Professional Documents
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Business Asset
Non Business Chargeable Asset
Trading Stock
Depreciable Asset
Since Mr. Sundars wife possesses the jewelry, which does not fall under any of the categories of asset
above; the gain on disposal of such asset is not taxable in both the case.
As Mr. Sundar has carried on business of jewelry by injecting his wifes jewelry as capital in his business,
there must be an agreement between his wife and him to consider the jewelry as trading stock, on which
case the cost of trading stock would be market value of asset. In either of the cases listed in the question,
the cost of trading stock is Rs. 30 Million.
The gain on Disposal is:
Sales Proceed:
Less: Cost of Trading Stock
Gain
37,500,000
(30,000,000)
7,500,000
Since it is trading stock, the sales are considered part of Sales income u/s 7 (2) (kha) and cost of trading
stock is calculated u/s 15 of the Act. As such, Mr. Sundar is responsible to pay tax on business income.
3,385,000
2,500,000
885,000
Since, the depreciation base as calculated by the formula given in Schedule 2 of the Act is positive with
some asset remaining in the pool, there shall be no gain on disposal.
Working Note:
A.
B.
C.
D.
E.
F.
G.
1,000,000
2,500,000
3,500,000
175,000
60,000
3,385,000
5,000,000
8,000,000
6,000,000
7,000,000
5,000,000
2,000,000
In case Mr. Ram failed to elect Sec. 46 in writing, the gain would be Rs. 8 Million less Rs. 5 Million (as
calculated u/s 37, 38 & 39 of the Act).
In case Mr. Ram could not acquire similar other asset within a year of involuntary disposal, the gain would
be Rs. 8 Million less Rs. 5 Million (as calculated u/s 37, 38 & 39 of the Act)