Mukesh Patel.in
practical tax & investment planning online
international tax expert / columnist / author / speaker

LIBERAL v/s. LITERAL INTERPRETATIONS

Courts hold that beneficial provisions of Sec. 54EC must be interpreted liberally & equity should prevail over injustice!

Section 54EC of the Income-tax Act provides for exemption of taxable long term capital gains (LTCG) arising from the transfer of an asset, to the extent the amount of such gains are invested in notified bonds within a period of six months from the date of transfer. Notified for this purpose are the three year bonds issued by National Highways Authority of India (NHAI) and Rural Electrification Corporation (REC).

Courts and Tribunals have been liberal in their judicial interpretations while dealing with issues relating to the provisions of Section 54EC holding that “a beneficial section has to be construed liberally, having due regard to the object which it intends to serve.” The following two decisions in this regard merit a careful reading:

INVESTMENT OF ADVANCE RECEIVED

In the case of ‘Bhikhulal Chandak (HUF) vs. ITO’ [2009] (126 TTJ 545), the ITAT Nagpur Bench had to consider a situation where the taxpayer HUF had received sale consideration in advance, even before the execution of the registered sale deed of the property and the money received was soon deposited in the prescribed bonds under Section 54EC. On the basis of the same, the HUF exemption in respect of taxable long term capital gains. The Commissioner, assuming jurisdiction under Section 263, held that exemption under Section 54EC was not available to the taxpayer, as the investment in the bonds was made before the execution of the sale deed instead of within six months from the date of transfer of the property. The ITAT held that where the taxpayer had deposited the advance received under the agreement for sale in the prescribed bonds under Section 54EC, the strict interpretation as sought to be adopted by the Commissioner was not justified and the taxpayer could not be denied the benefit of exemption on the technical count that such investment was required to be made only within a period of six months after the date of sale. (more…)

HUF GIFTS NOW FREE FROM TAX!

As per the 2012 amendment effective from 1st October, 2009 in case of an HUF, its member shall be treated as a relative!

                 The scope of definition of ‘income’ u/s. 2(24) was widened by the Finance Act, 2004 by providing that ‘income’ would now include any sum referred to in Section 56(2)(v). Section 56(2)(v) was introduced to provide that, “where any sum of money exceeding Rs.25,000 is received without consideration by an Individual or HUF from any person on or after the 1st September, 2004, the whole of such sum shall be chargeable to tax as Income from Other Sources.” However, with effect from 1st April, 2006, it came to be provided vide Section 56(2)(vi) that such receipts from one or more persons aggregating to more than Rs.50,000 in a financial year shall be treated as income in the hands of the recipient individual or HUF.

                 In the above regard, exceptions have been carved out in respect of any sum of money received from any relative (as defined for purpose of this section) or on the occasion of the marriage of the individual or under a will or by way of inheritance or in contemplation of death of the payer or receipts from any local authority as defined in Section 10(20) or fund, foundation, university, educational institution, hospital or other medical institution referred to under Section 10(23C) or receipt from any trust or institution registered under Section 12AA and accordingly such receipts will be exempt from tax. (more…)

IT’S TIME FOR YOUR TAX RETURNS!

You need to know atleast this much on mandatory E-filing & filing returns even where no tax is payable!

              Starting from Companies in Assessment Year 2006-07 and Partnership Firms liable to tax audit under Section 44AB in Assessment Year 2007-08, Proprietorships of Individuals and HUFs liable to tax audit from Assessment Year 2010-11, have all been mandatorily required to file their income-tax returns electronically.

MANDATORY E-FILING FROM AY 2012-13

              With effect from Assessment Year 2012-13, mandatory filing of E-returns has been extended for all Individuals and HUF taxpayers having taxable income of Rs.10 lakhs or more.

               Moreover, a resident Individual or HUF (other than not ordinarily resident in India) shall be required to file E-return, if such Individual or HUF has assets (including financial interest in any entity) located outside India or has signing authority in any account located outside India. This obligation for mandatory e-filing of the Income-tax Return will be required to be discharged, even where the taxpayer having such assets outside India does not have any taxable income in India. It needs to be noted that for this purpose, Non-Residents or Residents but Not Ordinarily Residents, within the meaning of Section 6 of the Income-tax Act, will not be required to declare any of their overseas assets in their Indian Tax Returns. (more…)

TAX INCENTIVES FOR AUTHORS!

While Rs.3 lakhs of specified royalty is exempt, an adhoc deduction of upto Rs.5,000 is also available out of honorarium!

             As per the provisions of Section 80QQB, for purposes of computing the taxable income in case of an author, who is an individual resident in India, a special deduction of upto Rs.3,00,000 is available in respect of specified royalty income earned by him.

             Such specified royalty income should be received in respect of any book authored by the individual, which is a work of literary, artistic or scientific nature. However, for the above purposes, a book shall not include brochures, commentaries, diaries, guides, journals, magazines, newspapers, pamphlets, text-books for school, tracts and other publications of similar nature by whatever name called. (more…)

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