Monday, December 23, 2013

“SAVING TAX ON LONG TERM CAPITAL GAIN- ISSUES INVOLVED”




TAX TALK-23.12.2013-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA
Chartered Accountant

“SAVING TAX ON LONG TERM CAPITAL GAIN- ISSUES INVOLVED”

Query 1]
I am presently residing in a house purchased from DDA in 1986 in the joint names of self and wife by also taking loan from the Bank. A case regarding my father’s residential property was decided by the Court in March, 2005 and property was divided by court in  3 equal shares – 1/3rd for my brother, 1/3rd for myself and 1/3rd for my father as my sisters relinquished their right in favor of my father. 1/3rd share of my brother was disposed off by him and after sale expired as well. My father who was residing with me has made a Registered Will of his 1/3rd share in my favor. My mother expired in 2002 and father in March, 2010. In this way, I became owner of 2/3rd share of that house (1/3rd mine share and 1/3rd my Father’s share by virtue of Will).
Now, I have sold this 2/3rd portion of house for Rs. 29.99 Lacs with area approx. 50 sq. mts. and Sale Deed was executed on September 22, 2013. I have deposited the above sale proceeds in S.B. Prudent Scheme A/c  (where interest is paid more than Savings Bank but at lower rate as compared to Fixed Deposit) in a Nationalized Bank in the joint names of self and wife. Please give your valuable advise in regard to following queries to deal with the sale proceeds so as to avoid Capital Gain Tax by purchasing another residential house/ opening of Capital Gain A/c / Investing in Govt. Funds:
1.      How capital gain amount will be calculated in respect of above property as Conveyance Deed of above property was got executed by my Father in the year 1965 and at the time sale by me on 22nd September, 2013, it was very old structure.  It was situated in old Delhi’s Deputy Ganj /Bahadur Garh Road Area (Circle Rate of the area at the time of sale was Rs. 58,800/- per Sq. Meter and in earlier years there were no Circle Rates notified by the Municipal Corporation of Delhi).  Please also inform me exact amount of Capital Gain.
2.      Whether the Capital Gain amount of my father’s share and my share will be different?
3.      I am looking for a residential house but want to know what is last date for me:
a] For purchasing a new residential house/plot? Whether last date for registering Sale/Purchase Deed is 21st March, 2014 or before due date of filing return for income?
b] Can I purchase two properties e.g. for Rs. 20 Lacs + Rs. 9.99 Lacs with different Municipal Numbers?
c] Whether Registry Charges/Stamp Duty/Brokerage of dealer or other expenses can be added for arriving at Capital Gain Amount i.e. Rs. 29.99 Lacs or exact amount calculated by you?
d] If I go for a plot/house for Rs. 20.00 Lacs then what other alternatives are left to me to deal with the remaining amount of Rs. 9.99 Lacs to save Capital Gain Tax?
e] Can I go for booking a developer’s flat in which case payment is to be made in installments for a period of say 2 years (certain date of possession is also not informed by developer)?
f] Whether I can purchase new house in the names of self and wife jointly?
g] If I could not materialize the purchase of residential house by the date/period advised by you then what I should do to avoid Capital Gain Tax and within what time frame? [B.K. Khurana-
iadrevaudit@pnb.co.in]
Opinion:
1.      The property sold by you is an old property which is acquired originally before 01.04.1981. The purchase price of the property could be replaced by the Fair Market Value (FMV) of the property as on 01.04.1981 while computing the amount of Long Term Capital Gain (LTCG). You can obtain the Valuation report from the Government approved valuer in support of FMV as on 01.04.1981. The FMV would be multiplied by 9.39 to arrive at the indexed cost of the house property. Further, if any expenditure/addition is done in the property after 01.04.1981, same could also be indexed and would be deductible while working out LTCG. The difference between the sale consideration and 2/3rd share of indexed cost of acquisition (& improvement also) would be the amount of LTCG. Since the circle rate of the plot (i.e., Rs. 58,800/- * 50 sq.mtr = Rs. 29.40 Lacs) is lower than the actual sale price (i.e., Rs. 29.99 Lacs), the LTCG would be computed by considering the amount of Rs. 29.99 Lacs only. In the absence of FMV/ Improvement/Addition, exact amount of LTCG could not be worked out.
2.      After the death of your father, you become the owner of his 1/3rd share in the property by virtue of his will. Entire LTCG on sale of this 2/3rd share of the property is assessable in your hands only. There is o need to segregate the capital gain on your share & your father’s share.
3.      Tax on Long Term Capital Gain (LTCG) on sale of any residential house property can be saved (U/s 54 of the Income Tax Act-1961) if the LTCG is invested within a prescribed time for purchase/ construction of a house property. The exemption u/s 54 would be available even if the taxpayer already owns another residential house property (i.e., exemption would be admissible even if second house property is purchased). Another option to save LTCG tax could be by investing the amount of LTCG within a period of 6 months from the date of transfer in the specified bonds issued by Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI).
a] Time limit to Purchase the Property: Exemption u/s 54 is available if the taxpayer invests the amount of LTCG for purchase/construction of a house property. The time period within which investment should be done is as under:
a] For Purchase: Within O
ne year before or two years after the date of transfer; or
b] For construction: Within a period of three years from the date of transfer.
If you are planning to purchase a flat, you have to complete the transaction of purchase before 21.09.2015. Mere investment in plot is not sufficient for claiming an exemption u/s 54. However, if the house is constructed thereon then the cost of the plot would also be eligible for exemption u/s 54 along with construction cost. 
Scheme of Deposits:
Even though u/s 54, taxpayer is allowed 2 years for purchase and 3 years for construction of the house property, the capital gain tax on such transfer is taxable in the previous year in which transfer took place. The return of income of that previous year has to be filed before the specified date i.e., due date. Hence, the tax payer has to take a decision for purchase/ construction of the house property before the date of furnishing of the return otherwise the capital gain would be taxable. To cope up with such situation, Income Tax Act has specified an alternative in the form of Deposit under the Capital Gain Deposit Accounts Scheme-1988 (CGDAS) for earmarking the amount for purchase/construction within specified time limit. The amount of LTCG which is not utilized by the taxpayer for purchase or constructions of the new house till due date has to be deposited under the CGDAS before the DUE DATE of furnishing the return of income. After deposits, the amount already utilized by the taxpayer for purchase/ constructions of the new house till due date, along with unutilized LTCG so deposited, shall be eligible for exemption u/s 54 in the year in which LTCG has arisen. Later on, whenever taxpayer purchase/ constructs the house property within a specified time slot, he can make payment from the CGDAS.
b] Exemption u/s 54 is available if the assessee invests the amount of LTCG for purchase of “a” residential house property. Interpretation of the word “a” is a matter of controversy. To be on a safer side, you are advised to invest the amount of LTCG in one house property only. You may further note that, for claiming an exemption u/s 54, you are required to invest the amount of LTCG only (not entire sale consideration of Rs. 29.99 Lacs).
c]
Registry Charges/Stamp Duty/Brokerage etc can be added to the cost of new flat for arriving at the amount of exemption u/s 54.
d]
If you are not able to utilize entire LTCG for new house property, you can invest balance LTCG in the specified bonds issued by NHAI/REC. Exemption U/s 54 & U/s 54EC can be claimed simultaneously as well. If you are planning to invest in specified bonds, ensure to make the investment within a period of 6 months i.e., before 21.03.2014.
e] You can claim an exemption u/s 54 by booking a flat & making the payment in installment to the developer. After considering the amount paid to developer till due date of filing the return of income, ensure to deposit the balance of LTCG in CGDAS. Subsequent installment can be paid to the developer from CGDAS.
f] You can incorporate the name of your wife also in the sale deed for the name sake. Ensure to make the payment through your account only so that you would be able to prove that your wife don’t have any ownership stake in the property & her name is incorporated in the sale deed for the convenience only.
g] If you are not sure of investing LTCG for purchase or construction, you can safely & timely think of claiming an exemption u/s 54EC by investing it in the specified bonds issued by NHAI/REC.


[The author is a practicing Chartered Accountant and is a partner of M/s. SSRPN & Co., Nagpur. Readers may send there queries at cassrpn@gmail.com.  If you wish to unsubscribe from the mailing list, please reply back “unsubscribe” on the same email id]

Sunday, December 15, 2013

“AMOUNT RECEIVED ON SURRENDER OF TENANCY RIGHT IS TAXABLE !”



TAX TALK-16.12.2013-THE HITAVADA

TAX TALK

CA. NARESH JAKHOTIA
Chartered Accountant

“AMOUNT RECEIVED ON SURRENDER OF TENANCY RIGHT IS TAXABLE !”

Query 1]
A mother of my friend who is a widow seeks clarification/advice from you regarding income from ancestral property. As per the tax law, income received through disposal of ancestral property comes under Capital Gain Tax & to avoid Capital Gain Tax amount received through disposal of property should be utilized in purchasing of house or in construction of house. Her share after disposal is so small that no house can be purchased or can be constructed. Then,
1.      How  to  save  Capital  Gain  Tax  on  such  amount ?
2.      Can amount be invested in regular fixed deposits in Bank?
3.      Can  whole  amount  or  part  of  it  can be  gifted  to  her son or  daughter?
4.      Can  amount be utilized  by  her  for  day  to  day requirements  of  life?
5.      If it is done so, then what will be the tax implication? She is a housewife & not coming under the bracket of tax limit.  [Vinod Hande -vkh0811@gmail.com]
Opinion:
1.      Apart from investment in purchase/ construction of house property, tax on Long Term Capital Gain (LTCG) can be saved U/s 54EC by investing the amount of LTCG in the specified bonds issued by Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI). The investment has to be done within a period of 6 months from the date of transfer. The application form for subscription is available at www.recindia.nic.in or at www.nhai.org. As her other income is below the basic exemption limit, the unused basic exemption limit can be reduced from the amount of LTCG and she would be required to invest the balance amount only u/s 54EC, for saving tax.
2.      The investment in fixed deposits with banks won’t help her in saving LTCG Tax. However, she can just invest the amount of taxable LTCG (as reduced by the unutilized basic exemption limit) only in the specified bonds u/s 54EC and the balance of the sale consideration can be used as per her convenience. The same can be invested in Bank FDR as it could provide her with better liquidity and returns.
3.      Gift by mother to her son or daughter is tax neutral and don’t have any tax repercussion.
4.      There is no bar in the using the funds for household or any other purposes.
5.      If she don’t wish to claim an exemption either by purchasing or constructing the house property or by investing in the specified bonds u/s 54EC, she would be liable for LTCG tax @ 20% on the amount of taxable income [i.e., on LTCG Less the amount of unutilized basic exemption limit].

Query 2]
I am a partner in a firm with my elder brother. A property was taken on rent by my forefathers some 60 years back. In family partition, the said property was given to me and my brother. The rent agreement is in name of firm. Now I want to surrender my portion. I will get approx Rs. 80 Lacs for surrendering my portion to the landlord. My brother will continue existing business in other half. I request you to please enlighten on the taxability of above Rs. 80 Lacs. Further, I have also learnt that if benefit of indexation is not availed long term capital gain is taxable @ 10%. Can I divide this income between myself, my wife and son as we got these rights through our forefathers? Also suggest tax saving tools for the same. Partnership deed is registered between me and my brother. [V***********]
Opinion:
1.      The tenancy right is a capital assets and surrender of tenancy right for Rs. 80 Lacs would yield Long Term Capital Gain (LTCG).
2.      The benefit of 10% tax rate without indexation is available only on transfer of listed securities or unit or zero coupon bonds. The benefit is not available to LTCG arising from transfer of tenancy right or any other capital assets.
3.      The important question that remains here is about the taxability of such amount.
Taxability, tax saving options & other implication would depend upon multiple factors and documents. Apparently, it appears that the amount would be taxable in the hands of the firm as the tenancy right belongs to firm.

Query 3]
I have made registered agreement for purchase of plot at Nagpur in December, 2009 by paying whole amount of plot i.e., Rs. 3 Lacs (Market value of said plot was Rs. 2.94 Lacs). Expenditure on registry was also borne by me. As the plot is not having town planning sanction, hence till date, sale dead of plot is not executed. I have requested land developer to return my money and cancelled the agreement; he is also ready to return my money Rs. 3 Lacs plus registry amount of Rs. 10,000/-. Let me know that are there any Income tax liabilities on me? Today market value of said plot is Rs. 8.80 Lacs. [Shailendra Kuralkar- svkuralkar@rediffmail.com]
Opinion:
Taxability on the cancellation transaction would depend upon the clauses incorporated in the agreement to sale. More particularly, it would be dependant on the clause incorporated in relation to “possession” of the plot. In normal course, the amount received back on cancellation of agreement to sale may not be taxable on the basis of prevailing Stamp Duty valuation.

Query 4]
My wife is unemployed. She has a PAN card. Last financial year, while starting an FD in Union Bank, Raipur, she could not mention her PAN number. Therefore, TDS has been deducted @ 20% by the Bank from the interest she earned. This fact has come to know only at the time of maturity of FD. As we have not mention the PAN number, the Bank is not issuing the TDS. Please let me know whether any way to get the TDS from the Bank and claim for a refund from IT Deptt. [mohandas1956@sify.com]
Opinion:
She can get the income tax refund after filing the income tax returns only. However, in the absence of TDS certificate being issued or TDS amount reflected in 26AS of the taxpayer, getting a refund would be a difficult task. You can write a letter to the bank intimating the PAN of the depositor and can ask them for issue of the TDS certificate. They can issue the TDS certificate by filing a corrected TDS return. After filing the corrected TDS return, the TDS amount would also be reflected in the 26AS statement of the taxpayer.

[The author is a practicing Chartered Accountant and is a partner of M/s. SSRPN & Co., Nagpur. Readers may send there queries at cassrpn@gmail.com.  If you wish to unsubscribe from the mailing list, please reply back “unsubscribe” on the same email id]

Friday, July 5, 2013

CIT v. Bhagwati Steels {PLIniaIJ & Haryana HC)

TDS not deductible on freight Chargers Shown
separately in Goods Purchase Bill

CIT v. Bhagwati Steels {PLIniaIJ & Haryana HC) In the instant case. it was helcl that

the payment ef freight charges hy the assessee to the truck drivers was based en

incliviclual GRs 1which represented incliviclual ancl separate contracts and there was no

single eentraet fer carriage er transportation ef geecle referred to between assessee

and the impugnecl parties `which would make the assessee liable for deduction of tax

at source under section 194C of the Act.

It is evident that the expenses cffreight incurred by Mis Tata Steel, which have been shcwn

separatelyr in the invoices raised cn the assessee, cannct be construed tc infer that the

assesses has paid any amcunt for transportation cf gccds separately than the ccst cf the

gcccls purchased by it. Ostensibly, in such circumstances, there would nct arise any

necessity of deduction of tax at source on the freight amount separately shown in the

Invoices, in terms of section 194C ofthe Act. Therefore, following the parityr of reasoning laid

down by the Hon’ble Jurisdictional in the case of Food Corporation of India (supra) the

amount raised by lvlfs Tata Steel in the invoices shown as freight did not create an obligation

on the assessee to deduct tax on such amounts as per section 194C ofthe Act. In our view.

if the freight expenses incurred by Mis Tata Steel are added to the cost of goods in the

invoice raised, it cannot be inferred that the assessee has paid any amount

offreight separately because the same is part of the cost of product purchased. The

assessee cou|d not be said to be an assessee in default for non deduction oftax at source in

terms of section 194C ofthe Act on the amount of freight billed separatelyr by IWs Tata Steel.

As a consequence, it follows that the provisions of section (ia) ofthe Act cannot be

applied to disallow the amount of such freight amounting to Rs. 2,01.81.428l-. Following the

aforesaid discussion, We set-aside the order of the Commissioner of Income-tax (A) and

direct the Assessing Officer to delete the impugned addition. The assesses accordingly.

succeeds on this Ground.

HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

Income Tax Appeal No.693 of 2009

Date of decision: 21-01-2010

The C ommissioner of Income tax-I Chandigarh

VERSUS

MIS Bhagwati Steels

ORDER

MM. KUMAR, J.

The Revenue has approached this ccurt under Section 260 (A) cf the lnccrne Tax Act, ‘|961

(for brevity “the Act”) challenging crder dated 30.04.2009 passed by the Income Tax

Appellate Tribunal, Chandigarh (for brevity “the Tribunal”) in respect of assessment year

2006-07 while deciding ITA No.6310handir'2009. The Revenue has claimed that from the

order ofthe Tribunal two substantive questions of law would emerge and are required to be

adjudicated by this court which are as under:-

i) “Whether on facts and in the circumstances or' the case, the Hon’bfe »'TAT was right in few

in defetr'ng the dfsaffowance made u/s 40(a) (fa) of the Income Tax Act in View of the

amended provisions ofSec. 194C(3)(1) of the Income Tax Act.”

ii) “Whether on the facts and circumstances of the case the goods suppiied by M/s. TA TA

STEEL not being inciusive of freight and therefore the freight charges charged separateiy by

M/s. TA TA STEEL faiis under the provisions of Section 194C of the income Tax Act, 1961.”

Facts of the case in brief are that the assessee -respondent t'lled its return of income for the

assessment year 2006- 07 declaring its income of Thereafter

assessment was completed under Section 143(3) ofthe Act on 27.11.2008 assessing the

incorne at Rs. 247.41068# as various additions were made by the Assessing Officer (Pi-1).

The assessee - respondent filed an appeal before the CIT (A) who partlyI allowed the appeal

vide its order dated 12.01.2009 (Pi-2). The assessee - respondent then filed another appeal

before the Tribunal by pleading the following four grounds:-

i) “that the Learned CiT(A) Wrongiy confirmed addition of freight paid to truck

drivers amounŕing ro H5172, 723/- u/s 4009) (income Tax Act) of the income Tax Act, 1961.

n) Tnet the Learned CINA) wrongfy confirmed dtsettowenoe of interest expenses amounting

to Rs.4,

That the Learned CtT(A) wrongty oonń'rmed dtsattowanoe of Rs.2,01.3î.428/­ u/s 40(a) of

the income Tax Act out of purchase of raw materia»Í for freight paid by the supplier of raw

materia!r

iv) That the Learned Ci'iYA) wrongiy confirmed disaiiowanoe of iabour and freight charges

amounting to on estimate basis.”

Re: Question No.1. On the first question, the Tribunal recorded a categorical finding of faot

that there was no material on record to prove any Written or oral agreement between the

assessee and the recipients of goods for transportation or carriage thereof. The Tribunal had

further observed that there was no material to show that the payments of freight had been

made in pursuance to a contract of transportation of goods for a specific period, quantity or

price. The aforesaid fact being an essential feature to test the applicability of Section

194(C) ofthe Act as considered by Division Bench of this court in the case of CIT versus

United Rice Land Ltd. (2008) 217 CTR (P&H) 332. A further finding of fact is that

the freightpayment is Rs.1,72,723f­ and none of the individual payment exceeded

Rs.20,000}­. lt was also not disputed that the payments were made on the basis of individual

G.Rs. issued bythe truck owners for each trip separately. Although aggregate of payments

of two truck owners during the assessment year exceeded Rs.20,000f­ which would still not

lead to deduction of tax at source because there was no contract for a specitic period. price

or quantity for carriage ofgoods. The finding ofthe Tribunal in Para 11 reads thus:-

“1 1. In the instant oase. ew'dentty. thefe ts neither any maten'a»r to suggest that there is any

written or orat agreement between the assessee and the tmpugned parties for carnage or

transportation of goeds and nor t't te proved that the ímpugned sum has been paid to the

parties in pursuance to a contract for specific period, quantity or price, therefore, foiiowing

the parity of reasoning iaid down by the Honübie Jurisdictionai High Count in the case of

United Rice Land i_td. (supra), in the instant case, it has to be heid that the assessee 1nas

not iiabie to deduct tax at source under section 194C ofthe Acton the payment

offreignt charges of Rs. 1, 72,7231-, es detaiied by the Assessing Officer. Though the two

parties in question have transported the goods for the assessee on more than one occasion

during the financiai year, yet it was based on individuai G.Rs. which represent individuai and

separate contracts. There is no singie contract for carriage or transportation or' goods

referred to beŕween the assessee and the ŕmpugned parties which Woufd make the assessee

liable for deduction or' tax at source u/s 194C ofthe Act. Reliance placed by the Revenue on

the proviso to section 194C (3) (i) also does not help since in this case. lne assessee does not

fail Within the scope of sub-section (1) of section 194C following the reasoning laid down by

the Hon`ble High Court in the case of United Rice Land Ltd. (supra). Consequently, the

disaiiowance of such amount cannot be justified by invoking the provisions of section

40(a)(ia) of the Acr. The order of the Commissioner of incomerax (A) is ser aside and the

Assessing Officer is direcfed fo deieŕe the impugned addition. The assessee succeeds on

ŕhis Ground.”

ln view of the above, question no.1 would not arise for determination as the factual

foundation needed for answering the question is entirely against the Revenue. The finding of

facts recorded by the Tribunal, being the last court of fact, cannot be gone into by this court

merely because after re-appreoiation of evidence and other view would be possible.

Therefore, we find that there is no substance in the first question of lavv claimed by the

Revenue.

Re: Question No.2. The other question claimed by the Revenue is that the Assessing

Officer has rightly disallowed Rs.2,01 ,81,428f- by invoking the Section 40(a) (ia) ofthe Act.

The Assessing Officer had found that the assessee was making purchases from ivi/s Tata

Iron &Stee| Company Ltd. (for brevity “Tata Steel"). The purchase invoice raised by Mis

Tata Steel included freight charges and the assessee did not deduct any tax at source under

Section 194(C) ofthe Acton those freight charges. The non-deduction of tax at source

under Section 194(C) on such freight charges were disallowed by the Assessing Oflicer

under Section 40(3) (ia) ofthe Act. The amount was computed to be Rs. The

CIT (A) affirmed the order passed by the Assessing Officer. On further appeal, the

Tribunal referred to the provisions of Section 40(a) (ia) which disallowed the expenditure if

such expenditure attracts deduction of tax at source. Such tax is either not deducted or if

deducted it has not been remitted to the State Exchequer within the time allowed. The

amount of stood paid by the assessee f“ respondent to [vifs Tata Steel

as freight charges for carriage of its goods on which tax Was not deducted in terms of

Section 194(C) ofthe Act and therefore such amount is not deductible while computing the

taxable income. When the matter was heard by the Tribunal a copy of the distribution

agreement between the assessee and the Mis Tata Steel was placed on record. According

to the agreement, the assessee respondent had appointed distributor for marketing of

products of MIS Tata Steel which envieagee purchase of production by the aeeeeeee -

respondent and sale thereof. The Tribunal has quoted |Clauses 2.14 ofthe agreement which

showr that Nils Tata Steel was to raise invoice on the assessee as per the list price to be

published by Tata Steel. The Tribunal after reading the agreement reached the conclusion

that the assessee - respondent had a responsibilityr of marketing the goods of Mis Tata Steel

after purchasing the same from them. The sample copy of the price list has been placed on

the paper The amount of freight was found to be shown separately in the invoices but

the Assessing Officer considered for payment by the assessee in respect of which deduction

of tax at source under Section 194(C) ofthe Act was required to be made. However.

the Tribunal after reading the whole contract in its entirety reached the conclusion that the

transaction between the parties was essentially governed by the Distribution Agreement

which was transaction ofgoods per se and cannot be segregated for the purposes of

payment of expenses by Way of freight. ln that regard, the Tribunal has placed reliance on a

Division Bench judgment of this court rendered in the case of CIT (TDS). Chandigarh

versus The Assistant Manager (Accounts). Jagadhri. No.40? of 2003 decided

on 21.08.2003. ln that case also the Food Corporation of India had made payments to State

agencies on the basis of invoices raised in respect ofthe food grain procured by them. The

invoices reflected the cost of Wheat apart from the cost of incidental expenses including VAT.

transportation, interest or storage charges. This court negated the stand ofthe Revenue and

held that if expenses incurred by a person on account of transportation and interest etc. were

aclcled to the cost ofthe goods then it would not lead to an inference that such a person had

paid separately for services of transportation and interest etc. as it becomes part of the cost

of the product purchase. Therefore such amount charge separately cannot be held liable

of deduction of tax at source under Section 194(C) of the Act. The view of the Tribunal is

discernible from Para 25 of the order which reads thus:-

“25. Putting the aforesaid iogic to the instant case, it is evident that the expenses of freight

incurred by M/s Steei. which have been shown separateiy in the invoices raised on the

assessee. cannot be construed to infer that the assessee has paid any amount for

transportation of goods separateiy than the cost of the goods purchased by it. Ostensibiy, in

such circumstances. there Wouid not arise any necessity of deduction of tax at source on the

freight amount separateiy shown in the invoices. in rern'is of section 194C of the Act.

Therefore. foiiowing the parity of reasoning iaid down by the Hon’bie Jurisdictionai in the

case of Food Corporation of india (supra) the amount raised by M/s Steei in the

invoices shown as freight did not create an obligation on the assessee fo deduct tax on such

amounts as per section TQ-iC of the Äct, in our View, if the freight expenses incurred by M/s

Tata Steei are added to the cost of goods in the invoice raised, it cannot be inferred that the

assessee has paid any amount of freight separateiy because the same is part of the cost of

product purchased. assessee couid not be said to be an assessee in defauit for non

deduction of tax at source in terms of section 194C of the Act on the amount of freight biiied

separateiy by M/s Steei. As a consequence, it foiiows that the provisions of section

40(a) (ia) of the Act cannot be appiied to disaiiow the amount of such freight amounting to

Rs. 2,01,81,428/­. Foiiowing the aforesaid discussion. we set-aside the order of the

Commissioner of income-tax (A) and direct the Assessing Officer to deiete the impugned

addition, The assessee accordingiy. succeeds on this Ground.”

We asked learned counsel for the Revenue as to Whether any appeal has been ñled against

the judgment rendered by this court in the case of Food Corporation of India (Supra) no

satisfactory answer has been given by her. Therefore, we feel bound by the aforesaid

judgment and accordingly, the issue is covered against the Revenue and in favour of the

assessee - respondent. Accordingly, no substantive question of law would arise for

determination by this court.

As a sequel to the above dieeueeien. thie appeal fails andthe Same is accordingly

dismissed.

Saturday, June 1, 2013

“JOINT DEVELOPMENT AGREEMENT WITH THE BUILDER FOR DISMANTLING OF THE HOUSE & INCOME TAX IMPLICATIONS”



TAX TALK-03.06.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“JOINT DEVELOPMENT AGREEMENT WITH THE BUILDER FOR DISMANTLING OF THE HOUSE & INCOME TAX IMPLICATIONS”

Query 1]
Mr.X has an old house in a city say measuring 4,000 sq ft. He enters into a joint venture with a builder "Y" for dismantling the said house & erecting 6 flats on such Land. It is agreed upon between them that each of them shall take over 3 flats after the construction is over. All the expenses including sanction of map & building these flats are borne by "Y". Now, the construction is over & each of them takes over 3 flats. Please advise under I.T. Act, how each of them shall meet their tax liabilities? Suppose the builder has spent Rs. 60 Lacs on construction of 6 flats. The sale price of each flat is say 15 Lacs i.e., Rs. 90 Lacs in total. Three flats of "Y" shall be sold by Mr. X as he is the owner of land & he himself takes over the remaining 3 flats. Please advise whether income shall be a business income or income from capital gains & how shall the taxability be met by each of them? Whether any exemption can be claimed by Mr. X?  Please Advice. [M.R.Iqbal- daver.iqbal@yahoo.com]
Opinion:
It is always advisable to have a proactive approach as far as income tax implications on any property related transactions are concerned. After the document are signed & sealed, assessee is left with very little option but to bear the consequences. Prima-facie, in your case, it appears that it is a routine development agreement between Mr. X and the builder wherein the builder-Y, against the share in land, has given 3 flats to the landlord and have acquired the rights of 3 flats.
The income tax implication, in the hands of the Landlord & the Builder, in normal course is as under:
In the Hands of the Builder:
It appears that against the land share, the builder is offering 3 constructed flats to you. All the expense (sanctioning, Legal, advertisement, construction etc) incurred by the builder will be treated as his cost for 3 flats (though the expenses are incurred for 6 flats) which is his share in the building so constructed. The difference between the sale price of the 3 flats and the construction cost is the business profit taxable in the hands of the builder. Further, if the stamp duty valuation of the each flat is higher than the actual sale price, the difference would further be treated as income in the hands of the builder in view of the new provision [Section 43CA] inserted in the Income Tax Act -1961.
In the Hands of the Landlord:
To be precise, Mr. X was the owner of a house property which is given to the builder for constructing a flat scheme. Against the House property given to the builder, the sale consideration is in the form of constructed 3 Flats. It appears that Mr. X has transferred a residential house property (& not plot or Vacant land) & the fact appears to have been duly & clearly incorporated in the document executed, as a result of which Mr. X may have an option of claiming exemption u/s 54. [If the property transferred is any property other than residential house property, then exemption is not available u/s 54, even though exemption could be claimed u/s 54F]. Exemption u/s 54 or U/s 54F is subject to various other terms, conditions & riders which were aptly covered in earlier issues of tax talk. The same may further be accessed at www.nareshjakhotia.blogspot.com.  The tough task that remains is how to compute the capital gain in such cases. It requires various supplementary details like the year/cost of acquisition & additions, the Stamp duty Valuation of the house property which is given to the Builder/ Developer,  the Market value of the 3 Flats Mr. X is getting, the contents of the development agreement etc. Further, the year of taxability & the amount of capital gain would largely be dependent on the drafting of the agreement with the builder & the terms, conditions and stipulations incorporated therein. The opinion cannot be expressed on the basis of the piece of information provided. With above basic framework, you need to approach your CA/Tax Consultant for working out the taxability on such transaction.

Query 2]
I am a senior citizen. My source of income is pension (Nationalized Bank retiree) + Interest on deposits with the Bank. The Bank deducts TDS on Interest paid. I regularly file return. For the FY 2011-12 (AY: 2012-13), I have e-filed return on 17.07.2012 through our C.A. My wife also filed return on the same day. She received her due refund within reasonable time by direct credit to her A/c but I have still not received the refund till this date.
Refund Status enquiry does not give any satisfactory information. I sent e-mails to refunds@incometaxindia.govt.in, ask@incometaxindia.govt.in, contactus@tdscpc.govt.in, but every time the mails bounced after 2-3 days with a message of mail box full. When contacted my C.A., he checked TDS TRACES form 26AS which showed correct position of tax credit in my A/c. So, my C.A. advised me to wait for more time as nothing can be done now. I am not satisfied. If the department is not functioning properly, there should be someone to whom we can complain or say about grievance. Please guide me in the matter. [A.K.Kalamkar-akkalamkar@yahoo.co.in]
Opinion:
As far as the Refunds issues are concerned, the process has been reasonably streamlined & made simpler by the Income Tax Department. However, there are instances wherein getting the refunds become cumbersome & annoying. In most of the cases, refunds are not issued for the following reasons:
a.       Incorrect entry of PAN number
b.      Change of address without proper intimation to the tax department
c.      Wrong bank account provided in the tax return
d.      Inconsistency in TDS credit with reference to 26AS (Tax Credit Status)
e.      Delayed in tax return filing or non-filing by the Tax Deductor.

The best approach in case the refund is delayed beyond a years time or so is to visit the income tax office for the follow up of the refund or send a grievance letter addressed to the concerned Income Tax Assessing Officer, with the copy of the tax return acknowledgement. If there is a severe delay, a letter could be addressed to the Jurisdictional Chief Commissioner of the Income Tax, with a copy to the Grievance Cell and the concerned Income Tax Officer wherein one can attach copies of previous letters which may have been written to the Income Tax Assessing Officer, along with a copy of the tax return filed.

“PERSON WITH DISABILITY ARE ENTITLED FOR THE INCOME TAX BENEFIT U/S 80U”



TAX TALK-27.05.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“PERSON WITH DISABILITY ARE ENTITLED FOR THE INCOME TAX BENEFIT U/S 80U”

Query 1]
Kindly enlighten me in the following matter through your Tax Talk column:
A person is polio affected, with disorder in his legs.
1.      What is the relief available at the hands of employer for TDS in salary payments?
2.      How much and under which section TDS relief is available?
3.      Whether any documentary proof he needs to submit and at what frequency? [d_pande1@yahoo.in]
Opinion:
Deduction U/s 80U
Section 80U of the I.T. Act, 1961 allows a deduction to an individual who is resident and who at any time during the previous year is certified by a medical authority to be a person with disability. The deduction under this Section is a sum of Rs 50,000/- in normal cases and if the person is suffering from a severe disability (80% or more) then a sum of Rs. 1,00,000/- is allowable as deductions.
“Person with Disability” for the purpose of section 80U means a person suffering from not less than 40% of any of the disability given below:
i) blindness
ii) low vision
iii) leprosy-cured
iv) hearing impairment
v) locomotor disability
vi) mental retardation
vii) mental illness
viii) austim
ix) cerebral palsy
x) multiple disability referred to in clauses (a), (c), & (h) of section 2 of the National Trust for welfare of persons with Austim Cerebral Palsy, Mental Retardation & Multiple Disabilities Act-1999.
With above basic provision about the deduction u/s 80U, pointwise reply to your queries are as under:
1.      Polio leads to locomotor disability & the disability is well covered within the meaning of the word “person with disability”. The deduction can be considered by DDO while working out the TDS of the employee. [Circular No. 8/2012 [F.NO. 275/192/2012-IT(B)], Dated 05-10-2012 issued by the CBDT]
2.      The deduction is admissible U/s 8OU. The amount, as elaborated above,  could be either Rs. 50,000/- or Rs. 1,00,000/-.
3.      The following documents should be obtained by the DDOs before considering the deduction u/s 80U:
a] A copy of the certificate issued by the medical authority as defined in Rule 11A(1) in the prescribed form as per Rule 11A(2) of the Rules. The deduction should be allowed only after seeing that the Certificate furnished is from the Medical Authority defined in this Rule and the same is in the form as mentioned therein.
b] Further, In cases where the condition of disability is temporary and requires reassessment of its extent after a period stipulated in the aforesaid certificate, no deduction under this section shall be allowed for any subsequent period unless a new certificate is obtained from the medical authority as in 1 above is furnished.

Query 2]
One of my women relative, not a senior citizen, is working as a teacher in a school. Her gross total annual income from salary for the F.Y.2012-13 is Rs. 3,40,000/-. Her annual savings under Section 80C is Rs. 1,00,000/-. So, after deduction, the net total income is Rs. 2,40,000/-. She does not have any other income source apart from salary. My queries are:
1.      As her gross total annual income for F.Y. 2012-13 is above Rs. 2,50,000/-, is it required to file Income Tax return even if Net total income is below Taxable limits?
2.      Is it mandatory for the school to provide Form-16, as gross total annual income is above 2,50,000/-? If the school does not provide the same, as the Net Total Income is less than Rs.2,50,000/-, can my relative still file the Income Tax return on the basis of her self computation? Though this query seems quite simple, but would help numerous teachers and other professionals. [Dr. Partho B. Choudhury- pompanagpur@gmail.com]
Opinion:
An Individual is required to file the Income Tax Return if his/her total income without allowing deductions exceeds the basic exemption limit.
For A.Y. 2013-2014 (i.e., FY 2012-13) , the basic exemption limits are as under:
a.       For Men & Women below the age of 60, the exemption limit is Rs. 2 Lacs.
b.      For senior citizens whose age is between 60 to 80 years, the exemption limit is Rs. 2.50 Lacs.
c.      For very senior Citizens (i.e., 80 years & above), the basic exemption limit is Rs. 5.00 Lacs.
There is no gender basis discrimination in the FY 2012-13 in the basic exemption limit as was there earlier.
With a look at the basic exemption limit applicable for the FY 2012-13, the replies to your queries are as under:
1.      The Gross total income (i.e., income before allowing deductions u/s 80C, 80D, 80G etc) is Rs. 3.40 Lacs. Since, the income is above the basic exemption limit, it is mandatory for her to file the Income Tax Return. It may be noted that she, being a non senior citizen, the basic exemption limit would be Rs. 2 Lacs and not Rs. 2.50 Lacs.
2.      If the employer has not deducted any tax at source, then it is not obligatory on part of the employer to issue Form No. 16. But in the given case, after allowing the deductions u/s 80C, taxable income is of Rs. 2.40 Lacs on which probably tax of Rs. 4,120/- may have been deducted. In such situations, it is compulsory for the school to issue TDS Certificate failing which the penal provisions get attracted. In any case, where Form No. 16 is not issued to the employee for any reason whatsoever, the employee can still file the income tax return on the basis of self computations also.



“HOW TO CARRY OUT THE CORRECTION IN THE TAX PAYMENT CHALLANS?”



TAX TALK-20.05.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

“HOW TO CARRY OUT THE CORRECTION IN THE TAX PAYMENT CHALLANS?”

Query 1]
While filing the online tax return for the period Assessment Year 2011-2012, we came to know of PAN being wrongly entered in the Tax Challan. Can this amount so deposited by an error be adjusted in subsequent return/statement or refund can be claimed by us? Kindly guide us on the process involved? [MPBPL- A R Temurnikar- miners_bookshop@yahoo.co.in]
Opinion:
There are numerous instances where there is an error while making payment of Tax either electronically or manually. To rectify these errors, Income-Tax Department has issued new guidelines effective 01-09-2011 which allows Banks to correct physical challans only. For correction in electronic challans, request will have to be made to the concerned Assessing Officer. For general benefit, I am elaborating the the procedure for correction in the tax challan.
a] Correction in physical challans:
Fields that can be corrected by bank:
·                  Assessment Year
·                  Major Head Code
·                  Minor Head Code
·                  TAN/PAN
·                  Total Amount
·                  Nature of payment (TDS Codes)
Time frame for correction request:
-         Request for correction has to be made within 7 days of deposit of challan for correction in PAN, TAN and Assessment Year
-         For Major head, minor head and nature of payment, request can be made within 3 months of deposit of challan.
Remedy available after time frame is over:
- After lapse of time frame, request can be made to the Assessing Officer.
Time frame given to bank to carry out correction:
-         After receipt of request, bank must carry out the correction within 7 days.
Other conditions for correction:
-         Correction in name is not allowed
-         Any combination of correction of Minor Head and Assessment Year together is not allowed
-         PAN/TAN correction will be allowed only when the name in the challan
matches with the name as per the new PAN/TAN.
-         The change of amount will be permitted only on the condition that the amount so corrected is not different from the amount actually received by the bank and credited to Govt. Account.
-         For a single challan, correction is allowed only once. However, where 1st correction request is made only for amount, a 2nd correction request will be allowed for correction in other fields.
-         There will be no partial acceptance of change correction request, i.e. either all the requested changes will be allowed, if they pass the validation, or no change will be allowed, if any one of the requested changes fails the validation test.
Procedure for requesting correction:
-         The tax-payer has to submit the request form for correction (in duplicate) to the concerned bank branch.
-         The tax-payer has to attach copy of original challan counterfoil.
-         In case of correction desired for challan in Form 280, 282, 283, the copy of PAN card is required to be attached.
-         In case of correction desired for payments made by a tax-payer (other than an individual), the original authorization with seal of the non-individual taxpayer is required to be attached with the request form.
-         A separate request form is to be submitted for each challan.
B] Correction in Electronic Challans:
For correction in electronic challans and for correction after the time period for application to bank lapses in physical challans, a written request in prescribed format has to be made to the Assessing Officer. Assessing Officer has power to rectify the error , in bona fide cases, to enable credit of tax to assessee
Form of application to bank:
Income-tax department has given a format in which application can be made to the bank.

In your specific case, you have to make an application to your Assessing Officer elaborating the facts of the case along with all the relevant documents to prove the payment.

Query 2]
For the FY:2012-13 my wife & me jointly applied for income tax rebate (50 % share each) on home loan, as the property and loan are jointly basis. We have also submitted home loan share certificate to our employer.  Now, for the F.Y. 2013-14, may I eligible for 100 % rebate on home loan, as my wife has decided not to claim for rebate on home loan. Can I have to go for another home loan share certificate (i.e., 100% share)? Kindly suggest the procedure with your valuable guidance. [S Y Gajbhiye - syg6147@gmail.com]
Opinion:
Ownership is a condition precedent for claiming deduction towards Interest u/s 24(b) and towards Principal Repayment u/s 80C. It may be noted that Right to claim deductions originate from ownership. Without ownership, deduction would not be admissible. In your case, it appears that you have 50% share ONLY in the loan as well as in the property. Simply, because your wife is not claiming the deduction doesn’t make you eligible to claim the deduction. Apparently, you are entitled for 50% deduction only.

Sunday, May 12, 2013

WANT TO INVEST THE MONEY FROM SALE OF “AGRICULTURAL LAND & PLOT” FOR PURCHASE OF “A READYMADE HOUSE”: INCOME TAX SAVING


TAX TALK-13.05.2013-THE HITAVADA

TAX TALK  
BY CA. NARESH JAKHOTIA
Chartered Accountant

WANT TO INVEST THE MONEY FROM SALE OF “AGRICULTURAL LAND & PLOT”  FOR PURCHASE OF “A READYMADE HOUSE”: INCOME TAX SAVING

Query 1]
I am in Government job and purchased an agriculture land for total amount of Rs. 4.00 Lacs  in the year 2008 and a plot in city area for total amount of Rs. 6.50 Lacs in the year 2011 (through loan & self saving). I want to sell these properties in the FY 2013-14. Please provide following information:
1.      Tax liability on capital gain;
2.      Presently, I do not own any house and want to invest above money to purchase a readymade house (new or old). What would be tax liability in FY 2013-14 or onwards if house is purchased after 2013-14?;and
3.      Till investment in readymade house, I want to do investment in Fixed deposit/ Bonds of Government owned bank/ company, Post office certificates etc. What would be tax saving as per Income Tax Act? [Dilip Singh-om1950lal@yahoo.co.in]
Opinion:
Tax Liability on Sale of Agricultural Land:
1.      In normal course, any income from transfer of agricultural land, which is being used for agricultural purpose, shall be tax free if the agricultural land is not situated in any area within the distance (measured aerially) of not more than:
a] 2 kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,000 but not exceeding 1,00,000; or
 b] 6 kms, from the local limits of any municipality or cantonment board and which has a population of more than 1,00,000 but not exceeding 10,00,000; or
c] 8 kms, from the local limits of any municipality or cantonment board and which has a population of more than 10,00,000.
2.      If the agricultural land is situated within the radius of 2 kms/ 6 kms / 8 kms as mentioned above, then depending upon the period of holding, the profit arising on sale of agricultural land will be taxable as Long Term or Short Term Capital Gain.
3.      In your specific case, if the agricultural land is not covered in the situation mentioned in (1) above then the profit arising on sale of agricultural land would be taxable as Long term Capital Gain as the agricultural land is having a holding period of more than 36 months. In absence of the exact reference of the date/financial year of acquisition in the query, Stamp Duty valuation of the land at the time of sale & also the non availability of the Cost Inflation Index (CII) for the FY 2013-14, the amount of Long Term Capital Gain could not be worked out. The CII for the FY 2013-14 has not yet been notified by the CBDT & it is expected that the same may be notified in this month itself.

Tax Liability on Sale of Plot:
1.      The plot was purchased by you in 2011 and you are planning to sell it in the FY 2013-14. The profit on sale of plot would be a Long Term Capital Gain if it is sold after a holding period of more than 36 months. If the plot is sold within a period of 36 months, the profit would be treated as Short Term Capital Gain and for tax purpose, would be treated like your other regular income. It would be taxable as per the applicable tax slab to your income. Since you are ultimately planning to utilize sale proceeds for purchase of a residential house property, it is advisable to sell the plot after completing the holding period of 36 months so as to claim tax benefit conferred by section 54F.
2.      In absence of the exact reference of the date/financial year of acquisition in the query, Stamp Duty valuation of the plot at the time of sale etc, the amount of Capital Gain could not be worked out.

Tax Liability if the Sale proceeds is utilized for purchase of a Residential House property:
Subject to various other terms / stipulations, Tax on Long Term Capital Gain (LTCG) arising from the transfer of plot or urban agricultural land can be saved u/s 54F if the sale consideration is used for purchase of a residential house property within a prescribed period. The time limit prescribed for the purpose is:
a] For purchase:
One year before or two years from the date of Transfer.
b] For Constructions:
Three years from the date of Transfer.

It may be noted that although section 54F offers the time period of 2 years for purchase & 3 years for construction, the return of income is required to be filed before the specified date which is much shorter than the time period granted by Section 54F. If investment for purchase/ construction is not done by the tax payer before the due date of return filing, the amount need to be isolated by depositing it in the Capital Gain Deposit Accounts Scheme-1988 (CGDAS). Readers who wish to claim an exemption u/s 54F may note that if the amount is not invested for purchase/construction before the DUE DATE of furnishing the return of income, then it should be deposited under the CGDAS, before the DUE DATE of furnishing the return. After Deposit, the amount already utilized by the tax payer for purchase/ constructions of the new house along with the amount so deposited, shall be eligible for exemption under section 54F in the year in which LTCG has arisen.

[Consequence where the amount deposited in the capital gain deposit account scheme is not utilized for the purchase or the construction of a residential house property within the specified period:
In this case, the amount not so utilized shall be charged as capital gain of the year in which the period of 3 years from the date of LTCG expires and it will be taxable as LTCG of that year. The assessee then shall be eligible to withdraw the amount from the scheme. As per scheme, he is required to submit an application in Form G after getting the approval of the Assessing Officer.]

With above basic idea, it may be noted that temporary parking of the funds in fixed deposits/ bonds / post office certificates after the due date of furnishing the return of income, may obstructs your exemption claim u/s 54F. If you have to claim an exemption u/s 54F, you have to choose CGDAS as an investment tool for temporary investments of the funds.