Query No. 1 : (Long Term Capital Gains on sale of shares etc.)
What shall be the tax implications (LTCG), on sale of shares:
a) Purchased / acquired by gift / allotment / purchase before October 1, 2004 where no STT was paid (it was not through a stock exchange).
b) Acquired before October 1, 2004 by purchase through broker from recognized stock exchange. No STT was paid.
c) Shares acquired after October 1, 2004 through off market purchase or gift but no STT was paid.
d) Purchase / acquisition before October 1, 2004 through IPO’s / FPOs/ Bonus issue / Right issue by company are eligible for exemption u/s. 10(38) though no STT was paid as there was no share transaction). Sale of shares shall invite LTCG after availing indexation benefit.
Section 10 of the Income-tax Act, 1961 provides that:
“In computing the total income of previous year of any person, any income falling within any of the following clauses shall not included:
(38) any income arising from the transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of business trust where:
a) the transaction of sale of such equity share or a unit is entered into on or after the date on which chapter VII of the Finance (No. 2) Act, 2004 comes into force, and
b) such transaction is chargeable to securities transaction tax under that chapter’
Provided that the income by way of long term capital gain of a company shall be taken into account in computing the book profits and income tax payable under section 115JB;
Provided also that nothing contained in sub-clause (b) shall apply to a transaction undertaken on a recognised stock exchange located in any International Financial Service Centre and where the consideration for such transaction is paid or payable in foreign currency.
Provided also that nothing contained in this clause shall apply to any income arising from the transfer of long term capital assets, being an equity share in a company, if the transaction of acquisition other than the acquisition notified by the Central Government in this behalf, of such equity share is entered into on or after 1st day of October, 2004 and such transaction is not chargeable to security transaction tax under chapter VII of the Finance (No. 2) Act, 2004.”
Thus, section 10(38) exempts any long term capital gains from income tax where securities transaction tax is chargeable under chapter VII of the Finance (No. 2) Act, 2004. Section 98 of the Finance (No. 2) Act, 2004 provides for charging of securities transaction tax on sale of an equity share in a company or a unit of an equity oriented fund or a unit of business trust, where the transaction of such sale is entered into a recognised stock exchange.
So in queries (a) and (b) purchased / acquired before October 1, 2004, the transaction would be chargeable as LTCG @ 20%. In case of query (c) purchased before October 1, 2004 off market where no STT was paid would also be chargeable as LTCG @ 20%. In case of query (d) from the facts, it is liable as LTCG @ 20%. However, as per explanatory memorandum, it has been indicated that purchase through IPO, FPO bonus or right issue by a listed company, acquisition by non-resident as per FDI policy etc., may be exempt, which means others are liable to tax.
Query No. 2: (wrong quoting of PAN)
In sale deed of immovable property PAN was wrongly mentioned of Individual instead of HUF. Therefore purchaser has deducted the tax and paid to Central Government on the basis PAN supplied of Individual. The property was all along assessed in the hands of HUF and rent received from the said property was also assessed in the hands of HUF. How to rectify?
From the facts it is clear that purchaser has deducted tax on PAN of Individual and paid to the Government. Therefore, seller should request the purchaser to revise his TDS return by quoting correct PAN of HUF. So in Form 26AS the TDS amount would reflect in the name of HUF.
Query No. 3: (Tuition Fees – Whether covered u/s. 44ADA)
Whether “tuition fees” is an income from business, profession or vocation and whether such income is covered u/s. 44ADA?
The heading of section 44ADA is “Special provision for computing profits and gains of profession on presumptive basis”. Section 2(36) defines “Profession” includes vocation So, ibid, section has defined profession very widely. The word “vocation” has been defined in Corpus Juris secundm, as calling, occupation or trade one’s regular calling or business, a calling or occupation or business in which one engages more or less regularly in the activity upon which a person spends the major portion of his time and out of which he makes his living, that to which one is called by some special fitness or sense of duty. But section 44ADA is applicable only to a person who is engaged in profession referred to in section 44AA.
Section 44AA reads as:
“Every person carrying on legal, medical, engineering or architectural profession or the profession of accounting or technical consultancy or interior decoration or any other profession as is notified by the Board in the Official Gazette shall keep and maintain such books of account and other documents as may enable the Assessing Officer to compute his total income in accordance with the provisions of this Act”.
Vide various notifications additional professions would cover:
I. “Profession specified for the purpose of section 44AA – In exercise of the powers conferred by sub-section (1) of section 44AA of the Income-tax Act, 1961 (43 of 1961) the Central Board of Direct Taxes, hereby notifies for the purposes of the said sub-section the following professions, namely –
(a) Profession of authorised representative; and
(b) The profession of film artist.
Explanation – in this notification –
(a) “Authorised representative” means a person, who represents any other person, on payment of any fee or remuneration, before any Tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include any employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy:
(b) “film artist” means any person engaged in his professional capacity in the production of a cinematograph film, whether produced by him or by any other person as –
(i) An actor
(ii) A cameraman
(iii) A director, including an assistant director
(iv) A music director, including an assistant art director
(v) An art director, including an assistant art director
(vi) A dance director, including an assistant dance director;
(vii) An editor
(viii) A singer
(ix) A lyricist
(x) A story writer
(xi) A screen play writer
(xii) A dialogue writer; and
(xiii) A dress designer
II, “In exercise of the powers conferred by sub- section (1) of section 44AA of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby notifies the profession of Company Secretaries for the purpose of the said section.
Explanation – In this notification, ‘Company Secretary’ means a person who is a member of the Institute of Company Secretaries of India in practice within the meaning of sub-section (2) of section 2 of the Company Secretaries Act, 1980 (56 of 1980).
III. In exercise of the powers conferred by sub- section (1) of section 44AA of the Income-tax Act 1961, the Central Board of Direct Taxes hereby notifies the profession of information technology for the purposes of the said sub section.”
Thus, though section 2(36) profession covers vocation, the vocation is not covered under section 44ADA and therefore “tuition fee”
would not be covered under section 44ADA of the Act.
Note: Please send your queries relating to Direct, Indirect & International Taxation, Accounting & Auditing Standards and Company Law, FEMA etc., to AIFTP, having interest to the Members.