Mayank Shyamsukha (CA FINAL) (119 Points)
26 February 2010
Hi,
There is only one car in the block in the firm, which has WDV on 1/04/2009 Rs. 200,000/-. Unfortunately, the car was stolen in 2009-10(FY). Now the car owner(who is the partner) get the compensation from Insurance Company Rs. 100,000/-. Then
How such compensation is taxable.Can we claim Depreciation for AY 2010-2011. 
saranraj
(CA FINAL)
(419 Points)
Replied 26 February 2010
You cannot claim depreciation for AY 2010-11. The car is assumed to be sold.
Puneet Mittal
(Sr. Officer Accounts)
(212 Points)
Replied 26 February 2010
Dear Mayank
You can not claim the Dep on car Becuase block is not exist on 31.03.2010. but you can claim short term capital loss on this car.
CA Anil Sah
(DGM(F), PSU)
(139 Points)
Replied 26 February 2010
Dear Mayank
The Prerequsite condition to claim depreciation is as follow
(1) the "block " must be exist
(2) value of such block not be ceased i,e block have some value
so , the car was stolen in previous year the block is not in existance , hence you can not claim depereciation .If above two condition is not satisfied then it will be go to capital gain , you can claim short term capital loss .
CA Amit Kumar Khaitan
(Research Analyst)
(360 Points)
Replied 26 February 2010
Sec 45(1A), which covers deemed transfer, does not cover theft of asset and hence the insurance amount so received wud be capital receipts not subjected to capital gains, since there will be no transfer. There will be no tax on the Rs. 1 Lacs of claim money..
Depreciation however cannot be claimed if there is no other car in the block.. write that off as STCG.. You are in a win win position as far as the taxtion is concerned.
Mayank Shyamsukha
(CA FINAL)
(119 Points)
Replied 27 February 2010
Dear Amit KK
And for capital gain, my opinion is also that it not cover the "theft" incident and hence the whole compensation received is not chageable to tax.
Why depreciation can not claimed and under which section it can reduce the WDV of the said block of assets???
Max Payne
(employed)
(2574 Points)
Replied 27 February 2010
Dear Friends,
I also want to know under which section, we are treating the compensation recieved, as realisation from block..... we do it, but on what basis?
Depreciation cannot be claimed because there is no asset in the block.. The balacne is STCL...
See this article and comments... very suitable for the situation...
/articles/section-43-6-v-section-45-1a--4402.asp
Chintan Shah
(-)
(534 Points)
Replied 27 February 2010
Dear Mayank,
The amount of Rs. 100000 will be treated as capital receipt. Section 45(1A) specifies that Where any person receives any money or assets under insurance from insurer on account of damage or destruction of any capital asset, as a result of.................. However the car is stolen and hence not covered by this section. Hence 100000 will not be taxable.
The money received from insurance company will not be deducted from block for arriving at WDV since the same doesnot fall within the terms - "sold, discarded, demolished or destroyed" mentioned in Section 43(6) defining WDV. Hence entire amount of Rs. 200000 being the balance of empty block will be available as STCL.
Mayank Shyamsukha
(CA FINAL)
(119 Points)
Replied 27 February 2010
Dear Chintan Shah
Why the entire block of assets is treated as STCL becuase Sec 50 says block ceased to exist for the reason of transferred of assets and in case of theft there is no transfer and hence no transfer and no section 50.
Awaiting for the reply.
Chintan Shah
(-)
(534 Points)
Replied 27 February 2010
Regards,
Chintan
Member
(Management)
(325 Points)
Replied 27 February 2010
Just an interesting thought, but what does the word "extinguishment of rights" occurring in Section 2(47) mean ? Does it cover cases where the rights are extinguished without the consent of the owner like stolen assets ? In that case will the compensation become taxable? Of course 45(1A) gives specific circumstances under which it is taxable and theft is not covered. But then, if it is already covered by 45(1), this will not matter. This is a long shot, thought I could put it down here.
CAclubindia
