Transcript Income tax Act – Current Issues

INCOME TAX ACT –
CURRENT ISSUES
CA V Ramnath
Coimbatore
[email protected]
Heads of Income

A firm constructed 5 storey building
 First
floor alone consists of shops
 Other 4 floors consist of rooms let out on monthly rental
basis.

Whether the rental income from the building is to
be offered under the head House property or
business
Heads of Income

One house property has twelve residential units. The
assesesee collects rent and maintenance charges
separately
 Whether
such maintenance charges and other charges
collected from the tenant by letting out the property is
to be grossed up with the rent and to be assessed
under income from House property?
 Alternatively, the maintenance charges can be assessed
as income from other sources?
R
J Wood P Ltd – 334 ITR 358 (DEL)
 Sunil Kumar Agarwal 139 TTJ 49 (Lucknow) (UO)
Heads of Income


Mr. A is a trader in shares
He sells a long term capital asset being shares in
company and paid STT also on the transaction
 Can
he claim the benefit of sec 10(38) even though he
is not the investor ?
 Smt
Alka Agarwal – 48 SOT 493 (Del)
House property

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Mr A paid brokerage for soliciting tenant
The brokerage is one month rent – Rs.20000/ Is
it deductible against the income from House
property?
 Aravalli
Engineers P Ltd – 335 ITR 508 (P&H)
House property

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A Hindu undivided family claims the annual value of
one house as self occupied
It would like to avail the benefit of exemption u/s.
23?
 Is
it possible?
 Hariprasad
Bhojnagarwala – 342 ITR 69 Guj FB HC
House property
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Rent advance received from tenants
During the course of assessment, the AO invoked sec
68 and required the assessee to prove the credit.
Assessee was unable to prove that the tenant had
source for making the rent advance.
Therefore, AO would like to make addition u/s. 68?
Business
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In the partnership deed, the remuneration clause
did not quantify the actual amount payable.
It merely reproduced the relevant clause of sec
40(b).
AO is of the view that the firm is not entitled for
claiming the remuneration.
Whether the view of the AO is in accordance with
law?
 The
Asian Marketing – Raj HC - www.itatonline.org
Business

After the death of the partner, lump sum
consideration paid to the widow of the deceased
partner. Is it liable for tax in the hands of the
recipient?
 Mrs
Lakshmi M Aiyer – 142 TTJ 780 (MUM)
Business
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
Assessee being a company owns certain assets.
It has allowed the assets to be used by a firm in
which it is a partner.
Whether the company (partner) can claim
depreciation and insurance premium on the assets
as its expenses?
 Karan
Raghav Exports P Ltd – 196 TAXMAN 504 (Del)
Business

Whether UPS is eligible for depreciation @ 60%
(under the head “Computer”)?
 Orient
HC)
Ceramics and Industries Ltd – 56 DTR 397 (Del
Business

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
Vehicles though registered in the name of the
partners (directors)
Vehicles were used by the firm (company)
The firm (Company) paid the money for acquiring
the vehicle
 Can
the depreciation be allowed in the hands of the
firm (company)?
 Aravali
Finlease Ltd – 341 ITR 282 (GUJ)
Business

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
The assets were purchased in the month of October
2011.
The assets were able to be put to use only in the
month of Dec 2012
The assessee would like to claim the depreciation
for the full year in the F.Y. 2012-13
Business
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A key man insurance policy is taken by the firm in
the name of the partner.
Whether the firm can claim the premium paid as
revenue expenses
In the middle of the policy, when the firm assigns the
policy in favour of the partners, whether the
partner should pay any tax u/s 15, or 28 or 56
 Paramount
IMpex – 13 ITR 374 (trib) Chandigarh
 Binjrajka Steel Tubes Ltd – 136 TTJ 113 (Hyd)
 Rajan Nandha – 249 CTR 141 – Del HC
Business

Assessee firm borrowed loan for purchase of fixed
asset. As it was unable to pay the amount, under OTS,
the loan was settled with principal waiver.
whether the waiver of principle is liable for tax u/s. 41 or
u/s. 28 (iv)
 would it make any difference if the loan is borrowed for
working capital purpose instead of acquiring a capital
asset?
 What would the tax treatment in case the waiver amount is
reduced from the WDV of assets?

Iscaraemaco Regent Ltd – Mad HC – 331 ITR 317
 Logitronics P Ltd – 333 ITR 386 (Del)
 Steel Authority of India Ltd – www.itatonline.org. – Delhi HC

Business
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
Firm paid advance rent for leasing a property.
However, the landlord was unable to provide the
premises and being financially not sound, unable to
repay the advance amount also.
The firm wrote off the advance paid.
 Whether
the advance written off qualifies for
deduction u/s. 37(1)
 Seven
Seas Petroleum Ltd – 14 ITR 21 (Chennai ITAT)
Business

Foreign study expenses of managing partner’s son –
is it allowable as business expenses in the hands of
the firm?
 Ras
Information Technologies P Ltd – 238 CTR 76 (Kar
HC)
 Gournitye Tea & Industries Ltd – Cal HC
 Echjay Forgings Ltd – 328 ITR 286 (Bom)
Business


Expenditure incurred such as flooring partition
wiring false ceiling, duct and electrical wiring laying
network in a lease hold premises for improvement
of the same.
Would it be revenue expenses or capital expenses?
 Amway
India Enterprises – 65 DTR 313 (DEL HC)
Business

A lawyer (being a Professional) underwent heart
surgery. Whether heart surgery expenses are
allowable as business deduction?
 Shanti
Bhushan – Del – 336 ITR 26
Business


An actor while participating in a film shooting in a
jungle, killed an animal and faced criminal
proceedings.
Whether the expenses incurred in such a criminal
proceedings would be allowed against the
professional income?
 Salman
Khan 137 TTJ 15 (Mum)
Business
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The assessee engaged in selling heroine
The narcotics department authorities confiscated the
heroine
The assessee claimed the same as loss
AO disallowed the same under Explanation to sec
37
 DR
T A Quereshi - SC
Business

Firm paid money to traffic police some times as
gratuitous money and some times for violation of
traffic rules – Whether said expenditure is allowed
as deduction?
 Infosys
technologies Ltd – 246 CTR 371 (Kar HC)
 Kranti Road Transport P Ltd – 50 SOT 15 (VISHAKA)
 Neelavathi & Others – 322 ITR 643 (Karn)
Business
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The director of the company was in tour on official
duty
The director was kidnapped and kidnappers
demanded money
Police expressed the inability to trace the director
The company paid money to release the director
The company would like to claim the same as
deduction. Is it allowable?
Business
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
A company has paid sales tax penalty for nonsubmission of returns and interest for delayed
payment of tax.
Also, it had paid penalty for belated submission of
TDS return and interest for the delayed payment of
TDS.
It would like to know whether the same would
qualify for business deduction
 Lachmandas
Mathurdas – 254 ITR 799 (SC)
Business

Assessee partner received over and above his
capital account balance in the partnership firm.
Whether the surplus is taxable in the hands of the
partner?
 Mohanbhai
Pamabhai – 165 ITR 166 (SC)
 Tribhuvandas patel – 236 ITR 515 (SC
 Lingmallu Raghukumar 247 ITR 801 (SC)
Business

The partners are unable to explain the source of
investments made into the partnership. Can there be
addition made in the hands of the firm u/s 68 or in
the hands of the partners’ u/ 69 or in the hands of
both the parties?
 Meghmalhar
Developers 134 ITD 437 (Ahd)
Business



A lady partner of the firm was paid remuneration
well within the limits of sec 40(b).
However, AO would like to invoke the provisions of
sec 40A(2).
Whether the action of the AO is in accordance with
law?
 Munjal
Sales Corporation - SC
Business
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Mr. A is a proprietor of his readymade garment
business
His income from business is Rs.2.5 lacs on the
turnover of Rs.50 lacs
He has commission receipts of Rs.5000/He would like to know whether he has to get his
books audited u/s. 44AB since he has not got the
minimum income specified u/s. 44AD
Business
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M/s. A & Co is a partnership firm.
It is engaged in the business of trading in vegitables
where the turnover during the year is Rs.60 lacs
It has reported a loss of Rs.1.2 lacs
It would like to know whether the audit u/s. 44AB is
necessary since it has not reported the minimum
income as per sec 44AD
Business
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Mr. A has earned income from his trading business
at Rs.7 lacs for a turnover of Rs.50 lacs
He claims that he would offer only 8% of Rs.50 lacs
as his income u/s. 44AD
However, he would like to take credit to his capital
account the entire Rs. 7 lacs
Please comment
Business
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The assessee paid VAT under protest.
Also in appeal, the assessee succeeded and got
refund
However, the VAT authorities filed second appeal
which is pending
The assessee would like to know whether the VAT
refund is to be offered as income or not
Business
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The assessee has taken loan against the FD
Bank agreed to set off the FD interest against the
interest on FD upon maturity
The interest payable and receivable are accounted
under mercantile system
The date of maturity falls after two years
The assessee would like to know the applicability of
sec 43B
Capital Gains
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The assessee sold a vacant land for Rs.40 lacs whose
SVA is Rs.60 lacs.
He had invested the entire net consideration of Rs.40
lacs in acquiring a residential property.
The AO is of the view that the assessee has not invested
the net consideration after applying sec 50C and
therefore only proportionate capital gains would
qualify for the benefit u/s 54F.
Please Comment
Prakash Karnavat – 49 SOT 160 (Jaipur)
 Gowli Mahadevappa – 135 TTJ 489 (Bang)

Capital Gains
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The assessee received the property under partition in
the financial year 2010-11.
He sold the property in the same financial year
The HUF acquired the property before 1981.
The AO is of the view that the indexation would be
applicable only from the financial year in which the
assessee obtained the property from the HUF.
Whether the view of the AO is in accordance with law?
Manjula p shah – 16 Taxman 42 (Bom) www.itatonline.org
 Shakuntala Somani – 50 SOT 629 (Indore)

Capital Gains
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A person having two residential properties one
being used for his own residence and another being
used for his own profession.
He had sold a vacant land and wanted to invest the
entire amount in investing another residential
property
Whether this investment would qualify for benefit
u/s. 54F
 Arjun
Kumar – 71 TTJ 810 (DEL)
Capital Gains
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The assessee sold one residential building and out
of the sale consideration, purchased 4 units (flats).
One in the name of himself, other in his wife’s name,
another in his son’s name and yet another in his
daughter’s name.
He would like to know whether he can claim the
benefit of exemption u/s 54 in respect of all the
four flats?
 Anand
Basappa – 309 ITR 329 (Kar)
 K.G.Rukminiamma – 331 ITR 211 (Kar)
Capital Gains
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The assessee’s land was auctioned by the banker for nonpayment of bank dues.
Out of the proceeds of Rs.20 lacs, the loan due of Rs.18
lacs was set off and the balance of Rs.2 lacs was given.
The indexed cost is only Rs.1 lac.
The assessee would like to claim the loan repayment as
deduction.
Would there be any difference, if the loan was taken by his
father and upon the father’s death the assessee got this
property and loan?


RM Arunachalam – 227 ITR 222 (SC)
Attili N Rao – 252 ITR 880 (SC)
Capital Gains
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The partner invests a building as his capital contribution
at a book value of Rs.5 lacs whose SVA value is Rs.50
lacs.
He would like to know whether the provisions of sec
50C would apply.
He has also transferred the loan borrowed for
construction of building having a balance outstanding
of Rs.4 lacs.
Assuming sec 50C is not applicable, he would like to
know whether the net amount credited to his account,
(i.e., Rs.1 lac) alone can be taken as consideration u/s
45(3)
Capital Gains
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
The assessee firm was dissolved.
The business was taken over as sole proprietorship
by one of its partners.
The partner contends that the value recorded in the
books of the firm alone is to be considered for
ascertaining the capital gains in the hands of the
firm.
 Om
Namah Shivay Builders and Developers – 43 SOT
397 (Mum)
Capital Gains
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The assessee retired from the firm and in settlement
of his account, he was given one piece of vacant
land by the firm.
The firm recorded the transaction at book value.
The firm contends that the provisions of sec 45(4)
would not apply because there is no dissolution of
firm and it is only a retirement of a partner from
the firm.
A
N Naik Associates – 265 ITR 346 (Bom)
 Vijayalakshmi Metal Industries – 256 ITR 540 (Mad)
Capital Gains
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Mr. A has sold a vacant land for Rs.120 lacs
(guideline value is also Rs.120 Lacs) on 15-112012.
The Long term Capital gain works out to Rs.100 lacs
He has invested in NHAI bonds Rs.50 lacs on
15.3.2013 and another Rs.50 Lacs on 15.4.2013
He would like to claim the benefit of sec 54EC for
Rs.1 crore
 Raj
Kumar Jain & Sons – Jaipur – www.itatonline.org
Capital Gains
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Mr. A sold some depreciable assets for Rs.50 lacs
The short term capital gain thereon worked out to
Rs.45 Lacs (since block ceased to exist)
He had invested Rs.45 Lacs in REC Bonds within 6
months from the date of transfer of the depreciable
assets
He would like to claim the benefit of sec 54EC.
 ACE
Builders – Bom HC
Development agreement - Issues
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When does the capital gain arise in the hands of
the land owner?
Whether owner can postpone the tax impact?
Whether owner can reduce the tax impact?
What would be the tax treatment, when the
developer gives rent for the alternative
accommodation given to the land lord
Who has to deduct tax in respect of rent so paid
Development agreement - Issues




Whether part of the consideration is paid by the
developer in cash?
What would be the case when the developer
follows cash basis of accounting
When the developer lets out the unsold flats, under
which head the same has to be taxed
Whether sec 194IA would apply to the money
received by the developer from the prospective
purchasers?
Development agreement - Issues



What would be the consequences if the developer
sells the land at a consideration less than its
guideline value
What would be the consequences if the land lord
sells the UDS at less than its guideline value
What would be the consequences in the hands of
the purchasers
Capital Gains

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Can the assessee require the AO to refer the
property to VO even though the buyer has asked
for revision of the guideline value in the stamp duty
proceedings?
Can the buyer after paying tax on the difference
between the actual consideration and guideline
value as the cost for subsequent transactions?
Can the provisions of sec 56(2) be applicable for
rural agricultural lands?
Other Sources

The assessee has got some income from other
sources. He wanted to set off the brought forward
depreciation loss against the income from other
sources. Can he claim so?
 Virmani
Industries Ltd – 216 ITR 607 (SC)
Other Sources

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
State government has given the incentive coupon
while contributing to PPF.
The assessee’s coupon was awarded prize money of
1 KG gold.
Is it a lottery income liable for tax @ 30%
 Thilak
(SC))
Raj Karla – 249 CTR 205 (P & H) & 272 ITR 534
Other Sources
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The assessee has borrowed Rs.10 lacs for interest @
12% PA.
He has invested the entire sum in the bonds of a
company.
However, the company has not paid any interest during
a particular year.
The assessee follows cash basis of accounting.
He would like to claim the loss of Rs1.20 lacs (being
interest paid) against his salary income

Rajendra Prasad Moody - 115 ITR 519 (SC)
Other Sources


The assessee gifted the property on his engagement
function to his fiancée.
He would like to know whether the clubbing
provisions would apply on the income earned from
this property after his marriage.
 Philip
John Plasket Thomas – 49 ITR 97 (SC)
Thank you