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Profit on Sale of Motor Vehicle
09-28-2011, 08:52 PM
Post: #1
Profit on Sale of Motor Vehicle
A person had motor vehicle with 50% contribution with Employer. After completion of specific duration employee sold that vehicle & received full amount. Did he liable to pay any tax on this amount or not?
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09-28-2011, 09:55 PM
Post: #2
 
Not sure but in my humble opinion.
Did employee paid back loan to employer? If yes then this is capital gain and capital gain is exempt income. (code 6104- line 30 of IT-2)
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09-29-2011, 12:37 AM
Post: #3
 
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by olympia</i>
<br />A person had motor vehicle with 50% contribution with Employer. After completion of specific duration employee sold that vehicle & received full amount. Did he liable to pay any tax on this amount or not?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Make your question a little more specific. give Supposed figures for the following

for how much employer and employee buy the bike.
For how much employee sold it
Whether it paid any money to employer or appropriated all to itself
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09-29-2011, 12:40 AM
Post: #4
 
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by sharif lakhani</i>
<br />Not sure but in my humble opinion.
Did employee paid back loan to employer? If yes then this is capital gain and capital gain is exempt income. (code 6104- line 30 of IT-2)
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

All capital gains are not exempted . See line/column 19 of IT-2 - For details read s.37, 37A & 38 of Income Tax Ordinance, 2001,
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10-01-2011, 06:15 PM
Post: #5
 
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by student_of_law</i>
<br /><blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by olympia</i>
<br />A person had motor vehicle with 50% contribution with Employer. After completion of specific duration employee sold that vehicle & received full amount. Did he liable to pay any tax on this amount or not?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Make your question a little more specific. give Supposed figures for the following

for how much employer and employee buy the bike.
For how much employee sold it
Whether it paid any money to employer or appropriated all to itself

<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

If a vehicle cost Rs 1,000,000 & Employee pay 50% Rs 500,000 after 5 years employee get the ownership of that vehicle now he sold out the vehicle suppose Rs 900,000. Did he liable to pay tax in this case? Someone tell me that this is casual sale & employee didn't need to pay any tax on this income. Is this correct?
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10-01-2011, 11:15 PM
Post: #6
 
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by olympia</i>

If a vehicle cost Rs 1,000,000 & Employee pay 50% Rs 500,000 after 5 years employee get the ownership of that vehicle now he sold out the vehicle suppose Rs 900,000. Did he liable to pay tax in this case? Someone tell me that this is casual sale & employee didn't need to pay any tax on this income. Is this correct?
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote"> there is nothing like Casual sale recognized under the Ordinance. The head Income from other sources has made all incomes taxable unless specifically exempted by the Ordinance.

Till 5 year employee was owner of 50% interest in vehicle
After 5 years did he pay any further amount to acquire remaining 50% interest from employer? You did not mention this aspect. Suppose yes, he paid rupees 3 lac. So his total cost of acquisition is 5lac + 3 lac = 8 lac.
Sale is for 9 lac.

Gain / income will be 9 - 8 = 1 lac.

Suppose that he did not pay anything to acquire remaining 50% interest of employer in vehicle. In this case transfer of 50% interest in bike to employee will be treated as perquisite and employer would add its market value to the salary of the employee upon which employee would pay tax. The value so added will be the cost of acquisition of remaining 50%. I think, not sure, that s.76(8) speaks of this situation.

For example , while transferring asset to employee, employer adds 300,000 rupees to the salary of employee. So the total cost of acquistion of vehicle for employee would be 5 lac + 3 lac = 8 lac.
if sale price is 9 lac. Capital Gain would be 9 lac - 8lac = 1.

The above was the method of calculating capital gain. Now the question is whether this capital gain is taxable. It is not taxable under the head capital gain because capital gain is on disposal of capital assets while under s.37(5)(d) movable property held for personal use is not a capital asset.

Now the question is then whether this gain is chargeable under the Head income from other sources. I am currently researching on this issue.
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10-01-2011, 11:16 PM
Post: #7
 
in my humble opinion (not sure) but by common sense all benefits passed by employer to employee are taxed. Thus when the ownership of car passed to you your are rewarded. if you used the car for business as well as personal purpose
cost 1000000
dep 100000
net 900000
the employer is passing on benefit of 450000/-
if you used only for business purpose
cost 1000000
dep 100000
net 900000
less your loan 500000
benefit passed to you 400000
seniors comment please
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10-04-2011, 09:47 PM
Post: #8
 
thnks student of law. it means no tax will be charged on this sale
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10-05-2011, 11:57 PM
Post: #9
 
<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by olympia</i>
<br />thnks student of law. it means no tax will be charged on this sale
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

I have not said so. If their is capital gain on this sale, that capital gain is not chargeable under the Head Capital Gains by virtue of s.37(5)(d). But I am not clear on the point whether this gain would be chargeable to tax under the Head Income From Other sources or not.
there may be two interpretations. <b><u>First</u></b>, As this income is no where expressly declared exempt and it is not covered under the head capital gain hence it is chargeable under the head Income from other sources.
<b><u>Second</u></b>, Non-inclusion of personal asset in the category of capital assets [section 37(5)(d)] , itself mean that this income is exempt from tax. Furthe, chargeability to tax is another issue, but generally this income falls under the head capital gain. Income which falls under any other head cannot be charged to tax under the head income from other source, in the light of its description under s.39(1)

If former intepretation is true then this income will be charged to tax as income from other sources. If latter is true this, income will be exempt. I don't know which interpretation would be true.

I will try to consult case law, and others are also invited to quote any useful case law on the topic.
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