Income From Business Chapter- 09
Provided that for the purpose of determining the deduction on account of lease rentals the cost of
a passenger transport vehicle not plying for hire to the extent of principal amount shall not exceed Rs.
2,500,000.3. FINANCIAL COST:
The financial cost of the securitization of receivables incurred by an Originator in the tax year from a
Special Purpose Vehicle being the difference between the amount received by the Originator and the
amount of receivable securitized from a Special Purpose Vehicle.
Where assets are transferred by an Originator on securitisation to a Special Purpose Vehicle, it shall
be treated as a financing transaction irrespective of the method of accounting adopted by the
Originator.
Example: Following information is related to Mr. Bilal who carries on the business of trading clothes.
(a) Sales Rs. 740,000,
(b) Cost of sales Rs. 550,000,
(c) Administrative expenses Rs. 110,000
Notes:
Administrative and selling expenses include:
(a) Accounting depreciation Rs. 10,000,
(b) Interest on loan (for business purpose) Rs. 20,000,
(c) Interest on loan (for personal purpose) Rs. 5,000
Required: Compute taxable income of the taxpayer if the tax depreciation Rs. 15 ,000.
Solution:
Mr Bilal
Computation of taxable income: Rs.
Income from business:
Sales 740,000
Cost of sales (550,000)
Gross profit 190,000
Less: Administrative expenses (110,000)
Add: accounting depreciation 10,000
Add: Interest on loan for personal use 5,000
Less: Tax depreciation (15,000)
Taxable income 80,000
Irrespective of the method of accounting adopted by the originator, where as a result of securitization
any assets are transferred by him to a SPV it shall be treated as a financing transaction. [S 28(2)]- Bad debts [U/s 29(1) and (2)]
A person shall be allowed a deduction for bad debts, in a tax year if the bad debts which were
previously included in incomes or in respect of money lent by a financial institution have now
been written off and reasonable grounds exist that they cannot be recovered.
The amount of allowed deduction for a tax year shall not exceed the amount of the debt written off in
the accounts of the person in the tax year.
Recovery of bad debts in subsequent period or periods [U/s 29(3)]
If there is any recovery after allowing bad debts out of the allowed portion of bad debts and the
recovery has been accounted for in the books of account for accounting purposes, then the
same shall be ignored for computation of taxable business income in the tax year in which the
recovery shall be made.
If there is any recovery after allowing bad debts out of the disallowed portion of bad debts and
the recovery has been accounted for in the books of account for accounting purposes, then the