpath Iyer (Articles) (42 Points)
Replied 31 August 2012

PLease comment...

In the above case what if the asset was stolen before 31st march and as on the date of filing tax returns the insurance claim is pending. Why cant a company calim loss on theft of asset? and if Insurance is received (if at all) show it as income in the year of receipt??