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Tax Management with reference to –
Sale of Scientific Research Asset
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Sale of Scientific Research Asset

SCIENTIFIC RESEARCH ASSET SOLD AFTER HAVING BEEN USED FOR THE PURPOSE OF BUSINESS.

As per explanation 1 to section 43(1) where an asset is used in the business after is ceases to be used for scientific research related to that business the actual cost of the asset to be included in the relevant block of asset shall be taken as nil as 100% deduction has already been allowed. If such asset is sold then the value of block shall be reduce by the sale value of the asset.

SECTION 41(3). SCIENTIFIC RESEARCH ASSET SOLD WITHOUT HAVING BEEN USED FOR THE  PURPOSE OF BUSINESS

(1) Where an asset representing expenditure of a capital nature on scientific research, is sold, (2) without having been used for other purposes, and (3) the proceeds of the sale together with the actual amount of the educations made, the amount of the deduction exceed the amount of the capital expenditure (4) the excess or the amount of the deductions so made, whichever is the less, (5) shall be chargeable to income-tax as income of the business or profession of the previous year in which the sale took place.

The Clause is applicable even if the business is not in existence during PY.

ANALYSIS :

    1. Profit from Business = Sale price or cost whichever is lower.

    2. Capital Gain = Sale consideration minus cost of acquisition . If LTCA minus indexed cost of acquisition. There can be no loss under the head Capital G

TAX PLANNING VIEW :

Tax planning question can be whether the scientific research asset should be sold by using for  the purpose of business or without being used for the purpose of business.

      • Scientific research asset can either be sold without being used for the purpose of business  as such. Sale of scientific research asset as such shall give rise to capital gain which can be either short-tem capital gain or long-term capital gain.

      • Sale of Scientific Research Asset  after it is put to use for  the purpose of business shall reduce the depreciation for subsequent years. Capital gain shall arise depending upon the block of asset. As per section 50 Capital Gain can arise only if  on the last day of the PY.

      • Block of Assets do not  exist ; or

      • WDV is Zero.

 
 
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