The concept of real income has been departed from at certain places by deeming certain receipts or notional income as income taxable under the Act. Examples are Sec.45(3) and 45(4). However, so far as the constitutionality of Sec.50C is concerned a somewhat similar provision contained in Sec.52(2) was struck down by the Supreme Court which resulted in deletion of that Section. The constitutionality is not free from doubt.

Slump Sale is the sale of a business in its entirety without assigning value to individual assets. The scope of Sec.50C is different. It determines the full value of consideration of a particular asset for the purpose of computing capital gain.

Would Section 50C be applicable to Lease Transactions?

No, Section 50C applies to the transfer of immovable assets. It will not apply to leases.

Section 54EC/54F refers to investment of whole or any part of Capital Gains received or accrued as a result of transfer. However, as per Sec. 50C. consideration is neither received nor accrued Kindly clarify?

U/s.50C the actual consideration may be different than what is adopted for the purpose of computation of capital gain. If, therefore, an assessee wants to avail of the benefits of Sec.54EC/54F, he may have to find additional funds for making investment of capital gain / sale proceeds in specified lands.

Chapter XX-C is abolished with effect from 1-07-2002 whereas, Sec.50C will apply to transactions entered into on or after 1-04-2002. So, for transactions effected between 1-04-2002 and 30-06-2002 what would be the applicable provisions?

Both the provisions will apply. Their scope is different. While one requires clearance before transfer, the other lays down the manner of computing capital gain. There is no conflict between the two.

Whether provisions of Sec. 50C will apply to Capital Gain chargeable under section 45(4)?

No, both are deeming provisions and they will be confined to their respective situations.

If a charitable trust which has applied for accumulation of income for 5 years, 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 he period of accumulation is not over.

Under the proposed insertion of explanation to sub section (2) of section 11, any amount paid out of accumulated income to another trust or institution shall not be treated as applied for charitable purposes. Accordingly the consequences provided under sub section (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

A charitable trust can continue to apply its income of each year for payment to another charitable trust, as what is prohibited is the payment or credit to another trust out of accumulation of income and not the income of the current year. Since the funds of the trust are fungible, the Assessing Officer wants to treat the donation out of the accumulation and does not accept that it is out of current income. How will the donor trust be able to establish its contention? Would you recommend maintenance of some sort of record to establish the nexus of the donation to accumulation or to current income?

So long as the amount donated to another trust or institution does not exceed the available amount out of current years income, there should be no problem. However, as a matter of abundant precautions record may be maintained showing nexus.

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 income, even after the proposed amendment.

Yes, so long as it is made out of current income.

A charitable trust exercises the option under Explanation 1 to Section 11(1) to deem a part of the expenditure incurred in the following year as application of income of the current year on the ground that the trust received donation of Rs.50,000/- during the last week or last day of the financial year, will the trust get the deduction for such expenditure of the next year in the current year as per the option exercised by it?

Exercise of option is for one who does not receive the income in the year in which the income is derived. In your case income was received even though in the last week or the last day. Benefit of next years expenditure should, therefore, not be available.

If the charitable trusts have to apply 100% of the income during the year on its objects, and fails to do so with a short fall of say 15% of the income, such income will have to be accumulated u/s.11(2) and therefore it will have to file Form No.10 for such unspent amount and specify the object of accumulation and also invest the same in specified items, till it is utilised for the object of accumulation. Since it is impossible to apply the income including the income received till the last day of the financial year on the objects, the trust will have to accumulate the balance for several year u/s.11(2) by following the procedure of Trustees Resolution, filing of Form No.10 within the prescribed time and investing such amount every year within the prescribed time limit. Will such a provision not result in endless complications and even dispute regarding the fact whether the donations to other trust are not out of the accumulation but out of current income? Will this be simplification of the law on the subject?

The law is to be applied as it is irrespective of whether it is simple or not.

As a matter of abundant precaution record may be maintained to show nexus between donation to other trusts or institution out of the current income.

If under a non-compete agreement signed prior to 31-03-2002, the consideration is payable for next 5 years as % of sale etc. Will it be affected by the proposed amendment in Section 28?

Ans. The relevant clause (vii) inserted in Section 28 applies in respect of amounts received or receivable after 31-03-2002. Whatever amount is received or was receivable after 31-03-2002 (relevant to assessment year 2003-2004) will be taxable in the relevant assessment year. The position will be different only if the recipient has accounted for the entire income treating it as accrued in the year of agreement. If however, may not be acceptable as it will not be possible to establish that the entire income accrued in that year.

Will it be necessary for all partnership firm to change its partnership deed for claiming interest to partners, even if the present provision in the deed is providing for interest to partners @ 18% or as may be allowable u/s.40(b) of the Act.

It may not be necessary. The deed may provide for any percentage but deduction is limited to the percentage specified in the Act. The earlier admissible percentage of 18% has been reduced to 12%. In case of allowable deduction being less than interest specified under the deed, the problem of double taxation has been taken care of by proviso to clause (v) of Sec. 28 under which the taxable interest income of partner from the firm is to be adjusted to the extent o amount not allowed to be deducted in the case of the firm.

After the proposed amendment to Section 43A how the deduction already taken on the basis of accrual method of accounting will be affected?

The new provision is applicable from the A.Y.2003-2004. Whatever has been done under the law existing prior to this date will not be affected. If in earlier years deduction has been taken on the basis of accrual method, deduction under the substituted provision will be calculated on the basis of last adjusted figure of cost / liability.

The second proviso contained in Explanation to sub-section (2) of section 115JB is amended by replacing clause (i) with a new clause whereby amount withdrawn from reserve created before 1-4-1997, but not out of profits, will not be allowed to be reduced from book profit, if the same is credited to profit and loss account. It is also proposed that any amount withdrawn from reserve / provision created on or after 1-4-1997 and which is credit to profit and loss account will not be deductible from book profit unless book profit in the year of creation of such reserve / provision were increased by amount transferred to such reserve / provision at that time.

Does this mean that a company can, to save MAT, now no longer revalue assets like done by Reliance Industries Ltd. in its last year’s financial statements, and save MAT tax liability ?

Revaluation of assets and creation of reserve out of profit on revaluation will not result in any benefit in liability under MAT when such reserve is written back by credit to P&L A/c. The book profit will not be reduced by that amount.

In case where a shipping company has the aggregate amount transferred to reserve under section 33AC exceeds twice the amount of "paid-up + general reserves share premium account", whether such a company can still be out of MAT tax liability [by way of not adding back to book profit the amount transferred to reserves under section 33AC] if it continues to transfer amounts to such reserves under section 33AC

No, any amount transferred to Reserve account beyond the limit specified under section 33AC will not be a ‘ reserve specified under section 33AC’ and the excess amount will be added back to book profit.

Section 115-JA is retrospectively proposed to be amended by providing that in case depreciation loss is NIL, no amount will be reduced from book profits. The amendment is with effect from assessment year 1997-98. Will the assessment of companies be adversely affected by reopening, etc. if it has claimed reduction of book profits by the amount of business loss where it had no assets and hence no depreciation ?

Past assessments can be rectified to give effect to the retrospective amendment of section 115-JA

The provisions of section 17(2) are amended to provide that valuation of non-monetary perquisite provisions shall not apply where salary does not exceeds Rs.1,00,000/-. Does it mean that an employee can be given a salary of less than Rs.1,00,000/- but massive amount of perquisites, say more than Rs.50,00,000/- ?

Yes, so long as the perquisites are not provided for by way of monetary payment

Sub-section (2) is inserted in section 203 providing for issue of Certificate in relation to section 192(1A). Does it mean that the Certificate will be in addition to Certificate issued in Form 16 ?

The rules in this regard and particulars to be furnished are yet to be prescribed. We may have to wait.

Section 203(2) provides for specifying in the Certificate, the rate at which the tax is paid. Will this be the average rate or the slab rate which will be required to be specified in Certificate ?

The actual rate at which tax has been paid by the employer is required to be specified. This will be the average rate of tax as specified in proposed sub-section (1B) of section 192.