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CAN ONE claim exemption on LTC in two consecutive years? -- S. Vishwanathan, Chennai

Yes. The exemption is on in respect of two journeys performed in a block of four calendar years. One may exhaust his quota in the very first year of the block. Another may use his quota of two journeys in two consecutive years.

While yet another may use his quota once each in alternate years. All of them enjoy tax immunity. The point is, it is employee's choice as to how he is going to use his quota of exemption.

If he, for example, avails of his quota in the first year of the block itself, he will have to pay tax on LTC given by his employer in the subsequent year(s) of the block.

This is of course assuming that the employer is liberal in grant of LTC more frequently than envisaged by the IT rules.

Director change

IS FORM 32 required to be filed when an alternate director is appointed as an additional director or when an alternate/additional director is appointed at an annual general meeting as a director? -- V. Murali, Bangalore

Yes, the idea behind Section 303(2), among other things, is that the RoC's record must reveal the actual status of a director, that is, the capacity in which he is holding the office.

Any change in the status must be duly intimated.

One-off associations

BY MAKING it categorical that an association of persons (AoP) or a body of individuals (BoI) would be treated as a person, no matter whether such AoP or BoI was established with the object of deriving income, profits or gains, the Finance Act, 2002 seems to have cleared the decks for taxing joint ventures in the nature of one-off arrangements that are so common these days, especially in the infrastructure front.

My apprehension is, will this not lead to double taxation? -- Dr Kishore Samtani, Mumbai

Yes. This plus the insertion of a new Section 174A has indeed cleared the decks for assessing such loose and one-off associations.

Section 174A in fact permits the tax administration to hasten assessment during the previous year itself without having to wait till the assessee files his return which would be long after the joint venture (JV) is dissolved.

The anxiety is to pin down such JVs when they are active.

There is no risk of double taxation because the regime for assessing AoPs and BoIs ensure that having assessed the AoP or the BoI, the members thereof are not taxed again when they receive their individual shares of profit or income.

ST notice

PRIOR to the finalisation of accounts for the year ending March 31, 2003, a notice has been received from sales tax authorities asking us to pay entry tax which we are contesting through a writ petition.

Should we provide for this as an accrued liability in the books? If we do not, is there a risk of the tax authorities disallowing this in a subsequent year when it is actually paid? -- Sampath Kumar, e-mail

Every claim against an enterprise need not be recorded as an accrued liability.

There may be a suit for huge, exaggerated damages. And the defendant may be on a strong wicket or apprehends a minuscule fraction being awarded as damages.

Now, in all fairness, the auditor should be satisfied with recognition of this contingent liability as notes to accounts without the possible liability making a dent into the profit.

In your case too, recognition as a contingent liability will do because you have challenged the very basis of the liability in a writ petition.

Assuming you lose out in the legal process and are constrained to pay up, the fact that you did not record the liability when you were notified of it cannot be held out against you because Section 43B suspends the operation of the accrual principle if it is otherwise being followed and allows the expenses governed by it only in the previous year in which they have been actually paid.

Actual income vs annual value

WHY is tax on income from house property not on actual income but on `annual value', whereas all other incomes are subject to tax on actual income? -- Mukul Ghorpade, Kolhapur

House property transactions have historically lent themselves to easy manipulation leading to sizeable tax leakage.

Taking rent partially in cash and partially in cheque and disclosing only the latter to the taxman is old hat. The concept of `annual value' seeks to prevent such manipulation by training its sights on market rent.

But the wily landlords have worsted this move too by resort to collusive rent fixing in such a way that the market rent itself is pretty low with the difference being paid in other ways.

The truth, however, is that the government has always looked property transactions with suspicion and has extended the market value concept to capital transactions, too, by substituting the guideline value fixed by stamp duty authorities as the consideration when a house property is sold if the actual consideration disclosed is less.

In fact, the Government has been itching to extend presumptive taxation to as many areas as possible.

It expects retailers up to turnover of Rs 40 lakh to pay tax on 5 per cent of their turnover just as it expects civil contractors with gross receipts not exceeding Rs 40 lakh to pay tax on 8 per cent of their receipts.

At one time there was a proposal to bring doctors and other professionals also under the presumptive taxation scheme by deeming 70 per cent of their fees as taxable income.

The idea underpinning presumptive taxation is to check tax evasion.

Sole selling agent

WHAT happens when a sole selling agent was not holding shares in excess of the cut-off limits so as to require the Central Government approval but comes to cross the limit after he has been appointed? -- G. Rammesh, e-mail

Section 294AA is quite clear. Prior Central Government approval is required only when at the time of appointment the proposed appointee holds shares in the manner prescribed in excess 5 per cent of the paid-up capital in the company or holds shares on which more than Rs 5 lakh has been paid up, whichever is less.

If the sole selling agent crosses the Rubicon after appointment, no such approval is required evidently because at the time of his appointment he did not carry sufficient clout in the company so as to tilt the scales in his favour.

Order of payment

IF A company disposes of its land, what would be the preferential payment under Section 529A? -- G. R., e-mail

The land referred to obviously is not the one which has been given as security to any creditor.

In that event, the proceeds thereof would be applied to pay off the workmen dues as defined in Section 529 as well as the dues to the secured creditors which could not be paid due to the security being ceded to the workmen pari passu in terms of Section 529 first.

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

S. Murlidharan

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