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Can Loss of F & O Be Adjusted with Capital Gains?

noreply@blogger.com (taxworry) — Sun, 08 Nov 2009 04:22:42 PST

Earn profit from Short Capital gain Rs. 1,05.400/- and Long term capital gain Rs. 89,375/-and Future & option loss Rs. 68,248/-. Pl. tell me future option loss is trading loss or speculation loss it is adjustable or / no.

Satyanaryan Agarwala , Kolkata

The transaction in Future & Options is business activity now because of amendment in Section 43(5) of the I T Act . Therefore , any loss incurred on F & O is allowable to be adjusted as a business loss is adjusted.

How Business Loss is adjusted?

The provision regarding adjustment of loss is given in section 71 of the I T Act . Which reads as

71. (1) Where in respect of any assessment year the net result of the computation under any head of income, other than Capital gains, is a loss and the assessee has no income under the head Capital gains, he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.

Thus, in simple words, aforesaid provision states that any loss except capital loss , can be adjusted with income under any head . However, section 71(2A) provides that business loss can not be adjusted with salary income.

Thus the business loss of a year can be adjusted with following income of the same year

House property income
Capital Gains
Income From Other Sources

Therefore, your loss incurred on F & O can be adjusted with income earned on capital gains

What is Rule of Filing 15G to Prevent TDS?

noreply@blogger.com (taxworry) — Mon, 02 Nov 2009 19:06:46 PST

I am a male of 60 yrs, resident, having business in Delhi. My estimated total income for FY 2009-10 is 200,000/.I have invested Rs 70,00/= in PPF. Now my taxable income is 200,000- 70000 = 130,000. Since Rs 130,000 is below the taxable limit of Rs 160,000 this yr ,I want to invest in senior citizen scheme of post office having interest of 9% pa.
Can I give them form 15 G for not deducting TDS on interest.
Gopi Ram Bansal , New Delhi

Form 15G is a self declaration which if given to the tax deductor ,saves your payment from being liable to tax at source.

What are the condition? Simple rule to judge if you are eligible for filing Form 15G are : What are the condition? Simple rule to judge if you are eligible for filing Form 15G are : What are the condition? Simple rule to judge if you are eligible for filing Form 15G are : 1. You are below 65 years , and

2. Your total income is below maximum total income not taxable . For example in FY 2009-10, total income should be below Rs 1,60,000 for Male and Rs 1,90,000 for Female. and

3. Aggregate of income from Dividend , or Interest or withdrawal r surrender plan of pension plan of insurance for deduction u/s 80CCA was availed should be less than maximum total income not taxable. For example ,aggregate of such income of a MALE in FY 2009-10 should not be more than RS 1,60,000 .

If all the aforesaid conditions are fulfilled, one is eligible for filing 15G.

In your question , although your total income is less than Rs 1,60,000 , however , you have not stated what is the AGGREGATE of interest or dividend etc. Therefore check the facts your slef and if you find that te aggregate of interest or dividend for Fy 2009-10 is less than Rs 1,60,000 , you are eligible for filing 15G.

Is Money Received Due to Death of Relative Taxable?

noreply@blogger.com (taxworry) — Fri, 30 Oct 2009 23:56:24 PDT

I have received some amount of money due to death of my relative who had nominated me as beneficiary. I want to ask whether this would be treated as my income and taxable as per Income Tax rules. I also want to know if the amount is invested in bank, whether interest earned would be taxable as income. My son is 19 years old student; if I gift this sum into his saving/FD account, can I save income tax because interest would also be credited in his account and his income being below the taxable income. What are the documentation if I decide to gift this amount to my son.

Suraj Prakash , New Delhi

Money received without any limitation is tax free if received under a will or by way of inheritance; or in contemplation of death of the payer. As per your question, if you have received the sum on account of death of a relative, same will not be taxable as it is out of purview of income as stated in provision u/s 56(2)(vii)

56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources, namely :

…..

…..

(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,

Provided further that this clause shall not apply to any sum of money or any property received

……………..

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer or donor, as the case may be; or

…..

Interest on money kept in Fixed Deposit

Yes, the interest earned on the FD will be taxable in your hand.

Gift to son

Yes, you can gift money to your son the gift can not be his taxable income because you are father and gift from relative is not taxable income as per section 56(2)(vii).

Since your son is major, clubbing provision u/s 64 shall also not effect you. In other words , interest on FD in your son will be chargeable to tax in his hand .However, as you have rightly stated, shall be tax free because your son has income below exemption limit.

How to Give Gift

Give the money by account payee cheque to your son.
Prepare a gift deed wherein clearly state the source of fund , relationship, cheque no , bank name and date.
Write clearly that you as father is giving gift to your son and once given you will have no claim on such amount.
Get this deed signed by Notary Public ( which you can get i any court premise on payment of Rs 100 or more as the case may be )

Honorarium, Pension and Allowances under the Scheme of National Research Professorship Revised !

noreply@blogger.com (taxworry) — Thu, 29 Oct 2009 19:31:33 PDT

The Union Cabinet today approved the proposal of the Ministry of Human Resource Development for revision of rates of honorarium, pension and contingency allowances under the Scheme of National Research Professorship with effect from 1.4.2009.

The revised rates are as follows :
(i) Rate of monthly honorarium for serving National Research Professors has been enhanced from Rs.25,000 to Rs.75,000 with effect from 1.4.2009;
(ii) Rate of monthly pension for Pensioners enhanced from Rs.9,000 to Rs.25,000 with effect from 1.4.2009;
(iii) Rate of annual contingency grant for serving National Research Professors has been enhanced from Rs.50,000 to 1,00,000 with effect from 1.4.2009;
(iv) Honorarium and pension will continue to be exempt from Income Tax under Section 10(17A) of the Income Tax Act, 1961.

Background :
Government of India had instituted the Scheme of National Research Professorship in 1949, to honour distinguished academics and scholars in recognition of their contribution to knowledge. Persons of real eminence who have attained the age of 65 years and who have made outstanding contribution in their respective fields and are still capable of productive research, are considered for appointment as National Research Professors. The appointment is made initially for a period of 5 years which is extendable by another term of five years. After completion of first term or the extended second term, a NRP is entitled to a life pension.
In 1949, the rate of honorarium was Rs.2500 per month. The rates of honorarium and pension have been revised from time to time and at the time of last revision in 1998-99, the rate of honorarium was Rs.25,000 per month, the rate of pension was Rs.9,000 per month. The contingency grant was Rs.50,000/- per annum. Considering the rate of inflation and in view of the erosion of rupee value, the rates of honorarium/pension/contingency grant need upward revision.

Is Exemption u/s Sec. 54 Allowed Even if New House is Purchased from Borrowed Funds ?

noreply@blogger.com (taxworry) — Tue, 20 Oct 2009 19:42:54 PDT

Section 54 provides relief to a tax payer who gets gains on account of sale of residential house. The provision u/s 54 provides that tax will not be imposed on long term gains on sale of residential house up to the extent gains same is utilised for buying house within two years from the date of transfer of sold assets or constructing the house within three years from the date of transfer of sold assets .

But the question is whether a tax payer has to spend on new residential house the same money which he got out of sale or the tax payer just needs to buy a house within specified period , no matter, from where the money has come.

Recently , Bomaby High Court in CIT vs Dr.P.S.Pasricha has confirmed the decision of Mumbai Tribunal that for claiming benefit under s. 54(1), law does not make it mandatory that the assessee must use the same funds as received from sale. The source of funds is not relevant.

The facts of the case was as under

The facts borne out from the record are that assessee has acquired a residential flat in the building known as 'Dilwara' at Cooperage, Mumbai at cost of Rs. 3,22,464. The said property was sold during the year for a total consideration of Rs. 1,40,00,000. After claiming deductions for the expenses incurred for sale and cost of long term capital gains was worked out by the assessee at Rs. 1,24,02,738. The assessee claimed an exemption under section 54(1) of the Act to the extent of Rs. 1,04,78,750 and returned the taxable capital gain at Rs. 19,23,988. After the sale of the above property, the assessee purchased a commercial property at Kolhapur for a total consideration of Rs. 125.28 lakhs and gave the said property on rent to M/s. Huges Telecom Ltd. Thereafter, within the period specified under section 54(1) of the Act, the assessee purchased two adjoining residential flats at Mumbai for a total consideration of Rs. l,04,78,750 on which deduction was claimed under section 54(1) of the Act.

The Tribunal Held as as under

Since the assessee has purchased the residential house before the due date of filing of the return of income, its claim is not hit by sub-section (2) of section 54 of the Act. We, therefore, of the view that assessee is entitled for deduction under section 54(1) of the Act.

The order of Tribunal was challenged by Income Tax Department which ha snow been decided by Mumbai High Court in following words

Having seen the finding of fact recorded by the Tribunal in paragraph No.9, that the assessee had initially utilized the sale proceeds of sale of his residential flat for purchase of commercial properties and later on he purchased two residential flats within a period specified in sub section (2) of Section 54 of the Act. In this view of the matter, the view taken by the Tribunal cannot be faulted. The appeal is without any substance. Hence, the same stands dismissed in limine with no order as to costs.

Can Derivative Loss Be Adjusted With Other Income?

noreply@blogger.com (taxworry) — Sun, 18 Oct 2009 06:28:52 PDT

I got loss from derivatives [Future and option] nifty stock [ F.Y. 08-09]. and I also got loss from short term and long term shares [F.Y. 08-09 loss]. I can not carry forward this loss by virtue of late filing of return. so please tell me how to present [write] this losses in computation of total income, should I consider loss from derivatives in business income and this loss can i set off against normal business income of previous year [F.Y. 08-09]. Means which section this losses I can write off only, or not carry forward for next year.
Aruna thakur ,Mumbai

Derivative Loss is now business loss by virtue of amendment to section 43(5) of the I T Act. Section 43(5) of the I T Act defines “ Speculative Transaction” and “transactions in Futures & options “ carried out through BSE and NSE are now business loss.

Business loss can be set off with all kinds of income except Salary. So, if you have income under other heads , adjust derivative losses (business losses ) with those income. However , salary income can not be adjusted.

Whatever business loss which remained after being adjusted , can be carried forward . However, one of the condition, as you already know , is filing return of income within due date. Since you did not file return of income within due time, carry forward of such business loss may not be allowed.

As far as long term and short term capital loss is concerned, same can be adjusted only with capital gains and in case there is no such gains, can be carried forward for 8 years. However, since you have not filed return within due time, you can not carry forward such capital losses .

Are All Kinds Of Transporters Out of TDS Now On Production of PAN?

noreply@blogger.com (taxworry) — Sat, 17 Oct 2009 22:11:21 PDT

Nowadays you don’t need to deduct TDS on Transporters. I want to know which payments you considers for non deducting the TDS.
Like freight & cartage
Loading and unloading
transportation of employees
please explain in details.
Praveen , Delhi

Section 194C Substituted by the Finance (No. 2) Act, 2009, w.e.f. 1-10-2009 which provided vide subsection 6 that tax shall not be deducted in case of plying,hiring or leasing of goods carriage if person who is paid for such services furnishes PAN to person paying sums. Read the exact wordings below

(6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, on furnishing of his Permanent Account Number, to the person paying or crediting such sum.

What is Goods carriage?

Clause (14) and clause (16) of section 2 of the Motor Vehicles Act, 1988, define “goods carriage” means any motor vehicle constructed or adopted for use solely for the carriage of goods, or any motor vehicle not so constructed or adopted when used for the carriage of goods;’

Conclusion

Therefore, it becomes clear that only in case of Goods Carriage plying or leasing or hiring, TDS may not be applied if the contractor of gooods carriage provides payer his/her PAN. Other transporters are still covered u/s 194C.

In other words, loading unloading or transportation of employees are not covered under subsection 6 which exempts certain payments from TDS levy.

However, I feel if the loading and unloading is made part of work of Goods Carraige, consolidated payments i.e payment for goods carriage as well as loading unloading shall also be covered u/s sub-section 6 of section 194C and TDS may not happen on those payments.

Are Receipts Collected for Using Swimming Pool liable to Service Tax?

noreply@blogger.com (taxworry) — Sun, 11 Oct 2009 06:06:49 PDT

We own a swimming pool. Are the receipts collected from members liable to Service Tax? GOURAV GONDKAR , Pune

It is no doubt that providing swimming pool to members for a fee is a kind of service .In my opinion ,swimming pool fascilities for charges may come within the service category "Health Club and fitness centre " which is defined u/s 65(52) of the Finance Act 1994 to mean any establishment , including a hotel, or resort , providing health and fitness service.

As per the definition contained in section 65(51) "health and fitness service " means

service for physical well-being such as sauna and steam bath, Turkish bath, solarium, spas , reducing or slimming salons , gymnasium ,yoga , meditaion, massage (excluding therapeutic massage ) or any other like services;

Although , swimming pool service is not directly included in the definition, but the plain reading of th elaw shows that any kind of service which is associated with fitness and health shall fall within ambit of aforesaid definition.

Should Return Necessarily Be Processed Even When 143(2) Notice Issued?

noreply@blogger.com (taxworry) — Wed, 07 Oct 2009 20:19:12 PDT

Central Board of Direct Taxes in its Circular No. 549 dated October, 31, 1989 [see (1990) 182 ITR St. 1] has advised the Assessing Officers to issue intimation under Section 143(1) before issuance of notice under Section 143(2) of the Act

However,the question "whether the return should necessarily be processed u/s 143(1) even when notice u/s 143(2) has already been issued? " hounts both the mind of tax practitioner and even A.O.

The answer to this question has been legally settled by Supreme Court in Commissioner of Income Tax v. Gujarat Electricity Board [2003] 260 ITR 84 in which the question before Apex Court was :

whether it is open to the Revenue to issue intimation under section 143(1)(a) of the Income-tax Act, after notice for regular assessment has been issued under section 143(2) of the Income-tax Act, 1961 ?

Supreme Court held as under

There is no dispute that section 143(1)(a) of the Act enacts a summary procedure for quick collection of tax and quick refunds. Under the scheme if there is a serious objection to any of the orders made by the Assessing Officer determining the income, it is open to the assessee to ask for rectification under section 154.

Apart therefrom, the provisions of section 143(1)(a)(i) indicate that the intimation sent under section 143(1)(a) shall be without prejudice to the provisions of sub-section (2).

The Legislature, therefore, intended that, where the summary procedure under sub-section (1) has been adopted, there should be scope available for the Revenue, either suo motu or at the instance of the assessee to make a regular assessment under sub-section (2) of section 143.

The converse is not available; a regular assessment proceeding having been commenced under section 143(2), there is no need for a summary proceeding under section 143(1)(a).

In the result, we see no infirmity in the judgment of the High Court. The appeals are dismissed. There shall be no order as to costs.

Recently Orissa High Court also , relying on the Apex Court's judgment on this issue gave verdict in favour of assessee in "In view of the well settled legal position as has been decided by the Hon'ble Supreme Court, we are of the opinion that after issuance of notice under Section 143(2) of the Act, it is not open to the Assessing Officer to make adjustments as provided under Section 143(1) of the Act and to issue intimation under the said Section"

Should Tour Operator Deduct Tax On Hotel Booking ?

noreply@blogger.com (taxworry) — Tue, 06 Oct 2009 20:37:41 PDT

We are providing services of hotel booking . Is TDS applicable at the time of payment to a hotel ? At what percentage if it is applicable ? Saurin Mehta , Ahmedabad

Rental of space is covered u/s 194I . Therefore , your question is relevant.

Question No. 20 of the Circular No. 715 dated 8-8-1995 issued by the Central Board of Direct Taxes is related to applicability of the provisions of section 194-I of the Income-tax Act in respect of payments made to a hotel for rooms. The relevant question and answer is reproduced below :

. . . Q. No. 20 : Whether payments made to a hotel for rooms hired during the year would be of the nature of rent?

Ans. : Payments made by persons other than individuals and HUF for hotel accommodation taken on regular basis will be in the nature of rent subject to TDS under section 194-I. [Emphasis supplied]

CBDT later on issued a circular no No. 5/2002, dated 30-7-2002 for clearing the doubts as to what constitutes hotel accommodation taken on regular basis for the purpose. The circular clarifies in following words :

2. The Board have considered the matter. First, it needs to be emphasised that the provisions of section 194-I do not normally cover any payment for rent made by an individual or HUF except in cases where the total sales, gross receipts or turnover from business and profession carried on by the individual or HUF exceed the monetary limits specified under clause (a) or clause (b) of section 44AB. Where an employee or an individual representing a company (like a consultant, auditor, etc.) makes a payment for hotel accommodation directly to the hotel as and when he stays there, the question of tax deduction at source would not normally arise (except where he is covered under section 44AB as mentioned above) since it is the employee or such individual who makes the payment and the company merely reimburses the expenditure.

Furthermore, for purposes of section 194-I, the meaning of rent has also been considered. Rent means any payment, by whatever name called, under any lease . . . or any other agreement or arrangement for the use of any land. . . . [Emphasis supplied]. The meaning of rent in section 194-I is wide in its ambit and scope. For this reason, payment made to hotels for hotel accommodation, whether in the nature of lease or licence agreements are covered, so long as such accommodation has been taken on regular basis. Where earmarked rooms are let out for a specified rate and specified period, they would be construed to be accommodation made available on regular basis. Similar would be the case, where a room or set of rooms are not earmarked, but the hotel has a legal obligation to provide such types of rooms during the currency of the agreement.

3. However, often, there are instances, where corporate employers, tour operators and travel agents enter into agreements with hotels with a view to merely fix the room tariffs of hotel rooms for their executives/guests/customers. Such agreements, usually entered into for lower tariff rates, are in the nature of rate-contract agreements.
A rate-contract, therefore, may be said to be a contract for providing specified types of hotel rooms at pre-determined rates during an agreed period. Where an agreement is merely in the nature of a rate contract, it cannot be said to be accommodation taken on regular basis, as there is no obligation on the part of the hotel to provide a room or specified set of rooms. The occupancy in such cases would be occasional or casual. In other words, a rate-contract is different for this reason from other agreements, where rooms are taken on regular basis. Consequently, the provisions of section 194-I while applying to hotel accommodation taken on regular basis would not apply to rate contract agreements.

To sum up , you will need to deduct tax

1. If you are Company or Firm or individual having turnover exceeding Rs 40 Lakhs and
2. The rental of hotel property is taken on regular basis under an agreement for specified period

In case of travel agents , merely making a contract for lower rate (what is called rate contract) shall not make travel agent liable to deduct tax u/s 194I.

So, casual or booking rooms for traveller occasionally will not require TDS on payments.

Return Filing & Obtaining Tax Audit Report Date Extended For Pune, Satara, Kolhapur and Sangli Taxpayers !

noreply@blogger.com (taxworry) — Mon, 05 Oct 2009 19:54:27 PDT

Central Board of Direct Tax has extended the date of filing the return as well as for obtaining the tax audit report to 31st October 2009 for taxpayers of Pune, Satara, Kolhapur and Sangli districts in Maharashtra in view of Swine Flu and riots in those places. Download the notification from here

How Buying Property After 1st October 2009 May Make You Liable to Tax ?

noreply@blogger.com (taxworry) — Sat, 03 Oct 2009 05:53:44 PDT

1st October is a black day for individual and common man as far as taxation law is considered. In its attempt to stop black money , Finance Act 2009 brought in drastic amendment in section 56(2)(vii) by which two class of tax payers are affected : Individual & Huf.

The said provision is section 56(2)(vii)(b)(ii) which is as under:

56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources, namely :

(vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,

(a) ................

(b) any immovable property,

(i) without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

(ii) for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consi-deration;

(c) ...........

The aforesaid provision in simple terms says if you (an individual or HUF ) receives any Immovable property from any body except following persons

(a) from any relative; or
(b) on the occasion of the marriage of the individual; or

(c) under a will or by way of inheritance; or

(d) in contemplation of death of the payer; or

(e) from any local authority as defined in the Explanation to clause (20) of section 10; or

(f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or

(g) from any trust or institution registered under section 12AA.

for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, then difference in Stamp Duty value and consideration shall be considered as income.

How does the aforesaid provision harm honest taxpayer?

Supoose , you buy a property from a developer by paying full amount in cheque. Let us say , in your case , there is no payment of cash (It is common knowledge that in many reatly case , cash payment is a must and that is the reason this provision has been brought in the Act), . When you file the papers with Registrar of conveyance , and he values your property higher than what was actally paid, you will have to pay tax on the difference in the two values.

Now this is unfair , because if the purpose was to check the system of black money in realty sector, it fails and only harms small individual investors.

Rediculous situation arises that Company or other person who are not either indivdiuals or HUF shall not be told to pay the tax on the difference even when they purchase flats or property at the same building or complex since they are kept out of provision u/s 56(2)

Simple TDS Chart For FY 2009-10

noreply@blogger.com (taxworry) — Sun, 04 Oct 2009 19:09:18 PDT

Two Recent Judgments Proving Very Taxing For Assessee!

noreply@blogger.com (taxworry) — Sat, 03 Oct 2009 00:27:51 PDT

Income Tax Act has a provision u/s 14A which states, in simple terms , that any expense incurred by a taxpayer on earning of income which is exempt from tax is not allowable as deduction. There was however , no method of computation provided and thus considerable litigation ensued between Income Tax Department and the tax payers related to computation of expense used for earning income exempt from taxation.

For example ,a tax payer who received huge amount of dividend. Dividend is exempt from tax. In his P & L accounts, although he debits many expense like-interest,other indirect cost like salary ,electricity,telephone expense etc. However, he claims all expense deduction under I T Act stating that for earning dividend , it did not spend a penny .

The department does not agree and wants to apply section 14A of the I T Act . However, since there was no uniform computation method, each A.O used to apply different yardstick for computation of amount to be disallowed.

Act 2006 inserted new subsections 2 & 3 under section 14A by which it was provided that if the Assesseeing Officer is dissatisfied with the claim of the assessee regarding the expense deduction against earning of exempt income , he (the A.O ) shall compute the dis allowance as per the prescribed rule.

What does section 14A states?

14A. (1)Expenditure incurred in relation to income not includible in total income
14A. For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.
Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1 st day of April, 2001.

(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.

(3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act

However, the Rule for such computation was notified with effect from 24-3-2008.

Controversies

Whether the Rule 8D which was notified on 24/03/2008 can be applied from 1/4/2007 .
Whether the Rule is applicable simply because there is claim of exempted income?
Whether disallowance u/s 14A of the I.T. Act can be made in a year in which no exempt income has been earned or received by the assessee?

Two Decisions Unfavourable to Tax payers
The first decision is of Special Bench of Mumbai Tribunal in ITO vs DagaCapital Management P Ltd [312 ITR 1 ] or [117 ITD 169]which answered both the aforesaid questions 1 & 2 in affirmative . That is :

Rule 8D is retrospective in nature and thus can be applied from 1/04/2007 .
Rule 8D is simply applicable if the assessee has claimed exempted income.

The decision of ITAT , Delhi in ACIT vs Cheminvest Ltd reported in [124 TTJ 577] is against the assessee and in affirmative.

The facts of the case was that the Assessing Officer noted that the assessee had invested Rs.17,36,89,230 in purchase of shares earmarked as other than trade - long term capital gain. The assessee borrowed funds of Rs.8,51,65,000. It had paid interest of Rs. 1,21,02,367 thereon. It was observed that out of said unsecured loan, a sum of Rs.6,88,70,000 was invested in shares which was shown as investment for the purpose of long term capital gain by following the decision of Calcutta Bench of the Tribunal in the case K.V. Trading Co. Ltd. (formerly known as. Kangra Valey Investment and Finance Co. Ltd.) vs. DCIT in ITA NO.924 (Kol.) 2003 for assessment year 1998- 99 and of Twenty First Securities Ltd. vs. DCIT in ITA No.1126 (Kol)/2003, on proportionate basis i.e. interest paid on borrowed funds invested in the form of long term investment other than the trading investment.

The Tribunal held

What one has to see is whether any expenditure were incurred by an assessee in relation to an income that does not form part of total income of the assessee under this Act, and if the answer is in affirmative then that expenditure cannot be allowed irrespective of the fact that it was allowable under different provisions of the Act where a different phraseology is used in allowing that expenditure as the focus has to on disallowance within parameters of section 14A, an overriding provision over allowance provisions. It would result in disallowance even of no income has resulted or made or earned by the assessee in the year under consideration. We also make it clear that the disallowance has to be of the entire amount of the expenditure so related and, as claimed in Revenue's appeal, cannot be reduced by the receipt of interest which has no relation to such expenditure.

In my personal opinion, the Rule 8D creates absurd computation of disallowance u/s 14A many times , specially in those cases where the huge investments have been made , but no interest is paid .Even in that case 0.5 % of average investment shall disallow unreasonable amount of expense.

The Daga Management & Chemiinvest Ltd decision are contradictory in the sense that in Daga Management case , the Hon'ble Tribunal stated that what one needs to see whether the exemption is claimed and it is not necessary to see , however , in Chemiinvest, Delhi Tribunal stated that even if the exempted income is not claimed , expense has to be disallowed u/s 14A.

I believe , in near future, some relief will certainly come from High Courts. Till then , its really , difficult time for taxpayers.

Leave Encashment Covered u/s 43B Rules Supreme Court!

noreply@blogger.com (taxworry) — Fri, 25 Sep 2009 23:42:23 PDT

Under Clause (f) of Section 43B any sum payable by the employer/assessee to its employees as leave encashment shall be available for deduction only in computing the income referred to in Section 28 of that previous year in which such sum is actually paid by the employer to its employees.

Calcutta High Court had struck the aforesaid clause (f) as being arbitrary and unconscionable in Exide Industries Ltd vs UOI 292 ITR 470 .

Income Tax department filed Special Leave Petition in Supreme Court which stayed the order of the Calcutta High court and decided that assessee must pay tax as if s. 43B (f) is on the statute though it is entitled to make a claim in its return.

No Deprecaiation On Stock Exhange Memebership Card Rules Mumbai High Court!

noreply@blogger.com (taxworry) — Sun, 13 Sep 2009 05:20:39 PDT

Whether Stock Exchange Card is an asset for the purpose of Depreciation was always a matter of interpretation differently by assessee and income tax department.While the Department had all along treated memebrship card of stock exchange as not an asset for depreciation claim , the assessee claimed otherwise. Till now various benches of Tribunal have given verdict in favour of assessee and allowed depreciation claim on cost of memebrship of stock exchange. Some of these rulings were in follwowing case laws:

Techno Shares & Stock Ltd vs ITO [2006]101 ITR 349
Peninsular Capital Market vs ACIT [2008] 19 SOT 421
R.M Valippan vs ACIT [2006] 103 ITD 63 (CH)

However, now the Bombay High Court has given verdict overruling many Tribunals judgement including in Techno Shares , regarding allwance of depreciation on memebrship card.The issue before,Court was

The ITAT has held that the Bombay Stock Exchange Membership Card (hereinafter referred to as the 'BSE card') acquired by an assessee on or after 1/4/1998, either by nomination or directly through the Stock Exchange is an intangible asset covered under Section 32 of the Income Tax Act, 1961 (`Act' for short) and therefore, depreciation is allowableon the BSE Card. These appeals are filed by the revenue to challenge theaforesaid orders passed by the ITAT.

The Court held that

The argument of the assessees that the expression 'licences' in section 32(1)(ii) of the Act must be construed widely and at the same time conceding that the expression 'licences' in section 32(1)(ii) of the Act would
not cover personal licences is mutually contradictory. Either the expression 'licences' has to be construed widely as it is understood in common parlance or construed restrictively in the light of associate words used in the section. There is no other way of interpreting the said expression. As noted earlier, the expression 'licences' in section 32(1)(ii) of the Act cannot be construed widely, because, the expression `any other business or commercial rights of similar nature' in Section 32(1)(ii) of the Act makes it abundantly clear that
the legislature intended to give narrower or restricted meaning to the expressions used in the Section. Therefore, while rejecting the contention of the assessees, we have no hesitation in holding that the expression 'licences' in section 32(1)(ii) of the Act must be construed restrictively so as to apply to licences relating to acquisition / user of intellectual property rights.
36. The argument advanced by the counsel for the assessees that since the BSE card is a capital asset and is liable for capital gains tax when sold at a profit, depreciation must be allowed on the BSE card acquired after
1/4/1998 is also without any merit, because, under section 32 of the Act depreciation is not allowed on all capital assets but is allowable on capital assets which fall in any of the categories enumerated in the Section. As we have held that the BSE card does not fall in any of the categories specified in section 32(1)(ii) of the Act, depreciation cannot be allowed on the BSE card.

Highest Ever Cost Inflation Index Notified For FY 2009-10!

noreply@blogger.com (taxworry) — Sat, 12 Sep 2009 22:23:36 PDT

Highest ever Cost Inflation Index notified by Central Govt. The cost inflation index is used when you compute the long term capital gains on sale of a capital asset. Therefore, higher CII means, less taxable lng term gains. Read the notification below

NOTIFICATION NO : 67/2009, Dated: September 9, 2009

In exercise of the powers conferred by clause (v) of the Explanation to section 48 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Central Board of Direct Taxes, number S.O.709(E), dated the 20th August, 1998, namely :-

In the said notification, in the Table, after serial number 28 and the entries relating thereto, the following serial number and entries shall be inserted, namely:-
“29 2009-10 632”

F.No.142/13/ 2009-TPL

(Vijay Kumar Jaiswal)
Under Secretary (TPL-IV)

Complete list of Cost Inflation Index since 1981 is as under:

Can You Deposit Andhra Pradesh Professional Tax in Orissa?

noreply@blogger.com (taxworry) — Tue, 08 Sep 2009 18:45:03 PDT

We are deducting Professional Tax from the Salary of our employees at Hyderabad Branch .Can we deposit the same in the local Professional Tax Authority in Bhubaneswar.If yes. then no problem.But if no, there should be different rates and procedures for this formality.Please let me know.Brahmananda Mohanty ,Bhubneswar

Indian states collect revenue through this source ,however , Uttar Pradesh , Uttaranchal, Jharkhand and Arunachal Pradesh are the only exceptions and have not levied professional tax. Municipal bodies in Goa , Haryana, Himachal Pradesh , Kerala , Rajasthan, Bihar, Punjab and Tamil Nadu are empowered their to collect professional tax while Jammu & Kashmir , Maharashtra, Madhya Pradesh and Andhra Pradesh impose this tax themselves.

The original ceiling on the professional tax, as prescribed in the Constitution passed by the Constituent Assembly, was Rs 250 a year. It was raised to Rs 2,500 a year in 1988 and since then both the 11th and 12th Finance Commission have called for its upward revision.Article 276 of the Constitution empowers the state to levy the tax in respect of profession, trade, calling and employment, but it also fixes the ceiling that can be amended only through the Constitutional amendment by Parliament.

Rates in Andhra Prades

In Andhra Pradesh , the professional tax as per GOMs No: 21 dated 07.01.2008S deducted as under

Salary & Wages in Rs. Tax per month in Rs.Up to 5,000 Nil

5001 to 6000 Rs 60/-

6001 to 10000 Rs 80/-

10001 to 15000 Rs 100/-

15001 to 20000 Rs 150/-

Above 20000 200/-

Can you deposit tax any any other state?
No, since the professional tax is state subject, Authorities of other states can not collect professional tax on behalf of Andhra Pradesh. It must be deposited with designated authorities of Andhra Pradesh only.

Can You Claim Exemption u/s 54 & 54EC Simultaneously ?

noreply@blogger.com (taxworry) — Sun, 06 Sep 2009 08:10:43 PDT

I have sold a residential house in April' 09 on which the long term capital gain is working out to be Rs.20 lacs.Also, I purchased a residential house in March'09 (I do not have any other residential property of any kind) for Rs.12Lacs.Can I invest Rs.8 Lacs in NHAI Capital gain bonds (under sec54ec) to get exemption of tax payment to full extent.The query can be summarised as follows:

Can I take advantage of both CAPITAL GAIN BONDS and RESIDENTIAL HOUSE in minimizing my long term capital gain liability or is any one of the above options that I need to choose from?A.P.GUPTA , Pune

Section 54 of the I T Act is providing exemption from taxation on the amount of long term capital gains arising out of sale of residential house if amount of gains are applied with stipulated time period in buying/constructing another residential house.

Section 54EC provides exemption from taxation on the amount of long term capital gains arising out of sale of any kind of capital asset if amount of gains areinvested in specified asstes namely bonds issued by NHAI or REC (at present)

Both these exemption provisions are not mututally exclusive provisions , that is, there is nothing in the provisions u/s 54 or 54EC which states that one can not avail of both the exemption.

Further wordfing of provisions itself shows that the law makers have enacted the provisions as additional incentives . That is the reason , the provision constains word " whole or any part of it , which means that it was not necessary that full amount of capital gains should have been used for buying the "Specified Assets". Read extract of section 54EC below

54EC. (1) Where the capital gain arises from the transfer of a long-term capital asset (the capital asset so transferred being hereafter in this section referred to as the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested the whole or any part of capital gains in the long-term specified asset, the capital gain shall be dealt with in accordance with the following provisions of this section, that is to say,

If the Law makers had the intention of not giving the simultaneous exemption u/s 54 & 54EC, it could have been written in the provision itself similar to the provision in Section 54EC which mentions that investmnt in specified asset will not be taken in to account for rebate u/s80C or 88 if the same is considered for the exemption u/s 54 EC. Read the extract below

(3) Where the cost of the long-term specified asset has been taken into account for the purposes of clause (a) or clause (b) of sub-section (1),

(a) a deduction from the amount of income-tax with reference to such cost shall not be allowed under section 88 for any assessment year ending before the 1st day of April, 2006;
(b) a deduction from the income with reference to such cost shall not be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006.

For aforesaid reasons , in my opinion, there is no such restriction about claiming of exemption u/s 54 or 54F simultaneously with section 54EC.

When is Pension Received From UK Taxable in India?

noreply@blogger.com (taxworry) — Fri, 04 Sep 2009 21:47:33 PDT

A senior citizen uncle is getting pension from UK in respect of contribution made by him during his employment there. He is resident in India & pension is received thru SBI. Till 2007-08, he had shown this as part of his income and return was filed with the SBI ward.Now, he saw article wherein it was stated that as per DTAA with UK, pensions are taxable only in that state. No tax has been deducted/paid in UK because of the amount is less than the personal allowance (i.e. exemption limit for old persons there).If this income is not taxable in India then his total income is below the taxable limit. Should he file his return? If yes, where will this amount be shown? Bharati Saxena . New Delhi

First of all , one should understand that in case of Resident of India, his global income is taxable .

Section 5 of I.T. Act is about total income of a person taxable under I T Act. Read

5. (1) …the total income of any previous year of a person who is a resident includes all income from whatever source derived which

(a) is receivedor is deemed to be received in India in such year by or on behalf of such person ; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year ; or

(c) accrues or arises to him outside India during such year

Therefore ,all income of Resident Indian , whether arise,accrue or deem to accrue or arise or received in India or deemed to be received in India , is taxable under the I T Act. In that sense, pension received by a resident Indian is taxable in India.

How DTAA between India and Uk affects it?

However, since DTAA supersedes I T Act, the Article 19 & Article 20 of the DTAA governs Pension and annuities. The said provisions are as under

ARTICLE 19 - Government remuneration and pensions - 1. Remuneration, other than a pension, paid by the Government of a Contracting State to any individual who is a national of that State in respect of services rendered in the discharge of governmental functions in the other Contracting State shall be exempt from tax in that other Contracting State.

2. Any pension paid by the Government of a Contracting State to any individual in respect of services rendered to that Government shall be taxable only in that Contracting State.

3. The provisions of this Article shall not apply to remuneration or pensions in respect of services rendered in connection with any trade or business.

ARTICLE 20 - Pensions and annuities - 1. Any pension, other than a pension referred to in Article 19(2) of this Convention, or annuity paid to a resident of a Contracting State shall be taxable only in that State.

According , to aforesaid Agreement clauses , it is clear that if UK national gets pension from UK, such pension shall be taxable only in United Kingdom even if he is resident in India and earning taxable income in India and filing return of income.

However, that is not the case of your uncle , perhaps. So, find out his citizenship. If he is citizen of UK, only in that case, pension is taxable only in UK and not in India. If he is citizen of India, in that case , he is rightly offering income taxable in India.

Can I.T.O Seek Information From Registrar of Companies u/s 131 or 133?

noreply@blogger.com (taxworry) — Fri, 04 Sep 2009 21:50:50 PDT

Income Tax officers most frequently harass the Registrar of Companies (ROC) calling for copies of balance sheets of companies by using powers under section 131/133 of the Income Tax Act 1956. But all balance sheets of companies, once filed with ROC, goes into public domain (except profit and loss account of private limited companies). Is it lawful for I-T officers to thereaten ROC with section 131 or 133 calling for information which are already available in public domain? D. Bandopadhyay ,Kolkata

Yes, the income tax officers have the power to call for information or documents from almost all the persons and categories or class of persons for the purpose of the enquiry or investigation under I T Act. However, section 131 and 133 are for different occasion and also having different powers embedded in.

Section 131 gives very wide powers to A.O and all the powers vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit. The excerpts of section 131 is as under

131. (1) The Assessing Officer, Deputy Commissioner (Appeals), Joint Commissioner , Commissioner (Appeals), Chief Commissioner or Commissioner and the Dispute Resolution Panel referred to in clause (a) of sub-section (15) of section 144C shall, for the purposes of this Act, have the same powers as are vested in a court under the Code of Civil Procedure, 1908 (5 of 1908), when trying a suit in respect of the following matters, namely :

(a) discovery and inspection;

(b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath;

(c) compelling the production of books of account and other documents; and

(d) issuing commissions.

Whether A.O can call for documents or information in possession of Magistrate u/s 131?

This was the issue before the Calcutta High Court in Jhabarmull Agarwalla vs Kashiram Agarwalla And others 71 ITR 269 , decided in favour of Revenue. Relevant extract is as under :

"Section 131(1) must, therefore, be construed to confer on the Income-tax Officer all the relevant powers which the civil courts have under the Code of Civil Procedure regarding the production of books of account and other documents. Since Order Xiii, rule 10, confers such power on the civil court to call for documents from other courts, the Income-tax Officer too has such powers under section 131(1) of the Act.

We should in this connection refer to the decision of S. K. Sen and K. C. Sen JJ. in Union of India vs State ( 1961 ) 42 ITR 753 . There in that case the Income-tax Officer called for certain documents from the Chief Presidency Magistrate under section 37(1) of the then Income-tax Act read with Order Xiii, rule 10, of the Code of Civil Procedure. Section 131(1) of the present Act is in the same terms as section 37(1) of the old Act. Mr. Dutt has, however, submitted that all concerned proceeded in that case on the assumption that the Income-tax Officer can call for documents from a Magistrate under Order Xiii, rule 10, of the Code and this point was not specifically raised and considered. It is true that this point was not specifically considered but the decision no doubt indicates the mind of the judges and no objection was raised in this respect on behalf of the assessee that the Income-tax Officer has not the power under Order Xiii, rule 10, of the Code to call for documents from a Magistrate.

Similar view was also taken by D. N. Sinha J., as his Lordship then was, in Ganpatrai Rawatmull vs Collector, Land Customs, Calcutta ( 1961 ) 42 ITR 107 . For the reasons we have discussed, we respectfully agree with the views expressed in these cases and we hold that the Income-tax Officer has the power under Order Xiii, rule 10, of the Code"

Power under 133 of the I T Act

The powers under section 133 is milder than section 131 of the I T Act. An assessing officer can call for information under this section from a variety of persons . Subsection 6 is utilised mostly by the A.O for completing assessments. The extract of su-section 6 of 133 is as under

133. The Assessing] Officer, the Deputy Commissioner (Appeals),the Joint Commissioner or the Commissioner (Appeals)may, for the purposes of this Act,

6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Joint Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing] Officer, the Deputy Commissioner (Appeals)] , the Joint Commissioner or the Commissioner (Appeals), will be useful for, or relevant to, anyenquiryor proceeding under this Act :

Some of the features of this section are :

1. The A.O can not issue the notice for information without pending proceeding.

2. If there is no pending proceeding under I T Act, then if there is requirement , previous approval of Commissioner of Income Tax has to be sought.

Consequences of failure to comply with notices u/s 131 and 133

1. Power u/s 131 of the I T Act is that of a court . therefore consequences of not complying notices u/s 131 can in extreme case be arrest and penalty both.The penalty is Rs 10,000 for each default.

2. However, for non compliance of notice u/s 133(6), penalty can be imposed under section 272A(2)(c) of the I T Act after being given an opportunity of hearing . The penalty Rs 100 per day of failure .

3. The power to impose penalty u/s 131 or 133 is not with A.O but with the Range Head i.e Joint Commissioner or Add.CIT.

Can Buying Agriculture Land Get You Tax Exemption on LTCG?

noreply@blogger.com (taxworry) — Fri, 04 Sep 2009 21:54:24 PDT

I am planning to buy a agricultural land ( in rural area), My question is may I get tax rebate on long term capital gain if I use this capital gain in purchasing agricultural land.Prashant Sangale , Pune

Answer to your question is Yes and No.

No, because the tax exemption or rebate is not allowed for buying agriculture land

Yes , because there is one provision under section 54B of I T Act which is about capital gain on transfer of land used for agricultural purposes not to be charged in certain cases.The said provision is as under

54B. (1)] Subject to the provisions of sub-section (2), where the capital gain arises from the transfer of a capital asset being land which, in the two years immediately preceding the date on which the transfer took place, was being used by the assessee or a parent of his for agricultural purposes hereinafter referred to as the original asset), and the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, instead of the capital gain being charged to income-tax as income of the previous year in which the transfer took place, it shall be dealt with in accordance with the following provisions of this section, that is to say,

(i) if the amount of the capital gain is greater than the cost of the land so purchased (hereinafter referred to as the new asset), the difference between the amount of the capital gain and the cost of the new asset shall be charged under section 45 as the income of the previous year; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be nil; or

(ii) if the amount of the capital gain is equal to or less than the cost of the new asset, the capital gain shall not be charged under section 45; and for the purpose of computing in respect of the new asset any capital gain arising from its transfer within a period of three years of its purchase, the cost shall be reduced, by the amount of the capital gain.

What does it mean?

In nut shell , one can claim exemption form capital gains on Sale of Agriculture Land by buying Agriculture land if the agricultural land which was was being used by the assessee or a parent of his for agricultural purposes at least two years preceding the year in which transfer of the land took place if

the assessee has, within a period of two years after that date, purchased any other land for being used for agricultural purposes, then, capital gain to the extent utilised for buying the new agriculture land shall be given

Is Payment to Detective Agency Subject to TDS?

noreply@blogger.com (taxworry) — Sat, 05 Sep 2009 03:16:43 PDT

Our company paid some amount to detective agency, Is it Liable to deduct TDS, If Liable at what rate under which section. Praveen Kumar Makam ,Hyderabad

The detective agency work may be a professional work , however, this is not specified profession under the I T Act. Professional services means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section.

Therefore, the work assigned to a detective agency shall come within the purview of section 194C for deduction of tax on contract. The rate of tax is 2.06 % of the amount of payment.

Claim of Exemption for Right to Buy Flat Is Valid

noreply@blogger.com (taxworry) — Sat, 05 Sep 2009 03:18:38 PDT

I sold a piece of land in April 2004 with LTCG of Rs 1600000/. At the cost of 1800000/ got the right of purchased OF FLAT endorsed in my favour by the person who originally booked the flat with builder in APR05 .Original allottee has paid to the builder rs 1500000/ as 90% of the cost which was automatically adjusted against the cost of flat to me by the builder.The flat was jointly purchased with my wife the entire sum was paid by me to original purchaser rs 1800000/in April 2005.The last instalment of Rs 82000/ was paid to the builder in June2005 and possession obtained in the same month. Is my claim of exemption from Capital Gain correct? Jamil Ahmed , Lucknow

Section 54F is a relief provision under which it is provided that if the net sale consideration is used for buying house/flat within two years or in construction of a house within three years, the capital gain on the sale of an asset (other than a house), is exempted from tax.Courts have given judgment to state that what is to be seen by tax authorities in case of 54F is whether the amount of sale consideration was invested for buying property or not,

Even if the purchase was of a right to buy a house and followed up with payment of last instalment and getting possession of the flat from the builder in your name , perfectly fulfils the criteria for claiming the exemption.

I feel your claim regarding exemption is valid.

Whether Incentive Bonus Earned By Development Officer Salary or Income From Other Source?

noreply@blogger.com (taxworry) — Sat, 05 Sep 2009 03:19:30 PDT

Incentive bonus is Salary and actualy expenditure incurred by Development officer and later reimbursed by LIC under Incentive Bonus Scheme 1997 and Reimbursement Scheme 1997 are not be regarded as taxable salary . This is the view of CBDT which was asked Kerala High Court in CIT,Kottayam vs Jhon Varghese in its interim order asked CBDT decide -Whether the incentive bonus paid by LIC to Development Officers would be assessable under the head “Salary” or whether it is income from other sources on which 30 % deduction claimed by the Development Officer towards estimated expenditure to earn the income would be allowable.

The Board decided as under

“The Board , after examining these two Schemes of LIC of India , has decided that “ the “incentive bonus” would be taxable as “salary” in view of the employer –employee relationship and only such reimbursements that are actual reimbursement of the expenditure incurred would be treated as “exempt” . Reimbursement of expenditure would not be included in salary but will have tto be shown separately in the “salary certificate”

{F No 173(3)/10/2009-ITA-1 dated 13/May 2009