TAX TALK- 21.09.2009-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“WHETHER EXPENDITURE IS DISALLOWABLE U/S 40A (3) IF AGGREGATE PAYMENT DONE AGAINST TWO DIFFERENT BILLS EXCEEDS RS. 20,000/-? ”
Query 1]
I want some clarification of Scope of section 40A (3) (As amended by the Finance Act-2008).
In the below mentioned case, if payment in a day of more than Rs. 20000 is made but against different LR/Bill, Whether It will be allowed or disallowed while computing taxable income of a company: -
Payee: Sai Transport
Bill / LR No.
Amt. Rs.
Time
Date
1.
15000/-
10 am
25th Sept
2.
18000/-
3 pm
25th Sept
Total payment made in a day is Rs. 33,000/- (Rs. 15000/-against Bill No. 1 & Rs. 18,000/- against Bill No. 2 at different time. Please give your comment considering scope of section 40A (3)? [sunil.kalbande@bilt.com]
Opinion:
Expenditure & payment of that expenditure in cash exceeding Rs. 20,000/- is necessary for disallowance u/s 40A(3).
Section 40A(3) of the Income Tax Act, 1961 reads as under: -”Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee Cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.”
We are of the view that no disallowance is attracted in your case. Section 40A(3) is applicable only in respect of an “expenditure” which is in excess of Rs. 20,000/-. In other words, for applicability of section 40A (3), both the bill and the aggregate payment of that bill should exceed Rs. 20,000/-. In the present case, you are making payment against two different bills (none of the bill is exceeding Rs. 20,000/-), the disallowance is unwarranted.
We are of the view that Amendment in section 40A(3) by the Finance Act– 2008 doesn’t cover the above disallowance.
Query 2]
1. Please refer to the last week’s Tax Talk Dated 14th Sept-2009. It is mentioned therein that shares be treated as a capital assets if an assessee do less transactions (delivery based) in shares and hold it for a longer duration. And if shares qualifies as a capital assets, long term capital gain thereon would be tax free u/s 10 (38). But I read some where that if and if STT is paid, than in that case, long term capital gain on shares is considered as exempt u/s 10(38). Please confirm.
2. Another query is of Land. My father purchased land in 1993 at 150/- per sq feet. He died in 2007. Now his legal heirs i.e. we, are going to sell out this land at 15,000/- per sq ft. Does our case come under long term capital gain? If so, can we claim tax exemption u/s 10(38) against capital gain or under any other clauses like shares? If we have to pay tax, then how much per sq ft. tax has to be paid? And to avoid tax, what is the way out? Somebody told us that we can purchase house for the difference amount (amount of capital gain) or Invest in Govt. bond like IDBI Bonds etc? If I already have one house in my name, than can I claim tax benefit for second house purchase? [desai1962@gmail.com]
Opinion:
1. Applicability of section 10(38): Exemption u/s 10(38) is available only on income arising from the transfer of long term capital assets being an EQUITY SHARE of a company or a unit of an equity oriented fund AND where such transfer is subjected to Securities Transactions Tax (STT). So, transfer of shares/Unit not covered by STT Payment, would not qualify for exemption u/s 10(38). Exemption is available only if the shares are capital assets and not merely on the basis of STT Payment. Payment of STT is one of the criteria for exemption u/s 10(38).
2. Capital gain on transfer of Land:a) Your father has purchased the property in the year 1993. You, all the legal heirs, became the owner of the property in the year 2007 on the death of your father. The land would be long term capital assets as the period of holding of that land in your hand shall be reckoned from 1993 and not from the year 2007.b) Long term capital gain on sale of land is not exempt u/s 10(38). Reason elaborated at (1) above.c) The long term capital gain is required to be calculated by deducting the INDEXED cost of acquisition from the amount of sale Consideration (or valued adopted by the Registrar of stamp duty for levy of stamp duty if it is higher than the sale consideration) received on sale of land.The indexed cost of acquisition shall be calculated as under: - Indexed cost of Acquisition =[(Area of the land in sq.ft. * Rs. 150)+ Registration Expenses etc of the land ] * Cost inflation Index (CII) of the Financial Year in which the land is sold / CII for the F.Y. in which the father died.You have not mentioned the months of purchase/sale/death in the absence of which financial year could not ascertained. Accordingly, in the absence of the required data, amount of long term capital gain could not be worked out.d) The amount of long term capital gain as computed above shall be divided amongst the legal heir in the ratio of ownership and is taxable separately in the hands of each legal heir.e) Option to Save Tax: The following two options are available to the legal heirs to save the tax on Long Term Capital Gain arising on transfer of land as under: -i) Exemption Under Section 54F:Invest the amount of Sale consideration ( and not the difference between the sale consideration and the indexed cost as mentioned in the query) received on sale of land for purchase of another house property within a period of 2 years (for construction- 3 years period is permissible) from the date of transfer of the Land. In case the amount is not utilized for purchase/ construction before the due date of filing the return of income of the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank. Exemption is available only if an assessee does not own more than one residential house property while claiming an exemption u/s 54F.ii) Exemption Under Section 54EC:Invest the amount of Long term Capital Gain in Specified bonds issued by Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI). Investment in other Government bonds/ IDBI bonds would not enable you to save LTCG tax.
BY CA. NARESH JAKHOTIA
(Chartered Accountant)
“WHETHER EXPENDITURE IS DISALLOWABLE U/S 40A (3) IF AGGREGATE PAYMENT DONE AGAINST TWO DIFFERENT BILLS EXCEEDS RS. 20,000/-? ”
Query 1]
I want some clarification of Scope of section 40A (3) (As amended by the Finance Act-2008).
In the below mentioned case, if payment in a day of more than Rs. 20000 is made but against different LR/Bill, Whether It will be allowed or disallowed while computing taxable income of a company: -
Payee: Sai Transport
Bill / LR No.
Amt. Rs.
Time
Date
1.
15000/-
10 am
25th Sept
2.
18000/-
3 pm
25th Sept
Total payment made in a day is Rs. 33,000/- (Rs. 15000/-against Bill No. 1 & Rs. 18,000/- against Bill No. 2 at different time. Please give your comment considering scope of section 40A (3)? [sunil.kalbande@bilt.com]
Opinion:
Expenditure & payment of that expenditure in cash exceeding Rs. 20,000/- is necessary for disallowance u/s 40A(3).
Section 40A(3) of the Income Tax Act, 1961 reads as under: -”Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee Cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.”
We are of the view that no disallowance is attracted in your case. Section 40A(3) is applicable only in respect of an “expenditure” which is in excess of Rs. 20,000/-. In other words, for applicability of section 40A (3), both the bill and the aggregate payment of that bill should exceed Rs. 20,000/-. In the present case, you are making payment against two different bills (none of the bill is exceeding Rs. 20,000/-), the disallowance is unwarranted.
We are of the view that Amendment in section 40A(3) by the Finance Act– 2008 doesn’t cover the above disallowance.
Query 2]
1. Please refer to the last week’s Tax Talk Dated 14th Sept-2009. It is mentioned therein that shares be treated as a capital assets if an assessee do less transactions (delivery based) in shares and hold it for a longer duration. And if shares qualifies as a capital assets, long term capital gain thereon would be tax free u/s 10 (38). But I read some where that if and if STT is paid, than in that case, long term capital gain on shares is considered as exempt u/s 10(38). Please confirm.
2. Another query is of Land. My father purchased land in 1993 at 150/- per sq feet. He died in 2007. Now his legal heirs i.e. we, are going to sell out this land at 15,000/- per sq ft. Does our case come under long term capital gain? If so, can we claim tax exemption u/s 10(38) against capital gain or under any other clauses like shares? If we have to pay tax, then how much per sq ft. tax has to be paid? And to avoid tax, what is the way out? Somebody told us that we can purchase house for the difference amount (amount of capital gain) or Invest in Govt. bond like IDBI Bonds etc? If I already have one house in my name, than can I claim tax benefit for second house purchase? [desai1962@gmail.com]
Opinion:
1. Applicability of section 10(38): Exemption u/s 10(38) is available only on income arising from the transfer of long term capital assets being an EQUITY SHARE of a company or a unit of an equity oriented fund AND where such transfer is subjected to Securities Transactions Tax (STT). So, transfer of shares/Unit not covered by STT Payment, would not qualify for exemption u/s 10(38). Exemption is available only if the shares are capital assets and not merely on the basis of STT Payment. Payment of STT is one of the criteria for exemption u/s 10(38).
2. Capital gain on transfer of Land:a) Your father has purchased the property in the year 1993. You, all the legal heirs, became the owner of the property in the year 2007 on the death of your father. The land would be long term capital assets as the period of holding of that land in your hand shall be reckoned from 1993 and not from the year 2007.b) Long term capital gain on sale of land is not exempt u/s 10(38). Reason elaborated at (1) above.c) The long term capital gain is required to be calculated by deducting the INDEXED cost of acquisition from the amount of sale Consideration (or valued adopted by the Registrar of stamp duty for levy of stamp duty if it is higher than the sale consideration) received on sale of land.The indexed cost of acquisition shall be calculated as under: - Indexed cost of Acquisition =[(Area of the land in sq.ft. * Rs. 150)+ Registration Expenses etc of the land ] * Cost inflation Index (CII) of the Financial Year in which the land is sold / CII for the F.Y. in which the father died.You have not mentioned the months of purchase/sale/death in the absence of which financial year could not ascertained. Accordingly, in the absence of the required data, amount of long term capital gain could not be worked out.d) The amount of long term capital gain as computed above shall be divided amongst the legal heir in the ratio of ownership and is taxable separately in the hands of each legal heir.e) Option to Save Tax: The following two options are available to the legal heirs to save the tax on Long Term Capital Gain arising on transfer of land as under: -i) Exemption Under Section 54F:Invest the amount of Sale consideration ( and not the difference between the sale consideration and the indexed cost as mentioned in the query) received on sale of land for purchase of another house property within a period of 2 years (for construction- 3 years period is permissible) from the date of transfer of the Land. In case the amount is not utilized for purchase/ construction before the due date of filing the return of income of the financial year in which transfer took place, the amount is required to be kept in a “Capital Gain Deposit Account Scheme” with a scheduled bank. Exemption is available only if an assessee does not own more than one residential house property while claiming an exemption u/s 54F.ii) Exemption Under Section 54EC:Invest the amount of Long term Capital Gain in Specified bonds issued by Rural Electrical Corporation (REC) or National Highway Authority of India (NHAI). Investment in other Government bonds/ IDBI bonds would not enable you to save LTCG tax.
Comments
Post a Comment