Query No. 1 (u/s. 195)

On sale of ancestral property by NRI at what rate TDS to be deducted by the purchaser?


The purchaser has to deduct tax if NRI’s income is chargeable under the Act. The Supreme Court in G.E. India Technology Centre P. Ltd. v. CIT [327 ITR 456 (SC) has held that:

“The most important expression in section 195(1) of the Income-tax Act, 1961, dealing with deduction of tax at source consists of the word “chargeable under the provisions of the Act.” A person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Act. Section 195 contemplates not merely amounts, the whole of which are pure income payments, which have an element of income embedded or incorporated in them. The obligation to deduct tax at source is, however, limited to appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident. It is for this reason that the CBDT has clarified in Circular No. 728 dated October 31, 1995 that the tax deductor can take into consideration the effect of the DTAA in respect of payments of royalties and technical fees while deducting tax at source.”

Be that as it may, if income of non-resident is chargeable in India, the purchaser has to deduct the tax @ 20% being rate in force, as per section 112 of the Act.

Income tax

Query No. 2 (exemption u/s. 54)

‘A’ has two residential house (let out) in Mumbai and one residential house (self occupation) in Chennai. Now ‘A’ wants to purchase one residential house in Chennai, out of sale proceeds of one houses in Mumbai out of two residential houses. Whether ‘A’ will get section 54 exemption or not?


It is not clear from the fact, whether the ‘A’ wants to dispose of the Chennai’s residential house and one house of Bombay and then buy one house in Chennai? If yes, ‘A’ is entitled to get the benefit of section 54.

If not then, ‘A’ is not entitle to get benefit even under section 54F, as on the date of purchase of new asset, he owns more than one residential house, irrespective of whether self-occupied or rented.

Query No. 3

Assessee falls under the definition of “eligible assessee” as provided in Explanation (a) to section 44AD. His turnover is not exceeding one crore rupees (taking into consideration positive & negative figures). Assessee maintains regular books of account. Assessee has incurred speculation loss of
Rs. 5,00,000/- on share trading, which he wants to carry forward and assessee has incurred business loss of
Rs. 3,00,000/- in an eligible transaction in respect of trading in derivatives as provided in section 43(5)(d) & (e), which he wants to set-off against income from other sources. In this connection assessee has the following question,

(i) Will speculation business & business carried out in eligible transaction in respect of trading in derivatives as provided in section 43(5)(d) & (e) be treated as “eligible business” as provided in Explanation (b) to section 44AD.

(ii) If yes, will it be necessary to carry out Audit u/s. 44AD to carry forward speculation loss & set-off business loss in the case of above facts?


As per Explanation 2 of section 28 of the Act, the speculative business is distinct from any other business. So speculation business is a separate business from eligible transaction as defined in Explanation 2 to section 43(5).

Further, from the fact, it is clear that an assessee is “eligible assessee” and therefore if he is carrying on “eligible business” as defined in Explanation (b) to the section 44AD and his turnover is less than rupees one crore then he can claim benefit of section 44AD.

If he does not show the profit of 8% of the gross turnover or receipt then he is required to keep books of account and get them audited if he has income chargeable to tax.

In this case, a loss from speculation business, can be carried forward for four years and can set-off only against profits of speculation business.

In case of loss, though assessee may maintain the books of account, he need not get them audited, as income is not chargeable to tax. However, if he wants to claim carry forward of loss, he has to file the return of income before the due date as mentioned in section 139(1) r. w. s. 80 of the Act.

Query No. 4 (Interest on deposit of EPF Trust)

The Bank is paying 8% interest on the deposit of EPF Trust and they are deducting tax from this amount. Kindly inform whether any exemption is allowed?


Interest earned by Employees Provident Fund is not liable to tax under section 10(25) of the Act, if it is recognized provident fund. Therefore, whatever TDS made by the bank, EPF trust has to claim refund.

Query No. 5

Whether company secretaries are entitled to appear before ITAT? If yes under which provision / rule /case laws?


Sub-section (2) of section 288 of the Income tax Act defines “authorised representative” which includes “any person who has passed accountancy examination recognised in this behalf by the Board”.

Rule 50 of the Income-tax Rules, 1962 recognises the accounting examination, which inter alia, includes final examination of the Institute of Company Secretaries of India, New Delhi” for the purpose of section 288(2)(v) of the Act. Therefore, company secretaries are entitled to appear before ITAT.

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.

CA. H.N. Motiwalla

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