Section 40 : Disposal of property or liability

1) If the ownership of any person over any property ceases, he shall be deemed to have disposed of that property. The disposal of the property has to include acts such as distribution of the property by the owner of the property, an amalgamation of the property in other property or liability, sale of the property in instalments or lease out to any other person under a financial lease, cancellation, destroy, loss, expiration or surrender of the same.

2) If the burden of liability of any person ceases, he shall be deemed to have disposed of that liability. The disposal of liability has to include acts such as settlement, cancellation, release and completion of the liability or amalgamation of liability in other liability or property.

3) Notwithstanding anything contained in sub-sections (1) and (2), any person shall be deemed to have disposed of any property or liability in the following circumstances:-

a) In respect of a natural person, immediately before the death of that person,

b) In respect of any property, if the sum of the incomings for that property exceeds the sum of the outgoings for that property,

c) In respect of any property subject to debt claim,-

(1) If it has become a bad debt as per the standards as prescribed in respect of a debt claim of a bank or financial institution and

(2) If, in any other circumstance, that person has reasonably believed the debt claim as non-recoverable.

Provided that the person has to have already pursued all proper measures to recover that debt claim.

d) If any person has started using a business asset, non-business taxable assets, depreciable property or stock-in-trade in a manner to alter the type thereof immediately before the use of the altered form of that property,

e) In the circumstances referred to in Section 57 in respect of any entity and

f) Immediately before that person has become a non-resident person, except the land or building situated in Nepal.

4) If any person disposes of any property by leasing it under a financial lease pursuant to sub-section (1), the lessee of that property shall be deemed to have acquired the ownership of that property at the time of disposal.

5) The following provisions shall apply for purposes of computing the profits derived by any person from the disposal of the property or liability:-

a) The amounts of net expenses for any property under ownership of any person at the time of commencement of this Act shall be deemed to be equal to the market value of the property prevailing at that time,

b) The amounts of net incomes for liability of any person at the time of commencement of this Act shall be deemed to be equal to the amount as per the market value of the liability prevailing at that time.