X Ltd. Advanced to Y Ltd. Rs. 5000 for purchase of mechanize which is forfeited by Y Ltd. being X Ltd. fail to comply term & condition of purchase, Now question arise,
Q - Is X Ltd. can claim deduction of Rs 5000, if yes under which sec. ( It is noted that it should not treated as bad debts u/s 36 (1)VII since it is not revenue in nature.)
Q - Is Rs 5000 received & forfeited against advance money received on sale of goods by Y Ltd. taxable in hand of Y Ltd. if yes under which Sec. are it is Capital gain
Please suggest me with reference to Sec…….
hello sir,
answer to ur question acording to me is like this...
case of Mr. X
firstly we have to look as if X is a businessman and dealing with that machinery if yes then this lost of rs.5000 is allowable under section 36. as this is breach of contract.
on the other hand if this is a capital asset and not used for the purpose of business then this advance is not allowable anywhere. it is treated as dead loss
third case when this is a capital asset but used for the purpose of business still it is allowable as like first case
case of Mr.Y
if he is businessman and deals with machines then this is his business income
but if this is the capital asset of Mr.Y then this amount is reduced from his block of asset (if the asset used for the purpose of business)
and in 3rd case if this is a capital asset and as well as not used for the purpose of business then this amount of rs.5000 will deducted from cost price of machinery. if the price of machinery is less than rs 5000 say Rs.2000 then the cast of machinery converted to zero and balance 3000 will be nontaxable profit as there is no transfer of asset so no question of capital gain.
i think this will solve ur problem
regards
CA. DEEPAK GARG :)
09888719149
CAclubindia
