The Hindu Business Line : The cost of failing to file

If a person does not file his return before the due date and tax is also outstanding, he will have to pay interest under Section 234A of 1.25 per cent a month or any part of the month on the tax outstanding. In addition, under Section 271F, he will also have to pay a penalty of Rs 5,000 if he is remiss in filing his return before the relevant assessment year runs out.

Transit cover

WHETHER transit insurance for insurance companies can be recognised as income under AS-9?

G. Rammesh, e-mail

I take it that your query relates to transit insurance premium charged by insurance companies for providing insurance covers to their clients. Such premium is indeed their revenue. But the unearned portion of it must be treated as advance and not as revenue. For example, if transit insurance premium of Rs 90 is received on March 25 with the cover starting forthwith for three months only the proportionate part attributable to six days can be treated as revenue given the fact that the financial year ends on 31st March.

Surviving on interest

OUR company closed its manufacturing operations a decade ago and has since been afloat on the back of interest income alone from investments. All these years, it has been claiming the establishment expenses as expenditure in earning such interest income and has also been setting off its accumulated business loss against such interest income.

Our income-tax return for the AY 2002-2003 came up for scrutiny and the assessing officer (AO) has disallowed both of our above claims on the ground that interest income is "income from other sources" to earn which the establishment expenses have not been incurred. Similarly, he says, the unabsorbed business losses of the past can be set off only against income from business and not against income from other sources. Advise.

S. V. Pradhan, Mumbai

I am afraid the stand of the AO is in keeping with the law. I must, however, hasten to add that the law on the issue is not entirely rational. Because such compartmentalisation of incomes could produce a strange spectacle of a person paying tax in the face of accumulated losses.

Be that as it may. However, the current loss from business does qualify for set off against income from other sources. It is only the losses of the past from business that cannot be set off against income from other sources.

Therefore, what you must do is to claim the current establishment expenses as business loss and claim it as set off against income from other sources instead of showing such expenses as having been incurred to earn the interest income.

Do they advise?

DOES the income-tax department offer tax consultancy to assessees?

Sakuru V. Jagdish, Hyderabad

Not really. The department brings out publications under its taxpayers' education programme. In addition, it also issues circulars from time to time on various issues. Both these are addressed to the taxpaying public in general, whereas what you seem to be looking for is specific advice on a problem unique to you. In the US, the Inland Revenue Service gives specific rulings as well.

But in India the Authority for Advance Rulings (AAR) gives specific rulings only to non-residents or residents in respect of matters impinging on dealings with non-residents.

Advance rulings give assessees the confidence to proceed sure-footed.

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

S. Murlidharan

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