• Profit arising on Sale of Capital asset is a capital Transaction.

• As a general rule capital profits are exempt from tax unless specifically chargeable to tax & Revenue profits are chargeable to tax unless specifically exempt.

• As per section 50:1) Where the full value of the consideration received or accruing as a result of the transfer of the asset together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of assets during the previous year, exceeds the aggregate of the following amounts, namely :-

   

  (i) Expenditure incurred wholly and exclusively in connection with such transfer or transfers; 

   

  (ii) The written down value or the block of assets at the beginning of the previous year; and

   

  (iii) The actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets;

   

  (2) Where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the previous year, the cost of acquisition of the block of assets shall be the written down value of the block of assets at the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets.

• As per your query there is no Capital Gain Tax payable u/s 50 by you since block doesn't cease to exist and also it has positive value.

• Hence the following  adjustment given by CA Kaya is absolutely perfect:

calculation taxable income as per income tax act 

book profit                                             xxx

+ dep as per p & l a/c                          xxx

- profit on sale of asset                       xxx

- allowable dep as per it act             (xxx)

taxable income                                    xxx

Hi

If any profit is realised from sale of capital assets is charged under capital gain due to charging section of capital gain it will come under cap gain .so in calculating income under pgbp it will deducted

Clause 3 Of BP will not work, because it should not get taxable under STCG because - 1) block not get negative and 2) in block still there is assets.

Tax treatment 

Profit on sale of assets                                 xxxxxx

less-Incomes to be considered separately xxxxx

=Business Income

In the separate consideration of sale under capital gain head , we will find no Capital gain u/s 50, so   Capital Gain will be NIL.

Further, the profit on sale of assets will not be deductible from the book profits computed in accordance with sec115JB , because the book profit means profit as per books prepared in accordance with Companies Act,1956 subk\ject to adjustments as per Explanations to Sec 115JB.

And we donot find any such clause of explanation which require the profit on sale of FA to be deducted from book profits.

Deferred tax will certainly come into the picture, but totally a a/cing concept.....

Dear SS HALCYON for you

I hope, I am near to answer ............. because of you guys................ thanks All

Hi Saurabh,

With the schedule of FA (both under Co. Act and IT Act) you have simplified the issue. You need to only concentrate on the 1 item in each chart ie Commercial Vehicle ('CV').

Your P&L will be showing a Profit of Rs 6,63,940 (ie 51,33,137 less 22,81,252) on account of sale of CV. This needs to be ignored for IT computation.

As for the IT Act, since your Block of CV is alive (both for value and asset), there is no STCG u/s 50.

Now suppose your Net Profit for the year is Rs 10 lacs (which includes a Profit on CV sale of Rs 6,63,940).

Tax Computation (ignoring other allowances and disallowances)

Net Profit as per PL                             Rs 10.00 lacs

Less: Profit on CV sale                       Rs   6.64 lacs

Add: Depn as per Co Act.                   Rs  27.22 lacs

Less: Depn per IT Act                         Rs  18.17 lacs

Hope the above is helpful...

Cheers

Hi Saurabh

According to me The tax calculation given by CA kaya and all others is correct , i just notice your depreciation schedule where you have mentioned 30th september as cut off date for calculating 50% of allowable depreciation.

As per provisions of section 32 if an asset is put to use for less than 180 days then you will be allowed 50% of the depreciation calculated at rates prescribed, so the cut off date is 4th october for 2012 as it is a leap year and for a non leap year it is 3rd of october, means if you have purchased the asset on or after 4th october (or 3rd october as the case may be) than you will be allowed 50% depreciation otherwise 100% allowance at the rates prescribed.

So you should correct cut-off date in FA Schedule and accordingly should check whether any asset has been purchased during 1-4 october, if yes, correct the amount of depreciation.

Hi friends,

      clause 3 of bp say that amount credited to accounts that are considered for other income should be deducted...it doesnt say that, amount shld be taxable under other head....and u already cosider that profit(part of consideration recd.) for the cosideration of taxability under stcg.....

i hope saurabh u got it....

Thanks,

Dear Saurabh,

                      Your Query is very simple.....

                   See u have Profit credited in respect of sale of F.Assets in books of accounts. The treatment in tax so as to nullify its effect and thereby saving ur tax is as follows:

As per sec 28 PGBP includes biz. profits.

Sec. 45(1) of IT act states chargeability of profit on transfer of Capital Asset whether used for biz purpose or not.

Now, Sec 50 of the same act states that in case of Depreciable assets there will only b STCG/STCL irrespective of its holding period. The same section provides that C.Gains wud b taxed only if the entire block of assets ceases to exist, i.e., all of them r sold or when even one of them is sold for a price > WDV.

In ur case, while computing Biz Income.. the profit already booked in books will be reduced under nomenclature " Profit on sale of Fixed Assets".(In excel)

In ITR don't show it under Profit on sale of Fixed Assets in Part PL.

That's how I could have solved ur question. In Block only Sale proceeds would b reduced. And cost of 2 trucks will b added. 

I also agree with CA Jain

but with respect to company MAT will arise with respect of sale of assets

this is correct as profit on sale of fixed asset is not arising out of day to day working of the concern and this income cant be taxed as income from business and profession. 

I agree with all of above. Whether there is Deffered tax Liability in the said case