Income-tax Act,1961
Act No : 43
Section :
Profits chargeable to tax2
41. Profits chargeable to tax2 3[(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the ----------------------------------------------------------------------- 1 Prior to the omission, sub-section (12), as inserted by the Finance Act, 1985, w.e.f. 1-4-1986, read as under: "(12) No deduction shall be allowed in excess of ten thousand rupees for any assessment year in respect of any expenditure incurred by the assessee by way of fees or other remuneration paid to any person (other than an employee of the assessee),- (a) for services (not being services by way of preparation of return of income) in connection with any proceeding under this Act before any income-tax authority or the commission constituted under section 245B or a competent authority within the meaning of clause (b) of section 269A or the Appellate Tribunal or any court; (b) for services in connection with any other proceeding before any court, being a proceeding relating to tax, penalty, interest or any other matter under this Act; and (c) for any advice in connection with tax, penalty, interest or any other matter under this Act." 3 Substituted by the Finance Act, 1992, w.e.f. 1-4-1993. Prior to the substitution, subsection (1), as originally enacted, read as under: "(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him or the value of benefit accruing to him, shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not." ----------------------------------------------------------------------- 1.249 successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to incometax as the income of that previous year. Explanation.-For the purposes of this sub-section, "successor in business" means- (i) where there has been an amalgamation of a company with another company, the amalgamated company; (ii) where the first-mentioned person is succeeded by any other person in that business or profession, the other person; (iii) where a firm carrying on a business or profession is succeeded by another firm, the other firm.] 1[(2) Omitted by the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988.1 2[(2A) Omitted by the Taxation Laws (Amendment and Miscellaneous --------------------------------------------------------------------- 1 Prior to the omission, sub-section (2), as amended by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981, read as under: "(2) Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business or profession is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due: Provided that where the building sold, discarded, demolished or destroyed is a building to which Explanation 5 to section 43 applies, and the moneys payable in respect of such building, together with the amount of scrap value, if any, exceed the actual cost as determined under that Explanation, so much of the excess as does not exceed the difference between the actual cost so determined and the written down value shall be chargeable to income-tax as income of the business or profession of such, previous year. Provided further that where an asset representing expenditure of a capital nature on scientific research within the meaning of clause (c) of sub-section (2B) of section 35, read with clause (4) of section 43 owned by the assessee which was or has been used for the purposes of business after it ceased to be used for the purpose of scientific research related to the business is sold, discarded, demolished or destroyed, the provisions of this sub-section shall apply as if for the words "actual cost", at the first place where they occur, the words "actual cost as increased by twenty-five per cent thereof" had been substituted. Explanation.-Where the moneys payable in respect of the building, machinery, plant or furniture referred to in this sub-section become due in a previous year in which the business or profession for the purpose of which the building, machinery, plant or furniture was being used is no longer in existence, the provisions of this sub-section shall apply as if the business or profession is in existence in that previous year." 2 Prior to the omission, sub-section (2A), as inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971, read as under: "(2A) Where any structure or work in or in connection with a building, being the structure or work referred to in sub-section (1A) of section 32, is sold, discarded, demolished, destroyed or is surrendered as a result of the determination of the lease or other right of occupancy in respect of the building and the moneys payable in respect of such structure or work together with the amount of scrap value, if any, exceed the written down value, so much of the excess as does not exceed the difference -> ->. ---------------------------------------------------------------------- 1.250 Provisions) Act, 1986, w.e.f. 1-4-1988.] (3) Where an asset representing expenditure of a capital nature on scientific research within the meaning of clause (iv) of sub- section (1), 1[or clause (c) of sub-section (2B),] of section 35, read with clause (4) of section 43, is sold, without having been used for other purposes, and the proceeds of the sale together with the total amount of the deductions made under clause (i) 2[or, as the case may be, the amount of the deduction under clause (ia)] of sub-section (2), 2[or clause (c) of sub-section (2B),] of section 35 exceed the amount of the capital expenditure, the excess or the amount of the deductions so made, whichever is the less, shall be chargeable to income-tax as income of the business or profession of the previous year in which the sale took place. Explanation.-Where the moneys payable in respect of any asset referred to in this sub-section become due in a previous year in which the business is no longer in existence, the provisions of this sub- section shall apply as if the business is in existence in that previous year. (4)Where a deduction has been allowed in respect of a bad debt or part of debt under the provisions of clause (vii) of sub-section (1) of section36, then, if the amount subsequently recovered on any such debt or part is greater than the difference between the debt or part of debt and the amount so allowed, the excess shall be deemed to be profits and gains of business or profession, and accordingly chargeable to income-tax as the income of the previous year in which it is recovered, whether the business or profession in respect of which the deduction has been allowed is in existence in that year or not. 4 [Explanation.-For the purposes of sub-section (3),- (1) "moneys payable" in respect of any building, machinery, plant or furniture includes- (a) any insurance, salvage or compensation moneys payable in respect thereof; (b) where the building, machinery, plant or furniture is sold, the price for which it is sold, so, however, that where the actual cost of a motor car is, in ----------------------------------------------------------------------- -> between the actual cost of the structure or work and its written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the structure or work became due. Explanation ].-Where the moneys payable in respect of the structure or work referred to in this sub-section become due in a previous year in which the business or profession for the purpose of which the structure or work was constructed or done is no longer in existence, the provisions of this sub-section shall apply as if the business or profession were in existence in that previous year. Explanation 2.-For the purposes of this sub-section, the expression "moneys payable" and the expression "sold" shall have the same meanings as in sub-section (1A) of section 32." 1 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 2 Inserted by the Finance (No. 2) Act, 1967, w.e.f. 1-4-1968. 3 Inserted by the Finance (No. 2) Act, 1980, w.e.f. 1-4-1981. 4 Substituted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. Prior to the substitution, the Explanation read as under: "Explanation.-The expression "moneys payable" and the expression "sold" in subsections (2) and (3) shall have the same meanings as in sub-section (1) of section 32." ----------------------------------------------------------------------- 1.251 accordance with the proviso to clause (1) of section 43, taken to be twenty-five thousand rupees, the moneys payable in respect of such motor car shall be taken to be a sum which bears to the amount for which the motor car is sold or, as the case may be, the amount of any insurance, salvage or compensation moneys payable in respect thereof (including the amount of scrap value, if any) the same proportion as the amount of twenty-five thousand rupees bears to the actual cost of the motor car to the assessee as it would have been computed before applying the said proviso; (2) "sold" includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company.] (5) Where the business or profession referred to in this section is no longer in existence and there is income chargeable to tax under sub-section (1), 1[* * *] sub-section (3) or sub-section (4) in respect of that business or profession, any loss, not being a loss sustained in speculation business 2[* * *], which arose in that business or profession during the previous year in which it ceased to exist and which could not be set off against any other income of that previous year shall, so far as may be, be set off against the income chargeable to tax under the sub-sections aforesaid. 3[(6) References in sub-section (3) to any other provision of this Act which has been amended or omitted by the Direct Tax Laws (Amendment) Act, 1987 (4 of 1988), shall, notwithstanding such amendment or omission, be construed, for the purposes of that sub- section, as if such amendment or omission had not been made.] ---------------------------------------------------------------------- 1 The words "sub-section (2), sub-section (2A)" omitted by the Taxation Laws (Amendment & Miscellaneous Provisions) Act, 1986, w.e.f. 1-4-1988. The italicised words were inserted by the Taxation Laws (Amendment) Act, 1970, w.e.f. 1-4-1971. 2 The words "or under the head 'Capital gains"' omitted by the Finance Act, 1987, w.e.f. 1-4-1988. 3 Inserted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4- 1989. ----------------------------------------------------------------------- 1.252
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