The Hindu Business Line : Property management from afar

MY HUSBAND and I were born in India but have been living in the UK since 1966. We are both British nationals. My husband owns a house property in India while I own shares of some Indian companies.

We are now proposing to demolish the house and reconstruct the same.

The reconstructed house will have more than one unit. We are planning to sell some of the units in the reconstructed house and retain some of them for our personal use. We also propose to sell the shares in the Indian companies held by me which proceeds we are to use for constructing the house.

Kindly advise on the tax implication on sale of the shares and also on the sale of some of the units in the new residential house. - Usha Nagpal

Reply

You may not be able to claim an exemption either in respect of the capital gains on transfer of the shares held by you or in respect of the capital gains of your husband, which arises on the sale of some of the units of the house proposed to be constructed.

Insofar as your husband is concerned, he would derive a capital gain on the transfer of some of the units of the reconstructed house. Under Section 54 an exemption is available on transfer of one residential house and on reinvestment in another residential house. This exemption is available subject to satisfying the following conditions:

The assessee is an individual or HUF;

The gain arises from the transfer of a residential house being a long-term capital asset;

The income from such asset is chargeable to tax under the head `income from house property';

The reinvestment by way of purchase or construction of a residential house;

In case of purchase, the same should be at least one year before or two years after the date of transfer; and

In case of construction, the same must be completed before three years from the date of transfer.

In your husband's case, the reinvestment by way of construction is completed before the transfer while the section requires that the completion be after the date of transfer.

In your case since you are not making a reinvestment in a residential house, you cannot claim the exemption under Section 54F. Even assuming a view can be taken that since you invest the funds in the construction of the new residential house though the land is in the name of your husband, it may not be possible to get the exemption for the same reasons given in respect of your husband's capital gain.

It may be noted that Section 54F has the same time limit for purchase or construction of the new residential house. It may be pointed out that the exemption under Section 54F is available if the following conditions are satisfied:

The assessee is an individual or HUF;

The gain arises from the transfer of a long-term capital asset not being a residential house;

The assessee does not within a period of two years purchase or three years construct any residential house other than the new house;

The assessee is not the owner of more than one residential house (other than the new asset) on the date of transfer of the original asset;

The reinvestment is by way of purchase or construction of a residential house;

In case of purchase, the same should be at least one year before or two years after the date of transfer;

In case of construction, the same must be completed before three years from the date of transfer.

Query

My total income consists of capital gains and certain other incomes such as interest from banks and dividends. Tax has been deducted at source on the bank interest. Can I adjust such tax deducted against the tax on the other incomes such as dividends and capital gains? If there is an excess tax payment will the same be refunded? - Anuraag Gupta

Reply

The tax deducted at source on bank interest can be adjusted against the tax arising on the other incomes. The excess tax deducted over and above the tax payable by you can be claimed as a refund. Tax deducted at source is allowed as a credit against the tax payable by the assessee.

There is no requirement that the tax that is deducted should be adjusted only against the tax on the same income. It can be adjusted against tax on all incomes of an assessee. To claim a refund you must file a return of income with the assessing officer.

Query

A house property was purchased and registered in the name of the purchaser in the financial year 2002-2003. The seller paid the property tax for the first half of the financial year 2003-2004 and the receipt has been issued bearing the name of the seller.

Can the purchaser claim the property tax as a deduction in computing his income from house property? - S. Madhavan

Reply

The purchaser cannot claim the property tax as a deduction in computing his income from house property. Under Section 23, taxes levied by any local authority in respect of the property shall be deducted provided the owner incurs the same.

In the instant case, the purchaser, who is the owner, has not incurred the expenditure and, therefore, it would not be possible for the property tax to be claimed as a deduction in computing the income from house property of the purchaser.

Query

I am pursuing the M.Ch course in urology. This is a super speciality course in medicine. I am paid a stipend of Rs 14,000 p.m. for the period I pursue the course. I also pay Rs 50,000 p.a. towards tuition fee to the institution where I do the course. Can I claim the tuition fee as a deduction? - Dr Vinukondaiah

Reply

No deduction can be claimed towards the tuition fee. However it may be noted that the stipend may not be taxable in your hands.

The view that stipend is not taxable is taken in the light of Section 10(16), under which, scholarships granted to meet the cost of education is exempt. In this connection it may be noted that the Income Tax Appellate Tribunal, in Sudhir Kumar Sharma vs ITO (1983 15 Taxman 100 Jaipur Mag) has held that the stipend received by an articled clerk from a chartered accountant is exempt under Section 10(16).

The reason given by the Bench was that the stipend was paid to meet the cost of books, coaching fees, examination fees, and so on.

Reference may also be made to the ITAT decision in ITO vs Dr. G. N. Ramachandran (1 ITD 902 Bangalore) where it held that stipend received to meet the cost of education would be exempt under Section 10(16).

It is felt that the ratio of these decisions will apply to the stipend received by you for pursuing a super-speciality course in urology.

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