Monday, October 29, 2012

“PURCHASE OF SECOND HOUSE PROPERTY IN JOINT NAME”


TAX TALK-29.10.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)

“PURCHASE OF SECOND HOUSE PROPERTY IN JOINT NAME”

Query 1]
I have a house in Mumbai with my name as 1st holder and wife as joint holder. The said property is occupied by us. The loan taken for the same is closed for which I used to take benefit of Interest and Installment. Now, we have invested in property in New Mumbai which is held by wife as 1st holder & me as joint holder. The house is under construction and the loan is taken in my wife’s name. The question is Can my wife take the benefit of interest on housing loan and on installment paid?  Please give your valuable view on this. [Sandeep Benegal -benegalss@svcbank.com]
Opinion:
1.      The tax implication / housing loan benefit for the second house property is not similar/ same as applicable to the first house property. The second house property has a different tax treatment under the Income Tax Act-1961.The issue is discussed in length in my Tax Talk column Dated 17.09.2012. The same can be retrieved from the links www.ehitavada.com or www.nareshjakhotia.blogspot.com.
2.      In your case it appears that
a] The first property is purchased in the joint name for the sake of convenience and the property is recorded as Individual property in the books/records of first holder. The first property is actually belonging to you and the entire benefit of housing loan, as elaborated in the query, is availed by you only.
b] The second property, though will be purchased in joint name, will be belonging to your wife alone and your wife alone would be claiming the housing loan benefit. Similarly, in the books/ records, the property would be recorded as Individual property of your wife only.

If it is so, the provision as mentioned in Point No. 1 above would not apply and your wife would be treated as the Individual owner of the property and the resultant benefit would be available to your wife alone. If however the records/ documents doesn’t justify the single ownership of the house property, then the tax treatment as mentioned in Point No. 1 above would be applicable.

Query 2]
Can you please enlighten me on the following issue:
For filling of e-TDS return, suppose out of 100 No’s of contractors (from whom tax is deducted at source against payments made to them) and 40 contractors do not have PAN No., for 20 contractors failed to furnish PAN No’s. Out of 40 contractors, company has deducted TDS @ 20% and on rest of 20, company has deducted normal rate applicable of 2% .
My question is about filling e-TDS return. Whether PAN of all the 100 contractors is compulsory or is there any provision for those deductions for which PAN is not available? Is there any fixed % of minimum numbers of PAN of the total deductions while filling E TDS return like at least 75 % Pan No. should be available for every 100 deductions made?  [dineshsinghgaharwar@rediffmail.com]

Opinion:
1.      Section 206AA requires Deductee receiving any sum/income which is liable to TDS to furnish his PAN to the Deductor. In case, the Deductee fails to furnish his PAN, the Deductor is liable to deduct tax at a rate which is higher of the following:
(1) the rate specified in the Act;
(2) the rate or rates in force or
(3) at the rate of 20%.
2.      In the case of 20 contractors, you have deducted tax @ 2% even though it should have been done @ 20% as the PAN is not furnished by the deductee. You have to either get the PAN from the concerned deductees or have to collect/pay the balance amount of tax to the Government Treasury to avoid all the penal consequences.
3.      Before 01.10.2010, it was mandatory to submit e-TDS/e-TCS return with certain percentage of PAN of Deductees failing which return filing was not possible. After releasing new codes as C & T for higher rate and for non deduction of TDS for transporter, e-TDS/e-TCS return can be validated without 100% PAN numbers of Deductees. To submit return without having 100% PAN, you have to select higher rate as coded "C" in column named "Reason for non-deduction / lower deduction" as appearing in the quarterly return.


Query 3]
I want to purchase new flat at the cost of Rs. 25 Lacs for which I will be applying for the Bank loan. I want to know, up to what extend, I will get Income Tax exemption. Last year, I paid yearly Income tax of Rs 1,30,000/-. I request you to guide me on the above query through your Tax –talk column. [R.K.Deshpande, Opp. Bus stand, Darwha, District: Yavatmal]

Opinion:
There is no change in the deduction available towards interest & principal repayment of the housing loan. The same has been discussed at length in earlier issues of Tax Talk as well.
For the mass benefit, we are reproducing the income tax benefit towards interest & principal repayment available u/s 24(b) or U/s 80C of the Income Tax Act-1961 as under:
Interest payable on Home loan:
1.      U/s 24(b) of the Income Tax Act-1961, deduction up to Rs. 150,000/- is admissible against the interest payable on the loan availed for purchase / construction of the self occupied house property.
[However, the acquisition or construction of the house property should be completed within 3 years from the end of financial year in which home loan was taken; otherwise, the deduction would be restricted to Rs. 30,000/-]
  1. In respect of loan taken prior to 01.04.1999, the deduction can’t exceed Rs. 30,000/- for the self occupied house property.
  2. Pre-construction period Interest [Loan taken against/for under construction property]:
    The interest paid during the period the house property is under construction is not deductible in the year of payment. Interest in respect of pre-construction period is deductible in five equal annual installments commencing from the previous year in which the house is constructed/acquired. For this purpose “pre-construction period” means the period commencing on the date of borrowing and ending on March 31 immediately prior to the date of completion of construction /acquisition.
  3. In respect of self occupied house property, it may be noted that for purchase / construction, interest deduction is admissible up to Rs. 1.50 Lacs whereas there is a ceiling of Rs. 30,000/- only in respect of loan taken for Repairs/ Renewal or Reconstruction.
Principal repayment of the home loan:
In respect of principal repayment of home loan, deduction is admissible u/s 80C. Overall deduction U/s 80C (which also includes deduction towards LIC/ PPF, Tuition fees etc) can’t exceed Rs. 1 Lacs.


Saturday, October 20, 2012

AN INTERESTING CASE IN FAVOR OF TAXPAYER:

AN INTERESTING CASE IN FAVOR OF TAXPAYER:

Bombay HC to Income-tax Deptt. can't take advantage of assessee's mistakes in not claiming exemption in IT return not and deny him exemption

The entire object of administration of tax is to secure the revenue for the development of the Country and not to charge assessee more tax than that which is due and payable by the assessee

FACTS

• Assessee-company had claimed exemption under section 10(34) and 10(38) in respect of dividends and long-term capital gains from listed equity shares by showing these incomes in Schedule EI on page 24 of the return. However, he had erroneously shown these incomes in Page 11 under Item 3(b) Long-term capital gains instead of showing 'Nil' there.

• The above error was due to mistake on part of assessee's CA in filling up the return while electronically filing it. As a result intimation based on this return was sent to assessee-company resulting in demand of Rs. 2.44 lacs.

• Assessee filed revised return, However, the revised return of income was not taken cognizance of/processed by the respondent's electronic system, as the same was filed beyond the period of limitation as provided under section 139(5) of the Act.

• Assessee-company filed rectification application under section 154 to AO .

• On getting no response from AO , assessee filed revision application to CIT under section 264.

• CIT dismissed assessee's revision application under section 264 against the intimation under section 143(1) by order dated 7-4-2011 on the ground that assessee cannot complain as intimation was based on assessee's return wherein he claimed no exemption.

• Hence, this instant writ petition against CIT's order dated 7-4-2011.

HELD

• In any civilized system, the assessee is bound to pay the tax which he is liable under the law to the Government.

• The Government on the other hand is obliged to collect only that amount of tax which is legally payable by an assessee.

• The entire object of administration of tax is to secure the revenue for the development of the Country and not to charge assessee more tax than that which is due and payable by the assessee.

• As far back as in 11/04/1955 the Central Board of Direct Tax had issued a circular directing Assessing Officer not to take advantage of assessee's ignorance and/or mistake.

• The said Circular says that it is the duty of AO to draw taxpayer's attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other.

• The impugned order of CIT was erroneous as it states that assessee had not claimed exemptions in return whereas assessee had done so in page 24 in Schedule EI. CIT directed to consider the matter fresh keeping all the contentions open on both sides, including the maintainability of a revision application.

• The AO is directed to consider the rectification application filed by the petitioner on its own merits, without being influenced by the impugned order or awaiting the result of the revisional proceedings before the Commissioner of Income- tax on remand.

EDITOR'S NOTE

Refer Article 265 of the Constitution.

RELATED CASES

Dy. CIT v. Rajlaksmi Sone Crusher (P.) Ltd. [2012] 21 taxmann.com. 475 (Delhi - Trib.). - [2012] 25 taxmann.com 123 (Bombay)

“CONCEALMENT / INACCURATE FURNISHING ATTRACTS PENAL PROVISION”


TAX TALK-22.10.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“CONCEALMENT / INACCURATE FURNISHING ATTRACTS PENAL PROVISION”
Query 1]
Sir, I am an employee at a PSU and I have bought a house in August-2009 from the Housing Board at Bhilai for which I took a House Building Loan from my Company in January- 2010.The construction of the house is still not completed. In the meantime, my company has started deducting the interest of the house building loan. The Certificate shows the following amounts deducted as interest:
F.Y. 2010 – 2011     :-         Rs. 17,024/-
F.Y. 2011 – 2012     :-         Rs. 35,196/- .
These amounts are not reflected in my Form 16.
My questions are:
1.      Whether can I claim these amounts in my IT return as a "Loss from House property", this being my only property? Or
2.      Will this interest be treated as pre-construction period interest (will be cumulated & divided by five) and can be claimed only after the construction is over? When can the pre-construction period interest be claimed?
3.      I have filed the IT return for the F.Y.2010 - 2011. If I have to claim the interest, will I have to file a revise return for last year? [K.Raju-minaraju26@yahoo.in]
Opinion:
Interest in respect of pre-construction is deductible in five equal annual installments commencing from the financial year in which the construction of house is completed. The “pre-construction period” means the period commencing on the date of borrowing & ending on the March 31st immediately prior to the date of completion of construction /acquisition. If the house is completed in any particular year then one should note that the pre-construction interest doesn’t include the interest for the period from 1st April of that year to the date of completion in that year.
With above basic idea, it may be noted that
  1. Before completion of the construction of the house property, deduction towards interest on borrowed capital, as mentioned in the query, cannot be claimed.
  2. The deduction towards the pre-construction period need to be aggregated and will be deductible in 5 equal installment commencing from the year in which the construction of the house property is completed.
  3. No question of revising the income tax return arises in your specific case.
  4. The readers may note that Interest on borrowed capital is restricted to Rs. 30,000/- if house construction is not completed within a period of 3 years

Query 2]
I am a salaried employee in a PSU. For the year 2010-11 (Assessment year 2011-12) Rs. 4.15 lacs was paid against Salary income. I filed my returns through ITR-1 in which I did not show Interest income from saving a/c as it was very small amount, and also did not show Long term capital gains derived from diversified equity mutual funds(SIPs) as they do not attract any tax and due to difficulty in calculating gains from SIPs. Recently, I have received a letter as "AIR Only" case from Assessing Officer to attend with all supporting documents. After this, I came to know about 26AS in which I found an entry showing an amount of Rs.1.20 Lacs during 2010-11 against IPO though shares were not allotted. In this scenario, please let me know what are the implication and kindly advice what I need to do further. [B A Reddy-cst_wcl@rediffmail.com]
Opinion:
Tax payers should take utmost care to disclose all the income and required detail while filing the income tax return. It may be noted that concealment of Income or furnishing of inaccurate particulars of income could attract various penal provisions under the Income Tax Act-1961.
In your specific case, you have not mentioned
a] Interest on S.B. A/c &
b] Exempt income details (LTCG on SIP).
As far as Interest of Saving Bank A/c is concerned, you may make a submission to your Assessing Officer expressing your willingness to pay the tax & interest thereon.  You may further make a submission to your Assessing Officer requesting him to condone the unintentional & minimal error which doesn’t have much tax implications.

Query 3]
We have query regarding the disallowance of provident fund contribution in the tax audit report (Form No. 3CD) or computation of taxable income. As per the rules, PF contribution has to be deposited with Govt. within 15 days from of the next month, failure to which leads to the addition of employee part to the gross total income. Kindly explain whether there is any provision of grace days (5 days) for payment, e.g., Contribution related to April month were deposited on 18th may, so what will be the due date in this case 15th May or 20th May ( 15 + 5 grace days).  Your valuable explanation in this regard will be of great help. [prasad.naib@gmail.com]
Opinion:
By & large, the issue is now settled by the judiciary. It has been held in various judicial pronouncements that now the deduction would be admissible even if the payment is done before the due date of filing the return of Income (i.e., beyond the due date prescribed under the PF Act). You can refer the following:
1.      CIT Vs. Vinay Cement Ltd (2007) 213 CTR 268 [SC]
2.      CIT Vs. Dharmendra Sharma (2007) 297 ITR 320 (Gau)
3.      CIT vs. George Williamson (Assam) Ltd (2006) 284 ITR 619 (Gau)
4.      CIT  Vs. Lakhani India Ltd (2010) 232 CTR 81 (P&H)
5.      ACIT V/s. M/s Vipul Facility Management Pvt. Ltd.[ITAT-Delhi in ITA No.1020/Del /2012 –Dated: 06-09-2012]



Saturday, October 13, 2012

Interesting Income Tax - Asset having no cost of acquisition - No capital gain arises if asset is acquired without incurring any cost

IT : Asset having no cost of acquisition - No capital gain arises if asset is acquired without incurring any cost

■■■

[2012] 25 taxmann.com 506 (Pune - Trib.)

IN THE ITAT PUNE BENCH 'A'

Dilip G. Sopal Barshi

v.

Income-tax Officer, Ward 2(3), Solapur*

SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER

AND G.S. PANNU, ACCOUNTANT MEMBER

IT APPEAL NO. 421(PN) OF 2011

[ASSESSMENT YEAR 2003-04]

JULY 16, 2012

Section 48, read with sections 45 and 55, of the Income-tax Act, 1961 - Capital gains - Computation of - Assessment year 2003-04 - State Government acquired assessee's land along with a well thereon and paid compensation - State Government granted a special privilege to assessee for lifting water from well by paying nominal rent of Re. one per year - Subsequently Municipal Corporation took over aforesaid land along with well and paid to assessee Rs. 15 lakhs for surrendering his right to lift water from well - Assessee did not dispute amount of compensation - Whether lifting of water from well at rate of Rs. one per year had no nexus to acquisition of land and, therefore, amount of Rs. 15 lakhs could not be said to be enhanced compensation - Held, yes - Whether since right of lifting water from well was not acquired by incurring any cost, no capital gain could be worked out on aforesaid amount - Held, yes [In favour of assessee]

FACTS

Facts

• The assessee was the owner of the agricultural land situated in Pune, on which a well was existing.

• The Public Works Department of Maharashtra State, for widening the road, had acquired the assessee's land along with the well thereon under the provisions of the Land Acquisition Act, 1894 and awarded/paid the compensation to him in the year 1986.

• Subsequent to acquisition proceedings, the State Government granted a special privilege to the assessee for lifting the water from the aforesaid well without disturbing the widening of the road by paying nominal rent of Rs. one per year.

• The Pune Municipal Corporation (PMC] took over the aforesaid land along with well. It having noticed that it was not practically possible to allow lifting of water from the said well for effective widening of the road approached the assessee and paid to him an amount of Rs. 15 lakhs for surrendering his right to lift the water from the well.

• The assessee did not admit any tax liability on the above amount of Rs. 15 lakhs.

• The Assessing Officer held that the State Government had primarily acquired the agricultural land and the well on it was a part and parcel of such land. Therefore, same formed the capital asset within the meaning of section 2(14) and any gain derived from such transaction was liable to tax under section 45. He, therefore, levied capital gains tax on the amount of Rs. 15 lakhs.

• On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer.

Assessee's arguments

• There was no cost incurred for acquisition of the right to lift the water, as such, this right was not covered by the provisions of section 55(2).

• No capital gain could be worked out, since provisions of section 45(1) read with section 48(1) were not applicable in respect of transfer of such assets.

• The amount of Rs. 15 lakhs received was not enhanced compensation.

Issue involved.

• Whether amount of Rs. 15 lakhs received by the assessee was enhanced compensation.

• Whether said amount was liable to capital gain tax.

HELD

No enhanced compensation

• The assessee's land was acquired under the provisions of the Land Acquisition Act, 1894 in the year 1986 and compensation thereof was given by the Land Acquisition Officer in the year 1986. There is nothing on record to suggest that the assessee has disputed the same by way of reference or otherwise under relevant provisions of the Land Acquisition Act or by way of writ, etc. Thus, the land acquisition proceedings with regard to acquisition of said agricultural land of assessee including well thereon stood concluded and achieved finality. [Para 4]

• There is also nothing on record to suggest that the right of lifting water from said well at rate of Rs. one per year had any nexus to acquisition of land in question. In this situation the amount of Rs. 15 lakhs received by the assessee from PMC cannot be said enhanced compensation. Subsequent payment is in lieu of abandoning right to lift water from well, which was acquired by assessee without incurring any cost. [Para 5]

No acquisition cost, no capital gains tax

• Subsequent to acquisition proceedings, the assessee was granted right of lifting water from said well which is independent right given by the State Government for the rent of Rs. one per year. There is also nothing to suggest that right of lifting of water was acquired by assessee by incurring any cost. Such right is not covered by the provisions of section 55(2). Therefore, no capital gain could be worked out, since provisions of section 45(1) read with section 48(1) are not applicable in respect of payment made to assessee in lieu of surrendering the right to lift the water from the well. Accordingly, capital gain as worked out by the Assessing Officer is not justified. [Para 6]

CASE REVIEW

CIT v. B.C. Srinivas Setty [1981] 128 ITR 294 (SC) (para 6) followed.

CASES REFERRED TO

CIT v. B.C. Srinivas Setty [1981] 128 ITR 294 (SC) (para 2).

S.P. Joshi and Ms. Kirti Joshi for the Appellant. Dr. Santosh Kumar for the Respondent.

ORDER

Shailendra Kumar Yadav, Judicial Member - This appeal has been filed by the assessee against the order of CIT(A) on following grounds :

"1. The Ld. CIT(A) erred in holding that the amount of compensation received of Rs. 15,00,000/- is enhanced compensation for acquisition of right to draw water from a well which was already compulsorily acquired in 1986 by the State Government and consequently erred in holding that it is liable to Capital Gains tax.

2. The CIT(Appeals) erred in not holding that there was no cost of acquisition for the new eight granted by the State Government to draw water from the well already compulsorily acquired by it with all the rights attached to the well by paying full compensation for all the rights embedded with and in the ownership of the well and consequently erred in not holding that the amount of compensation of Rs. 15 lakhs received by the appellant for giving up this New right to draw water in favour of the Pune Municipal Corporation was not liable to Capital Gains Tax.

3. Without prejudice to Ground Numbers 1 and 2 above, the CIT(Appeals erred in holding that no deduction is available from the compensation amount of Rs. 15 lakhs as per explanation to Section 45(5)(b) of the IT Act, 1961 while bringing to Capital Gains Tax and that too without giving a notice of enhancement of income as was required under the law.

4. The CIT(Appeals) observation that "the AO may take necessary action to correct the mistake in adopting the cost of acquisition of the right to draw water from the well as per Law" be held to be his pious hope and not a direction to correct any such possible or alleged mistake".

2. The assessee was the owner of the agricultural land situated at Survey No.162/1 & 2/1, Hadapsar, Pune, on which a well was existing. The said land was acquired for Public Works Department of Maharashtra State Government through Land Acquisition Proceeding by concerned Land Acquisition Collector vide award dated 17-07-1986. Accordingly assessee's compensation for above said land was determined at Rs. 99,683/- and paid to assessee in Financial Year 1986-87. Same was offered to taxation as Long Term Capital Gains Tax in Return of Income filed for assessment year 1987-88 which is not in dispute. Copy of award dated 17-7-1986 by concerned Land Acquisition Officer has been placed at page 1 to 17 of paper book filed by the assessee. The said land was acquired for widening the road by Public Work department (hereinafter called PWD) of Maharashtra State Government. Subsequent to this the assessee was paid Rs. 15,00,000/- compensation in the year relevant to A.Y. 2003-04. In return filed for relevant Assessment Year, i.e., 2003-04 the assessee claimed exemption in respect of said amount of Rs. 15 lakh received by him. The said amount was paid to assessee on ground that he had surrendered his right to use water from a well for effective widening the road by Pune Municipal Corporation (hereinafter called PMC) because said area was handed over to P.M.C. from P.W.D. It was claimed that there was no cost of acquisition for which rights. According to learned Authorised Representative of assessee the provisions of section 45 were not attracted and consequently no capital gain could have arosen for said payment of Rs.15,00,000/-. Assessee relied on the decision of Hon'ble Supreme Court in the case of CIT v. B.C. Srinivas Setty [1981] 128 ITR 294. However, this stand of the assessee was not found to be acceptable by the Assessing Officer. The Assessing Officer of the view that State Government has primarily acquired the Agricultural land and the well on it was a part and parcel of such land. Therefore same forms the capital asset within the meaning of section 2(14) of the Income Tax Act and any gains derived from such transaction is liable to tax u/s. 45 of the Income Tax Act. Therefore, the Assessing Officer levied capital gains thereon after reopening the case.

3. The matter was carried out before the appellate authority wherein the order of Assessing Officer was confirmed. The same has been opposed before us. The Authorised Representative submitted that land as well as well were already acquired for road widening vide the award made by the concerned land acquisition officer on 17-07-1986 for which compensation was paid to the assessee. The said award dated 17-07-1986 has been placed at Page Nos. 1 to 17 of the Paper Book filed on behalf of the assessee. It was further submitted on behalf of the assessee that inspite of the acquisition by way of the above said award dated 17-07-1986 the State Government was kind enough to grant a right to assessee to lift the water from well for Irrigation purpose at a nominal rent of Rs.1/- per annum. This right was granted to assessee after acquisition of the land by the State Government and the assessee has not incurred any cost for acquisition of the said right. It was further clarified that when the PMC who took over the area from PWD and started filling the well for effectively executing road widening work. The assessee approached the concerned civil court against filling of said well because he had acquired right to lift water from same. However matter was settled mutually by the parties to litigation which is not in dispute. Accordingly settlement was arrived between the parties and in terms of mutual settlement the assessee was paid payment of Rs. 15 lakhs for surrendering the right to lift water from said well. Out of the above amount of Rs. 15 lakhs, Rs. 6,26,194/- was contributed by Pune Municipal Corporation and remaining amount of Rs. 8,73,806/- was contributed by Serum Institute of India because later party was engaged in construction of road on behalf of P.M.C. at relevant point of time. In this background, it was contended that since there was no cost incurred by the assessee for acquisition of the rights to lift the water. As such this right is not covered by the provisions of section 55(2) of the Income Tax Act. Therefore in view of the decision of the Hon'ble Supreme Court in the case of B.C. Srinivas Setty (supra), no capital gains would be worked out since provisions of section 45(1) r.w.s. 48(1) are not applicable in respect of transfer of such assets. In this background it was submitted that an amount of Rs. 15 lakhs received is not enhanced compensation. It is in lieu of foregoing right to draw water from a well subsequent to acquisition of said land as stated above. Learned Authorised Representative submitted that CIT(A) erred in holding that it is liable to capital gain. On the other hand Departmental Representative submitted that Assessing Officer was justified in holding that amount of compensation received of Rs. 15 lakhs is enhanced compensation for acquiring right to draw water from a well which was already compulsorily acquired in 1986 by State Government. Consequently same is liable to capital gain tax.

4. The Government has to carry out multifarious development programmes for addressing social and economic problems of the society. Government has to establish welfare institutions like hospital, educational institutions etc. and develop other infrastructural facilities. Developing infrastructure including improvement of surface transport is one of development activity done by State Government and Central Government as the case may be. As a welfare measure, i.e. P.W.D. (one of the organs of State Government) had to widen road for smooth transport to address increasing pressure on existing roads for which adjoining lands are acquired. Such widening covered assessee's land. Accordingly assessee's land falling in Survey No.162/1 & 2 as mentioned above along with other lands was acquired under relevant provisions of Land Acquisition Act in 1986 and compensation thereof was given by concerned Land Acquisition Officer as per relevant provisions of Land Acquisition in the year 1986. There is nothing on record to suggest the assessee's has disputed the same by way of reference or otherwise under relevant provision of Land Acquisition or by way of writ, etc. Thus the land acquisition proceedings with regard to acquisition of said agricultural land of assessee including well thereon stood concluded and achieved finality.

5. Interestingly subsequent to this amount of Rs.15 lakhs was paid for abandoning the right of lifting of water from the well. As stated above as goodwill gesture State Government allowed assessee to lift water from well situated on his acquired land at nominal rent of Rs. 1/- per annum after acquiring said agricultural land along with well thereon. It is settled legal position that award of Land Acquisition Officer can be challenged by way of reference before the concerned Revenue Officer/Appellate Authority under the section 18 of the Land Acquisition Act, 1894. As stated above, there is nothing on record to suggest that enhancement proceedings has been preferred by assessee before the concerned Revenue Officers/Appellate Authority under the relevant provisions of section 18 of the Land Acquisition Act. So there is no occasion of enhancing the compensation at all because the assessee has not preferred the enhancing proceedings by way of reference before concerned appellate authority. Coming to the surrender of the right to lift the water from the well for consideration of Rs. 15 lakhs, we find that the land of assessee in question was acquired for widening the road and the assessee was paid the compensation in respect of said agricultural land vide award of 1986 which stood concluded as discussed above. However, State Government in exclusion of the other agriculturists falling in the said award, granted a special privilege to assessee for lifting the water from said well without disturbing the widening of the road by paying nominal rent of Rs. 1/- per year. Subsequently it was not found practically possible to allow lifting of water from said well for effective widening of the road. Ultimately it was decided that widening is not possible without filling well which was opposed by the assessee before Civil Court by way of civil litigation. Consequent to that a mutual understanding was arrived between the parties by virtue of which the assessee was paid Rs. 15 lakhs for surrendering the right to lift the water from well for irrigation of his remaining adjoining agricultural land. The said amount was contributed by Pune Municipal Corporation and Serum Institute of India as stated above, which is not in dispute. Infact due to increasing the Municipal limit area of road was put at disposal of P.M.C. who assigned the road widening work to Serum Institute of India. There is nothing on record to suggest that assessee has acquired the right of lifting of water from said well for any consideration. There is also nothing on record to suggest that the right of lifting water from said well at rate of Rs.1 per year had any nexus to acquisition of land in question. In this situation it cannot be said enhanced compensation because the assessee has not challenged award in question at Survey No. 162 vide award dated 17-07-1986 under relevant provisions of Land Acquisition Act, 1894. Subsequent payment is in lieu of abandoning right to lift water from well, which was acquired by assessee without incurring any cost.

6. To sum up assessee's Agricultural land in question was acquired under the relevant provisions of Land Acquisition Act, 1894 and assessee was paid compensation by concerned Land Acquisition Collector under the relevant provisions of Land Acquisition Act in the year 1986. In case the land owner is aggrieved by the amount of compensation he might have preferred a reference before the concerned Appellate authority under Section 18 of Land Acquisition Act, 1894. There is nothing on record to suggest that the assessee has filed any reference for enhancement of the compensation before concerned Appellate authority against the award in question. Subsequent to acquisition proceedings assessee was granted right of lifting water from said well which is independent right given by State Government for the rent of Rs. 1/- per year. There is also nothing on record to suggest that right of lifting of water was acquired by assessee by incurring any cost. Such right is not covered by provisions of section 55(2) of the I.T. Act. Therefore, in view of decision of Hon'ble Supreme Court in the case of B.C. Srinivas Setty (supra) no capital gain could be worked out since provisions of section 45(1) r.w.s. 48(1) are not applicable in respect of payment made to assessee in lieu of surrender the right to lift the water from well filled for widening of road. Accordingly capital gains as worked out by the Assessing Officer in the assessment year under consideration is not justified. Same is directed to be deleted.

7. In the result, the appeal filed by the assessee is allowed.

“COMPULSSORY FILING OF INCOME TAX RETURN FOR RESIDENT ASSESSEE HAVING FOREGIN ASSETS”


TAX TALK-15.10.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“COMPULSSORY FILING OF INCOME TAX RETURN FOR RESIDENT ASSESSEE HAVING FOREGIN ASSETS”
Query 1]
Recently, I read in the paper that Indian citizen have to declare their holdings in any foreign country from the Assessment year 2012-13. My close relative is settled in Australia and working there in a software company, earning a salary of about One Lacs aus $ and has a residence building and all members  of the family are overseas citizen of India by having Dual citizen of AUS. and INDIA. Kindly advise about the declaration of assets and holdings as read in the paper. [shivdev_gupta@hotmail.com]
Opinion:
1.      For the Assessment 2012-13, it is mandatory for resident assessee to file the Income Tax Return if he/she has any foreign assets. The filing is mandatory even if there is no taxable Income or even if the income is below the applicable basic exemption limit. The assets covered include bank accounts, immovable property and interest in any company. The taxpayer will have to mention the peak bank balance in his account during the year as well as the total investment in other assets at cost price. Further, the details country name, address of the bank, etc are also required to be mentioned. It is applicable only to resident assessee.
2.      The definition of the term “resident” as per Income Tax Act would be relevant. In such a situation, the term resident would need to be read as including “not ordinarily residents” as well. Presence in India of more than 182 days during a financial year or 60 days along with a cumulative stay of more than 365 days in the preceding four years, will trigger a “resident” status in India.  Residents but not ordinarily residents (RBNORs) are exempted from this reporting requirement.
3.      The return in such case can be filed in ITR-2 or ITR-3 or ITR-4 depending upon the nature of income. E-filing is mandatory in such case. [Notification No. S.O. 626 (E) Dated 28.03.2012]

Query 2]
Please clear my doubt with regard to the Tax Saver Fixed Deposit in a bank. Earlier, the maturity period of the said amount was Five years. In the budget speech of the FM, most probably, it was suggested to be reduced to three years. Kindly confirm about the time of deposit as well as the maximum amt. that can be fixed deposited under TAX Saver.
[Manohar Selot, Nagpur-msvinoba@yahoo.co.in]
Opinion:
There is no reduction in the maturity period of FD eligible for deduction u/s 80C. The period is same at 5 years as earlier.

Query 3]
FD’s are created in Wife's name from cash gifted to her by husband. In whose hand the interest earned be chargeable, Husband or the Wife? The wife has additional rental income but the overall amount (Rent + Interest on FD’s) is less than Rs 1,90,000/-.
[J.R.Witthal-rv_jawalikar@yahoo.com]
Opinion:
Where an asset (which includes cash/cheque amount also) is transferred by an individual to his or her spouse, directly or indirectly, otherwise than for adequate consideration or in connection with an agreement to live part, any income from such asset will be deemed to be the income of the transferor –[Section 64(1)(iv) of the I.T. Act, 1961]. The income from the FD’s done by wife out of the cash gift from husband, accordingly, will be taxable in the hands of her Husband.

Query 4]
I am willing to gift part of my retirement fund in the form of Cash to my Wife. Please let me know whether the cash Gift is taxable? Also, let me know in whose hand the Bank interests received on gifted funds are taxable?  Present income of my wife is not taxable & whether the provision of clubbing of Income will be applicable in this case? [vinod_dhume@rediffmail.com]
Opinion:
Cash gift in between relative is not taxable as such. Clubbing provisions, as already elaborated above, is applicable in such case & the income .would be clubbed with the income of the Husband.


Saturday, October 6, 2012

“WHETHER TDS TO BE DONE ON PAYMENT TO CUSTOM HOUSE AGENT?”


TAX TALK-08.10.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“WHETHER TDS TO BE DONE ON PAYMENT TO CUSTOM HOUSE AGENT?”
Query 1]
May I have your kind advice on following few points through Tax-talk please:
1.      I am recently retired and drawing pension from two sources but none qualify for tax but in my hand they jointly cross the Senior citizen limit. Shall I deposit tax on my own and file the return?
2.      I have no house anywhere and staying in rented accommodation. Can these rent amount be deducted from my total pension?
3.      How the Bank yearly FD interest calculated and where to add the said income with my pension if the banks haven’t deducted TDS?
Please advice.  [N.R.Deb, Jabalpur-nrdeb52@gmail.com]  
Opinion:
1.      As your income from all the sources taken together exceeds the basic exemption limit, you would be required to pay the tax & would be required to file the income tax return on your own.
2.      Any individual who is not in receipt of HRA from the employer is entitled to the benefit of deduction of rent paid for residential accommodation from its income u/s. 80GG of the Income Tax Act.
The condition precedent to claiming deduction under this section is:-
a] He has to prepare a declaration in Form No.10BA.
b] He or his minor child, spouse or HUF of which he is a member, should not be owner of a house at the place where he ordinarily resides or performs his duties; or he should not be owner of any house at any other place, the income therefrom is to be determined under section 23(2) (a) or, as the case may be, under section 23(4) (a) (i.e., income from self-occupied house property).
Amount of deduction – The deduction admissible shall be the lower of the following: -
(i) house rent incurred in excess of 10% of “Total Income”; or
(ii) Amount at 25% of “total income”; or
(iii) Rs. 2000 per month.
[Note: The term “Total income” means total income after allowing all deductions expect the one provided under this section itself.]
3.      Even if the TDS is not done by the bank, the interest income need to be added with the income. Interest certificate in respect of the FDR can be taken from the bank & the same can be offered for taxation as “Income from Other Source”.

Query 2]
I have some query for applicability of TDS on payment to CHA Agent.  We have Imported the Material form Dubai & appointed CHA Agent. CHA Agent raised bill mentioning payment of custom duty, Demurage Charges, Port Charges & Other Exp. Please advise on applicability and deduction of TDS? [ Dinesh Sharma- ds36516@gmail.com]
Opinion:
  1. Normally, Custom House Agents (CHA) or Clearing & Forwarding (C&F) Agents operate on a contractual basis and so the tax is deductible u/s 194C of the Income Tax Act-1961.
  2. Section 194C (1) provides that any person responsible for paying any sum to any resident contractor, for carrying out any work in pursuance of a contract, shall deduct tax at source at a specified percentage.
  3. Custom House Agents (CHA) or Clearing & Forwarding (C&F) Agents make payments on behalf of the importers and exporters towards statutory levies, for example, port dues, customs duties, etc., and other reimbursable expenses like Container charges, ICD Charges, stamp charges, and processing other statutory charges. The important question arises about the amount on which tax is to be deducted? There is a great confusion which leads to a dispute between the tax authorities and the tax payers as to whether tax is to be deducted on reimbursement of actual expenses incurred by the CHA and C&F.
  4. Arguments for deduction of tax at source on the entire amount:
    a] Clarification by Circular No. 715, dt. 8-8-1995:
    Circular No. 715, dt. 8-8-1995 has clarified that sections 194C and 194-J refer to any sum paid. So, reimbursements cannot be deducted out of the bill amount for the purpose of tax deduction at source.
    b] Supreme Court decision in the case of Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435:
    The Department often relies on the Supreme Court decision in the case of Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435 (SC) wherein in was held that
    section 194C does not permit exclusion of amount of reimbursement of actual expenditure incurred by the payee for getting the work completed.
  5. Arguments for non-deduction of tax at source on the Reimbursement of Expenses: 
    a] Sub-section (2) of section (4) reads as under:
    "(2) In respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of the Act."
    One can interpret that if the income is not chargeable to tax in the recipient's hands under section 4(1), then, the provision for deduction of tax at source under sub-section (2) of section 4 will not be applicable.
    b] Supreme Court decision in the case of Transmission Corporation of AP Ltd. v. CIT (1999) 239 ITR 587:
    It was held that since the deduction of tax at source must be in relation to an income or trading receipt only, the actual cost reimbursements and other statutory charges do not come within the purview of section 194C.
    c] The Central Excise Department, in their Trade Notice No. 5 of 1997, Dt. 12-6-1997 also clarified that the payment towards statutory levies and various other reimbursable expenses incurred by Custom House Agent on behalf of the client, are not to be included for computing the service tax.
    d]
    In case of Rajiv Cumber v. Bharat Sanchar Nigam Ltd. (2002) 128 STC 494 (SC):
    It was held that the contractee had to examine the facts for making deductions from the total bills submitted by the contractor. Therefore, the contractor cannot make deduction mechanically.
  6. We are of a considered opinion that if a consolidated bill is raised for charges as well as of expenses, then the entire amount should be subject to TDS. However, if a separate bill is given for charges and expense then the reimbursement of expenditure should not be subject to deduction of tax at source.


Monday, October 1, 2012

“TURNVOER PLUS VAT EXCEEDS RS. 60 LACS- WHETHER TAX ADUIT COMPULSSORY?”


TAX TALK-01.10.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“TURNVOER PLUS VAT EXCEEDS RS. 60 LACS- WHETHER TAX ADUIT COMPULSSORY?”
Query 1]
Please answer the following questions:-
1.      My Turnover is Rs. 59 Lacs excluding vat amount for Rs. 6 Lacs and in my trading account sales amount shown for Rs. 59 Lacs and VAT amount for Rs. 6 Lacs shown in duties and taxes A/c (not reflected in trading account). Please answer whether I am liable for audit u/s 44AB or not?
2.      My mother has gifted me Rs. 2 Lacs in individual status and I have gifted this amount to my HUF. Please explain whether Individual can do gift to his own HUF? It is legal or not and what is tax liability? Would it be treated as cross gift? [Amit Rajak, G.D.Complex, Marhatal, Jabalpur 482002-ankurkhare1979@yahoo.co.in]
Opinion:
  1. The tax audit u/s 44AB is compulsory for the FY 2011-12 if the Sales, turnover or Gross receipts from business exceeds Rs. 60 Lacs (Rs. 15 Lacs for assessee engaged in the Profession). The term “Sales, Turnover or Gross Receipts” are not defined under the Income Tax Act-1961. However, as per the Guidance Note on Tax Audit issued by ICAI, where VAT/ excise duty are separately accounted for and not included in the sales A/c, then turnover would not include the value of VAT/Excise duty so separately accounted for. However, if the VAT/Excise Duty are included in the sales A/c itself then no adjustment for the same could be done in the figure of sales to assess the amount of turnover for the purpose of section 44AB. In your specific case, the VAT is accounted by you separately & hence the same would not be includible in the calculation of Turnover. Hence, audit would not be mandatory if the turnover (excluding VAT) is less than Rs. 60 Lacs provided further that Income offered is more than 8% of the turnover amount. If the income to be offered for taxation is less than 8% of the amount of turnover, then the audit would be mandatory by virtue of section 44AD of the Income Tax Act-1961.
  2.  If any member of the HUF transfer his own assets to HUF without consideration (i.e., throw his assets to the common hotchpotch), income from such assets would be taxable in the hands of individual transferring the assets and not in the hands of HUF [Section 64(2)]. So, if the amount is gifted by you to your HUF, the income thereon would be clubbed with your income only.
  3. Our readers may further note that gift received by HUF from any person other than member is taxable if the amount of gift exceeds Rs. 50,000/-.
Query 2]
    1. I am salaried employee and my wife is housewife. She sometimes takes up part time jobs such as teaching, typing work etc. I am having PPF account and my wife opened PPF account recently. I deposit around Rs. 70,000/- in my PPF yearly. I claim section 80C benefit. The second PPF account is for saving purpose and we will not be claiming section 80C benefit. My query, Is the total limit of PPF yearly per family in both accounts taken together is Rupees one Lacs or it can be of Rs. one Lacs in each account?
    2. My second query is regarding Pin Money appeared in The Hitavada Dated 17/10/2011. How the transactions regarding pin money to be shown? Is it simply the amount given to wife and deposited by her in her account or it is to be transferred to her account via cheque or DD? Please clarify. [suryajeet.614@rediffmail.com]
Opinion:
  1. The limit of Rs. 1 Lacs per account is per major Individual member & not for Husband & wife taken together. Wife & Husband, both, can separately avail the limit of Rs. 1 Lacs each u/s 80C by depositing it in the PPF Account.
  2. U/s 64(1) (iv) of the Income Tax Act-1961, any income arising from assets transferred to spouse without adequate consideration is taxable in the hands of the transferor and not in the hands of transferee. However, if asset is acquired by the spouse out of pin money (i.e., a reasonable allowance given to the wife by her husband for her dress and usual household expenses) then the income from such assets cannot be clubbed with the income of her husband.
    [R.B.N.J Naidu Vs CIT (1956) 29 ITR 194 (Nag) and
    R.Dalmia Vs. CIT (1982) 133 ITR 169 (Delhi).]
    Resultantly, the income arising out of the reasonable fund of Pin Money accumulated & invested need not be clubbed with the income of your husband. The same could be treated as your income.
    The amount need not transferred by depositing the amount in her account via cheque or DD. Even the amount given in cash and saved by the wife could be considered for the purpose.
Query 3]
What is Section 80D of IT Act which offers deductions from Gross Income. My mother is aged 77 years & normally stays with me and has no income of her own. Can I deduct any amount from my Gross income as per the above? [Mahesh, Raipur-agmakesh@pnb.co.in]
Opinion:
1.      Section 80D enables an assessee to claim deduction from Gross Total Income the following payment:
a] Payment of health insurance premium of assessee or his family or his parents
b] Contribution to the Central Government Health Scheme
c] Payment for preventive health check up of the assessee or his family or his parents.
Amount of Deduction:
Deduction can be claimed by an individual in respect of the medical insurance premium paid up to Rs 15,000/- for himself and his spouse and dependent children. Additionally, he can also claim deduction for the medical insurance premium up to Rs 15,000 for his parent(s). The aforesaid
deductions shall be Rs 20,000 in case the premium is paid for senior citizen (60 years or more from the FY 2012-13).
A Precaution:
I] Ensure to make the payment by cheque only.
II] There is a max ceiling of Rs. 5,000/- on preventive health check up from the FY 2012-13 within the overall limit mentioned above.
2.      Further, you may examine the availability of deduction u/s 80DD of the Income Tax Act-1961 as under:
Deduction U/s 80DD
Deduction under this section is available to an individual/HUF who incurs any expenditure for the medical treatment, training and rehabilitation of a disabled dependent or Deposits any amount in schemes like Life Insurance Corporation for the maintenance of a disabled dependant. A deduction admissible u/s 80DD is of Rs 50,000/- in normal course. Where the dependant is a person with a severe disability, a higher deduction of Rs 1,00,000/- is allowed. The term 'dependent', as mentioned above, refers to the spouse, children, parents and siblings of the assessee who are dependent on him for maintenance and who themselves haven't claimed a deduction for the disability in computing their total incomes u/s 80U. The dependant for the purpose of section 80DD has to be a “person with a disability”.