CA Gaurav Makwana (Partner) (126 Points)
18 November 2009Liquidated Damages received for not executing of contract for purchase of property whether capital or revenue???
FATEMA
(CHARTERED ACCOUNTANT)
(719 Points)
Replied 18 November 2009
Gaurav,
Treatment of liquidated damages as a revenue receipt or capital receipt depends on case to case basis.
In your case, it looks like the capital of the party to the contract (not the defaulting party) was blocked in the contract.The purchase of property had nexus with the capital asset and no nexus with the profit earning process.Hence the amount of damages received is in the nature of capital receipt.
CA Gaurav Makwana
(Partner)
(126 Points)
Replied 18 November 2009
But dear Fatema if u treat it as capital receipt then What should be the treatment in accounts as well as tax???
CAclubindia
