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IS THE income of a lodge taxable under income from house property? -- Nikhildhanapalan, e-mail

A lodge, like a hotel, can get itself assessed under the more agreeable head of income `profits and gains of business' if it is able to establish that its operations involve much more than bare letting of rooms. Provision of the services of attendants, room service, furnishing of the room, television, telephone, and so on, would all aid the assessee in this endeavour.

TDS on imports

DOES a resident of India have to deduct tax at source when he makes payment to a foreign company for the goods imported from it? -- Manoj Marwah, e-mail

Unlike Section 194C of the Income-Tax Act, 196, which requires a flat prescribed rate of tax to be deducted from payments to contractors and subcontractors, Section 195 that deals with TDS on payments to non-residents except by way of salary and dividend, targets not the full payment but only the income embedded therein. And if there is nothing that is taxable in India, obviously no tax need be deducted.

In the question raised by you, if the contract was signed, executed and paid for outside India, the foreign company simply cannot be dragged into the Indian I-T net. The Supreme Court judgement, in CIT vs Mysore Chromite Ltd (1955 27 ITR 128), is relevant in this regard. Execution or performance of the contract by the foreign supplier on FOB basis at a foreign port gives a strong presumption in favour of execution of contract outside India unless the supplier had reserved the right of disposal of goods to himself for non-payment despite the FOB clause.

To save one's skin, it would be advisedly better to throw the ball in the assessing officer's court who, in terms of Section 195(2), is required to quantify the income embedded in the payment. In the alternative, one may approach the Authority for Advance Rulings.

Director's shares

WHAT is the tax treatment of profit or loss from sale of shares of a company the assessee is a director of? --S. K. Jaiswal

Often people prefer to be assessed for income under capital gain even where a little investigation would reveal that they are actually dealing in shares and, therefore, must be assessed under income from business.

The distinct preference for the head capital gains is understandable given the host of concessions that are available to long-term capital gains (LTCG). This preference will be even more pronounced if the Government accepts the Kelkar recommendation to completely exempt LTCG from shares.

Anyway, going by the famous Supreme Court verdict in CIT vs H. Holck Larsen (1986 160 ITR 67), if a director deals in shares of his company with a view to nursing his investments, he must be treated as an investor and not as a dealer.

What the Supreme Court was referring to was the long-term commitment to the investments by reason of being a director to be eligible to make the grade as investor (capital gains).

But mere lack of long-term commitment cannot, on the other hand, ipso facto make one a dealer.

Labouring on

WHAT exactly is the requirement under Section 80JJAA? Is an Indian company required to appoint at least an additional labour force of 10 per cent with reference to the strength as at the end the preceding year even in the second and the third years when the benefit is on? Can the benefit go on and on? --Sapan, e-mail

Thirty per cent of the additional wages is allowed as deduction for three previous years in addition to the additional wages itself, which is deductible in the normal course.

Thus in the relevant previous year, 130 per cent, as it were, is deductible and in the following two previous years — 30 per cent each is deductible — making a tally of 190 per cent. The requirement as to employment of additional workers applies only to the relevant previous year and not to the subsequent years.

And in the second year it is possible to claim 160 per cent, with 130 per cent being for fresh additions made during that year plus 30 per cent for the benefit earned in the first year.

The third year could witness a 190 per cent deduction with 130 per cent being relatable to the additional wages paid during the year and 30 per cent each being relatable to the additional wages of the first and second year respectively.

Indeed this could well become a sort of moving cycle with the second year becoming first in respect of the fresh additions made during the second year.

Flat stamp

I HAVE incurred an expenditure of Rs 70,000 on registration and stamp duty of my new flat. Will I get tax rebate on this? -- K. V. V. N. Gupta, Vishakapatnam

It is possible for one to save/invest to the extent of Rs 1 lakh under Section 88 schemes. But there is a sub-limit of Rs 20,000 for housing. Therefore you will get rebate only on Rs 20,000, other things being equal.

CGAS

I HAD earlier claimed exemption from capital gains tax by depositing the requisite amount in the capital gains accounts scheme (CGAS) when I sold my house property.

I have since constructed another house without utilising the amount available in the CGAS and the three-year period within which I had to use the CGAS amount has elapsed. What are the consequences? -- Rajaram Hegde, Bangalore

To the extent the amount in CGAS is not utilised it will be liable to tax as the capital gain of the previous year in which the three-year deadline ended. You would of course be entitled to withdraw the money.

Charitable loan

A CHARITABLE trust gives loan to its committee member. What are the tax implications of this? -- Nikhildhanapalan, e-mail

I take it that the reference to committee member is actually a reference to one of the trustees.

If such loan was given without adequate security or adequate interest or both, the charitable trust will not be exempt from tax for that year.

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

S. Murlidharan

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