What Are The Capital Gains Implications Of Redevelopment Of Property?
| QUERY: | In case of redevelopment of property the consideration takes in the form of corpus, which is a real cash inflow and fair market value of the property to be developed, which is a deemed consideration for the purpose of exchange. Thus, there is exchange of property. Now, the question is in which year capital gain arises and when can exemption be claimed either under Section 54 or under section 54F? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 2(47), 54, 54F |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | capital gains, housing project, redevelopment |
In case of development of property the capital gain arises as per terms of the agreement. Generally, the agreement provides that the developer has right to enter and construct on the land of owner and owner parts with land only on receipt of certain portion of building to be constructed
Posted in Income-tax
How To Compute Cost Of Indexation For Legal Heirs?
| QUERY: | A person acquired inherited property before Independence. Thereafter, he had obtained, the court order for legal heirship in the Financial Year 1991/92, At that time stamp duty was paid amounting to Rs. 1,98,840/-. Can it be considered as cost for indexation? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 49(1) |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | cost of acquisition, indexation, inherited property |
Section 49(1) provides that where the capital asset acquired by an assessee by way of inheritance, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it
Posted in Income-tax
Can Depreciation As Per Companies Act Be Based On Useful Life Of Asset?
| QUERY: | As per Schedule II of the Companies Act, 2013 the useful life of Plant and Machinery and in generation of power is 40 years, but as per the company, useful life is much less. What the company should do? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | Schedule II of the Companies Act |
| GENRE: | Company Law |
| CATCH WORDS: | depreciation, plant and machinery, useful life |
Posted in Company Law
Do Corporate Social Responsibility (CSR) Expenses Have To Be Provided On Accrual Basis?
| QUERY: | Whether it is necessary to provide (Corporate Social Responsibility) CSR expenses in the books of account on accrual basis, considering AS–29 "Provisions, Contingent Liabilities and Contingent Assets"? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | Section 128 of the Companies Act |
| GENRE: | Company Law |
| CATCH WORDS: | Accrual, Corporate Social Responsibility, Disclosure of Accounting Policies |
Section 128 of the Companies Act, 2013 mandates every company to maintain its books of account on accrual basis. As per AS-1 "Disclosure of Accounting Policies" in accrual basis cost and revenue are accrued that is recognised as they are incurred or earned and recorded in the financial statements of the periods to which they relate
Posted in Company Law
Will Non-Claim Of Cenvat Credit By A Charitable Trust Result In Withdrawal Of S. 11 Exemption?
| QUERY: | (a) As we are charitable organisation / trust involved in education related activities. We are paying service tax on the fees collected from students. However, no Cenvat on input services is available while making payment of service tax as the head of organisation is of strong opinion that it will invite unnecessary audit queries and attention from the service tax department. The Cenvat credit for F.Y. 2012-13 works out to around Rs. 20,00,000/-. Section 13 of the Income- tax Act, 1961 provides for protection of property of the Trust and hence not claiming Cenvat of Rs. 20,00,000/- is a violation of the section? (b) In charitable organisation, the trustees have given full authority to Director General and consequently Director General is also very vigilant in sanctioning any payments. Out of abandon caution and moral, ethical responsibility, Director General would like that payment made to him or his relative should be approved by the trustees. Whether his contention is right? (c) A charitable trust involved in medical related facilities have received part income tax refund from department and that also without interest. The head of the organization is not in favour of writing a letter asking for part refund as well as interest on refund fearing any harassment from Income-tax Department. Whether such stand would invite section 13 of the Income tax Act, 1961? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 11, 13, 2(15) |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | charitable purpose, withdrawal of exemption |
In view of the above, if CENVAT credit of Rs. 20/- lakhs or part of the income tax refund or interest on the said refund not claimed by the Trust, the trustee/s would be liable under section 36A of the Bombay Public Trust Act, 1950 for not protecting the property of the trust. However, the trust can not lose the exemption under section 3 of the Act as the amount is receivable from the Government
Posted in Income-tax
What Is The Impact Of The Amendment To S. 2(15) For Charitable Trusts?
| QUERY: | Clause 3 of Finance Bill 2015 proposes amendment to section 2(15) of Income-tax Act, 1961 wherein certain proposals are being incorporated to restrict the activities of Charitable Trusts rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration. What is the impact of such proposal? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 2(15) |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | charitable purpose |
The advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity
Posted in Income-tax
Can An Existing Firm Claim Deduction u/s 35AD For Set Up Of New Hospital?
| QUERY: | The assessee is a partnership firm carrying on medical profession. At present it is carrying on Gynic Branch only for the last several years. It decided to set up 200 bedded multi-specialty hospital and accordingly started the project in May, 2012 under the same partnership firm as a separate unit in order to avail under section 35AD @ 150% of eligible capital expenditure: (a) Whether this unit can claim deduction under this section though the place of business and the nature of services will be different? No old machinery etc. will be transferred to new building/unit. (b) Whether the income of both the units owned by the firm will be consolidated for the purpose of applicability of section 115JC or separate treatment? (c) Can there be any difficulty to claim deduction under section 35AD in case if old unit (Gynic) is also shifted to new Hospital? The new unit may start operation by April-May, 2015. |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 115JC, 35AD |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | deduction u/s 35AD, new unit, partnership firm |
Yes, the partnership firm can claim deduction under section 35AD @ 150% on capital expenditure incurred for setting up and operating hospital anywhere in India with more than 100 beds for patients
Posted in Income-tax
What Is The Law Regarding Impartible Estate Of HUF Property?
| QUERY: | What is the Law laid down by Hon. Supreme Court in respect of impartible estate of HUF property? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | Section 6 of the Hindu Succession Act 1956 |
| GENRE: | Hindu Law |
| CATCH WORDS: | Hindu Law, HUF, impartible estate |
an estate, which is impartible by custom, cannot be said to be the separate or exclusive property of the holder of the estate. If the holder has got the estate as an ancestral estate and he is succeeded to it by primogeniture, it will be part of the joint estate of the undivided Hindu family
Posted in Allied Laws
When Does A Transfer Take Place In An Agreement For Sale Of Immovable Property For Capital Gains Purposes?
| QUERY: | 'P' had to sold her property in order to finance her daughter's medical expenses. The agreement for sale was entered for Rs. 50/- lakh. She received only Rs. 35/- lakh due to dispute with the buyer. No possession of the property was given. She does not have money to invest in order to claim exemption u/s. 54. The AO passed the order levying tax on Rs. 50/- lakh. Whether AO is right? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 2(47), 45, 54 |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | capital gains, transfer |
In this case transfer is not complete, because of property has not been given and therefore there is no question of investing in another house to claim exemption under section 54
Posted in Income-tax
Can Sale Of Land & Building Be Split Into Long-Term & Short-Term Capital Gains?
| QUERY: | 'A' has purchased a plot in March, 2010 for Rs. 10/- lakh and spent Rs. 5/- lakh for construction during F.Y. 2011-12, and Rs. 5/- lakh during the F. Y. 2012-13. He sold the entire house in December, 2014 for Rs. 50 /- lakh Whether it is long-term or short-term gain? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 2(29A), 2(42A) |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | capital gains, long-term capital gains, short-term capital gains |
Section 2(29A) defines "Long term capital asset" which means a capital asset which is not a short term capital asset. Section 2 (42A) defines "Short term capital asset" which means a capital asset held by an assessee for not more than thirty six months, other than listed shares. In that case, a period of not more than the twelve months to be considered for short term capital asset
Can Legal Heir Claim Exemption From Capital Gains For New House U/s 54?
| QUERY: | The assessee sold residential house and planned to construct a new house for claiming exemption u/s. 54. The assessee expired in April, 2014. Can legal heir who has to file Return of Income can claim benefit u/s. 54 of the Act, and how? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 54 |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | capital gains, exemption, residential house |
Thus, it is clear from the above judgments that legal heir steps in the shoes of deceased and entitled for deduction under section 54 of the Act.
Posted in Income-tax
Can TDS Not Paid To Govt By Deductor Be Recovered From The Deductee?
| QUERY: | A demand has been raised on 'X' for the short credit in 26AS in respect of TDS deducted by the deductor but not paid to the Government. Whether 'X' is liable to pay the demand. |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 205, 26AS |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | Recovery, TDS Default |
Complete machinery is provided under the Act for recovery of TDS from the person who has deducted such tax at source and the Revenue was barred from recovery of the amount from the person from whose income tax has been deducted at source
Posted in Income-tax
If Stamp Duty Value S. 50C Is Invested In New House Is S. 54F Exemption Available?
| QUERY: | A flat was sold. The AO adopted stamp duty value. The assessee invested full stamp duty value in another flat. Whether the assessee is entitled for deduction under section 54F? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | CA. H. N. Motiwalla |
| SECTION(S): | 54F |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | capital gains, exemption, residential house |
where capital gain is assessed on notional basis under section 50C, whatever amount is invested in new residential house within prescribed period under section 54F would get benefit of deduction irrespective of the fact that funds from other sources are utilised for new residential house
Posted in Income-tax
We have made a capital profit of Rs. 10 crores. Can we exclude it from MAT book profits for s. 115JB?
| QUERY: | We have made a capital profit of Rs. 10 crores from sale of our property. We have been advised that the profits being capital in nature can be directly credited to the capital reserves account in the balance sheet and need not be routed through the P & L A/c. As the profits are not a part of the P&L A/c, can we avoid paying MAT book profits u/s 115JB? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | Editorial Staff |
| SECTION(S): | 115JB |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | Book Profits, MAT |
No! Even if capital profits are credited to the capital reserves a/c in the balance sheet, they have to be added to the "book profits" for purposes of s. 115JB.
Posted in Income-tax
I borrowed funds to buy a new house u/s 54. Will the s. 54 exemption be denied to me?
| QUERY: | I sold my residential property and made a long-term capital gain of Rs. 50 lakhs. I used the sale proceeds to purchase a commercial gala. Subsequently, within two years of sale of the residential property, I purchased another residential property by borrowing funds from the bank and relatives. Can I claim that the long-term capital gain is exempt u/s 54 even though the sale proceeds of the old house were not used for purchase of the new house? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | Editorial Staff |
| SECTION(S): | 54 |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | capital gains, exemption, residential house |
No! The only requirement for availing deduction u/s 54 is that the new residential house must be purchased or constructed within the period specified in the section. The source of funds is irrelevant.
Posted in Income-tax
Are the sums offered by the builder for redevelopment of our co-op hsg society taxable?
| QUERY: | We have been approached by a builder for the redevelopment of our building. He says he will demolish parts of the building and reconstruct with more area. The society will be paid Rs. 1 crore while the members will be paid Rs. 25 lakhs each. He will retain a part of the area as his profit. Are the said sums chargeable to tax in the hands of the society and members? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | Editorial Staff |
| SECTION(S): | 45, 48 |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | capital gains, housing project, redevelopment |
No. If no 'cost of acquisition' is attributable to the development rights, the gains arising on their transfer are not assessable in either the hands of the society or in the hands of the members.
Posted in Income-tax
If I deal in shares, will my gains on shares held for investment purposes become business profits?
| QUERY: | I am holding some shares for investment purposes and other shares for trading. I have made gains from the investment shares. Is the AO correct in treating the gains as business income? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | Editorial Staff |
| SECTION(S): | 28, 45, 48 |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | business profits, capital gains, shares, stock-in-trade |
No! One has to be careful to ensure that there is a proper segregation of the shares held on investment account from the shares held on trading account. The investment shares must be valued at cost while the trading shares can be valued at market price if that is lower.
Posted in Income-tax
Am I entitled to demand the assessment records of third parties under RTI?
| QUERY: | I am interested in seeing the assessment records of certain third parties. Can I call for the same under the Right to Information Act? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | Editorial Staff |
| SECTION(S): | RTI Act |
| GENRE: | RTI Act |
| CATCH WORDS: | assessment records, Right to Information Act, third parties |
Yes! As per the recent controversial judgement of the Chief Information Commissioner in Rakesh Kumar Gupta's case.
Posted in RTI Act
If we introduce stock-in-trade as capital contribution into a firm, are we taxable?
| QUERY: | We are carrying on real estate business and hold land at stock-in-trade. The land cost us Rs. 50 lakhs. It is worth Rs. 2 crores today. We propose to revalue the land at its market value in the books of account and credit Rs. 1.50 crores to the P & L A/c. We shall introduce the land as our capital contribution in a firm in which we will become partners. The firm will credit our capital account by Rs. 2 crores. Are we taxable on the difference between Rs. 50 lakhs and Rs. 2 crores? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | Editorial Staff |
| SECTION(S): | 45(3) |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | capital contribution, capital gains, partnership firm |
Yes! As per the judgement of the majority in the Special Bench in DLF Universal vs. JCIT, stock-in-trade gets converted into a capital asset at the point of introduction into the firm and attracts s. 45(3).
Posted in Income-tax
One of our factories is shut for more than 2 years with no operations. Can we still claim depreciation?
| QUERY: | We have two factories, one at Bombay and the other at Delhi. The factory at Bombay is operational. However, the factory at Delhi has been shut for two years with no activity. Are we entitled to claim depreciation on the assets installed there? |
| ANSWER: | Click here to read the full answer of the expert |
| EXPERT: | Editorial Staff |
| SECTION(S): | 32 |
| GENRE: | Taxation (Domestic) |
| CATCH WORDS: | block of assets, depreciation, user of assets |
Yes! You are entitled to claim depreciation even on assets that are not used provided they are part of a "block of assets" and the block has been used during the year. The user of the "block" is important and not that of individual assets
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