Business run by a Muslim Familiy

Hi Mohit,

I don't think a business run jointly by members of a Muslim family can be treated as an AOP/BOI. An AOP or a BOI comes into existence by some conscious action on the part of persons constituting it. A family is a close-knit association, whose members, joined together by accident of birth, are committed to help one another more out of natural love and affection than any other motive. Generally, the business is looked after by the family elder; wife and the children lend a helping hand. That in my opinion cannot turn the family into a BOI. There are many case laws laying down that "Individual" does not mean a single human being only. Consider what the Gujarat HC said in CIT v. Deepak Family Trust (No. 1) [1995] 211 ITR 575/[1994] 72 Taxman 406 (Guj.):[It is now well settled that the word `individual' does not necessarily and invariably always refer to a single natural person. A group of individuals may as well come in for treatment as an individual under tax laws if the context so requires. The word `association' means `to join in any purpose' or `to join in action'. Therefore, `association of persons' as used in section 2(31)(v) of the Income-tax Act, 1961, means an association in which two or more persons join in a common purpose or common action. The association must be one, the object of which is to produce income, profits or gains.]So the income of the business in which the entire family participates will be taxed in the hands of the individual heading the family.Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, mohit arora wrote:>> Dear Sanjeev Bedi Ji,> > Thanks for your reply.> > What will be the status of the family business ren by other religions weather it will be taxed as AOP / BOI.> > Thanks and Regards> > CA. Mohit Arora> Roorkee

Agency Deposit write off

Hi Ms Alpa,

I think you can claim the loss of security deposit as a business loss. Normally, advances against capital assets aren't allowed as revenue expenditure when the contract does not materialize and those advances get forfeited. But when a trader deposits a sum of money in order to obtain authorized dealership of a manufacturer, it does not constitute a capital layout. The manufacturers insist on security deposits with a view to make sure that people seeking dealership of the company's products have a sound financial background, infrastructure, sincerity, etc. Without the security deposit, the business of the dealer wouldn't get underway.There's a Supreme Court decision on the taxability of such deposits in the hands of the company when it forfeits them for some reason e.g. the deposits becoming time-barred. In CIT v. T.V. Sundaram Iyengar & Sons Ltd. [1996] 222 ITR 344/88 Taxman 429, it was held that agency deposits forfeited were taxable as revenue receipts because they constituted trade surplus. Such deposits were accepted in the ordinary course of a trading transaction, and as such, if not upon their receipt, upon their forfeiture at least, they ought to be treated as trading receipts and brought to tax.This reasoning will apply mutatis mutandis to the one who's incurred a loss owing to her security deposit being appropriated by the company. The deposit was given in the ordinary course of business; its forfeiture ought to be allowed as a revenue expenditure u/s 37.And Ma'm, to incur a capital loss you have to have a capital asset. A security deposit is not a Capital Asset u/s 2(14). Either this amount will be allowed as a revenue expenditure or won't be allowed at all.Praise the Lord,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, alpa christie wrote:>> one of my clients had paid refundable agency deposit to another company. somehow the business did not run much. now the company is not repaying the deposit amount. cheques have returned disbonoured. considerable time has also elapsed.> > i am thinking of cliaming it as a loss but as the principal amount was never routed through p & l account i am sceptic about the claim. on the contrary if i claim this as a capital loss how would i ever be able to set it off as capital gain would not be a routine matter. > > can anyone add some light?> > regards,> > alpa>

HUF for other religions?

Hi Mohit,

Only Hindus can create an HUF. The Income Tax Act cannot override
the Indian Constitution. While the criminal laws are uniform across
all communities, the government does not interfere in the civil
laws, dictated by holy scriptures of a community, unless a religious
edict lays down/sanctifies something very abominable.

Muslim civil laws are dictated by the Sharia. Committed to according
equal respect to all religions, the Indian government lets the
Muslim community regulate their affairs relating to marriage,
divorce, family constitution, etc as is laid down in the Sharia. So
a Muslim can stay married to more than one woman simultaneously. But
if I marry a second time, I would be put behind bars for 7 years
under the Hindu Marriage Act, unless of course I convert to Islam
like Dharmender did when he married Hema Malini without divorcing
Sunny Deol's Mom. Sharia allows four wives.

But the flipside of being a Muslim is that you can't create a Muslim
Undivided Family as a tax entity.

While Muslims and Christians certainly have families like the
Hindus, their customs being different, no special tax status has
been extended to their undivided families.

Thanks,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, mohit arora
wrote:
>
> Sir,
>
> What about if a muslim family is having a family business. How it
will be taxed ?
>
> Is Indian Income Tax Law is not secular to this extent ?
>
> Expert comments are requested in this matter.
>
> Thanks & Regards
>
> CA. Mohit Arora
>
>
> Dear Jimish,
> Obviously only Hindu family can have a HUF as the concept emanates
from Hindu Law.
>
> Regards,
> CA Prafulla
>
>
> On 3/27/08, Jimish Shah wrote:
> Hi!!
>
> Can any person i.e. Any Indian Resident of any religion.
caste.creed can for HUF or it can be formed only if the family is
Hindu family?
>
> Jimish

Capital Gain--Old house converted into Commercial Complex

Hi Mr Akash and Mr Goenka,


There may be more to it than meets the eye. The line of distinction between what constitutes Capital Gains and what constitutes Adventure in the nature of trade or commerce often gets blurred. Akash has said the brothers demolished the house "some time" after they inherited it. Now consider the following case law:In CIT v. Dr. Indu Bala Chhabra [2003] 132 Taxman 45 (Cal.), the assessee-doctor was found to have purchased a property for constructing a nursing home but actually constructed shops and flats on such property and earned profit from sale of such properties. The Assessing Officer assessed such income under the head, 'Business' and invoked the provisions of section 45(2) for assessment of notional gains from conversion of capital assets into stock-in-trade. While disagreeing with such order of the Assessing Officer the Tribunal noted that there was a substantial gap between the date of purchase, commencement of construction and sale of the property and it took about 19-20 years to dispose of the property and in case it was to be a business proposition, then no prudent person would have waited for that long. The Delhi High Court affirmed the order of the Tribunal without any hesitation.The doctor here got away with treating the gains as Capital gains as there was a huge time gap between the date she bought the property and the date she sold it. But the Brothers in the instant case set about constructing a commercial complex "some time" after they got the property bequeathed to them. The brothers must have considered the commercial viability of raising a business complex and weighed in other pros and cons of going about the whole process. Prima facie, this seems to be a case of adventure in the nature of trade or commerce to me. Shops in the commercial complexes springing up all over the country these days are meant to be sold only; no one lets them out. If I buy a vacant piece of land, construct a multi-storeyed complex on it and then sell the shops piecemeal, the profits I make would be subject to tax under the head Business Income. Now when I inherit a property and do the same thing, how can I contend that I've earned capital gains and not business income? I didn't have a choice in the matter of inherited property. In fact many ingrate sons must be waiting in the wings for their fathers to kick the bucket so that they can pull down the dilapidated old house, construct a commercial complex on it and sell out the shops. The father has a sentimental attachment with the old house because that's where he consummated his marriage. He won't let that property be sold off within his lifetime.In such cases, aren't the sons merely engaging in a business venture? In my opinion, yes. Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, PRAMOD GOENKA wrote:>> > Simple ! Calculate cost of acquisition and cost of improvement as per law. Whats the problem ?> > CA. Pramod Goenka> >> > I have one problem on capital gain tax. Two Brothers were having a house, which they got by inheritance. .After some time they demolished the house and constructed a commercial complex consisting 20 shops. Now they want to sell out the shops. How the capital gain be calculated on it. Please advice tax planning with citation , if any> > Regards,> CA Akash

Bad debts Provision--Excess and Fresh

Hi Mr Devarajan and Pramod Ji,

Mr Shanavas's client hasn't made an ad hoc provision. An ad hoc provision is made for the debtors in general; we don't identify particular receivable accounts that require provisioning. In this case, provision was made for two specific debtors—A and B. My point is that consequent to some more information becoming available about the collectability of Debt B in the CURRENT year, the management feels the need to provide an additional provision, So, shouldn't this additional burden be provided out of current year's profits? Although, it's not really a "burden" since a similar amount has also been unlocked from the previous year's provision and credited to P & L account. You're saying that since we have a provision brought forward already, what's the fun of writing it back and then providing for a similar amount again? You're looking at the issue from an arithmetic point of view. I am looking at it from a purely accounting and presentation perspective. I think good presentation requires that we make a fresh provision of Rs 2.50 lacs after writing back the old Rs 2.50 lacs. If we don't, readers of financial statements won't know the exact state of realizability of debtors. The management had some doubts about the realization of certain debts in the past years; those doubts have persisted even in this year, and additional provision has been created as more information has come to light. The fear that we may lose Rs 12.50 lacs instead of Rs 10 lacs that we'd suspected earlier has to be reflected in the financial statements of this year to let the readers know the true state of affairs. Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Devarajan.V" wrote:>> Sanjeevji,> Is it necessary to show the excess provision written back and fresh> provision made separately? In most of the cases only the net is shown in the> P & L a/c.> CA Devarajan.V > > Hi Shanavas,> > You are left with an excess provision of Rs 2.50 lacs in respect of > Debtor A. This needs to be written back. It may be credited to > Miscellaneous Income or some other such head in the P & L account. > Don't forget to exclude it when you prepare the computation of > income—since provision was never allowed as an expense, its write-> back can't be treated as an income either.> > You haven't said what the current status of realization of Debtor B > is. You've already got a provision of one million against B's debt > of two millions. If the management feels an additional cushion of Rs > 2.50 lacs is needed, then certainly Rs 2.50 lacs unlocked from Debt > A can be redeployed against potential short-realization of Debt B. > But still, the amount of Rs 2.50 lacs should first be credited to > the P & L account. It won't make any difference arithmetically, but > proper presentation would require that Rs 2.50 be credited to the > Income account and a fresh Rs 2.50 be set aside from current year's > profits to meet the suspected shortfall in realization of Debt B. > The fact that Rs 10 lacs is not enough and a little more is needed > was determined in the current year. So it has to be reflected that > way in the financial statements. > > As far as provisions for bad debts are concerned, although there is > no one-to-one co-relation between a debt and a provision, each year > is a fresh year. As more information becomes known about a debtor > and the quantum of possible loss, provision for doubtful debts > should be determined afresh each year. Excess of an earlier year > should be written back; extra if required ought to be provided out > of current year's profits. > > Also, make sure you don't report the write back as cessation of > trading liability u/s 41(1) in Tax Audit. Fresh provision shouldn't > also be reported as a contingent liability debited to P & L account > in Form 3CD. > > Thanks,> > CA Sanjeev Bedi> > --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, Shanavas > wrote:> >> > Dear all,> > > > Good day to everybody... .........> > > > I request help from the respected members of the group on the > following matter.> > > > Auditors have classified two sundry debtors as bad and doubtful > debt during the audit of year 2004-05.The position is as under> > > > > A B> > > > Outstanding amount 2004-05 > 1,000,000.00 2,000,000.00> > Provision made 2004-05 > 500,000.00 1,000,000.00> > > > During the year 2007-08, we have recieved full and final > settlement through court, amounting Rs. 750,000.00 against the > Sundry debtor-A.> > > > Could you please advise me regarding accounting treatment.> > > > Also, advise me whether we can adjust the excess amount of > Rs.250,000.00 against the remaining amount of Sundry debtor-B, > instead of crediting in Profit or Loss Account.> > > > Thanks> > > > Shanavas

Loss from Embezzlement

Hi Lunawat,

Yes, you can claim the loss of Rs 10 lacs u/s 37(1) in the current year when it's been determined that the amount is not recoverable. This seems tantamount to embezzlement, although you haven't given full details. Did your client lodge an FIR with the police when the money went missing? Although there are sufficient judicial rulings as well as a CBDT circular allowing such losses to be claimed u/s 37(1), the onus of proving that he had made all possible efforts, including lodge an FIR, to get his money back would squarely lie on your client alone. Here are a couple of case laws for you:In CIT v. Smt. Pukhraj Wati Bubber [2007] 199 Taxation 107 (Punj. & Har.) the court allowed the loss on account of defalcation of Rs 264795 saying that embezzlement was incidental to carrying on the business and there was direct and proximate connection and nexus between the loss and the business. The loss could be allowed u/s 37(1).In Badridas Daga v. CIT [1958] 34 ITR 10 (SC), an agent of the assessee withdrew amount from bank and misappropriated it. The Supreme Court held that having regard to accepted commercial practice and trading principles, it could be said that loss arose out of carrying on of business and was incidental to it.The CBDT circular I talked about is Circular No. 35-D(XLVII-20) (F. No. 10/48/65-IT (A-I), dated November 24, 1965)]. The CBDT says that loss by embezzlement by employee is admissible in the year in which the assessee comes to know of it and realizes that it isn't recoverable any more. I am assuming of course that although your client's business has closed down, the current year's income you intend to set off this loss against is business income from a different source. Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "lunawat123" wrote:>> one of the emploeees of my client sent 10 lakhs for purchase of goods> with his employee about one & half years back. the employee went> missing. Now he is found murdered. we has shown this amount as due> from him in the return of income filed. as this amount is now> irrecoverable, can we write off this against the income of current> year. the businees was closed during last year itself

Professional Fee--Business Income or IFOS?

JP Bhajji,

You said "the company GRATUITOUSLY makes some payment after
deducting TDS u/s 194J".

Now let's see what Section 194J opens with:

[Any person, not being an individual or a Hindu undivided family,
who is RESPONSIBLE for paying to a resident]

So if the company was RESPONSIBLE for paying that sum to a
professional, it can't at the same time argue that it'd made that
payment gratuitously, can it? And the word "responsible" in Section
194J is clearly used in the sense of being a commercial obligation,
and not merely something dictated by social etiquette.

Now Section 28(i) charges to tax "the profits and gains of any
business or profession which was CARRIED ON by the assessee at any
time during the previous year".

So here the question you raised makes sense—the assessee is engaged
in a full-time employment; he merely gives an advice to a (since you
used the indefinite article, I believe the advice is given to a
company other than the one that employs him full time). The company
benefits from it, and pleased with the assessee, honours him with a
token fee. Can it be taxed under the B/P head in light of the fact
that he's not carrying on any business or profession? The answer is:
No--but only theoretically!

I think the deduction of TDS matters a lot in grasping the true
nature of this transaction. Once the payee agrees to the deduction
of TDS u/s 194J, it'd be very difficult for him to contend later
that the income was not from B/P.

I think your query was general in nature and did not have much to do
with my reply to Vineet's query. Because I can't fathom a
professional earning a fee of Rs 70 lacs from a casual advice given
to a client. In Vineet's case it was all pre-meditated and hence it
was professional receipt pure and simple, taxable under the head B/P
and also liable to Service Tax.

My point is: Once a professional, always a professional.
Professionals like us have intellectual skills; our minds are kind
of mobile offices that we carry with ourselves wherever we go, don't
we? A casual piece of advice to a fellow passenger in a railway
coach may do a world of good to him in terms of saving taxes, etc.
And if that co-passenger is large-hearted and businesslike enough,
he would certainly reward the professional with a suitable financial
incentive. Whether or not this reward is taxed under the head B/P
would depend a great deal on the quantum. A very nominal amount of a
few thousand rupees may be taxed under the head IFOS, but I don't
think this would be an appropriate head if the amount is substantial
and the professional has also established a relationship with his co-
passenger (which in all likelihood will happen). This was my point
about it being theoretically possible to argue to tax such income
under the IFOS head. But practically, no company worth its salt
benefiting from the advice of a professional would let go of that
guy so easily. They'd be coming back to him again and again.

The fact that a CA or a Doctor doesn't have an office and is engaged
in a full-time job, doesn't mean he is not carrying on a profession.
May be in the case of a doctor, he needs great many tools of trade
to set up a practice. But what does a CA need? Nothing! It's all in
the head as far as a CA or other akin professional is concerned.

If you recall, before its omission by the FA 2002, section 10(3)
exempted Casual and Non-recurring receipts up to Rs 5000. Clause
(ii) of the second proviso to that Section read thus:

[Provided further that this clause shall not apply to---

(i) receipts arising from business or the exercise of a profession
or occupation.]

What did that mean? How could the legislature have talked
about "Casual" and "Business & Professional" receipts in the same
breath? How could an assessee even think of considering income from
his routine profession as casual in nature? Obviously, the
legislature, as it stood then, wanted to close the door of exemption
of Rs 5000 to even a very nominal and non-recurring receipt if it
arose from the exercise of the assessee's profession, no matter how
infrequently he engaged in it and whether he was into it full-time
or not.

So to reiterate—Once a professional, always a professional.

Shukriya,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "CA J P Agarwal"
wrote:
>
> Dear Friends,
>
> Suppose a professsional person in whole time employment and
without an
> intention to carry on any business/profession gives an advice to a
company
> which results in profits to it and the company gratutiously make
some
> payment after deducting TDS u/s 194J (it may be a professional
receipt or
> not as contemplated u/s 194J), whether this reecipt would be taxed
under the
> head Business or Income from Other source.
>
> To my mind if the receipts are not received in the carrying of any
business
> or profession, the same may not be taxed as Business Income.
>
> I would seek opinion of learned members.
>
> CA J P AGARWAL

Professional Fee--Tax Audit

Professional Fee--Tax Audit
Dear Reddy Saab,

Ha ha ha! Thanks for bestowing Gurudom on me! Please read my Message
No 26494 addressed to Mr J P Agarwal.

But I wonder how is it that you're so "clear" about it being a
windfall gain. I wish I had such gifts of telepathy and clairvoyance!

Vineet himself said his client had received a professional fee of Rs
70 lacs after due deduction of TDS. Is there any TDS section that
requires deduction of tax at source on windfall gains? Does the
Memorandum of Association of the company empower it to shower Rs 70
lac-largesse on people who have "certain right connections" ? I don't
think it does, and therefore this transaction is ultra vires the
company.

There is no such thing as Windfall gains, Sir! We never get tired of
saying "There are no free lunches in the world", do we? There is
always a Quid Pro Quo. Nobody will scratch my back unless I scratch
theirs.

But even if for a moment I assume that Rs 70 lacs WAS windfall, then
how do you conclude that it would be taxable under the head IFOS?
The Windfall gains are NOT taxed at all! Suppose walking down the
road, I see a wallet lying by the side. I pick it up and take it
home. It has currency notes of Rs 1 lac in it. Dishonest as I am, I
keep that money myself rather than turning it over to the nearest
police station. Would that amount be taxable in my hands? No, Sir.

But this is too hypothetical a scenario to materialize. If I am
crooked enough not to try and trace the rightful owner of that
purse, I wouldn't be so foolish to go out seeking advice on whether
or not I'm liable to pay Income tax on that money! That's why I
said: there's no such thing as a windfall gain in Circa 2008. A
windfall gain is a sourceless income. And an income to be taxed has
to have a source. I sit beneath an apple tree; a gust of wind causes
an apple to fall into my lap. Do I have to pay tax on that apple?
No, because it is a windfall! Now tomorrow at the same time, I again
sit below the same apple-yielding tree, HOPING to have another ripe
apple fall into my lap. And fall it does. Would this apple be
taxable in my hands? Yes.

Burden of proof of an income being a windfall is entirely on the
assessee. If indeed it can be proven that Rs 70 lacs, or whatever
amount, was a pure windfall, accidental and sourceless income, it
won't be taxable at all. The question of deciding between the head--
B/P and IFOS—-won't arise at all!

Don't you notice the contradiction in your statement: "This is a
clear case of some wind fall money to him due to certain right
connections" ?

Read it again, Sir. The Contradiction is begging to be pointed
out. "Wind Fall" and "Due to Right Connections"— sound like an odd
couple to me. Windfalls don't happen Due To something. They just
happen of their own accord, out of nowhere. If he got the money due
to right connections, that means he must have pulled some strings to
make that money. So where's the element of windfall in it? He must
have been developing those connections all along to someday be able
to encash them. And encash them he did, and now you think it is a
wind fall gain?! Anyway, you never argued for the amount being not
subjected to tax.

I fail to fathom if he didn't object to TDS on Rs 70 lacs being made
u/s 194J and would be duly taking credit for that TDS in his ITR, on
what grounds would he contend that Rs 70 lacs is IFOS? Section 194J
defines "professional services" as those mentioned in Section 44AA.
And we all know Sections of the Income Tax Act beginning with 28 and
ending with 44AF are wholly devoted to laying down the law relating
to Profits and Gains of Business & Profession.

Thanks,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "raj_reddy_ca"
wrote:
>
> Dear Sanjeev Bedi Guru
> This is a clear case of some wind fall money to him due to certain
> right connections. I do not think it is out of exercise of his
> profession or vocation. Service Tax is applicable. But tax audit?
Is
> it not income from other sources?
>
> I have a client swamiji,managing trustee of a trust. He makes one
> devotee to do some favour to other devotee.The devotee got benefit
> pays donation to the trust.This way his trust have lot of money and
> enjoying the great benefit of tax exemption. So it appears that it
> is more money making business than purohitji,pandaji, astrologistji
> etc.
>
> When he consulted me, I said it has to be taken as his professional
> income because if IT conducts an enquiry with the donar seriously
he
> will reveal that the payment is for the benefit he got from the
> swamiji.In this angle, IT dept had conducted enquiries in certain
> educational and hospital trusts.
>
> Swamiji was not happy with my advise and deserted me. I lost a
great
> swamji connection.
> Beware swamijis
> Regards
> Raj Reddy
> --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Sanjeev Bedi"
> wrote:
> >
> > Hey Vineet,
> >
> > I forgot to bring up this issue in my previous mail, but have you
> > thought about the Service Tax liability of your client on the
> > professional charges of Rs 70 lacs he's got from the company? If
> not
> > any other service u/s 65(105) of the FA 1994, he'd surely get
> > covered by the Business Auxiliary or Business Support Services.
> And
> > the ST liability works out to a whopping Rs 8.50 lacs!
> >
> > Actually, I'd suspected it: The master-servant relationship
> existed
> > between him and his "client" company. But for some reason, he
> didn't
> > want to be a salaried employee. Just like some CAs, who, too
> > reluctant to part with their COPs, do full-time jobs
> > drawing "professional charges". Now you can't have your cake and
> eat
> > it too. You may have drawn some other benefits on account of not
> > being projected as a salaried employee, but you can't shy away
> from
> > your responsibilities when it comes to honouring the Tax Audit
and
> > more seriously the Service Tax law commitments. If the gross
> > receipts exceed Rs 8 lacs, you've got to pay service tax. And if
> > those exceed Rs 10 lacs, you've got to have your accounts audited
> >
> > Thanks,
> >
> > CA Sanjeev Bedi

Solatium

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Hi Mr Devarajan,

The rule is that compensation received for loss of profits is taxable, being revenue in nature. But compensation received for the loss of source of income or the profit-making apparatus itself won't be taxable, being capital receipt. The main consideration received against the compulsory acquisition of land of course would be taxable by virtue of the provisions of Section 45. Let's discuss whether Solatium—-amount paid over and above the basic monetary consideration as some sort of comfort or solace for having been made to part with one's income-yielding asset—-would be taxable. In CIT v. Shaw Wallace & Co. AIR 1932 PC 138, the Privy Council considered the nature of a certain sum paid by way of compensation or solatium for termination of its agency with two oil companies. The revenue taxed the same as income arising from profits and gains of business. The Privy Council held that once it is admitted that the sum was received, not for carrying on the business, but as some sort of solatium for its compulsory cessation, the receipt has to be regarded as capital receipt not chargeable to tax. The expression receipts `arising from business' must mean receipts arising from the carrying on of the business. The Privy Council specifically held further that even if the receipt had been taxed as income from other sources, its decision would not have changed.But now after the introduction of clause (va) in Section 28 by FA 2002, even compensation received for foregoing one's right to carry on business would be taxable. The above judgement has only academic weight. I quoted it just to put the issue in perspective. Capital receipts are of course exempt unless specifically taxable; revenue receipts are taxable unless specifically exempt. Capital receipts arising from transfer of capital assets are specifically taxable. So solatium, even if we treat it as capital receipt, would be taxable. It would've been taxable even if received in exchange for loss of a current asset in view of Section 28(va). The question is: Which head would it be taxed under--Capital Gains or Income from Other Sources? I think the meaning of "full value of consideration received as a result of transfer" used in Section 48 is wide enough to cover even solatium—-it doesn't matter whether or not it was mentioned when the negotiations for the transfer of land were taking place. Solatium certainly was received as "a result of transfer" of the capital asset. So in my view, solatium would form part of the Sale Consideration.
Thanks,
CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "Devarajan.V. " wrote:>> Whether solatium received in compulsory acquisition is taxable? If so, > whether it has to be treated as part of compensation amount received > towards the property or should it be taken as income from other > sources?> > CA Devarajan.V>

Professional Fee--No Books--Tax Audit

Professional Fee--No Books--Tax Audit

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Hi Vineet,Do you have an OPTION to show the Professional receipts of Rs 70 lacs as something other than Income from Business or profession? No! You yourself have called it professional fee on which TDS has been made u/s 194J. Then where's the question of having it taxed under any head of income other than B/P? Tax Audit of course will be required since the professional receipts are way above the threshold of Rs 10 lacs. Whether or not any expense has been incurred in order to earn that fee has nothing to do with the requirement of tax audit. By the way, how come he hasn't incurred any expense to earn this much fee? Have the car, computer and all other professional paraphernalia been provided by the company? If he drives his own car, you HAVE to claim depreciation on it, or at least knock down the WDV by the prescribed rate of depreciation. If there are no books of accounts, then you better write those up Sir! Read up Section 44AA with Rule 6F. Professionals (I am sure your client falls in one of those categories, since TDS has been deducted u/s 194J) are required to maintain books of account if their receipts in a year exceed Rs 1.50 lacs. In case they don't, penalty of Rs 25000 could be levied on them u/s 271A. In case of businessmen, we can get away by writing in the Tax Audit Report that no books of account have been prescribed. But for professionals, there's no such leeway. They have to have the books listed in Rule 6F written up. If your client hasn't incurred any expense, then it oughtn't to take more than an hour to write up his books.
Thanks,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, vineet agrawal wrote:>> Sanjeev Sir,> > Also enlighten us on the following issue:-> > My client has received Rs. 70 Lacs as professional fees first time on which tax was deducted U/s 194J by the payer company. He is also a salaried employee in another company, drawing a handsome amount. In fact he has not incurred any expenses for this fees, nor he want to claim any expenses. > > My question is how to show this income in income tax return ?. If we show it as Business/Profession income whether Tax Audit is required even if no expense is being claimed? If yes, there will be no books of accounts, then what to write in tax audit report?> > Can we show it as Income from Other Sources?> > Solicit your expert view sir.> > CA. Vineet Agrawal,> New Delhi

Tax Audit required if Purchases exceed Rs 40 lacs

Dear Mr Sundesha,

Who told you you're not liable for Tax Audit under the IT Act if your sales do not exceed Rs 40 lacs? MVAT says you're liable for VAT audit if either your sales or purchases exceed Rs 40 lacs. And so does the Income Tax Act!There's a Mumbai Tribunal judgement in the case of Vijay Maheshwari, HUF (228 ITR (St) 157) where it has been held that the word "turnover" used in Section 44AB means purchases as well as sales. The Triumvirate of "Sales, Turnover or Gross Receipts" has stood in Section 44AB of the Income Tax Act since 1985, unchanged, untouched. In accounting terms we understand Turnover to be sales only. Then, why did the legislature feel the need to preface Turnover with Sales, if they mean one and the same thing? Apparently, the law understands these terms in a very different sense than we accountants do. In the Mumbai tribunal judgement referred above, the bench ruled that since the purchases exceeded Rs 40 lacs, tax audit was required. If the legislature intended to consider the figure appearing in the Credit Side of the P & L only as the one determinative of tax audit requirement, it would've just used the word "Sales". But Sales is followed by Turnover, which perhaps means the intention of the law is to go beyond mere looking at the figure arrived at after aggregating the sale invoices issued during the year. Although many people have found fault with this judgement, I see logic in it. I think we accountants restrict the meaning of turnover when we say it means Sales only. Turnover literally means being turned over and over again. The working capital is deployed to buy stock; the stock is processed and then sold; the payment is realized from the buyer; the money is invested back into buying more stock, and this cycle goes on and on. This is what Turnover is--the Working Capital Cycle. So clearly, even from an accounting point of view, Turnover means purchases as well as Sales. The idea of Tax Audit is to subject, to examination by a chartered accountant, the accounts of certain assessees whose volume of business exceeds a certain level. And, the volume of business is surely not measured by the figure of Sales alone. In fact it is Purchases that set in motion the cycle of working capital "turnover". You can also go through my Message No 9521 on this topic. I've discussed this before. So I don't think there's any conflict between requirement of audit under the MVAT and the Income Tax Act. If you're required to have the books audited under MVAT, you'll be required to do so under the I T Act as well, and as such there'd be no problem in procuring and attaching Form 3CB/CD with the MVAT audit report. Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, Laxman Sundesha wrote:>> Dear Sanjiv ji,> > In Income Tax , if and only if sales side exceed Rs. 40.00 lacs, Tax Audit as applicable but In MVAT it is cleared mentioned that either sale or purchase exceeds Rs 40.00 lacs, MVAT Audit is applicable. Now In MVAT , you must submit MVAT Audit report supported by 3CB & 3CD.> Sir, if my client is not liable to get Audit u/s 40 AB but liable for MVAT audit ,how i submit the MVAT Audit report without 3CB & 3CD. Please put some light in this situation.> > CA Laxman M Sundesha>

TAX AUDIT-APPLICABLE FOR ADVANCES RECD

Hi Mr Bangad,

Yes, tax audit u/s 44AB would be called for. The words "total sales, turnover or gross receipts" deployed in Section 44AB take care that cases like yours don't get left out of compulsory tax audit. Don't go by what the ICAI Guidance Note on Tax Audit says. It has no legal legs to stand on. How you account for an item of income or a receipt—-whether you show it as a liability or treat is item of P & L account--has absolutely nothing to do with the determination of quantum of turnover u/s 44AB. Accounting Standard 9 is subservient to the following Lucknow Tribunal judgement:[The assessee, a construction firm, filed return without the tax audit report under section 44AB. The assessee's contention was that he was following the mercantile system of accounting and, hence, section 44AB was not applicable as in the relevant year it received only advances for booking flats from customers and there were no receipts, sales or turnover as required under section 44AB. The Assessing Officer, however, rejected the assessee's explanation and imposed penalty for not getting accounts audited. In appeal preferred by the assessee, Commissioner (Appeals) deleted the penalty. In department's appeal against the order of the Commissioner (Appeals), the Tribunal upheld the penalty imposed by the Assessing Officer. The Tribunal held that the assessee was under an obligation to get accounts audited under section 44AB. The Tribunal held that each and every word used in any statute has its importance and is used by Legislature after a lot of deliberations. The words used in section 44AB: `total sales', `turnover' or `gross receipts' have been used specifically and the scope of the words `gross receipts' is quite wide, otherwise Legislature would have stopped after using the words `sales' or `turnover'. Further, these advances were having an element of profit. The amount was to be adjusted towards the cost of flats booked by each customer and the amounts will have an element of construction cost as well as profit, which might be bigger in proportion when whole of the cost is realized.-- Dy. CIT v. Gopal Krishan Builders [2004] 91 ITD 124 (Lucknow) (SMC)]Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "VISHNU BANGAD" wrote:>> Dear> Kindly give your openion on the issue relating to tax audit applicability.> > One of our client engaged in construction activity, he has received advance agsint sale of flat/shop to the tune of rs.3 crores but sale is not taken place. Sale is recognise at the time of possession of flat/shop.> My query is wheather Tax Audit is applicable to said client.> > CA V.N.Bangad>

Pandit Ji's TDS

Shri Vijay and Miss Dhami,

Does Pandit ji pay tax on his income or not? Charging Rs 3 lac for just a simple Pooja ceremony?! And we get paid only Rs 1 lac for auditing two bank branches. I guess I should have been better off wearing a Dhoti round my waist and a tilak on my forehead, reciting those arcane Sanskrit verses than practicing as a CA! Section 194J is clearly out of the question, as the list of specified professionals does not have astrologers and the like mentioned in there. But I don't know how payment to the Pandit won't be hit by Section 194C. Why isn't the Pooja "any work" as spoken about in Section 194C? Consider the following Rajasthan HC judgement:[The word `any' is a word, which excludes the limitation and qualification and can mean `all', `each' and `every'. The meaning of this word given in the statute depends upon the context and the subject matter of the statute and its generality can be restricted by the context in which it has been used. It has been used as a prefix to the word `work' which means engagement in the performance of a task, duty or the likes. The term `work' covers all forms of physical and mental exertions or both combined for the attainment of some object other than recreation or amusement. The dictionary meaning of the words `carrying on' implies a repetition of acts - Birla Cement Works v. CBDT [1997] 95 Taxman 377 (Raj.).]Pooja is done to propitiate the Gods to usher in prosperity for the business. It is a common practice amongst businessmen to hire a Pandit to identify an auspicious occasion when they should launch a new business or venture into a new line of activity. The Pandit does the pooja and the new business gets underway. And the modern-day Pandit is not an ascetic who would accept whatever little money is thrown his way as Guru Dakshina. He is a true-blue professional who's got a tariff of charges for various occasions on which he's contacted to perform the pooja. When he contracts with someone to conduct a pooja in exchange for an agreed sum of money, isn't he performing a "task, duty and the like" as discussed in the above judgement? In my view, TDS would be deductible on the payment made to the Pandit. Hari Om Jai Jagdish TDS-deduct Hare,

CA Sanjeev Bedi

--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "vijay_as2003" wrote:>> Dear Mr Dhami, > In my view TDS is not to be deducted for the payment to Pandit ji as > this payment is not covered either in Section 194J or Section 194C. In > my view definition of work under section 194C is exhaustive and > professional services in 194J is also exhaustive.> Vijay Kumar > > > > --- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "dj_dhami" > wrote:> >> > Dear Members,> > > > My client has paid RS.3,00,000/ - to a pundit for carrinf Pooja at > the > > office.Whether TDS is applicable for such payments.If so,under which > > section?> >>

TDS on capital expenditure

Dhami Sahiba,

Thanks for making me chuckle in this dreary afternoon! Depreciation will not be disallowed just because you failed to make TDS on the capital expenditure. Depreciation is claimed u/s 32; disallowance of revenue expenditure is done u/s 40a(ia) for expenses mentioned therein. For that matter, if you buy a Maruti car for Rs 2.50 lacs making the payment in cash, will the depreciation on it be denied to you? Nahi Nahi. Shrimati Depreciation is a class apart; she's not to be treated at par with other revenue expenses. Section 32, the abode of Her Highness, is a very special section that lesser sections of the Income Tax Act can't trespass into. To claim depreciation, all you've to do is satisfy the conditions laid down therein—that is the asset must be owned by the assessee; it must be put to use, etc. Nowhere in Section 32 it is stated TDS should've been deducted on the component of capital expenditure on which it was deductible; or that payment for the asset should've been made through account payee cheque or blah blah blah.
Thanks,
CA Sanjeev Bedi
--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, dharmishta jadav wrote:>> Dear Sir,> > If that is the case then,if my client has not deducted TDS U/s 194C on payment to contractors, will the depreciation calculated on the capital expenditure be disallowed!! Please give some supporting case laws or circular if any> > > Yes, TDS is applicable irrespective of nature of expenses-revenue or capital.> > Regards / Sanjay Dudhoria> > > > Dear Memebers,> > Is TDS deducted on capital expenditure! !!In case TDS is applicable > what in case allowance of depreciation? Would that be allowed or not!!!

Service tax--Property Rent and GTA services

Hi Prasad,

There's no question of taking the amount incurred towards availing GTA services into account for determining the ceiling of Rs 8 lacs. See what the original notification No 6/2005 dated 1st March 2005 exempting services up to the value of Rs 4 lacs (now Rs 10 lacs) says at point 3: [3. For the purposes of determining aggregate value not exceeding four lakh rupees, to avail exemption under this notification, in relation to taxable service provided by a GOODS TRANSPORT AGENCY, the payment received towards the gross amount charged by such goods transport agency under section 67 for which the person liable for paying service tax is as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules, 1994, shall NOT be taken into account.]Under Section 68(2) the liability to pay service tax may be reversed—that is someone other than the service provider may be made liable to pay the ST. And vide Notification no 36/2004 dated 31st December 2004, the government has specified services in relation to transport of goods i.e. the GTA services, as those where the service recipient will be liable to deposit ST. So clearly, in your case only Rs 2.50 lacs, the rent of immovable property will be taken into account to determine whether you've breached the ceiling of Rs 8 lacs.

Thanks,

CA Sanjeev Bedi

--- In

ICAI_CIRC_MEERUT_ CA@yahoogroups. com, prasad naidu wrote:>> Dear All> > I have a private ltd company which gives the commercial property on rent. The rent comes around 2.5 lakhs. But the company also gets the service of GTA which the company pays after taking the 75% abatement( which more than a crore). My doubt is whether the exemption limit of 8 lakhs can be availed for the rent from house property or we have to take the GTA also in to account. please clarify ASAP.> > Thanks in advance> > > > CA PRASAD K> Chartered Accountant> Ph.093810 39044

Proposed Amendment of 'CHARITABLE PURPOSE'

Hi Mr Martin,

There was this news item in The Hindu Businessline dated March 11. The CBDT chairman has assured that Chambers of commerce will be kept out of the tax net. Their activities will continue to be treated as charitable in nature even if they engage in some business to augment their revenues. I qoote below from that report:[Addressing members of the Bharat Chamber of Commerce and Merchants Chamber, besides captains of industry, at an interactive session on `Direct Taxes: Policies and Prescriptions' , here on Monday, Mr R. Prasad, Chairman, Central Board of Direct Taxes (CBDT), Union Ministry of Finance, clarified that activities of Chambers of Commerce will not be brought under the tax net, under the new proviso to Section 2 (15) in the Union BudgetMr Prasad, dispelling the fears of the chambers, clarified that the services rendered by the chambers of Commerce without any profit motive will not be brought under the tax net. He said the clarificatory circular will be issued by the Government soon. The amendment clause, according to him, was to prevent misuse, as all public utilities cannot be excused from tax liability. "Let me clarifiy that only those who help promote business may be required to pay tax under this new provision," he said.]link:

http://www.thehindu businessline. com/2008/ 03/11/stories/ 2008031151901000.htm

Thanks,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, "MARTIN JOSEPH SELVARAJ" wrote:>> > This yr the fin bill poposes to ammend the charitable purpose as > follows.> > '(15) "charitable purpose" includes relief of the poor, education, > medical relief, and the advancement of any other object of general > public utility:> > > Provided that the advancement of any other object of general public > utility shall not be a charitable purpose, if it involves the carrying > on of any activity in the nature of trade, commerce or business, or > any activity of rendering any service in relation to any trade, > commerce or business, for a cess or fee or any other consideration, > irrespective of the nature of use or application, or retention, of the > income from such activity;'. > > A group of people in cluding some chartered accountants want to submit > a memorandum to the finance minister to modify the clause and make it > more clear so that gnuine institutions carying on activities > > 'in the nature of trade, commerce or business, or any activity of > rendering any service in relation to any trade, commerce or business, > for a cess or fee or any other consideration, irrespective of the > nature of use or application, or retention, of the income from such > activity;'.> > for the devlopment of poor as also for sustenance of the institution > itself are not affected.> > As a member of that group, I solicit valuable sugeestions from my > lerned colleagues> > Regards>

Cenvat Credit--Service Tax paid on Outward Freight

Hi Divya,

This issue is certainly is a hot potato! I am of course assuming you're taking about GTA services availed in respect of Outward Freight. Because there is no doubt about the Service tax paid on Inward Freight being eligible for cenvat credit. This entire discussion revolves around the interpretation of the expression "place of removal" appearing in Rule 2(l)(ii) of the Cenvat Credit Rules 2004. Rule 2(l)(ii) defining `Input Service" stands thus as on date:[(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products FROM the place of removal]"Place of removal" is defined in the Central Excise Act 1944 as follows:["place of removal" means—(i) a factory or any other place or premises of production or manufacture of the excisable goods ;(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be stored without payment of duty ;(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory;from where such goods are removed."]The Board has dealt with the issue of cenvat credit on outward freight in its Circular No 97/8/2007-ST dated 23rd Aug 2007. It has quoted from the judgements of Gujarat Ambuja Cements Ltd. v. CCE [2007] 8 STT 122 (Delhi - CESTAT.) and Ultratech Cements Ltd. v. CCE Bhavnagar 2007-TOIL-429- CESTAT-AHM in that circular. In these judgements the Tribunals had held that freight incurred towards post-sale transportation of goods is not an input service for the manufacturer/ consignor. The Circular upheld these judgements and assessees stopped claiming cenvat credit on ST paid on outward freight. But doubts still lingered, since there were conflicting judgements of the Tribunals. What the government has now done is amend the definition of "Input service" u/s 2(l)(ii) of the Cenvat Credit Rules. 1st April 2008 onwards, Section 2(l)(ii) will stand as follows:[(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products UPTO the place of removal]So "from" will make way for "upto" on the dawn of the new financial year. This has presumably been done to dispel any doubts about the non-availability of cenvat credit on ST paid on outward freight. If you're dispatching your goods to a depot or a warehouse from where they'll be sold out to customers, then you will be able to take cenvat credit on ST paid on GTA services. But when your place of manufacture itself is the place of removal, then you can forget about cenvat credit. This certainly is the line of thinking of the government. But this substitution of "from" with "upto" seems too cosmetic and shallow to clear the air on this issue even after 1st April 2008. The para succeeding the two sub-clauses of clause L still begins with the word "includes" and then goes to list various services some of which aren't even remotely connected with the manufacturing of goods. I don't know of any manufacturer/ consignor who is claiming cenvat credit on ST on Outward Freight. A few adventurous ones are claiming it and being denied. Thanks,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, divya jaiswani wrote:>> Sir> > Further to that, considering the budget notifications issued by cbec can we take credit of service tax paid on GTA (paid @ 12 %) in netting of our liability of service tax payable of output service provided by us.> > Regards> Divya

Capital Gain--New Building let out

Hi Mr Athale,

First, does the sale consideration of Rs 62 lacs include the cost of
land as well? I presume Rs 5 lacs being the opening WDV of Building
did not include land. But Rs 62 lacs it seems includes the total
sale consideration— -for both land and the building. Actually, I
brought this up because this is a common mistake—-assessees forget
to segregate the sale proceeds of land and building and treat the
entire excess of sale proceeds over the WDV as STCG and end up
paying tax at the maximum slab rate on it.

Anyway, your question is more on how to deal with the issue in terms
of accounting entries in the books.

If the new factory building has been let out on rent, then its cost
will not form part of the Block of Assets as defined in Section 2
(11) of the I T Act. So a new account will have to be opened for it
in the books. If the new building is clubbed with any existing block
used for business and eligible for depreciation u/s 32, it may
create confusion and cause errors in calculating depreciation and
determining the nature of CG if and when the building is sold.

Please also note that if the new factory building is being let out
only temporarily to pass through a lean patch in the assessee's
business, the rental income may be treated as Business Income. There
are enough case laws on this. Obviously, if you can treat the new
building as a block of depreciable assets u/s 2(11) and section 32,
you can have a building block of Rs 3 lacs to claim depreciation on
and there won't be any STCG of Rs 57 lacs!

Thanks,

CA Sanjeev Bedi

--- In ICAI_CIRC_MEERUT_ CA@yahoogroups. com, sdathale
wrote:
>
> in one of the proprietorship case there is a opening balance of
factory building of Rs. 5,00,000/- after charging depreciation on
annual basis and the same is sold during the year for rs. 62,00,000/-
. thus there is a short term capital gain of rs. 57,00,000/- the
assessee has purchased new factory premises for rs. 60,00,000/- but
same is given on rental. whether all entries will come in one block
of assets.
>
>
> s.d.athale
>

Tax audit--Clubbing of Receipts from Bus. and Prof.

Hi Mr Agarwal and Abhishek,

This issue—-about the requirement for tax audit in case of businesssales of say Rs 36 lacs professional receipts of say Rs 8 lacs---didcross my mind while I was penning down---typing out to be precise!---my earlier reply. But I didn't touch upon it and restricted my replyto specifically what Anjana Behanji had asked.Although from a layman perspective, "business" and "profession" aretwo sides of the same coin and are used interchangeably, in theIncome Tax Act these two terms have been used in a mutuallyexclusive sense. So even though the inclusive definition of Businessu/s 2(13) as "any adventure or concern IN THE NATURE of trade,commerce or manufacture" would seem to embrace a Profession as well,in view of the separate definition of "profession" u/s 2(36), it isclear the law intends to treat Business and Profession as twodifferent animals.So a doctor has receipts of Rs 8 lacs from treating patients; healso has a business of selling garments sales of which are Rs 36lacs. Would he be required to get his accounts audited?The Guidance Note on Tax Audit u/s 44AB issued by the ICAIfortunately comes to our rescue. I am quoting below para 5.14 of theGuidance Note:[5.14. A question may arise in the case of an assessee carrying onbusiness and at the same time engaged in a profession as to what arethe limits applicable to him under section 44AB for getting theaccounts audited. In such a case if his professional receipts are,say, rupees twelve lakhs but his total sales, turnover or grossreceipts in business are, say, rupees twenty two lakhs, it will benecessary for him to get his accounts of the profession and also theaccounts of the business audited because the gross receipts from theprofession exceed the limit of rupees ten lakhs. If however, theprofessional receipts are, say, rupees seven lakhs and total salesturnover or gross receipts from business are, say, rupees thirtyfour lakhs it will not be necessary for him to get his accountsaudited under the above section, because his gross receipts from theprofession as well as total sales, turnover or gross receipts fromthe business are below the prescribed limits.]So it's clear then. Unless the receipts/sales/turnover from theindividual component of business/professional activities exceed Rs10 lacs or Rs 40 lacs, no tax audit would be required. Professionalreceipts of Rs 12 lacs and business sales of Rs 22 lacs tots up toRs 34 lacs. But still, says the Guidance Note, the assessee needs toget the accounts of not only his profession but also his businessaudited. By implication, if the sales of business are Rs 40.10 lacsand receipts from profession are Rs 2 lacs, the accounts of theprofession too would need to be put under the CA's scanner. On theother hand, if sales from business are Rs 39.99 lacs and receiptsfrom profession are Rs 9.99 lacs, then the assessee can go scot-free.But respectfully, I partly disagree with this interpretation ofSection 44AB by the ICAI. From what I understand of the big ideabehind the introduction of this section, I think tax audit would becalled for even where the aggregate receipts from two separate anddistinct activities of business and profession exceed Rs 40 lacs.The distinction between "business" and "profession" laid down in theAct seems more academic than real. As far as the tax assessment isconcerned, both business and profession are assessed under the samehead of income. So if the idea is to rope in assessees whose incomesexceed a certain level, it doesn't make any sense to let go of theassessees whose gross receipts from the twin-activities of businessand profession cross Rs 40 lacs, but the individual receipts ofeither of the two activities is below Rs 10 lacs/ Rs 40 lacs. Butthis is what the ICAI is saying above.As far for the VAT part, in Punjab there's no legal requirement toapply for only one registration when you carry on two differentbusinesses at two different places.Thanks,CA Sanjeev Bedi--- In ICAI_CIRC_MEERUT_CA@yahoogroups.com, "CA J P Agarwal" wrote:>> Dear Sanjeev Bhai,>> I would like to have your opinion when the professional income issay Rs 5> lacs and business (other than profession) is Rs 36 lacs (whichprobably the> members who wrought earlier intended to ask) would audit u/s 44ABbe> attracted>> Further, I would like to add that as far as I understand evenunder VAT (UP> Trade tax) for different businesses owned by one assessee single> registartion is required. If it is otherwise please apprise.>> CA J P AGARWAL>>> Hi Anjana and others,>> I don't know what the big issue is about. Section 44AB speaks of> turnover "in" business and not "of a" business. The use of the> preposition "in" rather than the words "of a" leaves little roomfor> doubt that for the purposes of tax audit, the turnover from various> businesses carried on by a person is to be aggregated; and if this> figure exceeds Rs 40 lacs, each constituent business will be> subjected to tax audit.>> The Rajasthan High Court has had an occasion to dissect Section44AB> recently in the case of Bajrang Oil Mills v. ITO [2007] 163 TAXMAN> 154 (Raj.). Although the matter before the court had more to dowith> the interpretation of seemingly synonymouswords "sales", "turnover"> and "gross receipts" used in Section 44AB, the judgement clearly> betrays what would have been the decision of the court had this> multiple-business issue we are discussing come up before it.>> The court held that the maximum limit of Rs. 40 lacs in section44AB> has been fixed in the case of EVERY PERSON who is carrying on> business and whose total receipts from the business activity, which> come under the head "Income from profits and gains of business",> have to be viewed as ONE INTEGRATED WHOLE and NOT INDEPENDENTLY.The> assessment of a person is on the total income and not on the income> derived from the different sources separately.>> Also what about depreciation u/s 32? Would you add up the WDV of> different asset blocks employed in different businesses? Suppose a> proprietor owns two businesses--A and B. Machinery in Business Ahas> a WDV of Rs 100 and the machinery in Business B stands at a WDV of> Rs 70; the machinery of Business B is sold for Rs 110, how wouldyou> deal with it?>> In this situation, what we'll do is prepare only one Dep Chart for> both businesses for Income Tax purpose. So the total closing> machinery WDV will stand at Rs 60 (170-110). Those who advocatethat> sales figure of each individual business be looked at independently> for tax audit would also now have to take a stand that WDV of> Business A would keep standing at Rs 100, while we shall compute an> STCG of Rs 40 (110-70) in Business B. Would that be right? This> would be palpably wrong, as a reading of Section 32 would> reveal. "Used for the purpose of the business" as mentioned in> Section 32 envisages the aggregate WDV of the different assets> falling within the same block of assets even if deployed in> different businesses. Definition of "block of assets" u/s 2(11) too> underscores that the "block" concept would straddle over all> businesses of an assessee; a sale of an asset in one business may> impact the WDV of that class of assets in the other business. So> we'd need to prepare only IT Dep Chart to arrive at correct> depreciation/STCG/WDV.>> A perusal of the CBDT circular No 387 dated 06.07.1984 also clearly> brings out the intention of the legislature. The idea behind tax> audit was to assist the AO to determine the taxable income of the> ASSESSEE, by requiring certain "big" assessees to have their books> of account audited. It would be puerile to think that an assessee> having a single business with turnover of Rs 1 crore is a "big"> assessee; while another one having five different businesses with> sales of Rs 20 lacs each is a "small" assessee. If indeed such a> plea were to be accepted, there would be a huge deluge of> unscrupulous assessees springing up overnight who would obtain five> different VAT registrations with different trade names and refuseto> go under the 44AB scalpel on the grounds that the turnover in none> of their businesses is beyond Rs 40 lacs!>> Sat Sri Akal,>> CA Sanjeev Bedi>>> --- In ICAI_CIRC_MEERUT_CA@yahoogroups.com, "rani girdhar"> wrote:> >> > IN MY OPINION TAX AUDIT IS NOT REQUIRED BECAUSE BOTH THE> CONDITIONS OF U/S 44A ARE NOT SATISFIED.WHEN ACT DIFINES TWO> DIFFERENT NORMS FOR BUSINESS AND PROFESSION THEN WHY WE COMBINED> THEM.> >> >> > On Mon, 14 Jan 2008 saurabh garg wrote :> > >I my openion Tax audit is required.> > >> > >> > >> > >> > >On 1/12/08, ranjana mahajan wrote:> > > >> > > > i have 5 different business with different set of> books , having> > > > turnover of 20 lakhs plus in each business, but less than 40> lakhs in each> > > > of the individual business, dou think i dont need my> accounts to be> > > > audited u/s 44AB> > > >> > > > thnkx>

Capital Gains - Agricultural Lands

Hi Mr Shankar,

I presume that the land in question was not a capital asset in termsof Section 2(14) of the Act (not situated within 8 kms from themunicipality, etc). If it satisfied the exceptional conditions asmentioned in Section 2(14)(iii), then it would be treated as acapital asset even if you plowed it and grew vegetables on it.Now, in your case, the assessee used the land for agriculture but inthe revenue records, that piece of land was described as non-agricultural. Clearly, the assessee violated the norms by not takingpermission of the revenue authorities—-Tehsildar or whatever---before tilling it. However, from a perusal of decided case laws itseems the manner in which a piece of land is described in the landrevenue records isn't necessarily the only test of designating it asagricultural land.It's important to note that although "agricultural income" has beendefined in the I T Act, what exactly constitutes "agricultural land"hasn't been laid down. So we can argue that a common sense approachbe adopted in ascertaining whether a tract of land is agriculturalor not.Consider the following judgement:[Whether land is agricultural land or not cannot depend on thefluctuating or ambulatory intention of the owner of the land. Thecriterion must be something more definite, something more objective,something related to the nature or character of the land and notvarying with the intention of the owner as to the use to which hewants to put the land at a particular point of time. Of course, thismust not be understood to mean that the intention as to user isaltogether an irrelevant consideration; it is certainly a factorwhich would bear on the nature or character of the land but it doesnot afford a sole or exclusive criterion for determining whether aland is agricultural land or not. Where the land is actually put touse, there is usually not much difficulty in ascertaining the natureor character of the land. If the land is USED FOR AGRICULTURALPURPOSES, ordinarily it would be CORRECT to say that the LAND ISAGRICULTURAL land and vice versa. But even this test may not alwaysfurnish a correct answer, for, there may be cases, where landadmittedly non-agricultural (such as a building site) may be usedtemporarily for agricultural purposes. In such cases it would not becorrect to say that merely because the land is in fact being usedfor agricultural purposes, it is agricultural land. But as a generalproposition it may be stated without any fear of contradiction thatORDINARILY the ACTUAL USER TO WHICH THE LAND IS BEING PUT wouldfurnish prima facie EVIDENCE of the TRUE NATURE or character of theland and, therefore, whenever a question arises whether a particularland is agricultural land or not, primarily regard must be had tothe purpose for which the land is being ACTUALLY USED at or aboutthe relevant time and that would ordinarily provide a satisfactoryanswer to the problem - Rasiklal Chimanlal Nagri v. CWT [1965] 56ITR 608 (Guj.).]There are scores of judgements like the above. But in none of thosehave I noticed the courts laying down the description of land in thetehsildar's records as the litmus test for determining whether ornot it was agricultural land. The emphasis in all judgements is onthe actual use of land, like in the above one I have cited.So I think a lot will hinge upon your persuasive powers now. Ifindeed your friend's dad was actually soiling his hands tilling thatpiece of land, I think you can fight it out with the AO. See also ifyou can approach the Tehsildar/CMDA authorities to seek theirpermission for change in land use after paying appropriate fee forcondonation of delay.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Shankar S.C." wrote:>>> Dear Members,>> I would like to have your valuable views on the problem faced byone of> my best friend's father. My friend's father sold some agriculturallands> during the assessment year 2005-06. As he was of the view thatthose> lands which he sold were agricultural lands and it was outside the> purview of capital gains. With this in mind he did not showcapital> gains in his returns. During the scrutiny procedure the Assessing> Officer treated these lands as non agricultural and charged toCapital> Gains Tax based on enquiry from the CMDA authorities and thedistrict> Tashildhar . My queries are:>> 1. Whether the lands sold at the time of sale is classified as non> agricultural but if the assessee was carrying on agriculturalactivities> before such sale could such Sale be treated as agricultural incomeand> be protected from capital gains tax.>> 2. The sale consideration received by my friends father is farbelow the> market price and the assessing officer has substituted the marketprice> as the consideration received by him U/s. 50c to calculate Capital> gains.>> At present he is very much disturbed and being a senior citizen hewould> like to know whether there is any other avenue open to fight hiscase.>> CA Shankar S.C.>

Minor's income; Parents no more

Hi Piyush,

With the death of both the parents, the clubbing provisions ofSection 64(1A) go out the window. Even if the parents divorce,clubbing provisions still hold; the kid's income is clubbed alongthe income of the parent who maintains the kid. But in theunfortunate event of both Mummy and Daddy Allah-ko-piara hoeing,there's no way you can club the child's income with any of hisuncles, aunties or grandparents.Consider the following judgement of Chennai Tribunal in the case ofR.P. Sarathy v. Joint CIT [2005] 97 TTJ (Chennai) 801; [2006] 5 SOT731 (CHENNAI):[Facts:The parents of the assessee, who was a minor, died in an accident inJune/July 1993. Her grandfather sent her to school under hisguardianship. She inherited movable and immovable properties of thedeceased parents and also from her grandmother. The amounts receivedby her by way of inheritance and gifts on birthdays were invested byher grandfather. For the relevant assessment years she computed herincome and filed nil return on the ground that the income of minorwas not taxable. The Assessing Officer, however, assessed the entireincome in the hands of the legal representatives of the assessee. Onappeal, the Commissioner (Appeals) confirmed the action of theAssessing Officer.]On appeal the Tribunal held that none of the exceptions (divorce orpersonal skill of the minor) applied to the assessee as neither ofthe parents was surviving. The minor was not liable to file thereturn of income as per the provisions of the Act, in case both theparents were not alive. Section 64(1A) does not speak about thesituation where both the parents are not surviving. But fromExplanation (b) to sub-section (1A) of section 64, it can be easilyconferred that the minor's income, in case both the parents are notalive, cannot be assessed in the hands of the grandparent or anyother relatives. Further, there is no provision to assess theminor's income in the hands of the minor and if the parents do notsurvive, then that income cannot be clubbed in the hands of any ofhis grandparents or anybody who maintains the minor child. Since theparents of the minor were not surviving in the instant case in hand,the income of the minor could not be clubbed in the hands of hergrandfather. Accordingly, the orders of the lower authorities werequashed.]So it is clear that in the absence of both the parents, clubbing isruled out. The above judgement also correctly says that there is noprovision to assess the minor's income in the hands of the minorhimself, barring that manual skill/child prodigy exception. So doesthat mean in the instant case, nothing would be brought to tax onthe interest earned on FDRs created out of insurance proceedsreceived from the LIC consequent to the death of the parents?The answer it seems, also taking the ratio of the above ruling intoaccount, is: Yes. It seems the lawmakers, whilst they did visualizethe divorce and the child prodigy situations, forgot to think of asituation where both the parents depart for their heavenly abodeleaving the underage kid behind. What would happen to the survivingminor child's income?In my opinion, it won't be taxable at all.

Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Piyush Jain" wrote:>> Dear All,> Please guide me in following matter:> One minor has received plenty of funds from LIC due to the deathof his both of the parents. At present the said minor child is underthe guardianship of his maternal uncle. The amount of funds soreceived is proposed to be invested in bank FDRs. In whose incomethis interest income would be clubbed. Whether, in such case, sincedue to the death of the both of the parents, can return of the minorbe filed through any representative assessee without attracting theclubbing provisions u/s 64(1A).> I shall be very thankful for the kind guidance in the aforesaidmatter.> With Regards.> CA. Piyush Jain (Rishikesh)>

Assessability of minor's income

Hi Piyush,

I understand your thinking. I know it sounds a bit fantastical toargue that since both the parents have passed, the income of theminor won't be taxable at all. It's true that the I T Act nowherestates that the minor's income would be exempt from tax.Actually, this seems to me to be a huge lacuna in the law. My pointis that the only way you can tax a minor in her own individual rightis in the event of her being an artist/child model or earning moneyfrom some manual skill she's developed or being physically/mentallychallenged. In the absence of such exceptions, the law does notrecognize a minor assessee at all. When I argued for not chargingorphan minor's income to tax, it wasn't on the ground that itwas "exempt" from tax. My thesis was based on the settled principleof law that in the absence of the machinery provisions, the chargingsection (Section 64 1A in this case) fails. It's been decided by theChennai Tribunal that parent means the biological parent only. Andwhen both the biological parents are no longer around, whose handswould you tax the minor's income in? If the law intended to tax theminors in their own right, why would they create Section 64(1A)? Whydidn't they provide for this eventuality of both the parents of thechild being no more, just as they've provided for the treatment ofthe minor's income in the case of the couple's divorce?If a childless couple dies and the insurance money is turned over totheir adult survivors say brother or sister, in that event theincome the survivors earn from the investment of those funds wouldbe taxable in their hands. But when the couple had nominated theirminor child as the nominee of their insurance claim, I am not sureif Section 160(1)(ii) can be invoked. Section 160 does not in anyway impinge upon the provisions of Section 64(1A). Since a minor isnot competent to contract, some representative assessee has to standin for him and sign the return, etc on his behalf. Seen in thislight, Section 160 is merely a procedural requirement, and keepingin view the provisions of Section 64(1A), section 160(1)(ii) wouldbe pressed into service only in the event of the minor child beingphysically or mentally challenged, or being a model or earning moneyfrom coaching classes or the like.Actually you are being conservative and I am being a littleadventurous here. But I reiterate that minor's income cannot bebrought to tax in his own hands UNLESS it is in those exceptionalcases; and your case isn't one of those exceptions.Still you can go ahead and apply the minor's PAN; have the incomeassessed in his hands; and let his maternal uncle sign the return.If you want I can send you a copy of the R P Sarathy judgement. Thisissue has been discussed very thoroughly in there.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Piyush Jain" wrote:>> Dear Sir Mr. Sanjeev Bedi,> First of all I want to extend my sincere thanks for your detailedkind reply. Sir, I am fully agreed with your view that in case ofthe minor (whose both of the parents have deceased) clubbingprovisions would not be attracted. But I am not satisfied with yourview that interest income to such minor would not be taxableat all. In my view nowhere in Income Tax Act ithas been mentioned that the income of the minor would be exempt fromtax. While section 64(1A) specifies the conditions in which theclubbing provisions would be attracted, proviso to section 64(1A)specifies only the conditions in which the clubbing provisions shallnot be attracted. > In my view in the given situation (when both of the parents of theminor have deceased), the income tax return should be filled throughrepresentative assessee.> My view is strengthen by the following considerations:> 1. The definition of theassessee given u/s 2(7): "assessee means a person by whom any tax orany other sum of money is payable under this Act, andincludes…………………………………"> 2. The definition of theperson given u/s 2(31):……………….. "person inclues :- (i) anindividual………………………………………………………………………………..">> 3. In case of the minornormally minors' FDRs a/c with bank are opened only under theguardianship of any person who is major. In such case the provisionspertaining to representative assessee as contained u/s 160(1)(ii) and u/s 161 shall be relevant.>> In my view in the given situation PAN of minor should be appliedthrough representative assessee and after that income tax return ofsuch minor should also be filed through representative assessee. Theguardian of the minor can be his representative assessee.> So, In my view if the income tax return of the minor is so filedthen it would be a proper compliance of the act and it would notattract the clubbing provisions.> Sir, I humbly request you to guide me whether I am thinkingin the right direction or not. For last over one year I have been avery careful reader of all of your replies. I have learned a lot byreading your mails. This is the first time that I am interactingwith you. I am very eagerly waiting for your reply.With Warm Regards.> CA. Piyush Jain (Rishikesh) >> >>> >

Query related to FBT

Hi Manisha,

Only those expenses that form part of the actual cost of a capitalasset eligible for depreciation u/s 32 are not subjected to FBT. Butthe expenditure falling within clauses (A) to (P) of Section 115WB(2), incurred by a builder, which is not being charged to the P & LA/c in keeping with the requirements of the Accounting Standard,will not be exempt from FBT.Consider answer to Q 16 in the FBT circular of the CBDT:[Whether pre-operative expenses falling within the categoriesspecified in section 115WB(2) would be covered in the scope offringe benefits?16. Any expenditure incurred for the purposes referred to in clauses(A) to (P) of sub-section (2) of section 115WB is liable to FBTirrespective of whether such expenditure is incurred prior tocommencement of the business or thereafter.]The flats will be the builder's stock-in-trade, and not capitalassets. So the FBT will be very much required to be paid on theseexpenses in the year in which they are incurred, no matter when theyare charged to the P & L A/c.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, CAmanisha chopra wrote:>> Dear Members,>> This is a case of a Builder who is preparing his accounts onconstruction Completed method thus capitalising all the expenditureduring thconstruction period as pre operative.> The account of preoperatives shall be proportionally devided toall the flats.>> My query is that in case of capitalising these expenditure ,does it make any sence of exemptimng from FBT.>> I am slightly confused that's why this query.>>>>> CA MANISHA CHOPRA> NEW DELHI>