The Hindu Business Line : A house full of expenses, but are there sops?

I HAVE paid stamp duty and registration charges as well as loan application money and pre-EMI repayments. What tax benefits can I get? -- Murale, e-mail

You would get tax rebate under Section 88 if you are otherwise eligible for it (remember the Finance Act, 2002 denies tax rebate under this section to those having income above Rs 5 lakh) in respect of stamp duty and registration charges. But loan application fee would fall by the wayside. Interest, if any, embedded in the pre-EMI repayments can be claimed as deduction in five equal instalments once the construction is over but not before.

House rebate

I HAVE a house in respect of which I am already claiming the Section 88 rebate. This year I have, in addition, paid stamp duty and registration fee in respect of a flat under construction registered in my name. Can I claim Section 88 rebate in respect of both the houses? -- V. R. S. Manian, Varanasi

No you cannot. Section 88 contemplates tax rebate towards purchase or construction of a residential house. The accent is on a single property. There is another reason why you can't claim this rebate for the proposed new house. Section 88 allows tax rebate only in respect of a house property which is capable of being taxed under "income from house property". A house under construction therefore does not make the grade. At any rate, the measly qualifying amount of Rs 20,000 is not enough to take care of one house, leave alone two houses.

Book profit

WHILE computing the book-profit for the purpose of MAT, is provision for deferred tax deductible? When there is no scope for giving the Section 80HHC deduction owing to the gross total income being insufficient to absorb it, can the figure of book-profit be arrived at after removing the notional deduction under Section 80HHC as envisaged by circular 680 of the CBDT? -- Mala Jegannathan, e-mail

Section 115JB seeks to lay its hands on pre-tax book-profit. Which is why it mandates add back of "the amount of income-tax paid or payable, and the provision therefore". The term provision referred to includes within its sweep both provision for current and deferred tax liability. Therefore provision for deferred tax liability cannot come to the rescue of a company hit by MAT. By employing the words "the amount of profits eligible for deduction under Section 80HHC", the draftsman has given the superficial impression that export profits cannot be deducted at all from book-profit when gross total income is not sufficient to absorb any part of the benefit available under that section.

But then, the legislative intent is clearly to free from the clutches of MAT, export profits that is not taxable. It is, therefore, good that the CBDT has magnanimously come forward to exclude the export profit embedded in the book-profit from the figure of book-profit. But while acting on this circular of the CBDT, care must be taken to ensure that the conditions imposed by Section 80HHC are complied with.

For example, if in the books the export turnover is Rs 1,000 crore, but only Rs 800 crore of this has been received in foreign exchange within the prescribed time, the figure of exports must be the latter and not the former in keeping with the combined and holistic spirit of Sections 80HHC and 115JB. Similarly, for the assessment year (AY) 2003-2004, only 50 per cent of the export profits are tax-free. This, too, must be kept in mind while acting upon the circular.

Municipal tax

WILL municipal tax be allowed only on actual payment in terms of Section 43B if the assessee follows the accrual system? -- Y. Subba Rao, e-mail

Section 43B targets the specified expenses only while computing income under Section 28 — business income. Normally, municipal tax will come up for consideration while computing income from a rented house property. Even under Section 23, while computing income from a rented house, municipal tax is deductible only on actual payment. It is possible that a business has let out some property with a view to facilitate its business and not with a view to earning rental income. In such a case, the rental income is assessed as a part of business income. Municipal tax relating to such property would of course be subject to the discipline of Section 43B.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

S. Murlidharan

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