The Hindu Business Line : Sister-in-law is kind, but tax law is blind

WHILE in employment I took care of the medical expenses on my mentally retarded sister. But post-retirement it is the lot of my wife to do the same. Can she claim the deduction for the expenses so incurred from her gross total income?

Ashok, e-mail

I am afraid it is not possible because your sister is not your wife's dependant. You could have claimed the deduction because she is your sister. But your wife cannot because they are not sisters.

Withdraw, please

A COMPANY, after conducting the AGM at which the audited accounts have already been adopted, requests its auditor to withdraw his audit report on the ground that there was an inadvertent but significant error in the accounts which it wanted to set right. Should the auditor go along?

Pramod Shrikant, Bangalore

No. The auditor should not play ball. Instead he must put his foot down and insist upon the company owning up its mistake in the next annual accounts in keeping with the AS-6 — Prior Period and Extraordinary items and Changes in Accounting Policies.

ESOP sops

WHAT is the tax treatment of shares offered under employee share option schemes?

P. Jayakumar, e-mail

This is one area where the salaried class cannot whine. The entire profit is taxed as capital gain, though at one point of time the notional profit, that is the difference between the exercise price and the market price on that date, was taxed as income from salary. This obviously favours the salaried class because the tax on long-term capital gain (holding period of more than 12 months) is indeed soft with a couple of tax shelters thrown in.

Director out

A DIRECTOR appointed by the memorandum and articles is removed by the general meeting. Can the meeting replace him by appointing another director?

Karthik Bhat, e-mail

No, because Section 285(5) is categorical that such replacement can be made only if the director removed was appointed by the general meeting or by the board to fill a casual vacancy. The implication is that in all other cases, the vacancy cannot be filled in and the board strength will stand reduced automatically.

Car loss

I SOLD my personal car at a loss of Rs 50,000. I also had to pay off the finance company the balance of Rs 1.10 lakh that was outstanding at the time of sale. Can I get any tax benefit for these?

S. Shanker, Hyderabad

No you cannot. Personal effects are outside the pale of capital gain tax. And it cuts both ways. If an income is exempt from tax, any negative income of the same hue is not available for set off. In any case capital loss cannot be set off against any income other than capital gain with long-term capital loss being allowed to be set off only against long-term capital gains. You cannot claim the amount paid to finance company as loss either.

80HHC, 80HHE

CAN ONE claim deductions under Sections 80HHC and 80HHE towards exports, prior to set off of brought-forward losses?

R. Joseph, Kochi

These deductions are granted from the gross total income (GTI), whereas set-off losses is a step towards computation of GTI. GTI, as you know, is the aggregate of income from the five heads of income. And these five heads of income have to be arrived at after the due process of set off and carry forward of losses. Hence, it is not possible to grant the two deductions prior to set off of brought-forward losses.

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

S. Murlidharan

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