INCOME TAX ACT

Query No. 1: (Cash Gift u/s. 56 of the Income tax Act, 1961)

‘X’ has taken one lakh rupees as a Cash Gift from his own brother’s son, whether taxable or not?

Answer

Section 56(2)(vii) of the Income-tax Act, 1961 reads as under:

“Where an individual or a Hindu Undivided Family receives, in any previous year, from any person or persons on or after October 1, 2009 :-

a) Any sum of money, without consideration, the aggregate value which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;

Provided further that this clause shall not apply to any sum of money or any property received –

a) from any relative; or

Explanation – for the purpose of this clause –

a) “Relative means –

i) In the case of an individual “

1. Spouse of the individual

2. Brother or sister of the individual;

3. Brother or sister of the spouse of the individual

4. Brother or sister of either of the parents of the individuals

5. Any lineal ascendant or descendant of the individual

6. Any lineal ascendant or descendant of the spouse of the individual

7. Spouse of the person referred to in items (B) & (F).

Thus from the above, it is clear that a gift received from brother’s son (nephew) over Rs. 50,000/- is liable to tax in the hands of the ‘X’. As the gift is more than Rs. 50,000/-, the whole amount is liable to tax in the hands of ‘X’.

Query No. 2: (Deduction u/s. 43B)

Employee’s contribution unpaid is disallowable u/s. 43B?

Answer

Section 43B reads as under:

“Notwithstanding anything contained in any other provision of this Act, a deduction otherwise allowable under the Act in respect of –

(b) Any sum payable by the assessee as an employer by way of contribution of any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees, or ——

shall be allowed (irrespective of the previous year in which the liability to pay such sum was incurred by the assessee according to the method of accounting regularly employed by him) only in computing the income referred to in section 28 of that previous year in which such sum is actually paid by him.”

Section 36(1) provides that “the deduction provided for the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28:

(va) Any sum received by the assessee from any of his employees to which the provisions of sub clause (x) of clause (24) of section 2 apply, if such sum is credited by the assessee to the employee’s account in the relevant fund or funds on or before the due date.

Explanation – For the purpose of this clause “due date” means the date by which the assessee is required as an employer to credit an employee’s contribution to the employee’s account in the relevant fund under any Act, rule, order or notification issued thereunder or under any standing order or notification issued thereunder or under any standing order, award, contract of service or otherwise.”

From reading both the sections, it is clear that section 43B overrides section 36 and therefore delayed payment of employee’s contribution by the employer is allowable under section 43B.

The aforesaid view has been approved by the Rajasthan High Court in
CIT v. Jaipur Vidyut Vitaran Nigam Ltd. [363 ITR 307], while dismissing the Department’s appeal, the High Court held that though the amount could not be paid on or before the due date under respective Acts, they were deposited on or before the due date for furnishing of income tax returns under section 139 of the Income-tax Act, 1961 and, therefore, in view of section 43B read with section 36(1)(via) of the Act the entire amounts were allowable.

Query No. 3: (Time limit for investments u/s. 54EC)

Investments made u/s. 54EC beyond time limit u/s. 139(1) i.e. before expiry of 139(4) time limit is eligible for exemption?

Answer

The exemption up to Rs. 50/- lakhs would be available under section 54EC, if the capital gains arises from the transfer of a long term capital asset, (being the original asset) and the assessee has, at any time within a period of six months after the date of such transfer, invested in the long term specified asset.

So, no exemption is available, if the amount is not invested within a period of six months after the date of the original asset, whether it is u/s. 139(1) or u/s. 139(4).

Query No. 4: (Applicability of S. 14A from the share of profit from the firm)

An assessee is in receipt of interest & remuneration income from various partnership firms and claims interest & depreciation as expenditure from such income. Can a disallowance u/s. 14A be made by A.O.?

Answer

If the assessee has borrowed the amount and invested in the firm, where from he receives, remuneration and share of profit, then, the Assessing Officer is justified in making disallowance u/s. 14A proportionately.

This proposition has been confirmed by the Mumbai Tribunal in
Hoshang D. Nanavati v. ACIT [25 taxmann Com 141], wherein the Tribunal held that the assessee earned remuneration income as also profit share from the same activity of attending office, it would not be fair to treat all such incidental expenditure only for the purpose of earning remuneration income. Having regard to the smallness of the amount involved it would be justified to allocate these expenses in the same ratio in which these expenses were allocated by the Assessing Officer.

Companies Act, 2013

Query No. 5: (Auditor’s Responsibility)

What is the reporting responsibility of the auditor if company is not complying the law of deposit under new Companies Act, 2013?

Answer

The MCA has issued Companies (Auditor’s Report) Order, 2015 and notified on April 10, 2015 and it is applicable since then.

Clause (v) of the said report requires an auditor to report:

“In case the company has accepted deposits, whether the directives issued by the Reserve Bank of India and the provisions of sections 73 to 76 or any other relevant provisions of the Companies Act and rules framed thereunder, where applicable, have been complied with? If not, the nature of contraventions should be stated, if an order has been passed by Company Law Board or National Company Law Tribunal or Reserve Bank of India or any Court or any other Tribunal, whether the same has been complied with or not?”

Thus, it is the responsibility of the auditor to report under CARO, 2015.

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