TAX TALK- 12.10.2009-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“TAXABILITY OF AMOUNT FORFEITED?”
Query 1]
My nature of business is to carry on business of acquiring, establishing, Running & maintenance of Hospital & Clinic Research Institutes. I want to know the treatment of the expenditure for Web designing, Domain Name & Space incurred before Incorporation. Can it be treated as Preliminary Expenses? Confusion is arising as this particular expenditure is not specified in Income Tax Act in Section 35D.
[ash_deo123@rediffmail.com]
Opinion:
Conceptually, there is a difference in the concept of preliminary expenses under companies Act vis a vis Income Tax Act. Section 35D of the I.T. Act -1961 clearly and specifically mentions the expenditure to be included in preliminary expenditure. The I-T Act provides for amortization of preliminary expenses in 5 equal installments. The expenses referred to in your query doesn’t form the part of preliminary expenses for the purpose of Section 35D of the Income Tax Act-1961.
The expenses you are referring to in your query are of the nature of Preoperative expense. Pre-Operative expenses of Capital Nature are generally to be capitalized with the cost of fixed assets in relation to which they have been incurred whereas pre-operative expenses of Revenue Nature are to be charged against the profits of the company in they year in which business has commenced.
Query 2]
Sir, I shall be obliged to know my tax on my income during F.Y. 2009-10.
I am a retired college teacher, Age 78 years. My pension income would be about 2 Lacs this year. As per a SCI judgment in 2008, the Government of Maharashtra has sanctioned 3 increments to Ph.D. degree holders from 01-01-1986. The arrears of pay up to 31-03-2008 together with interest thereon at GPF rates are to be paid now.
My query is: What will be my taxable income during 2009-10, whether it is on
a) Rs. 2 Lacs + Rs. 33,000/- arrears (i.e., on Rs . 2.33 Lakhs ) Or
b) Rs. 2 Lacs + Rs. 33,000/- arrears + Rs. 1,97,000 interest (i.e., Rs. 4.30 Lacs).
I may say that on my retirement in November-1991, my total PF contribution and interest thereon were refunded to me totally tax free.
Please advice and oblige. [Dr. M.H. Damle, Nagpur- 22]
Opinion:
In the given case, prima-facie, entire amount of Rs. 4.30 Lacs appears to be taxable. Further, you may examine possibility of claiming relief u/s 89 of the Income Tax Act-1961. Also, you may go through the judgment of Punjab & Haryana High court in the case of CIT vs B. Rai (264 ITR 61) to ascertain if the interest can be treated as non taxable income.
Query 3]
I am 56 year old widow housewife and I am getting family pension of Rs. 17,000/- per month. Please advice me whether:-a) should I file income tax return or not?b) If yes tell me the procedure? [mrindafrost@rediffmail.com]
Opinion:
You have to file the income tax return if the income mentioned above pertains to the F.Y. 2008-09. Your annual pension income is Rs. 2.04 Lacs against which you can claim ad-hoc deduction of Rs. 15,000/- u/s 57(iia). Effectively, your Gross Total Income shall be Rs. 1.89 Lacs. Filing of income tax return is not mandatory if the Gross Total Income (GTI) doesn’t exceed the basic exemption limit. The basic exemption limit for female assessee (not senior citizen) is Rs. 1.80 Lacs for the F.Y. 2008-09 (A.Y. 2009-10). The same has been enhanced to Rs. 1.90 Lacs for the F.Y. 2009-10 (A.Y. 2010-11). With only above income during F.Y. 2009-10, you will not be required to file the income tax return.
Since you don’t have any income from Business/Profession, You can file the income tax return in ITR-2 Form. You can get ITR – 2 at www.incometaxindia.gov.in.You have following three options to file the income tax return. Either you can a) e-file the return with digital signature orb) e-file without attaching digital signature followed by sending the hard copy of acknowledgement in ITR-V to “Income tax department-CPC, Post Bag No. 1, Electronic City post office, Banglore-560100 (Karnataka)” by ordinary post or c) Submit the hard copy of the return to your jurisdictional Income Tax Department.
Query 4]
Whether the advance money received & forfeited on sale of land is taxable or not? If yes, at what rate the tax is payable? I have received Rs. 15 Lacs at the time of signing agreement to sale in October-2008. The property is our ancestral property. But time is over and we have cancelled the agreement from our end. Please guide. [Rajesh Kapse]
Opinion:
Advance Money Received & Forfeited: The advance money received and forfeited is not taxable as income. There is nothing in the law which provides for charging of such amount to income tax. Section 51 of the Income Tax Act-1961 provides that where any capital asset (land in your case) was, on any previous occasion, the subject of negotiations for its transfer, any advance or other money received and retained/forfeited by the assessee in respect of such negotiations shall be deducted from the cost for which the assets was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition. Accordingly, the advance money of Rs 15 Lacs received/forfeited by you would reduce your cost of acquisition and subsequently whenever you sell the land, the capital gain shall be computed by taking such reduced cost of acquisition.
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“TAXABILITY OF AMOUNT FORFEITED?”
Query 1]
My nature of business is to carry on business of acquiring, establishing, Running & maintenance of Hospital & Clinic Research Institutes. I want to know the treatment of the expenditure for Web designing, Domain Name & Space incurred before Incorporation. Can it be treated as Preliminary Expenses? Confusion is arising as this particular expenditure is not specified in Income Tax Act in Section 35D.
[ash_deo123@rediffmail.com]
Opinion:
Conceptually, there is a difference in the concept of preliminary expenses under companies Act vis a vis Income Tax Act. Section 35D of the I.T. Act -1961 clearly and specifically mentions the expenditure to be included in preliminary expenditure. The I-T Act provides for amortization of preliminary expenses in 5 equal installments. The expenses referred to in your query doesn’t form the part of preliminary expenses for the purpose of Section 35D of the Income Tax Act-1961.
The expenses you are referring to in your query are of the nature of Preoperative expense. Pre-Operative expenses of Capital Nature are generally to be capitalized with the cost of fixed assets in relation to which they have been incurred whereas pre-operative expenses of Revenue Nature are to be charged against the profits of the company in they year in which business has commenced.
Query 2]
Sir, I shall be obliged to know my tax on my income during F.Y. 2009-10.
I am a retired college teacher, Age 78 years. My pension income would be about 2 Lacs this year. As per a SCI judgment in 2008, the Government of Maharashtra has sanctioned 3 increments to Ph.D. degree holders from 01-01-1986. The arrears of pay up to 31-03-2008 together with interest thereon at GPF rates are to be paid now.
My query is: What will be my taxable income during 2009-10, whether it is on
a) Rs. 2 Lacs + Rs. 33,000/- arrears (i.e., on Rs . 2.33 Lakhs ) Or
b) Rs. 2 Lacs + Rs. 33,000/- arrears + Rs. 1,97,000 interest (i.e., Rs. 4.30 Lacs).
I may say that on my retirement in November-1991, my total PF contribution and interest thereon were refunded to me totally tax free.
Please advice and oblige. [Dr. M.H. Damle, Nagpur- 22]
Opinion:
In the given case, prima-facie, entire amount of Rs. 4.30 Lacs appears to be taxable. Further, you may examine possibility of claiming relief u/s 89 of the Income Tax Act-1961. Also, you may go through the judgment of Punjab & Haryana High court in the case of CIT vs B. Rai (264 ITR 61) to ascertain if the interest can be treated as non taxable income.
Query 3]
I am 56 year old widow housewife and I am getting family pension of Rs. 17,000/- per month. Please advice me whether:-a) should I file income tax return or not?b) If yes tell me the procedure? [mrindafrost@rediffmail.com]
Opinion:
You have to file the income tax return if the income mentioned above pertains to the F.Y. 2008-09. Your annual pension income is Rs. 2.04 Lacs against which you can claim ad-hoc deduction of Rs. 15,000/- u/s 57(iia). Effectively, your Gross Total Income shall be Rs. 1.89 Lacs. Filing of income tax return is not mandatory if the Gross Total Income (GTI) doesn’t exceed the basic exemption limit. The basic exemption limit for female assessee (not senior citizen) is Rs. 1.80 Lacs for the F.Y. 2008-09 (A.Y. 2009-10). The same has been enhanced to Rs. 1.90 Lacs for the F.Y. 2009-10 (A.Y. 2010-11). With only above income during F.Y. 2009-10, you will not be required to file the income tax return.
Since you don’t have any income from Business/Profession, You can file the income tax return in ITR-2 Form. You can get ITR – 2 at www.incometaxindia.gov.in.You have following three options to file the income tax return. Either you can a) e-file the return with digital signature orb) e-file without attaching digital signature followed by sending the hard copy of acknowledgement in ITR-V to “Income tax department-CPC, Post Bag No. 1, Electronic City post office, Banglore-560100 (Karnataka)” by ordinary post or c) Submit the hard copy of the return to your jurisdictional Income Tax Department.
Query 4]
Whether the advance money received & forfeited on sale of land is taxable or not? If yes, at what rate the tax is payable? I have received Rs. 15 Lacs at the time of signing agreement to sale in October-2008. The property is our ancestral property. But time is over and we have cancelled the agreement from our end. Please guide. [Rajesh Kapse]
Opinion:
Advance Money Received & Forfeited: The advance money received and forfeited is not taxable as income. There is nothing in the law which provides for charging of such amount to income tax. Section 51 of the Income Tax Act-1961 provides that where any capital asset (land in your case) was, on any previous occasion, the subject of negotiations for its transfer, any advance or other money received and retained/forfeited by the assessee in respect of such negotiations shall be deducted from the cost for which the assets was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition. Accordingly, the advance money of Rs 15 Lacs received/forfeited by you would reduce your cost of acquisition and subsequently whenever you sell the land, the capital gain shall be computed by taking such reduced cost of acquisition.
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