Q.1 Interest u/s. 24(b)

1. An assessee had borrowed sum from Bank for purchase of flat. He paid full consideration to the builders and get the booking letter for the said Flat No. in the proposed building. Accordingly, he took Bank loan for the purchase of said flat. The entire loan amount was remitted to builder by Bank. Please enlighten whether the deduction for interest u/s. 24 and for repayment u/s. 80C can be admissible even if the possession of flat will be given after 2 years.
    

2. In case of booking of Flat / House with State Housing Board where in payment of instalment start; i.e., say from 1998 but the house was delivered on 2006. What should be the position about:-

1. Deposit of instalments on this Flat/ House before possession (section 88/80C)
    

2. Indexation on sale in 2009 (LTCG). Instalment payment from 1999 to 2006 till delivery of possession will be considered for indexation from the date of payment or not?

Ans. While computing income from house property, section 24(b) of the Act provides for deduction on account of interest payable on amount borrowed for acquiring / constructing the house property. Such interest would be deductible only from the year when income is chargeable to tax in respect of the said property. The deduction shall be restricted to the amount payable or Rs. 30,000/- whichever is lower. Deduction up to Rs. 1,50,000/- is admissible if the borrowing is on or after 1-4-1999 and construction is completed within three years from the end of the financial year in which capital was borrowed. In the instant case, the capital has been borrowed in 1998 and house has been delivered after contruction in 2006. Hence, it would fall in the first proviso; i.e., up to Rs. 30,000/- only. The querist shall be further entitled to deduction in respect of interest in respect of period prior to the previous year in which the property has been constructed and such amount would be allowable in equal instalments for the previous year in which constructed and for each of the four immediately succeeding previous years. There is rider to such deduction that such amount would be reduced by any part thereof allowed as deduction under any other provision of the Act. The querist would be required to furnish a certificate from the bank specifying the amount of interest payable on such borrowed capital.

Sec. 80C (2) (xviii)(c) (2) provides for deduction up to Rs. 1 lakh in respect of any instalment for repayment of the amount borrowed from any bank for construction of residential house property, the income from which is chargeable to tax under the head income from house property. While working out such amount, deduction if any allowable under the above stated provision of sec. 24 shall be excluded. Deduction allowable u/s. 24 would be adjustable while computing deduction u/s. 80C of the Act. It is further clarified that the total deduction u/s. 80C in respect of the said amount as well as other investments or payments if any would be restricted to Rs. 1 lakh from the assessment year 2006-07. Earlier, it was allowable u/s. 88(2) (xv) of the Act.

On sale in 2009, cost for long-term capital gain should be considered for indexation, from the date of payment; i.e., from 1999 to the year of sale.

Q.2 Perquisites/FBT Liability

1. Payment of leave travel/Reimbursement of travel ticket of Director and his family by a Private Ltd. Company. (Refer section 10(5)/ Rule 2B)
    

2. Reimbursement of medical expenditure up to Rs. 1,50,000/- to Director exempt u/s. 17 (2)/ Rule 3A.
    

3. Payment of college fees for Higher Education (P. G. Course in Dental Medicine) to a Medico Director by a Pvt. Company providing Medical services.

Ans. Director of a company is also a employee of the company. Remuneration as well as perquisites, benefits and facilities provided to a director are assessable in his hands under the head salary. With globalization and liberalization policy, influx of many multi-nationals, opening of Indian economy, growth of trade and industry, Indian brains drawing handsome packages abroad resulting in brain drain, the employers in India offered started giving attractive packages, fashioned in a manner whereby tax liability in the hands of the employee is substantially reduced and the expenditure is fully allowed for business purposes. To put a check on expenditure which cannot be identified for an employee but is incurred on group of employees, Fringe Benefit Tax has been introduced. However, if any payment or reimbursement is paid to an employee, which would have been assessable u/s. 17 in the hands of the individual employee or would be exempt under the Act, it cannot be assessed to Fringe Benefit Tax. Taxing a payment which is specifically exempted in the hands of the employee would be against the object intent, purpose and assurance. I am of the opinion that payment / reimbursement of leave travel/medical expenditure would not attract liability to FBT. However, payment of college fees for higher education would be assessable as perquisites in the hands of the concerned director and would not be liable to FBT.

Q.3 TDS liability

1. Whether the charitable trust can file declaration in Form 15G as per section 197(1A). The trust is treated as Individual / AOP. The only restriction u/s. 197A is for Firm and Company? The Trust may be treated as Individual/AOP.
    

2. The provision to section 194C(2), is applicable to sub-contract (Individual & HUF 44AB Cases) and not to contracts. Please give your valued views.
    

3. In case of new Individual and HUF whose current T.O. is likely to exceed 40 lakhs/ exceeded in 6 months above the limit, are liable to deduct Tax under Chapter XVII or the TDS liability will start from next year.

4. Can NRI file declaration u/s. 197A in Form 15H/15G.

Ans.(i) A discretionary trust is assessable as individual as held by the Madras High Court in the case of CIT vs. Venu Suresh Sanjay Trust and Others – 221 ITR 649 and by the Calcutta High Court in the case of CIT vs. Shri Krishna Bhandar Trust 201 ITR 989. Hence, such trust can file declaration. Same is the position with respect to a charitable trust. It cannot be considered to be a firm or a company.

(ii) Proviso to sec. 194C(2) is applicable to sub-contract and hence liability to deduction is only when payment is made to a sub-contractor. In my view, there is no liability on an individual and HUF liable to tax audit, to deduct tax on payment to contractor u/s. 194C(1) of the Act.

(iii) The liability to deduct tax at source under Chapter XVII in case of new individual and HUF would commence from the succeeding year when such assessee becomes liable to tax audit u/s.44AB of the Act. Even if current turnover is likely to exceed 40 lakhs or exceeded above the limit during the current year, there would not be any liability to deduct during the current year. The liability will start from the next year.

(iv) No. An NRI cannot file any declaration u/s.197A in Form No.15H/15G, because the said provisions are applicable only to a resident in India. A non­resident would be governed by the provision contained u/s.195 of the Act. Sec. 195 makes it obligatory to deduct tax while remitting any payment to a non­resident. However, the deductor may apply under sub-sec. (2) of the said section to determine the percentage of liability for deduction. Sec.195 of the Act imposes a statutory obligation on any person responsible for paying to a non­resident any interest or any other sum chargeable under the provisions of the I. T. Act, to deduct income-tax at the “rates in force”, unless he is required to pay income-tax thereon as an agent. The tax deducted should be paid to the credit of the Central Government as required by sec.200 read with Rule 30 of the I. T. Rules 1962. Sec.197 provides the provision regarding issue of certificate for deduction of tax at lower rate or no deduction. Failure to deduct tax would render a person liable to penalty u/s.201 read with sec. 221 and would also constitute an offence u/s.276B of the Act.

Q.4 Audit u/s. 44AB

Whether share transactions, where only difference notes are issued and the exact turnover is not given by the stock exchange / Broker, liable the tax audit u/s. 44AB.

Ans. Obligation to get accounts audited u/s.44AB arises when total sales turnover or gross receipts exceed 40 lakhs rupees in any previous year. When in respect of share transactions, the assessee is unaware of the exact turnover and receives only difference notes from the Stock Exchange/Broker, sale consideration of the shares cannot be considered as turnover in the hands of said person.

Q.5 Status of HUF

What is the fate of gift, individual or HUF, to a family consisting of karta, his wife and daughters (no. Male child)? Whether the same will constitute HUF after recent amendment of Hindu Succession Act, as the female will also be treated as coparcener.