The Hindu Business Line : Gaining from the rulings

IN THE CIT vs Vijaya Laksmi Metal Industries (256 ITR 540 Madras) case, the assessee firm, which consisted of two partners, was dissolved as one of them passed away. The firm stood dissolved but the assets were not distributed between the surviving partner and the legal heir of the deceased partner.

The department was of the view that, as per Section 45(4), the date of dissolution is the deemed date of the transfer of the assets. But the court observed and analysed that there cannot be notional transfer.

`A' transferred a piece of land (long term) and earned capital gains of

Rs 5 lakh. He invested Rs 10 lakh (sale proceeds) in a residential house property which was registered in his name. But the payment was not made within the time allowed under Section 54F. Can he claim exemption the Section?

The exemption under Section 54 F would be available even if the payment for the purchase of the property has not been made but where the property has been registered in the name of the assessee (CITV vs Kanta Devi Saraf — 2002 254 ITR 317 Calcutta).

`X' paid the capital gains tax before the due date of filing the return but the return was flied belatedly. The assessing officer (AO) levies interest under Section 234A. Is he justified?

The court held that a purposive interpretation must be taken and that in such a case interest under Section 234A should not be levied as interest can be charged only when there is monetary loss due to the non-filing of the return (Dr Prannoy Roy vs CIT — 2002 254 ITR 755 Delhi).

An assessee has transferred his land and building, where the land was held for five years and the building, for two years. Will the resulting capital gain be short term or long term?

Where a land is held for period exceeding three years and a building for less than three years, the gain from the sale of land would be long term while that from building would be short term (CIT vs Estate of Omprakash Jhunjhunwala — 2002 254 ITR 152 Calcutta).

`A', in 1986-87, acquires a house property. He gifts the property to `B' in 1994-95 who, in turn, sells it in 1999-00. In computing the capital gains of B, the Cost Inflation Index of which year should be taken as the base for indexing the cost of acquisition.

In computing the capital gains of B, it should be indexed from the year in which B first held the property. So, the CII of 1994-95 should be taken as the base.

According to Section 47, when debentures (held for four years) are converted into shares, it is not a transfer. Subsequently when the shares are sold (within one year from the date of conversion) the resulting capital gains will be short term or long term?

The resulting capital gains will be short term in nature. There is no provision to enable the assessees to take the period of holding of the debentures even though the cost of acquisition would be the cost incurred to acquire the debentures as provided in Section 49(2A).

`A' transfers the shares allotted to him under an ESOP scheme which is not according to the guidelines of the Central Government. He claims the amount which he paid to the company as the cost of acquisition. Is he correct?

No. When an employee is allotted shares under an ESOP scheme, which is not according to the guidelines of Central Government, it is taxable in his hands as a perquisite.

When he subsequently transfers these shares, the amount earlier charged as perk should be taken as the cost of acquisition.

So the difference between the market value of the shares (when allotted) and the amount paid by the employee to the company should be taken as the cost of acquisition.

`X' deposited Rs 10 lakh in the CGAS. He dies without utilising the amount for the specified purpose. What will be the tax implication?

The unutilised amount of CGAS will not be taxable in hands of legal heirs vide Circular 743.

The assessee has credited the gain arising from transfer of a capital asset to his profit and loss account. Will this be included in the computation of the book profits under Section 115JB?

It should be included in the computation of book profits (CIT vs Veekaylal Investment Company Private Ltd — 2001 246 ITR 597 Bombay).

(Edited extracts from a paper presented at the 16th All India CA Students' Conference, Chennai.)

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