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T. Banusekar

MY MOTHER died in August 2002. During her time she had invested in NSS and NSC. She named me as the nominee while making these investments.

I have, therefore, received the proceeds after her death. Should I consider these as gifts from my mother or as my income and offer it to tax? - P. Vanaja Bhat

Reply

The income from these investments are to be assessed to tax. These incomes are assessable as income from other sources. Income under this head is assessable based on the method of accounting regularly employed by the assessee, either cash or mercantile, that is.

If your mother had been following the mercantile system of accounting, the income from these investments should have been accounted as her income in the years in which they accrued up to the year preceding her death.

It will, therefore, follow that the income up to the date of her death will have to be accounted for as her income and her legal representatives will have to file the return in their capacity as legal representatives in accordance with Section 157 of the Act.

The income after the date of her death will have to be assessed in the hands of the person(s) who are legally entitled for a claim of the said investments.

If your mother had been following the cash basis of accounting, the entire income accruing from these investments will be accounted only when they are received, which will mean that they would get accounted only after the death of your mother. It, therefore, would follow that the entire income from these investments will have to be offered as income in the hands of the person(s) who are legally entitled for a claim of the same.

Though you have been named as the nominee, it will not follow that the entire income will have to be accounted as the income of the nominee alone.

The income that needs to be accounted, as discussed, will have to be accounted in the hands of the person(s) who are legally entitled to the investments, which will depend on whether the deceased has left a will or not.

If the deceased has left a will, the same will be accounted in the hands of the persons who are entitled to the assets on the basis of the will. If no will has been left, it will have to be accounted in the hands of the persons to whom the assets will have to be distributed based on the Succession Act.

Query

Will investments made in recurring deposits and repayment of car loans qualify for rebate? - S. Dey

Reply

Neither of these will qualify for rebate. If the car is used for business or profession, the interest on the loan can be claimed as a deduction in computing the income from the business or profession. Interest on recurring deposit will qualify for deduction under Section 80L if the deposit is with a scheduled bank.

At present, the maximum deduction available under the section is Rs 12,000 in respect of certain kinds of income, such as interest from bank, NSC, NSS, Post Office Monthly Income Scheme, and so on. If the income includes interest from government securities, the deduction is available up to a maximum limit of Rs 15,000.

The deduction under this section cannot exceed the amount of such incomes included in the gross total income.

Query

We started a partnership firm for export of handicrafts during 1999-00. During that year and in 2000-01 and 2001-02, the partnership firm was unable to get any business. However, expenses were incurred for carrying on the business.

In 2002-03 the firm started manufacturing and sale of spare parts of certain machinery and earned a profit. Can the loss in 1999-00, 2000-01 and 2001-02 be set off against the income of 2002-03? The firm has not filed returns of income for 1999-00, 2000-01 and 2001-02. - Manoj Rawat

Reply

The loss incurred in 1999-00, 2000-01 and 2001-02 cannot be set off against the income of 2002-03. Without going into the other facts stated in the query, it can be seen that the assessee has not filed returns for the years in which loss has been incurred. This by itself is enough to disqualify the assessee from getting the benefit of set off of losses of those years against income of the subsequent years.

This is because Section 80 read with Section 139(3) requires that a business loss can be carried forward and set off against a business income of a subsequent year only if the return of income is filed within the time allowed for furnishing the return under Section 139(1), that is, the due date for filing the return of income.

(Business Line invites queries on personal taxation issues to this column. Queries may be sent to `Tax Talk', Kasturi Buildings, 859, Anna Salai, Chennai-600002, or by e-mail to taxtalk@thehindu.co.in (Readers are requested to mention `Tax talk' in the subject line of their e-mails.)

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