In recent budget it is proposed to tax dividend which
was exempt in hands of the recipient prior to this, A limited benefit in case of companies
is provided by way of section 80M.
My question is that can income tax officer disallow a part
of income as expenses on earning tax free income (by virtue of section 14A) which is
allowed as deduction under section 80M
For example:-
If a company "A" earns Rs 200 as dividend income
from other domestic companies and pay out dividend of Rs 150, in accordance to section 80M
dividend income of Rs 150/= will be allowed as deduction , can income tax officer than
apply section 14A to this Rs 150 and disallow a part of it as expenses towards earning tax
free income ?
Reply
No. Section 14A applies in respect of income, which does not form part
of total income. Such incomes are those mentioned in Sec.10. After deletion of Sec.10(33),
dividend income also forms part of total income. The mere fact that the same qualifies for
deduction - fully or partially – under chapter VI A will not bring it within the
purview of Sec.14A.
As per the budget 2002-2003, the companies are now
required to deduct Tax on Dividend distributed from shareholders and are required to
issue form 16
I wanted to know that whatever there is any limit
prescribed for tax exemption or whether companies are required to deduct from every rupee
of dividend distributed (in the case of individual).
Reply :
There is no limit. However, if the income is not likely to reach
taxable limit Form 15G/15H can be filed to avoid TDS.
I am salaried individual tax payer and seek following
advice on payment of Capital Gain Tax ;
If a flat purchased in December 1990 at
Rs.2.25 lacs is sold for about Rs.7.00 lacs
Please advice me the applicability of Capital Gain
Tax, if any, if flat is sold during :
1) Before 31.3.2002
2) After 1.4.2002
Please advice us whether any Tax is payable or added to
Taxable Income and if so any benefits
Reply :
Central Govt. notifies Cost Inflation Index every year on the basis of
rise in Consumer Price Index for which base date is 1st April 1981.
The Cost Inflation Index for the year 1990-1991 was 182 and the Cost
Inflation Index for the year 2001-2002 is 426 and the cost Inflation Index for the Year
2002-2003 it is not notified.
Your gain for the Financial Year 2001-2002 will be as under:-
Indexed Cost 2,25,000 X 426 / 182 = 5,26,648/-
On that basis your capital gain would be as under:-
Sale Price
=
7,00,000/-
Less: Indexed Cost of acquisition
=
5,26,648/-
------------
Capital Gain
=
1,73,352/-
Tax on above @ 20.4%
(Tax 20% + Surcharge 2%).
=
35,363/-
Query :
Whether Income Tax is payable for encashment of Earned
Leave at the time of superannuation for employee of Public Sector Undertaking. If
yes, is there any ceiling ?
Whether Income Tax is payable for encashment of Half Pay
Leave at the time of superannuation. If yes, is there any ceiling ?
Is there any combined ceiling against encashment
of both the leaves at the time of lsuper annuation ?
These queries relevant in spite of Supreme Court judgement
pronounced for earned leave encashment for Govt. employees. It is more pertinent because
half pay leave are not given to Govt. employees but the same is given to Public Sector
employees like us.
Reply :
Please refer to sec. 10 (10AA) (ii) of Income Tax Act
Leave encashment for employees of public sectior undertakings is exempt
up to an amount equal to maximum 10 months salary calculated on the basis of average
salary of 10 months preceding superannuation. The maximum amount exempted is Rs.
2,40,000/- as per Notification No. SO 1015(E) dt. 27-11-1998.
There is no separate exemption for half-pay leave.
In case the relevant ruels provide for conversion of half pay into full
pay leave, the same after conversion will be subject to above ceiling.
I have received a copy of the budget analysis which is
indeed well done. We have a query on a point which relates to the treatment of amount paid
as compensation to the workmen and the treatment of tax, if it is in the normal course or
under VRS scheme, both in the hands of the employer and employee.
Replies :
Tax Implication in the hands of employees
Section 10(10B)
Section 10(10C)
Applies to retrenchment compensation received at the time of closure and
/ or at the time of change of management its employee is not taken over on continuing
employment basis
The recipient employee has to be ‘workman’ in terms of
Industrial Dispute Act. For example, it does not include executive, and managerial staff.
The payer should be ‘employer’ in terms of Industrial Dispute
Act’. It basically covers those employers, which own industrial activities.
Applies to amount received on account of voluntary retirement or
termination of service pursuant to scheme framed in accordance with Guidelines prescribed
by Rule 23A.
The recipient could be any employee including administrative and
managerial staff.
The employer should be one of the specified employers covered by section
10(10C). It interalia includes any company. There is no requirement as to the nature of
activity of the employer.
The receipt should be of ‘retrenchment compensation’ in terms
of Industrial Dispute Act (IDA). The term ‘retrenchment compensation’ as defined
in IDA excludes payments on voluntary retirement – though judicial trend seems to be
extending the applicability of the section to compensation received pursuant to
voluntarily separation scheme also.
The receipt has to be n accordance with VRS scheme framed with the
object of achieving overall reduction in the existing strength of the employees.
Limit of exemption:
Lower of:
Amount calculated in accordance with Section 25F(b) of IDA (viz. Half
months salary for each completed year of service. Employment of more than 6 months is
treated as completed year).
OR
Rs.5,00,000/-
Lower of:
There months salary of each completed year of service.
OR
Salary at the time of retirement multiplied by the balance months of
service left before the date of retirement on superannuation.
OR
Rs.5,00,000/-
Note : Should it appear
that the assessee is covered by both sections, the section more beneficial to the assessee
in terms of conditions, terms and quantam of exemption will be applicable at the option of
the assessee.
In our view, it would not be possible to claim deduction under both the
sections.
RE:
Retrenchment Compensation
RE: VRS
Compensation
Retrenchment compensation paid in the course of the business is
allowable as deductible expense under section 37(1).
Compensation paid on transfer of the business or on closure of
business cannot be claimed as deductible expense. (Refer, Cashew Sales Corporation [65 ITR
_____] (SC)
In terms of section 35DDA, VRS compensation is allowed as deduction
in equal proportion spread over five years.
The definition of "Undisclosed Income" given
in clause (b) of section 158B has been proposed to be amended to specifically include
therein income based on entries in books of account or other documents which represent a
false claim of any expense, deduction, or allowance under the Income-tax Act. This
proposed amendment will take effect from 1st June, 2002
In case of my company, where I am serving as Taxation
Manager, the Income-tax Department has made disallowance of depreciation totally on the
basis of search material and statements taken during the search, while framing the regular
assessment for A.Y. 1995-96 u/s 143(3). After the completion of this assessment for
A.Y. 1995-96 on 31/3/1998, the same Assessing Officer made block assessment and assessed
again the same depreciation as "undisclosed income" of the company.
Fortunately, our whole block assessment has been quashed on account of non-issue of notice
u/s 143(2) within one year. The appeal for A.Y. 1995-96 is still pending before
CIT(Appeals). And from very beginning, we have taken the stand before the
CIT(Appeals) that the depreciation disallowed solely on the basis of search material in
the regular assessment is bad in law.
Now what will be the effect of this proposed amended which
says that false claim of expenses or allowance is assessable in block assessment only ?
How can we strongly represent our case in the appeal for A.Y. 1995-96 on the basis of this
proposed amendment which is applicable from 1/6/2002 ?
Reply :
The import of proposed amendment is not to restrict the disallowance of
expenses etc. to block assessment only. It extends the ambit of 'undisclosed
income' to include income suppressed by claim of non-genuine false expenses. What is
material is whether such conclusion is based on search material or otherwise. In your
case, as stated by you, it is derived from material found during the search and
investigation carried out on that basis. The proper place for disallowance should,
therefore be in block assessment which has been quashed.
1) Item number 14 of your "FOREWARD". THE
Finance minister has proposed to restore the old system of tds on dividend. i feel how
absurd it is. they change the logic every now and then. in the proposed amendment, it is
time consuming, money spending with fruitless exercise., i agree with u sir that it is
based on the individual whims of a few persons sitting in them nborth block
2) On page number 11 of your bvook 'analysis of union
budget-2002", it is proposewd to exempt nominee directors of public financial
institutions and banks from disqualification for election in the case of certain defaults
by the company. here i want u to clarify how does the question arise of a nominee director
who is nominated and not elected. hence whether the question of disqualification for
election will not arise at all.
3) On page number 11 under the caption 'CAPITAL ACCOUNT
LIBERALISATION' item II,, it is mentioned that 'the existing balances in the non-resident
(non-rfepatriable) rupee accounts will be allowed to be credited on maturity to the
convertible NRE account. here please clarify what is the meaning of 'CONVERTIBLE NRE
ACCOUNT" ?
Reply :
NRE A/c although kept in Indian Rupee, money therein can be converted
into foreign currency for the purpose of repatriation which is permitted from this
A/c. No repatriations is permitted from NRNR A/c and for this reason the rate of
interest in NRNR a/c is higher than NRE A/c. With capital account liberalisation
amount in NRNR A/c can be transferred to NRE A/c from where repatriation will be possible.
I refer to item no.187 of the budget speech wherein it
is stated to extend the list of transactions provided in rule 114B of the incometax rules
ol include expenditure exceeding rs.25,000 incurred in cash on fordeign tgravel, purchase
of bank draft exceeding rs.50,000 in cash and making cash deposit exceeding rs.50,000 in
any bank account
Sir, i would like to ask u what is the implication of cash
deposit exceeding rs.50,000/. in any bank account. does it include current account where
there will be numerous number of cash deposit exceeding rs.50,000in the account. every now
and then the current depositor is required to mention PAN in the paying slip when as per
the existing rule, the current account holder while opening the account must have given
the PAN number. even then if he is supposed to write the pan, is it not ridiculous
involving wasteful energy being wasted.
Reply :
Your understanding of what the F. M. said appears to be correct.
However, one has to wait for the rules to be formulated and see how the F.M's statement is
translated into practice.
Query
Whether trading in shares by an individual is considered
to be a business or profession for the purpose of his taxation?
Whether the amount of such sale or purchase or both,
during the course of trading in shares will be included in the term turnover for purpose
of section 44AB?
Reply :
Yes, the incoe from trading inshares will be income from
business. The situation will be different, if you are an investor only and a few
sale transactions have been made in the capacity of investor. If, however, you are
indulging in such transactions on regular basis, you will be a trader only .
Yes, if you are a trader monetary limit in section 44 AB will apply
to the turnover in this business also.
For a self occupied house under construction, I have
taken loan of rs 5 Lacs in DEC 2001 from HUDCO. I am a co-borrower along with my
wife and EMI is being paid by me through postdated cheques.The land on which house
is under construction is On the name of my wife.Please specify I will be getting Income
tax rebate under sec 24(1)or not ?
Reply :
You should be entitled to the benefit of deductions for interest u/s 24
even if the land is in the name of your wife. It is presumed that youare making
investment by repaying loan our of your funds. It will be desirable to execute a
formal registered document of lease granting you right to construct.
As stated in union budget 2002-2003 the tax on Foreign
Companies has been reduced from 48% to 42%. An analysis of this proposed amendment as
published in Economic Times states that subsidiaries of foreign companies will be treated
as foreign companies. But if we analyse the defination given under Income Tax Act, 1961
Indian Company means a company incorporated in india, and accordingly a company in
india which is a subsidiary of a foreign company will be an Indian Company and accordingly
tax will be levied as applicable to domestic companies.
Reply :
2(23A) defines Foreign Co. as a Co. which is not a domestice
company. domestic Co. as per Sec. 2(22A) means an Indian Co. or any other Co. which
has made arrangements for declaration / payment of dividends within India out of its
income liable ot tax as per IT Act. The definition of Indian Co. as in sec 2(2B) has
not been taken in to account. If the subsidiary Co. of the Foreign Co. has not
made arrangement for declaring / paying dividends within India out of its income liable to
tax in India, it is not a domestic Co.
IF UNDER A NON-COMPETE AGREEMENNT SIGNED PRIOR TO
31-3-2002,THE CONSIDERATION IS PAYABLE FOR NEXT 5 YEARS AS % OF SALES ETC.WILL IT BE
AFFECTED BY THE PROPOSED AMENDMENT IN SEC 28?
Reply :
Non - compete fee received after 1-4-2002 will be charged to tax u/s
28(vii), even if the agreement was entered in to prior to 31-3-2002
1. A CHARITABLE TRUST DONATES AN AMOUNT TO THE
CORPUS OF ANOTHER CHARITABLE TRUST OUT OF ITS CURRENT INCOME,WILL SUCH A DONATION BE
REGARDED AS APPLICATION OF UNCOME,EVEN AFTER THE PROPOSED AMENDMENT IN RECENT FB?
2. IF ACHARITABLE TRUST DONATES SOME AMOUNT OUT OF
THE ACCUMULATION TO ANOTHER CHARITABLE TRUST REGISTERED U/S 12AA, DURING SECOND YEAR
OF THE PERIOD OF ACCUMULATION, WILL IT BE LIABLE TO PAY TAX ON THE SAID DONATION EVEN
THOUGH THE PERIOD OF ACCUMULATION IS NOT OVER?
Reply :
Yes, so long as it is made out of current income.
Under the proposed insertion of explanation to sub section(2) of sec.
11, any amount paid out of accumulated income to another trust or institution shall not be
treated as applied for charitable purposes provisions under subsection (3) will apply and
the donation so made will be deemed to be the income of the second year in which the
donation is made.
