03-04-2010, 03:33 AM
Dear,
There would have very rare cases in which Condition C remains unfulfilled, since it requires transferee to extinguish the liability against that asset which is acquired (The liability of which could be in favour of third party rather than transferor). In most of the cases, liability against any asset remains lower than its cost unless liability is not paid off in time or time lag in payment is longer than the time period in which asset may be depreciated or amortized, or asset has been obsolete before the liability could have been extinguished by the transferor.
Transferorâs Cost, in this case does not mean the cost at which asset was acquired rather Transferorâs cost means;
[code]In Case of Depreciable/Amortizable Asset, Written down value will be treated its cost.
In Case of Inventory, its Fair value will be treated as cost.
And In case of other assets, cost will be the same at which these were acquired.[/code]
Whether the asset is transferred at Fair Value or Cost, the only thing to understand is that, this is a deferment of gain and taxation thereof, furthermore the actual purpose of this section is not to tax the gain arises within the same group of person. Any subsequent sale of the asset to a third party(by Transferee) will attract tax consequence, and in that case gain will be recognized by considering the difference between the fair value at which asset is sold and cost to the transferee.
Best Regards,
Faisal.
There would have very rare cases in which Condition C remains unfulfilled, since it requires transferee to extinguish the liability against that asset which is acquired (The liability of which could be in favour of third party rather than transferor). In most of the cases, liability against any asset remains lower than its cost unless liability is not paid off in time or time lag in payment is longer than the time period in which asset may be depreciated or amortized, or asset has been obsolete before the liability could have been extinguished by the transferor.
Transferorâs Cost, in this case does not mean the cost at which asset was acquired rather Transferorâs cost means;
[code]In Case of Depreciable/Amortizable Asset, Written down value will be treated its cost.
In Case of Inventory, its Fair value will be treated as cost.
And In case of other assets, cost will be the same at which these were acquired.[/code]
Whether the asset is transferred at Fair Value or Cost, the only thing to understand is that, this is a deferment of gain and taxation thereof, furthermore the actual purpose of this section is not to tax the gain arises within the same group of person. Any subsequent sale of the asset to a third party(by Transferee) will attract tax consequence, and in that case gain will be recognized by considering the difference between the fair value at which asset is sold and cost to the transferee.
Best Regards,
Faisal.
