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uS1MLn1 lC8 nCvLM8L8, 2013 LxAMlnA1lCn

unuL8 1PL PLAu 8uSlnLSS lnCCML
01 1he company remlLLed 3 lakhs as lnLeresL Lo a company lncorporaLed ln uAL on a loan Laken Lwo
Lh
years ago. 1ax deducLed u/s 193 from such lnLeresL and same was deposlLed on 13 !uly 2013. 1he sald
lnLeresL was deblLed Lo proflL and loss accounL.
02. lndlan Cverseas 8ank sancLloned and dlsbursed a Lerm loan ln Lhe flnanclal year 2009-10 for a sum of
30 lakhs. lnLeresL of 8 lakhs was ln arrears. 1he bank has converLed Lhe arrear lnLeresL lnLo a new
loan repayable ln Len equal lnsLallmenLs. uurlng Lhe year, Lhe company has pald Lwo lnsLallmenLs and
LheamounL so pald has been reduced from funded lnLeresL ln LhebalancesheeL.
03. LlquldaLed damages of 3 lakhs recelved from llux LLd for delay ln supply of planL and machlnery has
been shown under Lhehead oLher lncome" ln proflL &loss accounL.
04. 1he company pald Lhe full conslderaLlon for bulldlng and occupled Lhe same, buL reglsLraLlon ls under
process as on Lheend of Lheprevlous year.
sL
0S. 1he subscrlpLlon recelpL for Lhe year ended 31 March, 2013 was 360,000 and relaLed expendlLure
was 383,000. CLher lncomeof assoclaLlon governlng u/s 44A ls 173,000.
06. Mr. vlgnesh was a parLner ln a flrm as Lhe karLha of hls Pul. Cn Lhe amounL deposlLed by Lhe parLners,
Lhe flrm pald lnLeresL Lo Mr. vlgnesh, ln hls lndlvldual capaclLy had made deposlLs ln Lhe same flrm ln
whlch hewas aparLner.
07. Mr. AdlLya succeeded Lo hls faLher's buslness ln Lhe year 2010. uurlng Lhe prevlous year Mr. AdlLya has
wrlLLen off Lhe balance ln Lhe name of Mr. Ashlsh whlch relaLes Lo supply made by hls faLher, when he
carrled on buslness.
Lxp|a|n |n br|ef, |n respect of fo||ow|ng |ndependent s|tuat|on, the tax treatment under the
prov|s|ons of the |ncome taxAct, 1961.
ueducLlon can be avalled ln Lhe flnanclal year of acLual deposlL as per secLlon 40(a)(l). 1he
assesseecan clalm deducLlon onlyln Lhel? 2013-14.
u/s 438, lnLeresL on loan due Lo any schedule bank ls allowed as deducLlon, lf such lnLeresL ls
acLually pald lrrespecLlve of Lhe meLhod of accounLlng followed. Converslon of arrear lnLeresL
lnLo a fresh loan by a bank cannoL be consldered as acLual paymenL of lnLeresL. Powever,
converLed loan when acLually pald ls allowed as deducLlon, belng Lwo lnsLallmenLs of 160,000
acLuallypald ls deducLlble.
LlquldaLed damages recelved by a company from Lhe suppller of planL for fallure Lo supply
machlnery ln Llme ls a compensaLlon for sLerlllzaLlon of Lhe proflL earnlng source and LreaLed as a
caplLal recelpL. As Lhe amounL has been wrongly credlLed Lo Lhe proflL and loss accounL, Lhe same
should bededucLed.
SecLlon 32 speclfles LhaL Lhe assessee should be Lhe owner of Lhe asseL. 1he very concepL of
depreclaLlon suggesLs LhaL Lax beneflL on accounL of depreclaLlon leglLlmaLely belongs Lo one
who has lnvesLed ln Lhe caplLal asseL and ls uLlllsed Lhe caplLal asseL. So, depreclaLlon can be
clalmed even Lhrough reglsLraLlon has noL yeL Laken place.
As per secLlon 44A Lhe lncome from subscrlpLlons shall be seL off agalnsL expendlLure lncurred
solely for LheproLecLlon or advancemenL of LhelnLeresL of lLs member. Lxcess of expendlLureover
subscrlpLlon shall be flrsL be seL off agalnsL oLher lncome of assoclaLlons. Powever, deducLlon
admlsslblebywayof deflclencyshall noL exceed one-half of Lhelncomeof assoclaLlon.
SecLlon 40(b) speclfles LhaL where an lndlvldual ls a parLner ln a flrm, ln a represenLaLlve capaclLy,
lnLeresL pald byLheflrm Lo such lndlvldual ln hls lndlvldual capaclLyshall noL beLaken lnLo accounL
for secLlon 40(b).
SecLlon 36(1) speclfles LhaL bad debLs ls allowed as deducLlon lf lL ls wrlLLen off ln Lhe books of
accounLs of Lhe assessee, even Lhough Lhe debL represenLs Lhe amounL due for Lhe supplles made
byprevlous owner.
Ioi fuII DT noles send an e-naiI lo quickinsighldlgnaiI.con

08 Sale proceeds of lmporL enLlLlemenL amounLlng Lo 1 lakh has been credlLed Lo proflL &loss accounL,
whlch Lhecompanyclalms as caplLal recelpL noL chargeableLo Lax.
09 A sum of 6,000 on accounL of llablllLy foregone by a credlLor has been Laken Lo general reserve. 1he
samewas charged Lo LherevenueaccounL ln LheA? 2010-11.
10. 1herefund of exclseduLy has been obLalned by Lheassesseeon Lhebasls of adeclslon of LheCLS1A1 and
LhemaLLer has been Laken up furLher appeal Lo LheCourL bydeparLmenL.
11 v8 LLd lncurred expendlLure amounLlng Lo 300,000 ln connecLlon wlLh Lhe lssue of rlghLs shares and
400,000ln connecLlon wlLh Lhelssueof bonus shares.
12. Clause for paymenL of salary Lo worklng parLners Lhrough appears ln Lhe deed, buL Lhe same ls sllenL as
Lo quanLum and manner of dlsLrlbuLlon.
13 lnLeresL of 3,000pald an overdrafL of 2 lakhs Laken for maklng paymenL of lnsLallmenL of advance Lax
of 1.23lakhs.
14 AmounL of 230,000conLrlbuLed Lo employees welfareLrusL.
13. lncomeLax refund lncludes amounL of 3,300of lnLeresL allowed Lhereon.
SecLlon 28 charglng secLlon clearly speclfles LhaL Lhe sale of Lhe rlghLs glves rlse Lo proflL or galn
Laxableunder Lhehead proflL and galn from buslness or professlon.
LlablllLyforegonebyLhecredlLor ls Laxableu/s 41(1) and LreaLed as buslness lncome.
Where expendlLure ls acLually lncurred by reason of paymenL of duLy on goods and a deducLlon or
allowance ls glven ln Lhe assessmenL of an earller year, Lhe assessee ls llable Lo dlscharge LhaL
beneflL as and when he obLalns refund of Lhe amounL so pald. Cnce Lhe assessee geLs back Lhe
amounL whlch was clalmed and allowed as buslness expendlLure durlng Lhe earller year, Lhe
deemed provlslon ln secLlon 41(1) comes lnLo play. 1herefore, refund of exclse duLy sub[ecL Lo Lax
u/s 41(1) and lL ls noL necessary Lo awalL LheverdlcL of aPlgher CourL.
LxpendlLure lncurred by a company ln connecLlon wlLh lssue of shares wlLh a vlew lncrease lLs
caplLal base consLlLuLes a caplLal expendlLure. Pence rlghL lssue expendlLure ls noL allowed as
buslness expendlLure. Cn Lhe oLher hand, Lhe lssue of bonus shares does noL resulL ln lnflow of
fresh funds or lncrease ln Lhe caplLal employed. lL ls merely caplLallsaLlon of reserve. 1oLal funds
avallable wlLh Lhe company remaln same on lssue of bonus shares. Pence, 400,000 ls deducLlble
from buslness proflL.
SecLlon 40(b)(v) does noL lay-down any condlLlon LhaL Lhe parLnershlp deed should flx Lhe
remuneraLlon or Lhe meLhod of quanLlfylng remuneraLlon. Accordlngly, C8u1 clrcular no. 739
daLed 23.3.1996 whlch requlres LhaL elLher Lhe amounL of remuneraLlon payable Lo each
lndlvldual should be flxed ln Lhe agreemenL or Lhe parLnershlp agreemenL deed should lay down
Lhe manner of quanLlfylng such remuneraLlon goes beyond secLlon 40(b)(v). A parLnershlp deed
whlch provldes LhaL Lhe remuneraLlon would be as per Lhe provlslons of Lhe AcL meanlng Lhereby
LhaL Lhe remuneraLlon would noL exceed Lhe maxlmum remuneraLlon provlded ln Lhe AcL ls valld
and deducLlon ls admlsslble. {(Inre DurgaDass Devk| Nandan)(2011)(n)}
lnLeresL on overdrafL Laken for maklng paymenL of lnsLallmenL of advanceLax ls noL an expendlLure
whollyand excluslvelylncurred for Lhepurposeof buslness u/s 37(1).
Any conLrlbuLlon or paymenL ls noL requlred as per respecLlve law buL pald Lo employee under
conLracLual obllgaLlon of an employmenL ls noL deducLlbleu/s 40A(9)
lnLeresL on lncome Lax refund ls chargeable under Lhe head lncome from oLher sources and noL
under Lhehead C8.

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