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T. Banusekar

WE WERE carrying on business from a rented premises for 12 years. Last year, we shifted to our own premises. We had in the rented premises spent Rs 26,25,000 towards interior decoration, which included the cost of cabins, cupboards and false ceiling. These have been capitalised under the head `furniture and fixtures'.

While shifting to our own premises these items could not be detached properly and we, therefore, had to sell it for Rs 5,000. We have written off the difference between the written-down value (WDV) and the price realised on sale of the furniture and fixtures of Rs 5,000 as scrap since the same was treated as discarded assets. Is this correct? -- N. Sundharesan

Reply

Without going into the question of treatment of the cost of interior decoration — which includes the cost of cupboards, cabins, and false ceiling as furniture and fittings — and as to the correctness of the same, the treatment in income-tax for the same would depend on whether these assets are the only assets in the block of assets or whether there are other assets belonging to the block. Under the Income-Tax Act, depreciation is normally claimed based on the WDV of the block of assets.

A block of assets would mean assets belonging to the same class and bearing the same rate of depreciation. If these assets were the only assets in the block, the gain or loss on its sale as scrap would be computed in accordance with Section 50 of the Act. Under Section 50, the gain or loss is to be computed as shown in the Table.

If there are other assets to the block, there can be no capital loss but a capital gain may arise. In your case, since the sale value is very low the question of a capital gain may not arise. In which case the WDV of the block of assets would be computed in accordance with Section 43(6) and depreciation would be allowable on such WDV without considering the fact that the assets do not exist. The WDV in accordance with Section 43(6) would be computed as follows:

WDV of the block as at beginning of the year — XXX

Add: Actual cost of assets falling within this block acquired during the previous year — XXX

Less: Sale consideration /scrap / insurance compensation — XXX

Less: Depreciation for the year — XXX

Closing WDV — XXX

Query

Can an employee on a monthly basis receive leave travel concession? If this can be done, can the employee furnish proof of travel at any time during the course of the year and claim exemption on that basis? If an employer provides an employee with an accommodation what will be the tax treatment thereof? -- Madhuri

Reply

There is no harm in an employer paying the employee the leave travel concession on a monthly basis. If this is done, the employee can claim the exemption at any time during the previous year subject to the provisions of Section 10(5) read with Rule 2B.

It may be remembered that the exemption is available only on travel within India subject to the limits prescribed in Rule 2B and only in respect of travel for the employee or any member of his family as defined in Section 10(5).

Also, the exemption is available only twice in a block of four calendar years.

If an employer provides an accommodation to an employee, it will be treated as a perquisite in the hands of the employee.

The value of perquisite in the hands of the employee will be in accordance with Rule 3. Under this rule, the perquisite in respect of a rent-free accommodation will be as follows:

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