[Direct Taxes]

Query No. 1 : (Claim of TDS on interest income)

A tax consultant is maintaining accounts on cash basis.

During the F.Y. 2016-17 amount has been given on loan @ 15% p.a. interest. On March 31, 2017, the borrower deducted TDS @ 10% on interest income accrued and paid to Department which has been claimed by lender in his I.T. Return for Assessment Year 2017-18 but did not show interest income because books are maintained on cash basis.

Hence, the querist wishes to know –

1) Whether the Department can tax the interest income accrued and not received as TDS claimed.

2) Whether the Department can refuse to grant credit of TDS certificate as income accrued thereof is not shown taxable.


Section 198 reads as under:

“All sums deducted in accordance with the foregoing provisions of this chapter shall, for the purpose of computing the income of an assessee, be deemed to be income received”.

Thus section 198 is an enabling provision treating the tax that is deducted at source as the income of the payee. This stands to reason because the assessee would get credit for the same from the Assessing Officer on his filing the return.

Merely because, tax deducted is treated as income, it does not mean that the receipt from which tax is deducted should always be taxable; i.e., where deductor may deduct tax on credit of interest in his books in favour of deductee, but deductee may be keeping his accounts on cash basis (like in present case), may be taxable only on receipt basis. So, it depends on method of accounting followed by the assessee-deductee.

The Mumbai Tribunal in ITO v. PHE Consultants [64 taxmann.com 419] in para 8 of the decision states as under:

“It is pertinent to note that the provisions of section 198 though states that the tax deducted at source shall deemed to be income received, yet it does not specify the year in which the said deeming provision applies. However, section 198 states that the income is deemed to be income received” The provision of section 145 of the Act state that the income of an assessee chargeable under the head “Profits and gains of business or profession” or “Income from other sources” shall be computed in accordance with either cash or mercantile system of accounting regularly employed by the assessee. Hence a combined reading of provisions of section 198 and section 145 of the Act, in our view makes it clear that the income deemed to have been received u/s. 198 has to be computed in accordance with the provisions of section 145 of the Act, meaning thereby the TDS amount per se cannot be considered as income of the assessee by disregarding the method of accounting followed by the assessee”.

So, in this case querist maintains his books of account on cash basis, hence, TDS deducted has to be shown as his income and same can be claimed as TDS. Thus Department cannot refuse to grant credit for TDS paid though interest income is not shown.

Query No. 2 : (Date of acquisition)

A flat booked in 2013 and paid the amount in installments since then. First payment and registration done in 2017. Possession given in 2017 on registration though almost full payment was given on allotment in 2013 and subsequent installments paid between 2013 & 2016. What will be the date of acquisition for taxation of capital gains & indexation of payment?


The Bombay High Court in CIT v. Mrs. Hill J. B. Wadia [216 ITR 376] has observed that “what we have to see is whether the assessee has acquired a right to a specific flat in such a building which is being constructed by the builders / society and whether he has made substantial investment within the prescribed period which will entitle him to obtain possession of the flat so constructed and in which he intends to reside. The material test in this connection is domain over the flat and investment in it”. So, on the basis of the fact that querist has invested substantial amount in 2013, though possession and registration was in 2017, the date of acquisition would be 2013 for taxation of capital gains.

Similarly the Punjab and Haryana High Court in Mrs. Madhu Kaul v. CIT [363 ITR 54] held that the flat was allotted to the assessee on June 7, 1986 by a letter conveyed to the assessee on June 30, 1986. The assessee paid the first installment on July 14, 1986 thereby confirming a right upon the assessee to hold a flat which was later identified and possession was delivered later did not detract from the fact that the allottee was conferred a right to hold on issuance of an allotment letter. The payment of the balance installments, identification of a particular flat and delivery of possession were consequential acts that related back to and arose from the right conferred by allotment letter. So indexation of payment would be from the year in which the querist was holding flat.

Query No. 3 : (Agricultural income of Co.)

A Co. has only agricultural income & income from sale of rural agricultural land (not capital assets). Can there be any liability under AMT?


From the fact, it is apparent that querist is a company and therefore no Alternate Minimum Tax (AMT) would be applicable. For the companies Minimum Alternate Tax (MAT) would be applicable u/s. 115JB of the Act.

So while calculating “book profit” under Explanation 1 to section 115JB(1), the agricultural income falling u/s. 10(1) to be excluded as per Explanation (ii), which reads as under:

“The amount of income to which any of the provisions of section 10 (other than provisions contained in clause 38 thereof) or section 11 or section 12 apply, if any such amount is credited to the statement of profit and loss.”

Query No. 4 : (Foreign Remittance)

A daughter of ‘A’ settled in U.S. (Green Card Holder) want to acquire house in US. for which Indian ‘A’ (parent) wants to remit 50,000/- US dollars from India. Is it required to obtain permission of RBI or any other Authority?


No, as per Liberalised Remittance Scheme (LRS) updated as on August 2,2017 vide Notification No. RBI/FED/2017-18, a resident individual through authorised dealer may remit up to USD 2,50,000 per financial year to any permitted current or capital account transactions or a combination of both. The scheme is not available to corporates partnership firms, HUF, trust. The permissible capital account transactions inter-alia, includes purchase of property abroad.

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