Taxation - Income TaxQuestion 5591 of 146
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Question 3 (a) (A) What is the meaning of Micro arid Small Enterprise u/s 43B of Income Tax Act, 1961? (B) Mr. Prem has following assets as on 01.04.2023 : (i) A machinery costing ` 4 lakh, which was used for scientific research related to business and deduction u/s 35 was allowed ` 40,000. (ii) A laptop received as a gift from his friend costing ` 60,000. It was purchased on 01.04.2022 by his friend. (iii) A temporary wooden structure costing ` 70,000 erected in Dec. 23 which was used for business purposes. Compute the depreciation allowed on these assets for F.Y. 2023-24. (b) Mr. X, age 83 years, a resident individual, gives the following particulars of his receipts for A.Y. 2024-25 : 1. Installment received from the bank under reverse mortgage arrangement ` 1,50,000 2. Interest on bank term deposits ` 2,00,000 3. Interest on bank saving a/c ` 45,000 4. Pension from Central Govt. ` 4,50,000 5. STCG on sale of dining table and chairs ` 1,00,000 6. Income from dairy farming on his rural agricultural land ` 50,000 Compute his total income and Income Tax thereon for A.Y. 2024-25 considering that assessee has opted out of Default tax regime.

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Detailed Solution & Explanation

### Part (a) #### **(A) Meaning of Micro and Small Enterprise under Section 43B(h)** Under Section 43B(h) of the Income-tax Act, 1961, any sum payable by an assessee to a Micro or Small Enterprise beyond the time limit specified in Section 15 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, is allowed as a deduction only in the previous year in which such sum is actually paid. - **Micro Enterprise:** An enterprise where the investment in plant and machinery or equipment does not exceed ₹1 Crore\displaystyle ₹1 \text{ Crore} and annual turnover does not exceed ₹5 Crores\displaystyle ₹5 \text{ Crores}. - **Small Enterprise:** An enterprise where the investment in plant and machinery or equipment does not exceed ₹10 Crores\displaystyle ₹10 \text{ Crores} and annual turnover does not exceed ₹50 Crores\displaystyle ₹50 \text{ Crores}. - *Note:* Medium enterprises are not covered under Section 43B(h). #### **(B) Computation of Depreciation Allowed to Mr. Prem for P.Y. 2023-24** | Asset Class | Computation | Depreciation (₹) | | :--- | :--- | :--- | | **Machinery used for scientific research** | WDV is ₹3,60,000\displaystyle ₹3,60,000 (₹4,00,000\displaystyle ₹4,00,000 cost less ₹40,000\displaystyle ₹40,000 Section 35 deduction allowed). Depreciation @ 15% on ₹3,60,000\displaystyle ₹3,60,000 | 54,000\displaystyle 54,000 | | **Laptop received as a gift** | Actual cost to the previous owner was ₹60,000\displaystyle ₹60,000 on 01.04.2022. The WDV in hands of the assessee is ₹60,000−(40%×₹60,000)=₹36,000\displaystyle ₹60,000 - (40\% \times ₹60,000) = ₹36,000. Depreciation @ 40% on ₹36,000\displaystyle ₹36,000 | 14,400\displaystyle 14,400 | | **Temporary wooden structure** | Cost is ₹70,000\displaystyle ₹70,000. Erected in Dec 23 (used for less than 180 days in P.Y.). Depreciation @ 40% restricted to 50% (i.e. 20%) on ₹70,000\displaystyle ₹70,000 | 14,000\displaystyle 14,000 | | **Total Depreciation Allowed** | | **82,400\displaystyle 82,400** | ### Part (b) Computation of Total Income and Tax Liability of Mr. X (aged 83 years) for A.Y. 2024-25 *(Assessee has opted out of Default Tax Regime)* | Particulars | Amount (₹) | Amount (₹) | | :--- | :--- | :--- | | **Income from Salary** | | | | - Pension from Central Government | 4,50,000\displaystyle 4,50,000 | | | - Less: Standard Deduction under Section 16(ia) | (50,000)\displaystyle (50,000) | 4,00,000\displaystyle 4,00,000 | | **Capital Gains** | | | | - STCG on sale of dining table and chairs (exempt personal effects) | | 0\displaystyle 0 | | **Income from Other Sources / Business** | | | | - Installment received under reverse mortgage (exempt u/s 10(43)) | 0\displaystyle 0 | | | - Interest on bank term deposits | 2,00,000\displaystyle 2,00,000 | | | - Interest on bank savings account | 45,000\displaystyle 45,000 | | | - Income from dairy farming on rural agricultural land (taxable business income) | 50,000\displaystyle 50,000 | 2,95,000\displaystyle 2,95,000 | | **Gross Total Income** | | **6,95,000\displaystyle 6,95,000** | | Less: Deduction under Section 80TTB (restricted to maximum limit) | | (50,000)\displaystyle (50,000) | | **Total Taxable Income** | | **6,45,000\displaystyle 6,45,000** | #### **Tax Computation:** - Tax on first ₹5,00,000\displaystyle ₹5,00,000 = Nil (for Resident Super Senior Citizen aged 80+) - Tax on ₹5,00,001\displaystyle ₹5,00,001 to ₹6,45,000\displaystyle ₹6,45,000 (₹1,45,000\displaystyle ₹1,45,000) @ 20% = ₹29,000\displaystyle ₹29,000 - Add: Health and Education Cess @ 4% = ₹1,160\displaystyle ₹1,160 - **Total Tax Liability = ₹30,160\displaystyle ₹30,160**

Key Concepts to Understand

Depreciation

Allocation of the cost of a tangible fixed asset over its useful life due to wear and tear, efflux of time, or obsolescence.

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