The Hindu Business Line : Do I pay tax for a vacant house?

I HAVE a house which has been rented out. My tenant has served termination notice and, therefore, I won't be getting rent after August 31, 2003, since I intend to keep it vacant. What are the tax implications? -- R. Doraiswamy, e-mail

You would emerge unscathed this particular year. The annual value of the property would comprise only of rent for the five months. For the subsequent years, if you want to vest the property with the character of a let out property, the motions of letting out every now and then must be gone through.

But under the new regime abatement of the entire rent towards vacancy is possible if indeed the let property was vacant throughout the previous year. But such a claim may belie and weaken your claim of your property being let out. You have to do some tightrope walk.

Royalty vs lumpsum

I AM A CA student. Please explain the difference between royalty and lumpsum payment. -- Dharini, Srivilliputtur

A Japanese auto major might have entered into a technical collaboration with an Indian company in terms of which the latter may have to pay the former 5 per cent royalty on the ex-factory price of each car sold. oyalty is invariably variable. Students of costing would readily and rightly classify it as a variable cost while doing problems on marginal costing.

Royalty is like the proverbial hen that lays golden eggs. If the technology is esoteric and sought-after, you would be better advised to settle for a leisurely royalty in place of the here-and-now of lumpsum. Which exactly is what multinationals owning patented technology do. But then authors are normally reluctant to accept royalty for the fear of being fobbed off with ridiculously low sales.

Publishers are often accused of under-reporting the actual sale of books. If one apprehends such a possibility or does not have the stomach for carrying out an agonising scrutiny, which admittedly is difficult, he may play safe and settle for a lumpsum payment.

Work and study

BY CONFERRING the tax benefit only to those pursuing full-time higher education, Section 80E gives a short shrift to those who are employed all right but who do not have enough resources to pay their way through for part-time education and are driven into borrowing. Is this discrimination legally valid? -- T. A. P. Krishnan, e-mail

Section 80E is intended to help students who do not want to burden their parents financially while pursuing higher education. It is not discriminatory because it is based on an `intelligible differentia', the touchstone applied by the Supreme Court in a catena of cases where schemes were impugned on grounds of being violative of article 14 of the Constitution.

Students as a class deserve greater tax benefits vis-à-vis their working brethren. Hence I am afraid it may be difficult to mount a challenge to this section on this ground. But I entirely agree with you that there are a lot of working people equally deserving of this tax munificence and the government must loosen its purse strings in their favour as well.

Debenture compensation

Whether unsecured creditors can be compensated by issue of debentures? -- G. Rammesh, e-mail

Presumably, your question is with reference to a going concern. Yes, they can be. In fact, many institutions notably governments routinely resort to this measure when they go broke. And as far as the company law is concerned, well, there is no bar on issuing debentures in lieu of existing dues.

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

S. Murlidharan

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