M Automobile Ltd. (M Auto) is engaged in the manufacture of automobile spare parts at Lucknow. In June 2024, M Auto established a new unit at Patna…

Computation of Total Income and tax liability of M Automobile Ltd. for the A.Y. 2025-26 under regular provisions of the Act Particulars Particulars ₹ Profits and gains of business or profession Profit (before depreciation) as per the Statement of profit and loss of Lucknow unit 50,00,000 Add: Items debited but to be considered separately or to be disallowed (i) Commission to Robert, a non-resident without deducting TDS [Commission to a non-resident who does not have any office or PE in India is not chargeable to tax in India if the services are performed outside India. In such case, the obligation to deduct tax does not arise. Since the same has been debited to the statement of profit and loss, no adjustment is required to be made] Nil (ii) Provision for warranty [The provision is allowed as deduction, if there is present obligation as a result of past event, it is reasonably certain that an outflow of resources embodying economic benefit will be required to settle the obligation and a reliable estimate can be made of the obligation. In the present case, assuming that these conditions are satisfied, provision for warranty is allowable as deduction⁴. Since the same has been debited to the Statement of Profit and loss, no adjustment is required to be made.] Nil (iii) Contribution towards employees' pension scheme [Contribution to the extent of 14% of salary (basic salary + dearness allowance, if it forms part of pay for retirement benefits) is allowable as deduction. Accordingly,1,80,000, being 6% of 6,00,000/20% is disallowed.] 1,80,000 (iv) Expenditure on issue of debentures including convertible debentures [The expenditure incurred on the issue and collection of debentures would be treated as revenue expenditure even in case of convertible debentures, i.e., the debentures which had to be converted into shares at a later date⁵. Since the same has been debited to the Statement of Profit and loss, no adjustment is required to be made.] Nil (v) Expenditure on construction of new building [Cost of repairs to the premises occupied by the assessee as a lessee is allowed as deduction other than of capital in nature. Since it has been debited to the statement of profit and loss, the same has to be added back while computing business income] 20,00,000 21,80,000 71,80,000 Al (i) Payment of non-compete fee without deduction of tax at source [Non-compete fees is in the nature of revenue expenditure. Since TDS u/s 194J has not been deducted on non-compete fee paid to Garg Auto Ltd., 30% of 12lakhs would be disallowed under section 40(a)(ia). However, as the amount is not debited in the Statement of Profit and loss, only - 8,40,000 is allowed as deduction] Note – Alternatively, if the non-compete fees is in the nature of capital, then depreciation needs to be computed on the said expenditure.⁶ 8,40,000 Profit (before depreciation) as per the Statement of Profit and Loss of Lucknow Unit 63,40,000 Profit (before depreciation) as per the Statement of Profit and Loss of Patna unit 25,00,000 88,40,000 Less: Depreciation as per the Income-tax Rules, 1962 Depreciation on construction of new building [M Auto is eligible for depreciation on construction of new building not owned by it but in respect of which it holds a leasehold right.⁷ ₹ 2,00,000, being 10% of 20lakh is allowed as deduction assuming it was put to use for more than 180 days] 2,00,000 Depreciation on Plant & Machinery Opening WDV as on 1.4.2024 14,75,000 Add: Old machinery (Patna Unit) in June 2024 10,00,000 Add: New machinery (Patna Unit) in August 2024 6,00,000 Less: Sales Consideration of machinery of Lucknow unit 15,00,000 15,75,000 Depreciation @15% on 15,75,000 2,36,250 Additional depreciation on new machinery @20% (Patna unit) 1,20,000 5,56,250 Note – If non-compete fees is in the capital nature, then depreciation of 3,00,000 being @ 25% on 12,00,000 is allowable. 82,83,750 Long-term capital gain on enhanced compensation Compensation received [Taxable in the year of receipt] 3,00,000 Less: Cost of acquisition - Long-term capital gain [Since plot of land was held for more than 24 months] 3,00,000 III Income from Other Sources Interest on enhanced compensation 12,00,000 Less: 50% of interest 6,00,000 6,00,000 Gross Total Income/ Total Income 91,83,750 Tax on 91,83,750 Tax on LTCG of 3lakhs @20% [Since transfer takes place before 23.7.2024] [Note – Alternatively, rate of 12.5% can also be applied considering that enhanced compensation is received on or after 23.7.2024. In such case, tax on LTCG would be - 37,500 and tax liability would be - 23,48,780] 60,000 Tax on balance income of 88,83,750 @25%, since total turnover for P.Y. 2022-23 does not exceed 400crores 22,20,938 22,80,938 Add: HEC @4% 91,238 Tax liability 23,72,176 Tax liability (rounded off) 23,72,180 Computation of total income and tax liability of M Auto for the A.Y. 2025-26 under section 115BAA Particulars Particulars ₹ Total Income as per regular provisions of the Act 91,83,750 Add: Additional depreciation 1,20,000 Total Income as per section 115BAA 93,03,750 Tax on 93,03,750 Tax on LTCG of 3lakhs @20% [Since transfer takes place before 23.7.2024] [Note- Alternatively, rate of 12.5% can also be applied considering that enhanced compensation received on or after 23.7.2024. In such case, tax on LTCG would be - 37,500 and tax liability would be - 23,08,960] 60,000 Tax on balance income of 90,03,750 @22% 19,80,825 20,40,825 Add: Surcharge @10% 2,04,083 22,44,908 Add: HEC @4% 89,796 Tax liability 23,34,704 Tax liability (Rounded off) ₹ 23,34,700 Since the tax liability of M Auto under section 115BAA is lower than the tax liability computed under regular provisions of the Act, it would be beneficial for it to opt for section 115BAA for A.Y. 2025-26.