1. A charitable society, which is an association of members, is registered with the Charity Commissioner, but has not been registered under section 12A/12AA. It has surrendered its tenancy in an office premises for ₹ 75 lakh, which has been held by it since 1970, and is buying a new office premises on ownership basis for ₹80 lakh. Is the capital gains on such surrender chargeable to tax?

Ans. The surrender of tenancy rights in respect of premises used as an office gives rise to long term capital gains, where the cost of the tenancy rights is to be taken as nil under section 55(2)(a). Such capital gains is not exempt under section 11(1A) on account of reinvestment in another capital asset, as the society is not entitled to exemption under section 11, since it is not registered under section 12A/12AA. The society is also not entitled to exemption under sections 54 or 54F, as the new property being acquired is not a residential house. Tenancy rights is also not part of the block of assets of Non-residential buildings, in which block the new office premises would fall. Therefore, the entire sales proceeds of the tenancy rights would be subject to long term capital gains tax.

2. An Indian citizen, A, is working as crew of a ship operating worldwide, owned by a foreign shipping company and sailing under a foreign flag. He left India during the financial year 2020-21 on the ship on a new contract, and was in India for 20 days during the year. He anticipates that he will not be present in any other country for more than 15 days during the financial year, and will therefore not be a tax resident of any country during the year. He has income in India only by way of interest on NRO deposits of ₹12 lakh, and on NRE deposits of ₹15 lakh. He seeks advice on whether his salary as the crew of the ship for financial year 2020-21, which would be directly credited to his NRE account in India, would be taxable in India? Also, what would be the position if his interest on NRO deposits was more than ₹ 15 lakh during the year?

Ans. Under section 6(1) of the Income-tax Act, 1961, since A left India for the purposes of employment during the year, and was in India for less than 182 days during the year, he would be regarded as a person not resident in India.

The Finance Act 2020 has however inserted a new sub-section (1A) to section 6, which overrides sub-section (1), and provides that an Indian citizen, having total income, other than income from foreign sources, exceeding ₹ 15 lakh during the previous year, is deemed to be resident in India for that year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

In this case, A is an Indian citizen and not a resident of any other country. Though his gross income from Indian sources is ₹ 27 lakhs, out of such income, ₹ 15 lakh is exempt from tax under section 10(4A), and therefore his total income from Indian sources is only ₹ 12 lakh. His salary as crew of the foreign ship is from foreign sources, and is therefore not to be considered for this purpose. Therefore, this provision also would not apply to him, and he would be regarded as a person not resident in India.

In case his interest on NRO deposits was more than ₹ 15 lakh, assuming that he has not claimed any deduction under Chapter VI-A by which his total income for Indian tax purposes has reduced below ₹ 15 lakh, the total income would be more than ₹ 15 lakh. In such a situation, A would be regarded as a person resident in India by virtue of section 6(1A). He would however be a person resident but not ordinarily resident in India, as section 6(3), amended by the Finance Act 2020 provides that such a person deemed to be a resident in India under section 6(1A) would be a person resident but not ordinarily resident in India.

In either case, whether a non-resident or a resident but not ordinarily resident, all income received in India is taxable. The salary directly credited to A’s NRE account may be regarded as received in India. Fortunately, the CBDT has clarified vide Circular No 13 of 2017, dated 11.4.2017 that salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer. Therefore, such salary of the seafarer for work done on the foreign ship outside India will not be taxable in India.

3. A company has over 10,000 employees working all over India. Due to the lockdown, all the offices are closed since 24th March 2020, and are expected to remain closed till 3rd May 2020. The employer has therefore not been able to get declaration from the employees regarding their proposed investments, and whether they intend to opt for the concessional tax rates under section 115BAC. The salaries for April 2020 are to be paid on 30th April 2020. How should the employer compute the estimated tax liability of the employees?

Ans. It is well settled law that the employer should make a best estimate of the tax liability of the employees, given the relevant information that he is in his possession. Due to the lockdown, the employer has no information other than that of salary income, details of Provident Fund contributions of employees, and details of tax saving investments made in the past years by the employees. The employer would therefore be justified in estimating the investments which the employee would make in the current year, pending receipt of declarations from employees after the lockdown is lifted. The estimates can be revised after declarations are received.

The CBDT has issued a circular C1 of 2020 dated 13th April 2020, clarifying that an employee intending to avail of the concessional rate under section 115BAC has to intimate the employer of such intention in each financial year. The employer can then make deduction and compute the tax liability in accordance with section 115BAC. As per the circular, if such intimation is not made by the employee, the employer shall deduct TDS without considering section 115BAC. The employer may not be able to judge whether section 115BAC is advantageous to the employee or not, as the employer would not have details of house property loss of the employee, investments being made under section 80C, mediclaim premium under section 80D, donations eligible under section 80G, etc. Since the employer would not be in a position to judge whether the employee will opt for section 115BAC or not, he would need to compute the tax liability under normal provisions, ignoring section 115BAC.