Financial Daily from THE HINDU group of publications
Sunday, May 04, 2003
Financial Daily from THE HINDU group of publications Sunday, May 04, 2003 |
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Investment World
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Income Tax Columns - Tax Talk Handling short-term capital losses T. Banusekar
I am a salaried employee. How is the short-term capital loss incurred by me going to be treated for tax purposes? Rakesh Reply At the outset it may be mentioned that the treatment of short-term capital loss for tax purposes will not in any way be different for the reader as compared to any other person merely by the reason of the reader being a salaried employee. The treatment of short-term capital loss for tax purposes is as follows: The loss arising from the transfer of a short term capital asset may be setoff against income arising from the transfer of either a short term capital asset or a long term capital asset and the balance if any be carried forward and set off against the income arising from the transfer of either a long term capital asset or short term capital asset within eight assessment years immediately succeeding the assessment year in which the loss was first computed. Query I had advanced an interest free loan of 5 lakh to my wife. She invested this money in a term deposit and earns interest. She subsequently repaid the principal amount. Is the interest from the term deposit earned by my wife to be clubbed in my hands? R. N. Rai Reply Under Section 64(1)(iv) of the Act, any income earned directly or indirectly by the spouse of an individual from out of assets transferred for inadequate consideration (otherwise than in connection with an agreement to live apart) by the individual is to be clubbed in the hands of such individual. In the reader's case, there is no transfer of an asset for inadequate consideration by the reader to his wife. There is only a loan advanced by the reader to his wife, which is also explicit from the subsequent repayment by the wife of the reader to the reader. Therefore, the clubbing provisions will not be attracted and the interest from the term deposit will have to be assessed only in the hands of the reader's wife. Query Can aircrafts used by officers of a company be considered as used for the purpose of business and therefore as not being an asset for wealth tax purposes? Prabakar Jain Reply The term "assets" is defined in Section 2(ea) of the Wealth Tax Act. Under this definition aircrafts used by an assessee for commercial purposes is not regarded as an asset. The question for consideration will therefore be whether aircrafts used by officers of a company can be said as used for commercial purposes. It is felt that it can be stated that aircrafts used by officers of a company are ones used for commercial purposes. It may be noted that the section does not require that aircrafts should be used for letting on hire and it will suffice if it is used for commercial purposes so as to fall outside the scope of the definition and thus a charge to wealth tax. In this connection it may also be noted that in case of motor cars, they are not treated as an asset only if they are used for running on hire. The clear distinction in the language in respect of motor cars as compared to aircrafts would probably further the argument that where aircrafts are used by the officers of the company, it may be said that they are used for commercial purposes. Of course it is true that the aircrafts should be used for the business of the company. Query I formed a trust for the benefit of a minor. The corpus of the trust is out of gifts received by the trust. The trust is created as an accumulation trust whereby the income of the trust will be accumulated until the minor child attains majority. Therefore the clubbing provisions will not apply in respect of the income of the trust. Is it necessary for the trust to file returns? What will be the position of the incomes accumulated in the hands of the trust and given to the beneficiary on his attaining majority? Will the same be taxed at that time? Mukesh Kanoi Reply It is true that where a trust is formed as an accumulation trust, so as to accumulate the incomes during the minority of the child the same cannot be clubbed in the hands of the parents under Section 64(1A). Returns will, however, have to be filed by the trust under Section 139(1) if the total income exceeds the maximum amount not chargeable to tax. On the income earned during the minority of the beneficiary being handed over on his attaining majority the same will not be taxed again.
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