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Section 41(3)

Tax queries 932 views 3 replies

Hi All,

Why sale of assets purchased for scientific research is included in Deemed profit section???

isn't it a capital gain??


Replies (3)

Hi friend,

 

It is deemed a business profit, because,

 

You have been allowed full/weighted deduction u/s 35 For a Capital EXPENDITURE in computing the PGBP. Hence it is only a recovery of expenditure when the asset is sold.

Thanks..

But, why cant it be taxed as capital gain only??

Hi,

The answer is not straight.

If it becomes CG, then people will misuse the section 35.

 

a) They will claim 125% (assume for an asset of Rs100, Rs125 will be deduction) u/s 35, so the cost of asset becomes NIL, not negative. Then if the same asset is sold for Rs110, the CG is Rs.10, Rs15 (being 125-110) has left the tax net...

 

b) Tax rate on LTCG is 20%, whereas the tax rate for substantial businesses, like firms and companies, is 30%. If it is LTCG, then first of all we have a clear tax saving.

Again LTCG can be avoided by re-investment u/s 54F (individual), 54EC.

Sec 35 could be misused as a mode to buy and sell assets without intention of actual research by the companies. 

 

 

So thats the reason section 41 is designed the way it is.

Since section 41 is like that, it is not capital gain.:)


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