Query No.1 : (Deduction u/s. 80-IBA)
If project is approved prior to June 1, 2016 and subsequent fresh approval is obtained after June 1, 2016, whether the project is eligible to claim deduction under section 80-IBA. Note: The project is surely to be completed within 3/5 years of its approval.
Answer
Deduction in respect of profits and gains from housing projects under section 80-IBA of the Income-tax Act, 1961 has been inserted by the Finance Act, 2016, with effective from April 1, 2017 i.e. from assessment year 2017-18.
The sub-sections (1) and (2) of the said section read as under:
“(1) Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building housing projects, there shall, subject to the provisions of this section, be allowed, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business.
(2) For the purposes of sub-section (1), a housing project shall be a project which fulfils the following conditions, namely:–
(a) The project is approved by the competent authority after the 1st day of June, 2016, but on or before the 31st day of March, 2019;
(b) The project is completed within a period of [three] years from the date of approval by the competent authority”.
The Finance Act, 2017 substitutes a period of “three” years to ‘five” years in clause (b) of sub- section (2) above.
Now reading sub-section (2) it is clear that a housing project is a project which is approved by the competent authority after June 1, 2016 but before March 31, 2019. Thus, any project which has obtained fresh approval after the said date is eligible project irrespective of earlier approval. Hence, the project can claim deduction under section 80-IBA of the Act.
Query No..2 : (Joint Development Agreement)
What is Joint Development Agreement u/s. 45(5A)?
If a land owner transfers his land to a Developer through Development Agreement can he treat capital gain in the year in which respective allotted unit is sold before the date of completion certificate?
Does it make any difference if and owner books one house/unit in new scheme developed by Developer?
Answer
Joint Development Agreement has not been defined under the Income-tax Act, 1961. However, the Finance Act, 2017 has introduced new sub-section (5A) in section 45 which defines ‘specified agreement’; which is similar to Joint Development Agreement
As per Explanation (ii) of section 45(5A) “specified agreement” means a registered agreement in which a person owning land or building or both, agrees to allow another person to develop a real estate project on such land or building or both, in consideration of a share, being land or building or both in such project, whether with or without payment of part of the consideration in cash”.
Further, as per the said sub-section capital gain is chargeable to income tax as income of the previous year in which certificate of completion for the whole or part of the project is issued by the competent authority. Therefore, the land owner to whom respective units are allotted in exchange of land cannot treat capital gain the year in which respective units are sold before the date of completion certificate issued by the competent authority.
There is no difference if owner keep a allotted property for himself or sales.
Query No. 3 : (Levy of fees for delayed furnishing return of income)
Does levy of fee for delayed filing of return apply to the below taxable income return? Moreover, if income is below taxable after deduction under Chapter VI-A, (for example net income is ₹ 3,90,000/- and deduction under section 80C is ₹ 1,50,000/-), will the late fee be levied in this case? (for A.Y. 2018-19).
Answer
Section 234F provides that:
“where a person required to furnish a return of income under section 139, fails to do so within the time prescribed in sub-section (1) of said section, he shall pay, by way of fee, a sum of,–
(a) Five thousand rupees, if the return is furnished on or before the 31st day of December of the assessment year;
(b) Ten thousand rupees in any other case:
Provided that if the total income of the person does not exceed five lakh rupees, the fee payable under this section shall not exceed one thousand rupees.
(2) The provisions of this section shall apply in respect of return of income required to be furnished for the assessment year commencing on or after the 1st day of April, 2018.
Section 139(1) provides that every person:
a) Being a company for firm; or
b) Being a person other than a company or a firm if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to tax shall on or before due date furnish a return of income.
So, in this case, a question of levy of fee will not arise as income is below taxable limit and therefore he is not liable to file return of income.
Query No. 4 : (Tax Audit u/s. 44AD r.w.s. 44AB)
ABC partnership firm is engaged in retail business. It sale for F.Y. 2016-17 is ₹ 40/- lakhs. Net profit, before remuneration to partners, but after interest to partners is ₹ 1,40,000/-. The firm gives remuneration ₹ 1,50,000/- to partners and thus, there is a net loss of ₹ 10,000/- In this situation, are books of account of firm liable to Audit under section 44AD r.w.s 44AB?
Answer
From the above stated fact, it is clear that during the financial year 2016-17, a firm has incurred loss of
₹ 10,000/-, however, its turnover is less than ₹
1/- crore, so a firm is eligible assessee under section 44AD of the Act.
So, it has to offer 8% of the total turnover. If it does not offer 8% of the turnover, then whether it will have to get accounts audit under section 44AD r.w.s 44AB?
Sections 44AB(d) and (e) provides that if a person carrying on the business claims that such income to be lower than the deemed profits and gains of his business under section 44AD and his income exceeds the maximum amount which is not chargeable to income tax, then such person has to get his books of account audited.
So to comply with this section, twin conditions have to be fulfilled, one is that he offers less than 8% of the turnover and his income exceeds the basis exemption limit.
In this case, his income is below the taxable limit i.e. loss, hence, he is not liable to get books of account audited.
Query No. 5 : (Transfer to associated Company)
If an individual sells gold for inadequate consideration on March 1, 2016 to an associate company would amended provisions of section 56(2) apply to it?
Answer
Up to assessment year 2016-17 this section was applicable to an Individual or a HUF, who receives any property exceeding
₹ 50,000/-.
From assessment year 2017-18, this section is applicable to all assessees who receive any property exceeding
₹ 50,000/-.
In this case, individual has transferred or sold gold for inadequate consideration on March 1, 2016 to associate company i.e. for assessment year 2016-17 therefore amended provision would not be applicable.
Query No. 6 : (Reopening of assessment)
A is not assessed to tax as his income is below the threshold limit, He holds shares of listed companies since 2009 (the original investment value is
₹ 15,00,000/-) Now during the F.Y. 2016-17, he wishes to sell the shares through stock exchange. Profit in his hand is LTCG and hence, it is exempted. But can the Assessing Officer ask to prove the source of investment of original investment? Can he make the addition of any type, just like the investment made out of undisclosed income?
Answer
Section 149 provides that no notice under section 148 shall be issued for the relevant assessment year –
i) If four years have elapsed from the end of the relevant assessment year.
ii) If four years but not less than six years, have elapsed from the end of the relevant assessment year unless income chargeable to tax which has escaped assessment amount to or likely to amount to one lakh rupees or more for that year.
So, in this case, assessee sold his investment in shares of listed companies in financial year 2016-17 i.e. in assessment year 2017-18, which is exempt as he paid the STT.
The shares which he was holding since 2009, presumably, had purchased in the financial year 2009-10 i.e., Assessment Year 2010-11.
Therefore, reopening notice for the assessment year 2010-11 could have been issued on or before March 31, 2017.
However, reopening could have been valid only if there was live link between reason to believe and escapement of assessment.
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