The Hindu Business Line : There is a new arrival in the `club'

MY DAUGHTER was born in August 2003. Soon after her birth a small function was held, during which some gifts were received from the guests who attended the function. I propose to open a separate bank account and invest the money. I thereafter propose to use the money to make investments. Will the income from these investments be clubbed in my hands?

Amit

Reply

The income from these investments will normally be clubbed in your or your wife's hands. The provisions relating to clubbing of the income of a minor child are contained in Section 64(1A) of the Act. Under this section, all incomes of a minor child other than the following are to be included in the hands of the parent:

income derived from manual work of the minor child;

income from an activity involving application of the minor child's skill, talent or specialised knowledge and experience; and

income of a minor child suffering from a disability referred to in Section 80U of the Act.

The incomes of the minor child are to be included:

where the marriage of the parents subsists, in the hands of the parent whose total income excluding the income to be clubbed is higher;

where the marriage of the parents does not subsist, in the hands of the parent who maintains the minor child in the previous year

Under this section, any income once included in the hands of one parent shall continue to be included in the hands of that parent unless the assessing officer (AO) is satisfied after giving an opportunity of being heard to the other parent that the income needs to be clubbed in the hands of that other parent.

Query

Will dividend from companies have to be included as part of gross total income in computing the percentage of rebate under Section 88 that can be claimed?

Ramesh Chander

Reply

For the assessment year 2004-05 (financial year 2003-04) dividend declared, distributed or paid by a domestic company other than dividends of the nature referred to in Section 2(22)(e) will not have to be included as part of gross total income in computing the percentage of rebate eligible under Section 88.

The percentage of rebate under Section 88 is to be computed on the basis of the gross total income of the assessee. This is because such dividend is exempt in the hands of the shareholder under Section 10(34) of the Act.

However, for the assessment year 2003-04 (financial year 2002-03) the dividend is taxable in the hands of the shareholder. Therefore, the same will have to be included as part of gross total income in computing the percentage of rebate eligible under Section 88.

Query

I have been investing in a post office recurring deposit a sum of Rs 1,000 per month. I have in the past inadvertently not included the interest from the same as my income. The said recurring deposit matures next year and I will receive Rs 82,000 on its maturity. Can I offer the entire Rs 82,000 as my income of the next year? Will there by any penal consequences as a result of not offering the same in the earlier years?

Khurshid Ahmed

Reply

The interest on the recurring deposit can be offered fully to tax in the year of maturity. There will be no penalty for not offering the income by way of interest in the years when the investment in recurring deposit was made. Interest from post office recurring deposits will be assessable as income from other sources.

Income under this head is to be computed based on the method of accounting regularly employed by the assessee, being either the cash or the mercantile system. This choice of method, which is available to the assessee, can be exercised in respect of each individual source.

In the instant case, if the interest is offered to tax in the year of maturity of the recurring deposit, it will mean that you are following the cash basis of accounting in respect of the said source, namely, interest from post office recurring deposit.

There can hence be no question of evasion on the part of the assessee for any penal consequences to arise. It may be noted you do not have to offer the entire maturity amount of Rs 82,000 to tax but only the interest which has accrued on the said recurring deposit.

Query

I am the subscriber to a pre-paid cellular telephone. I have no taxable income. Should I file a return of income?

G. Senthil Kumar

Reply

You will have to file a return of income. The proviso to Section 139(1) requires that a person satisfying one out of the six economic criteria mentioned therein must file a return of income within the due date.

In the instant case, since the third of the said economic criteria is satisfied, return must be filed even though the income does not exceed the maximum amount not chargeable to tax.

It may, however, be noted that Notification No. SO 507(E) of June 11, 2001, provides that any person being an individual who has attained 65 years of age but is not engaged in any business or profession during the previous year in regard to conditions specified in clause (i) or (iii) of the first proviso does not have to file a return by virtue of satisfying the said proviso.

Subscription to a cellular telephone falls under clause (iii) of the said proviso.

Business Line invites queries on personal taxation issues to this column. Queries may be sent to `Tax Talk', Kasturi Buildings, 859, Anna Salai, Chennai-600002, or by e-mail to taxtalk@thehindu.co.in (Readers are requested to mention `Tax talk' in the subject line of their e-mails.)

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