Professional Documents
Culture Documents
RECEIPT TAXATION
SUBMITTED TO:-
SUBMITTED BY:-
Prathmendra Hidko
(ROLL NO-111, SEM-V)
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Declaration
I hereby declare that the project work entitled CAPITAL RECEIPT AND REVENUE
RECEIPT TAXATION" is record of an original work done by me under the guidance of
Faculty Member Ms. Varendyam J. Tiwari.
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Acknowledgements:
I feel highly elated to work on the topic CAPITAL RECEIPT AND REVENUE RECEIPT
TAXATION
The practical realization of this project has obligated the assistance of many persons. I
express my deepest regard and gratitude towards Ms. Varendyam J. Tiwari faculty of Law of
Taxation for giving me the opportunity to work on this project. Her invaluable guidance has
been of immense help in understanding and carrying out the nuances of the project.
I take this opportunity to also thank the University and the Vice Chancellor for providing
extensive database resources in the Library and for the Internet facilities provided by the
University.
Some printing errors might have crept in, which are deeply regretted. I would be grateful to
receive comments and suggestions to further improve this project report.
Prathmendra Hidko
Roll no. 111
Section B
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Objectives
Research Methodology
This study has been carried out in a descriptive and analytical manner. Secondary and
published documented data has been collected through various sources and analyzed
accordingly. Many of the available literature and studies have also been consulted and
reviewed to make the study more objective. No field work has been carried out in the
development of this work.
Prathmendra Hidko
Section- B
Semester V
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Contents:
Declaration..2
Acknowledgements.4
Introduction ..6
Capital Receipt and Revenue Receipt....7
1. Classification of Receipt
2. Diff. Between Capital Receipt and Revenue Receipt
Capital Receipt and Revenue Receipt under Taxation........................................10
1. Immaterial Considerations
2. Distinguishing Tests
Conclusion..14
References...15
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Introduction
When the business receives money it is again of two sorts. It may be a long-term receipt, a
contribution by the owner, either to start the business off or to increase the funds available to
it. It might be a mortgage or an which brings money into the business for a long-term, but in
this case it is not the owner of the business but some other investor who is supplying the
money.
On the other hand, the receipt may be a short-term receipt, one which is truly a profit of the
business. It may be rent received, commission received or cash for sale of goods made that
day, or at some previous time.
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CLASSIFICATION OF RECEIPTS
CAPITAL RECEIPTS
REVENUE RECEIPTS
Capital Receipt:
Receipts which are non-recurring (not received again and again) by nature and whose benefit
is enjoyed over a long period are called "Capital Receipts", e.g. money brought into the
business by the owner (capital invested), loan from bank, sale proceeds of fixed assets etc.
Capital receipt is shown on the liabilities side of the Balance Sheet.
CAPITAL INCOME
Income which does not grow out of or pertain to the running of business proper.
Synonymous to the term CAPITAL GAIN.
Profit realized over and above the cost of the fixed asset is considered as capital income or gain.
Eg. :- Cost of the plant = Rs 10,000 sold for = Rs12, 000 Then, Capital receipt = Rs 12,000 Capital
Gain = 12,000-10,000 = Rs 2,000
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Revenue Receipt:
Receipts which are recurring (received again and again) by nature and which are available for
meeting all day to day expenses (revenue expenditure) of a business concern are known as
"Revenue receipts", e.g. sale proceeds of goods, interest received, commission received, rent
received, dividend received etc.
REVENUE INCOME
Income that arises out of and in the course of the regular business transactions of a concern.
Synonymous to the term REVENUE PROFIT.
For instance, income derived from sale of goods, letting out business property etc.
Eg. :- Goods costing = Rs 20,000 Sold for = Rs 25,000 Revenue receipts = Rs25,000 Revenue
income = 25,000-20,000 = Rs 5,000
Revenue Receipt
1.
2.
3.
4.
5.
6.
It has short-term effect. The benefit is enjoyed within one accounting period.
It occurs repeatedly. It is recurring and regular.
It is shown in profit and loss account on the credit side.
It does not produce capital receipt.
This does not increase or decrease the value of asset or liability.
Sometimes, expenses of capital nature are to be incurred for revenue receipt,
e.g. purchase of shares of a company is capital expenditure but dividend
received on shares is a revenue receipt.
Capital Receipt
1.
It has long-term effect. The benefit is enjoyed for many years in future.
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2.
It does not occur again and again. It is nonrecurring and irregular.
3.
It is shown in the Balance Sheet on the liability side.
4.
Capital receipt, when invested, produces revenue receipt e.g. when capital is
invested by the owner, business gets revenue receipt (i.e. sale proceeds of
goods etc.).
5.
The capital receipt decreases the value of asset or increases the value of
liability e.g. sale of a fixed asset, loan from bank etc.
6.
Sometimes expenses of revenue nature are to be incurred for such receipt e.g.
on obtaining loan (a capital receipt) interest is paid until its repayment.
Capital Receipts are the income generated from the non-operating sources, which are having
a long term effect. On the other hand, Revenue Receipts are the major source of income of
the enterprise, without which a business may not survive for a long time.
For a successful business both receipts play a prominent role as they both compliments each
other. To distinguish between these two receipts you need to focus on the nature and intention
of the receipts, which will help you in segregating the two.
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The Capital Receipts are to be charged to tax under the head Capital Gains and Revenue
Receipts are Taxable under other heads, it is of vital importance to understand which receipt
is a capital receipt and which one is a revenue receipt.
Immaterial Considerations
In deciding whether a particular receipt is of a capital or revenue type, the following
considerations are considered to be immaterial and not going to decide or change the
character or nature of the receipt.
a case Divencha v. C.I. T. (48 1. T.R. 222), that the magnitude of a receipt is
immaterial for the purpose of determining its nature.
4. Name given by parties and treatment in books of accounts. What name the
recipient or payer of the receipt has given in the books of accounts or with what name
he has called a particular transaction, all such considerations are immaterial to decide
the nature of the receipt. A capital payment by a dealer may be a revenue receipt in the
hands of the recipient. The character of the receipt shall be decided by considerations
other than by what name the parties call it. [Divencha v. C.I. T.]. The nature of the
receipt will be determined in the hands of the person receiving such income.
5. Payment made out of capital. No attention will be paid towards the source from
which amount is coming. Salary even paid out of capital by a new business will be a
revenue receipt in the hands of the employee. It was also decided in a case that if a
receipt is made out of capital, the receipt may also be a capital receipt. If a recipient is
beneficially entitled not only to the income but also to the capital, payments given to
him by his trustees out of the corpus would be capital receipts. [Brodies Trustees v.
I.R. 25 T.C. 13, 16].
6. Time of receipt. The nature of the receipt has to be determined at the time when it is
received and not afterwards when it has been appropriated by the recipient.
7. Quality of receipt. Whether the income is received voluntarily or under a legal
obligation, it will not make any difference as regards its nature.
Distinguishing Tests
It is very difficult to draw a line of demarcation between capital receipts and revenue receipts.
Even the courts have found it difficult to lay down some points of distinction on the basis of
which a capital receipt may be distinguished from a revenue receipt. Some tests, however,
can be applied in particular cases. These tests are:1. On the basis of nature of assets. If a receipt is referable to fixed asset, it is capital
receipt and if it is referable to circulating asset it is revenue receipt. Fixed asset is that
with the help of which owner earns profits by keeping it in his possession, e.g., plant,
machinery, building or factory, etc. Circulating asset is that with the help of which
owners earn profit by parting with it and letting others to become its owner, e.g.,
stock-in-trade. Circulating asset is asset which is turned over and while being turned
over yields profit or loss whereas fixed asset is one on which the owner earns profit
by keeping it in his own possession. Profit on the sale of motor car used in business
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The followings are some important examples of capital receipts decided by courts
1.
2.
3.
Compensation received from the employer for loss of employment due to premature
termination of service.
4.
5.
Amount received by the assesses for digging and removing earth from his land for
brick- making.
7.
Revenue Receipts
1.
2.
3.
company.
4.
income for a short period. Any receipt as compensation shall be a revenue receipt.
Conclusion
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References
Web references
1. VK Gupta taxation of charitable trust available at <http://vipca.net/wpcontent/uploads/2015/07/taxation-of-charitable-trust
2. http://www.carkgupta.com/image/Trusts-DrRaviGupta.
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Book referred
1. Dr. Girish Ahuja & Dr. Ravi Gupta, Systematic approach to Income Tax, Bharat Law
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