The Hindu Business Line : My would-be's dad wants to gift me a house

I AM a salaried person, about to get married. My father-in-law-to-be has a house which he wants to gift to me and my wife-to-be in equal proportions. Can I continue to claim interest that my father-in-law would be paying on borrowings for buying the house? Can I settle for a lesser share with a corresponding greater share for my wife because she doesn't have any other source of income? - Venkat, Chennai

Through the gift deed, the property would stand registered in your joint names. Since your shares are definite, both of you would be taxed on the respective share of income. It would be better to give the lion's share to your wife so that your combined tax bill is minimised.

Section 24, while talking of deductibility of interest on borrowings, is curiously silent on the issue of interest payable by whom. But then it is axiomatic that an expenditure can be claimed only by that person who has incurred it. Ironically however, your father-in-law cannot claim the same either because the house is not taxable in his hands. In the event, the interest would go abegging, with neither you nor your father-in-law being able to claim it.

Case study

OUR foreign collaborator deputes his employee who receives salary from his employer abroad as usual. His stay in India in capacity as such employee was for more than 182 days. But soon thereafter, he becomes an employee of our company but as an employee of the Indian company his stay in India was for less than 182 days. This is his first visit to India. What is his residential status for the relevant year? - Gomati Prasad, Srivatsava

The facts of your case are squarely covered by the facts of the case decided by the Authority for Advance Ruling in the Robert W. Smith (1995 212 ITR 275) case. The Authority considered not only the provisions of Section 6 dealing with residence as one normally does but also Section 3 defining `previous year'. Residential status is to be determined for each previous year.

The Authority pointed out that though the foreigner was apparently in India for more than 182 days, thus becoming a resident, his source of income in India sprang for the first time after 182 days. In other words, he was in India for less than 182 days as an employee of the Indian company. He was thus held to be a non-resident. The Authority's conjoint reading of Sections 3 and 6 is indeed laudable.

It is true that if one is a resident for one source, he is a resident for all other sources. But in this case, there was no other source in existence when he was the employee of the foreign company because his salary from his foreign employer was not a source of income taxable in India.

Signatory, who?

WHO has to sign Form-32 under the company law. It is not clear. - S. Anand Kumar, Bangalore

Section 303(2) requires the company to notify the Registrar about the particulars of directors and changes therein. Since a company operates through its board, the board can discharge this function. But then the board may delegate this duty to any of the officers.

This is not in keeping with the spirit of corporate functioning; also, Section 303(4) not only penalises the company in default but every officer in default as well.

The definition of the term `officer' "includes any director, manager or secretary or any person in accordance with whose directions or instructions the board of directors or any one or more of the directors is or are accustomed to act."

Claim money

WHEN a depreciable asset is destroyed and insurance compensation received, is one liable to pay tax? - Jyotsana Malhotra, New Delhi

There are specific provisions dealing with depreciable assets. Section 43(6) requires monies payable in respect of any asset falling within that block to be deducted on its demolition or destruction. Needless to say, this would include insurance compensation as well.

When this is done, the WDV of the block is reduced. Nothing more remains to be done unless the insurance compensation results in credit balance in the block at the end of the year in which case, such credit balance would be taxable as short-term capital gains in terms of Section 50. In view of this special dispensation for depreciable assets, the general dispensation for insurance compensation contained in Section 45(1A) would hold field for capital assets other than depreciable assets.

ECB route

WHY companies are in a rush to raise money abroad under the ECB scheme? - Shantanu Bhattacharya, Cuttack

As you might be aware, the bank rate in the US has reached the rock bottom — 1.5 per cent.

The rate of interest in the Indian financial markets is considerably higher. But one has to factor in the exchange rate risk. However, with rupee on the rise vis-à-vis the dollar, this has ceased to be a concern. Instead, companies view this development as a point in favour of ECB — when the time comes for repayment, that much lesser rupees or paises per dollar have to be mobilised.

In the event, quite a few intrepid companies are leaving their dollar liability un-hedged. For them, the cost of forward cover is not a part of the costing exercise. It is in the realm of possibility therefore that what at the beginning appeared to be an advantage may well turn out to be a disadvantage if the tide turns against the Indian rupee.

Joint deposit

I HAVE made some deposits with a bank in joint names of self and my daughter. How would the interest be taxed? - Nalini Karunakaran, Hubli

To the extent of your share, it would be includible in your income and to the extent of her share, in her income.

But if your daughter happens to be a minor, her income would be added to yours or your husband's depending upon who has greater income.

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

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