Income from Plantations

INCOME FROM TEA, COFEEE & RUBBER PLANTATIONS.

It may be recalled in the earlier article we have analyzed the generation of agricultural income, the manner it is considered as exempt under the Income-tax Act and what are the conditions tagged on to derive such benefits. While general agricultural income enjoys blanket exemption, if it is not accompanied by any other income derived by a person, the manner of treatment accorded to income from Tea, Coffee and Rubber Plantations are altogether in a different platform. While general agricultural income as it is generated enjoys, the lawmakers did not consider it necessary to dwelve at length the basis for computation of such income. However income generated from Tea,. Coffee and Rubber Plantations stand altogether in a different footing, for certain percentage of income generated from these sources are subjected to Income-tax. The idea behind taxing these incomes (though they are also derived from the same agricultural source) is that persons involved in these operations have to necessarily deploy larger inputs and such persons could tend to be men worthy of means. In a society which craves for progressive taxation as its avowed policy, the law makers have thought it fit to tax such entities on a limited scale, for they are the affordable lot, when compared to the tiny common who could generate agricultural income to a very limited extent from their land holdings. On the other hand owners of plantations have necessarily to possess larger extent of land to raise their crop, who are necessarily endowed with the necessary wherewithal to invest and reap benefits. It is such back ground, in the minds of the law makers which has instilled in imposing a certain levy on incomes generates from these sources.

COMPUTATION OF INCOME FROM TEA; Rule 8 of the Income-tax Rules provides that Income derived from the sale of tea grown and manufactured in India by any person shall be computed treating it as though it is income derived from business and forty percent of such income shall be taken to be the income liable to tax. While computing the income from tea, development allowance as laid down under section 33AB of the Income-tax Act shall be allowed. The extent of deduction to be allowed are: (admissible from the assessment year 1991-92 onwards)

1. The sum of money deposited in Tea/Coffee/Rubber Development account maintained by an assessee with any Bank, under a scheme as approved by the Tea/Coffee/Rubber Board, before the expiry of 6 months from the end of the previous year or before the due date for furnishing a return of income or
2. Deposited the money in a deposit account opened in accordance with and for the purpose framed in a scheme framed by the Tea/Coffee/Rubber Board shall be allowed a deduction as under:
1. a sum equal to the amount of the aggregate of the amount
2. a sum equal to forty percent of the profits of such business (computed in the manner laid down for computing income from profits and Gains from business or profession) before making any deduction under this section.

The other inherent condition with regard to the benefit of deduction for tea growers/manufacturers is that

1. the assessee shall at least 3 months before the commencing of operations for plantations or re-plantation, give notice of intention to the Tea Board in writing
2. the assessee shall afford the Tea Board authorities or such other agencies as may be authorized by the Tea Board to inspect the area under plantation or re-plantation
3. the assessee shall furnish to the Tea Board all such particulars, Documents or statements in relation to the planting or replanting of tea, as the Tea Board may require from time to time
4. and the assessee shall furnish to the assessing Officer along with the return of income for the previous year for which the deduction is claimed, a certificate from the Tea Board in form 5 and a statement of particulars in form 5A

This apart, the deduction shall be allowed only when the books of accounts are audited and a report is rendered by a chartered account qualified under section 288(2) of the Act. Further the amount deposited in the account shall not be withdrawn except for the purposes specified in the scheme or in the circumstances specified below:

1. closure of business
2. death of an assessee
3. partition of a Hindu Undivided family
4. dissolution of a firm
5. liquidation of a company.

The assessee shall forfeit the benefit of deduction if

1. if the funds are utilized fopr installation of any plant or machinery in any residential accommodation including a guest house
2. for acquiring any office appliances, other than a computer
3. any machinery or plant the whole cost of which is allowable as a deduction &
4. acquisition of any new plant or machinery for the purpose of construction, manufacture or production of any article or thing specified in the Eleventh schedule.

The instances of above violation shall entail in the entire amount being treated as the income of the assessee and brought to tax in the normal manner. Similarly where the assets acquired in accordance with the scheme or deposit held is transferred within a period of 8 years from the date of deposit/acquisition, then the assessee shall forfeit the benefit of exemption and the assessing Officer shall make an assessment on the extent of deposit so used for purposes other than the one laid down, as the income of the assessee in the particular year of violation and bring the same to tax in the normal manner

COMPUTATION OF INCOME FROM MANUFACTURE OF RUBBER:

Income-tax Rules 7A provides that 35% of the income derived from the sale of centrifuged latex or latex based crepes (such as latex crepe) or brown crepes remilled crepe, smoked blanket crepe or flat barke crepe or technically specified block rubbers manufactured or processed from field latex or coagulumn obtained from rubber plants grown by a seller in India, shall be adopted, treating the entire process as business income.

While computing the income from sale of rubber as above, cost of planting rubber plants in replacement of plans that have died or become permanently useless in an area already planted, if area has not already been abandoned as waste land shall be allowed as a deduction. While working out the admissible deduction, the value of subsidy, if any granted shall no be reduced from the cost of such planting or re-planting.

COMPUTATION OF INCOME FROM THE MANUFACTURE OF COFFEE:

Income-ax Rules 7B provides that 25% shall be deemed to be the income derived from coffee from the value of coffee grown and cured by the seller in India, treating the same as a business proposition.

Income derived from the sale of coffee grown, cured, roasted and grounded by the seller in India, with or without mixing chicory or other flavouring ingredients shall be computed as if it were income derived from business and 40% of such income shall be adopted as income derived from this source.

It has furher been explained that the term curing shall have the same meaning as assigned in clause (d) of section 3 of the Coffee Act, 1942 (7 of 1942)

Similarly as discussed in the case of rubber, allowance shall be made in respect of the cost of planting of coffee plants and replacements of plants that have died or become permanently useless in an area already planted if such area has not been previously abandoned. While computing the deduction, the value of subsidy, if any provided to the grower shall no be deducted.

The benefit of exemption as discussed under Tea enumerating section 33AC shall equally apply for both Coffee and Rubber incomes. I.e. deposit in specific account with NABARD. (National Bank for Rural and Agricultural Development)

The encouragement from the taxation point of view of comparison though very much differs from the normal agricultural income, yet, while considering the enormous investments and possibility of the industry gaining substantial boost/boom could be reasonably termed as commensurate with the merit and potential of the industry as a whole.

Matter of Bonus Payments

SOME PROCEDURAL DIFFICULTIES IN THE MATTER OF PAYMENT OF BONUS FOR THE YEAR 2007-08 (FINANCIAL YEAR) AND PRACTICAL SOLUTIONS ARE DISCUSSED IN THIS ARTICLE.

An issue was brought to light in the discussion table of Tax Forum that with the advent of the advanced due date viz. 30th of September for filing of returns by all entities who are subjected to Tax Audit as laid down under section 44AB, there are certain practical difficulties in the matter of charging the Payment of Bonus to employees covered under the Payment of Bonus Act. The difficulties visualized are that under normal circumstances, it has been the convention of Corporate entities to pay Bonus at or upon the exact festivity which mostly happens to be Deepavali in our country. This year, actually Deepavali festival falls on 29.10.2008. Up to last year, the due date for filing of Tax Audit Reports and returns was up to 31st October. Under normal circumstances any expenditure is charged to revenue during the financial year itself. However since Bonus payment is an issue to be decided only on arriving at the actual profits available for such consideration; besides, a decision has to be taken on the extent of Bonus payable according to situation occurring in each year, the same cannot be charged as a normal expenditure. By virtue of the provisions of section 43B of the Income-tax Act, if the payment is made before the due date for filing of the return, the expenditure in question would be admissible as a deduction, being a charge on the profits of the year.

Since during the year in currency, the festivity Deepavali falls a month beyond the due date for filing of the return, in order to claim the deduction, there is a suggestion that a provision could be made in the accounts. Or conversely, instead of making payment under the nomenclature of Bonus, certain adhoc payments in the form of ex-gratia award could be considered. In this back ground, what is the impact on the entrepreneur, is being analyzed in this article.

It has also been expressed by many entities that normally, Bonus is being paid for a specific, festival and in this case for Deepavali. The concern of the institutions is that the provisions of section 43B is so scathing that unless the payment is made within the time allowed under section 139(1), of the Income-tax Act, it shall not be allowed as a deduction. The lurking anguish is that in the current year, Deepavali falling beyond the due date, laid down for filing the return viz. during October,08, it could be that the claim for Bonus, in the form of provision would perforce be disallowed,( as the payment cannot be made before 30th September,08) entailing in huge liability, by way of tax and attendant interest levies. The suggestion of the Managers is that we can style the payment as “adhoc” or “ex-gratia”and charge to the running account, in which case the difficulty could be overcome.

Section43B, which is a "non-obstente" provision, says, interalia, that “Any sum referred to in clause (ii) of sub section (1) of section 36..” shall be allowed (irrespective of the previous year in which the liability pay such sum was incurred by the assessee according to the method of accounting regularly employed by6 him) only in computing the income referred to in section 28 of that previous year in which such payment was actually paid.”

The above position makes it clear that unless the Bonus which is the issue in question is paid within the previous year or extended time of the due date for filing of the return of income, the same shall not be allowed. But would be allowed irrespective of the previous year to which it relates, in the year in which it is actually paid, no matter whether it relates to a different year or is not a charge on the profits of the year, in which the payment was actually made..

Now coming to the Payment of Bonus Act, it only envisages payment of Bonus to employees, upon their eligibility from out of the income earned during the previous year. This provision does not postulate any condition that it ought to be paid only during any specific festivity or time. It merely provides for payment according to the capacity and eligibility from out of the profits earned during the previous year. Over a period of time, we have adopted a convention by which we have been adopting a standard method of paying Bonus during Deepavali, which is predominantly the festival largely celebrated by the citizens of our country. The Managers have voiced their concern that since the Deepavali festivity actually falls beyond the due date for filing the return, payment made subsequently would entail in sizable liability. Such anguish is true and well reasoned. However, in order to over come the dis allowance, it is suggested that the Bonus can be paid well before the festivity to time before the due date for filing the return. There is absolutely no rigid rule or principle that a change in the procedure ought not to be effected.

To illustrate a few examples, it may be recalled that the Banks were adopting earlier the calendar year as the previous year. Similarly Income-tax payers were adopting different periods as their previous year such as “Samvath Year”. Deepavali year, "Vijayadasami year" “Tamil New Year”, “Yugadhi year”.. etc., But the legislature, however, by a stroke of pen ruled that hence forth the previous year for the purpose of finalizing accounts shall only be the financial year commencing from 1st of April and ending on the 31st day of March. The principle is that Bonus has to be paid for loyalty in service which has generated to the growth of the institution and earning of income. Such recognition can be made any time after the accounts are finalized and the real profits ascertained. It does not mean that the bonus should be so timed to suit any specific festivity. In view of the anomalous situation, there is nothing improper in adopting in this method. Besides, this is the only institution where regular method of payment of Bonus is being followed as per note of the Mangers who run the institution, while other governmental agencies are merely following the adhoc method.

The suggestion to switch over to adhoc method would not be recognized, as such a proposition is not being followed, as the system of maintenance of accounts and the method of accounting f, there is a possibility of the same being disallowed, as it is not a change on the income of the year. The only exceptional provision is section 43B which provides for deduction irrespective of the year of accrual, but the material yardstick is the date of payment. We cannot all of a sudden switch on to the new procedure, (to circumvent dis allowance) as it is likely to entail in procedural wrangles, besides involving the institution in litigation, which may take years to settle.

In this view of the matter, considering the back ground as projected in the detailed note, it is opined, that there is nothing improper in paying the Bonus before the due date for filing of the return. If it is not done dis allowance under section 43B is certain with additional tax liability, which cannot be mitigated later, especially the interest component. Added to that, the change in the procedure would not upset the apple cart of the institution, as it is not a shift in the policy of the affecting or impacting all institutions since payment of bonus is being systematically followed as per working conditions of employees. If, however we attempt to change the system by adopting adhoc or ex-gratia payment, it would be in conflict with the accounting method followed. This apart, there is every possibility that the payment shall be disallowed, as any deduction be it under section 36 or 37 are aimed at the current profits only. Hence if we charge the bonus of the earlier year, under the garb of ex-gratia payment, the stigma of “not laid out for the purpose of earning the current income” shall be applied. Further, being corporate entities we cannot shift our stand in the matter of accounting principles for the sake of a simple issue. Hence the alternate route of adopting ex-gratia payment and charging to the current profits is not desirable.

In this situation, the entities may appraise their respective Board of the urgent need to pay Bonus before the 30th September and obtain sanction, which would be perfectly within the 4 corners of law in all respects, both from the point of Payment of Bonus Act, Conditions of employment governing the employees as also the provisions of the Income-tax Act. No provision can be made in the accounts towards payment of Bonus, as any provision is perforce inadmissible, other than in cases of specific financial institutions and that too in the form of reserves.

Finally, as an alternative, it can also be considered that the entire Bonus be credited to each individual employee’s account with the condition that it shall be drawn only on or after the cut off date for the festivity. By this method, the money also goes out of the pockets of the entrepreneur and at the same time, in keeping with the convention being followed over a period of time, that it would be available for a specific festivity. This could also over come any future situation in which for each year, the date of festivity may vary and every year a new method cannot be adopted. If this is once credited, I could well suit for any future contingency.

Search & Seizure - Part 2

Continued in part II.(Search and Seizure under the Income-tax Act)

It may be recalled that in the earlier part of this article the manner search under section 132 of the Act is brought out by the Income-tax department, was explained in detail. It was also discussed therein, the genesis or nucleus for the conduct of the search and what are the situations that would warrant a search etc., In this part a detailed discussion on the further stage of search is discussed:

During the course of search, where it is found that any books of accounts, other documents, money, bullion, jewellery or other valuable article or thing are found in the possession or control of any other person, it may be presumed that

1. the books of accounts, other documents, money, bullion, jewellery or other valuable articles belong to such other person
2. that the contents of such books of account and other documents are true and
3. that the signature and every other part of such books of accounts and other documents, which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by or to be in the handwriting of, any particular person, and in the case of documents stamped, executed or attested by the person by whom it purports to have been so executed or attested.

The import of this provision rendered, under section 132(4A) of the Act is that a person in possession of books of accounts and other documents, which bears his hand writing or attestation (though ostensibly claimed as belonging to some one else) including other valuables as discussed supra, could possibly be identified, as relatable the person to whom those assets belong.( this process is predominantly to curb the benami deals) This identification is very necessary so that to fasten on him/them the tax attributable to such income generated, which could have possibly been concealed and suppressed from the purview of payment of tax.

As discussed in the earlier part, in case of practical difficulties arising during the course of search, heavy volume of the materials identified for seizure it is not possible to physically lift them and retain under safe custody of the department, the authorized Officer shall issue a prohibitory order, restraining the person searched forbidding him from removing or moving or tampering with the materials identified as seized but still kept under custody duly seized and sealed at the very same premises where the search was conducted.

The prohibitory order to issued shall lapse after a period of 60 days In other words, the authorized Officer shall take necessary action to assess or quantify the extent of income generated on the basis of the seized material to reconcile the income concealed and the possible tax avoided there from. The books of accounts and other documents seized shall not be retained by the authorized Officer for a period exceeding 30 days, from the date of order of the assessing Officer, who is the jurisdictional assessing Officer, passing the Post search assessment under section 153A or clause © of section 153BC.

The books can, however be retained for an extended period on the basis of the detailed reasons recorded with the approval of the jurisdictional Chief Commissioner or Commissioner or Director General or Director, for the period for which retention of the documents was found justified. Such extension and purpose of extended retention should also be communicated to the assessee. But all said and done, the orders of the Chief Commissioner or other authorities shall not go beyond 30 days from the date all the connected proceedings under the Act, relating to search assessments are completed.

In the meantime, the person searched can make copies from the books of accounts or other documents seized, in the presence of the authorized Officer or any other person empowered by him in this behalf. The extract or copying process can be done in any place as is convenient to the authorized Officer.

The auhorised Officer shall hand over all the books of accounts and other documents, to the assessing Officer, who has the territorial jurisdiction over the person searched within 60 days from the date of search, if the authorized Officer himself is not the assessing Officer. There after the assessing Officer shall take over all the functions as were exercised by the authorized Officer, including making of assessments. If a person who is legally entitled to the books of accounts or other documents seized, objects for any reason to the approval for the continued retention of books of accounts, then he may move an application before the Central Board of Direct Taxes, clearly furnishing the reasons for such objection. The Board may after providing an opportunity adjudicate on such application, in the manner it deems fit.

In this connection Rule 112 of the Income-tax Rules,1962 provides the necessary guidelines to be followed in the manner of issue of warrants of authorization, its execution, obligation of the person searched in extending co-operation with the authorized and his team, the manner of deposit of the materials seized. In cases where money is seized from any person, It shall immediately be deposited with the Reserve Bank of India or any branch of the State Bank of India, in the Personal Deposit Account of the jurisdictional Commissioner/director concerned. The person searched shall be furnished complete details of such deposits in proof of its safe transmission to government custody.

In cases where certain sealed on which prohibitory orders were passed, boxes are required to be opened in order to locate any valuable or material, then it shall be done in the presence of the person searched who shall be afforded necessary opportunity to personally supervise such operations. The manner the searched documents are analysed and the application of the seized assets are discussed in part III of this series of article.

Search & Seizure under the Income Tax Act (of India)

SEARCH AND SEIZURE UNDER THE INCOME-TAX ACT.

The Income-tax Act,1961, which governs us currently provides for Search and Seizure of properties/documents/money bullion or such other material under certain situations. In this article we are analyzing the basis for the conduct of search by the Income-tax department, the procedure to be adopted and the consequences that would follow on the persons searched.

Basis of search: In situations where the Director General, Director, Chief Commissioner of Income-tax, the Commissioner of Income-tax or any Joint Director or Joint Commissioner (the last two authorities on being empowered specifically in this behalf), as a result of information in their possession, leading to the belief that

a) Any person to whom notices have been issued under the Act to produce or cause to produce any books of accounts or other documents, has either omitted to produce or failed to produce such documents or
b) Any person to whom summons or notice has been issued to produce books of accounts or other documents will not produce such documents, which are useful or relevant for any proceedings under the Act or
c) Any person found to be in possession of any money, bullion, jewellery or other valuable article or thing and the value of such items constituting income, (hereafter referred to as undisclosed income) may no be disclosed by such person

Then, the senior level Officers of the department as identified shall authorize any Joint Director, Joint Commissioner or Deputy Director/Commissioner or an Income-tax Officer, who would henceforth be identified authorized Officer, shall

enter and search any building, place, vessel vehicle or aircraft where he has reason to suspect that such books of accounts or other documents, money bullion, jewellery or other valuable articles or things are kept.

For this purpose he has powers to break open any lock or any door, box or locker, safe almirah or other receptacle. He can also search any person who has got out or gets in or is in the place, if he has reason to suspect that such person is in possession of such books or other materials.

If the books or documents are found in the electronic mode, then he has the authority to ask such person to afford necessary facility to afford such officer to inspect such books of accounts or other documents.

He is also endowed with the authority to seize books of accounts, or other documents, money, bullion or other valuable article or thing found as a result of search. The authorized Officer has also the option not to seize, but to place marks of identification on all the properties, make out list of inventories and other materials.

If during the course of search, the authorized Officer has the need to access such places which are within the jurisdiction of a different Chief Commissioner or Director General, then the search by the authorized Officer shall not vitiate the search, as if a separate authorization is to be secured from the different Chief Commissioner or Director General there could be delay which may also hamper the search. For this purpose, the authorized Officer may, if necessary requisition the services of the Police Officials and I is incumbent on the latter to provide adequate support to the authorized Officer.

The authorized Officer shall examine on oath any person who is found to be in possession of the books of accounts, documents or other such items as listed. Any such statement rendered by the person shall be used as evidence during the course of the Post search assessment.

In case it is not possible to seize any material, the authorized Officer shall serve an order on the person searched not to remove or part with or otherwise tamper with the material identified for seizure and listed by him.

Apart from the above discussion, the usual procedure relatively adopted is to garner information from different sources. For this purpose the Central Information Branch of the department, which is headed by a Commissioner forms the nucleus. It is at this point all statutory reports from various agencies such as a) Banks in respect of cash deposits exceeding 10 lakhs b) Property registered with a value exceeding 10 lakhs c) Investment in shares exceeding 1 lakh and such other valuable information are stored. They are processed with reference to the records, if any that remain with the jurisdictional assessing Officer. Apart from his, various personal or other material complaints information will also constitute the basis for the conduct of search.
(Continued in part II)

Tax Law Q&A - Session 1

Question 1: I am a software professional employed in one of the prestigious concerns. Even though we have an ancestral house at vizag, yet, I am advised, I can go in for a flat, availing the bank loan, which is readily available. I am also advised by my employer that I could enjoy the benefit of deduction of interest on such loans from my income, as a deduction. I would be thankful, if you can kindly enlighten me on the different provisions available under the income-tax act.

Answer:
The querist has not indicated the place where he intends acquiring the new house. However the manner he has expressed his ambition, it is deduced that his proposal is to acquire a residence is, at his place of duty. In such a situation, Mr. Ramprasad is entitled to the following benefits:

1. If he resides in the new house, that he proposes to acquire, for his personal occupation, no value attribuable to the rent would be considered, as income under section 23(2)(a) of the income-tax act. Conversely, if he is drafted on assignment to any other station by virtue of which he is unable to occupy he same, but keeps his house vacant, then also, no notional income would be considered in his income-tax assessment.this is because he does not derive any benefit by way of rental income from the property.
2. The interest element arising out of the borrowed loan would be allowed as a deduction under section 24(b) to the exent of rs.1,50,000, for each year until it is liquidated.
3. This apart, he is also entitled to deduction under section 80c of the act, on the extent of repayment of principal relating to each year (until repayment of the principal is completed) specifically provided under section 80c(2)(xviii)©

The own ancestral house, at vizag., it is presumed belongs to the join family which would not deter the individual benefits, enuring to the querist.

Question 2: We have inherited an estate from our grand parents. The legacy also has laid down that our succession to the bequest is subject to our donating certain specific items of centuries old jewellery inherited by different generations, now descended to us, to a prominent temple of importance and worship. These jewellery are beyond description as to their exact identity such as necklace, chain etc. they only carry sentimental and antique value, they are sizable in number and must be very valuable in terms of present market worthiness. We were advised by a few friends that we can get the benefit of deduction under section 80g of the act. Kindly advise us of the possibility of any such benefit enuring to us.

Answer: The querist is advised that he can donate the jewellery in question to any temple of the choice specified in the legacy. ( under normal circumstances donation to any temple of national importance for repairs or renovation entitles a person to the benefit of deduction under section 80g(2)(vii)(b) of the income-tax act. At the same time, he is, cautioned / advised, that he would not be entitled to any benefit by way of deduction under section 80g of the income-tax act. This is because explanation 5 to section 80g clearly states that “ no deduction shall be allowed under this section in respect of any donation unless such donation is of a sum of money”

Question 3: 1. My sons reside in the USA and have been regularly making remittance to me. I am cautioned by one of my elderly, close friends that one fine morning, I could be nabbed for non payment of income tax and may be hauled up with penalty etc., please advice me the mode by which the department could know of such overseas transactions and what is the extent of tax obligation cast on me. Incidentally i am senior citizen running 74 years of age.

Answer: The lurking anguish and agony of the senior citizen is misplaced and apparently self made. The querist has not indicated the nature and character of remittance. In such a situation, it is naturally taken that the remittances by his children from abroad are in keeping with the filial obligation to their parents. Such remittances are naturally from out of income earned by them abroad, which would have suffered inherent taxation in the foreign soil. Conversely, if the receipts are independently taxed in India, by virtue of deemed accrual in India, then again it is only the sons of the senior citizen who are accountable for the tax liability. (explanation 2 to section 5 of the income-tax act) it is presumed that the senior citizen does not act as an agent of his son, but merely gets some funds from his sons.

The querist would not suffer any burden of tax liability with regard to the remittances he receives from his sons abroad.

As regards his curiosity as to the mode and manner by which the income-tax department could garner information about such remittances, he is conveyed that section 285ba of the income-tax act imposes an obligation on entities who:

1. Register purchase/sale/allotment of shares in any joint stock companies, where the value exceeds Rs.1 lakh.
2. Deposits in banks where it exceeds 10 lakhs during a financial year
3. Where the value of any property (immovable property) registered exceeds Rs.30 lakhs or more.

to furnish an annual information return before the commissioner of income-tax, central information branch of each state. This information would be processed by the department for verification and appropriate action depending upon the need in each case.

Question 4: I own a factory engaged in manufacturing aluminium castings and bearings. During the course of my business I make different payments to various concerns for their services, contract, job work etc., I also pay salary to my managers. While I am a proprietor being an individual, I am advised there is no obligation to deduct at source on payments I make to enterprises connected with my business, please advise whether the suggestion is correct and if not to what extent obligation is cast on me.

Answer: The querist is advised that the obligation to deduct tax from out of salary payment made to his managers are mandatory when once the payment exceeds the taxable minimum. Similarly on other payments also it is mandatory. As regards interest payments, if any, made by him, he is advised that if his turn over exceeds Rs. 40 lakhs he is bound to furnish a tax audit report as laid down under section 44ab of the income-tax act, then irrespective of his personal status, such as individual, huf etc., he is bound by the obligation to deduct tax under the relevant provisions on other payments also, subject to the basic limits provided therefor. Failure to deduct tax would entail in charging of interest under section 201(1a) besides penalty under section 271c of the income-tax act.

Question 5: My brother had sold his share of our ancestral property for a consideration of about 6.89 lakhs. This was also the value quoted in the sale deed executed by him. During the course of his tax assessment, he has been conveyed by his assessing officer that since the value of the property has been understated (even though the buyers have paid higher stamp duty on the basis of guideline value) he is going to substitute the actual guideline value to determine the capital gains. Actually my brother has received only the value declared in the sale deed and nothing more. What are the powers of the tax authorities in this line? Please advise.

Answer: The querist’s apprehension is well founded. When the assessing officer finds that in respect of a property which has been subjected to stamp duty on a value more than what is stated in the sale deed, he is entitled to substitute the value for which the registering authority has collected the stamp duty. In other words, if the guideline value for a specific property is more than the value furnished in the document, the assessing officer shall substitute the guideline value and hold it as the sale consideration, even though it may be notional. This is by virtue of section 50c of the income-tax act. He has to pay capital gains tax on the substituted value (deemed as sale consideration)

Articles

I have been writing a series of articles that have been translated and published in some newspapers in local languages. I plan to publish the same articles on this blog in English. I am happy to respond to questions.