DEEMED PROFITS- CHARGEABLE TO TAX

Section 41 DEEMED PROFITS. CHARGEABLE TO TAX

The receipts under the following sections shall be taxable u/h PGBP whether or not the business is in existence in the year of recovery.

Section 41(1) - Recovery Against Any Deduction

Recovery against any deduction:

•         This section applies if both the conditions listed below are fulfilled:

❑             Any expenditure or loss or trading liability has been allowed as a deduction in any previous year; and

❑             Subsequent there is a recovery of such expenditure or loss or trading liability either in cash or in any other manner (ie by way of remission of liability).

•         The amount of recovery is chargeable to tax in the year of receipt whether the business is in existence or not in the year of recovery.

Example: ABC Ltd has paid sales tax of Rs 5,00,000 under protest during PY 2014-15. During PY 2017-18, the matter was finally decided by the Supreme Court of India and the case was decided in favour of ABC Ltd and the amount was refunded to ABC Ltd.

The amount of Rs 5,00,000 shall be treated as an income of ABC Ltd for PY 2017-18.

Example: XYZ Ltd has recognized an expenditure of Rs 5,000 during PY 2016-17 towards purchases of raw materials on credit. During PY 2017-18, the creditor allows a rebate of Rs 500 at the time of payment and only Rs 4,500 is actually paid to the creditor.

The amount of Rs 500 shall be treated as income of XYZ Ltd for PY 2017-18.

Section 41(2) -

•                        This provision applies only to companies which are engaged in generation or generation and distribution of power which have opted to charge depreciation on SLM basis.

•                        The difference between the WM/ of the asset and its sale price is taxable u PGBP as balancing charge if the asset is subject to depreciation on SLM basis.

•                        The excess of sale price over the actual cost of the asset is not treated as balancing charge. Such excess amount is subject to capital gains.

Section 41(3) - 

Scientific research asset sold without using for the purpose of any other business:

Where any asset which has been used for scientific research is sold without using for the purposes of any other business, least of the following shall be taxable as PGBP income:

Ø  Sale price of asset; or;.

Ø  Deduction allowed u/s 35

Note: Capital gains shall arise if the sale price exceeds the cost of the asset. Capital gains shall be long term if the asset was sold after a period of 3 years; otherwise capital gains shall be short-term.

Section 41(4) - Recovery of Bad Debts

Recovery of bad debts:

Where any debt has been allowed as bad debts u/s 36(1)(vii) and subsequently the assessee recovers any amount in respect of such bad debt, the amount of recovery shall be taxable in the year of recovery.

Example :

ABC Ltd has sold some goods for Rs 1 lakh to Mr X on credit. The debt has become bad during PY 2014-15 for which a deduction was allowed during PY 2014-15.

However, during PY 2017-18, there is a recovery of Rs 5,000 from Mr X's estate. In this case, Rs 5,000 shall be treated as business income of ABC Ltd for PY 2017-18

Demo Classes of Tax by Prof. Vinit Sir: https://www.conceptonlineclasses.com/demovideos

Visit Website: https://www.conceptonlineclasses.com/

#DEEMEDPROFITSCHARGEABLETOTAX