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Fringe benefits for a house on the forest fringes

T. Banusekar

I AM employed in a public sector undertaking (PSU) generating hydel power. All employees are provided with an unfurnished accommodation in a colony near the powerhouse. The employer collects standard rent from all employees for the accommodation. Occupation by the employee of the accommodation is mandatory and non-occupation thereof attracts penal rent by the employer.

The colony is located in a remote forest area. I am of the view that no perquisite value will arise in this case in the hands of the employee in the light of the decisions in Steel Executives Association vs Rashtria Ispat Nigam Ltd (2000 241 ITR 20 AP); Officers Association, Bhilai Steel Plant vs UOI & Others (1983 139 ITR 937 MP); and Saipem SPA vs ITO (2001 76 ITD 101 Delhi). Is this correct? The employer also provides free electricity and water to employees. In my view these will also not be taxable since my employer provides it out of necessity to the employees. Is this correct?

V. N. Holalkeri


The decisions referred to by you will be applicable in your case and it cannot be said that a perquisite arises so as to be valued under Rule 3. In fact, this issue has been discussed elaborately in the decision in 139 ITR 937 referred to by you where the court has held that the question of valuation of perquisite arises only if a benefit has been derived within the meaning of Section 17(2).

The view that free electricity and water will also not be treated as a perquisite in the hands of the employees merits consideration. This view can be successfully canvassed particularly in the light of the decision in 76 ITD 101 referred to by you.


I am employed in a nationalised bank. My wife is a housewife. I had purchased during the current year 500 shares of UCO Bank at Rs 17 per share. Some of the shares were purchased in my name and some in my wife's. In the current year all the 500 shares were sold at Rs 24 per share. While I have taxable income, my wife has no other income chargeable to tax. What will be the tax implications in respect of the gain from sale of these shares?

N. Rajesh Pai


The capital gains from the sale of shares in your case would be short-term capital gain, as the shares have been held for less than 12 months. It appears that your wife does not have any source of income to have bought the shares and that the shares have been purchased by you out of your sources in her name. If this is the case, then the gain will be assessed only in your hands as a result of the clubbing provisions getting attracted. If this were so, then the entire gain will be assessed in your hands. However, if your wife has independent sources for the investment in shares, the clubbing provisions will not be attracted. In such a case, the gain arising out of sale of shares held in your name will be assessed in your hands while that arising to your wife will be assessed in her hands. Since you have indicated that your wife has no other income chargeable to tax, she can claim the basic exemption of Rs 50,000 and tax will be chargeable only on the excess over Rs 50,000. You may also note that your wife will be entitled to a rebate under Section 88C of the lower of the tax payable or Rs 5,000.


I have taken a housing loan and am repaying the principal and also paying the interest thereon. If I foreclose this loan and take a fresh loan to construct another house while retaining the old one will the principal and interest of the new loan also qualify for income-tax exemption?

Manish Kumar


The benefits under the I-T Act in respect of the new loan will be available to you. It may be mentioned that there is no income-tax exemption for the repayment of principal and payment of interest.

Repayment of principal qualifies for rebate from tax under Section 88 while the payment of interest will qualify for deduction under Section 24 in computing income from house property.


I have sold a plot of land in June 2003. The long-term capital gain on the sale is Rs 8 lakh computed after the benefit of indexation. I have in April 2004 purchased another land in my wife's name for Rs 8.25 lakh. Can I claim exemption under Section 54 or 54F?



You cannot get an exemption under either of these sections. Both these sections require reinvestment in a residential house. In your case, the reinvestment is in land and, therefore, will not qualify for the exemption.

It may be mentioned that the reinvestment in your case is in the name of your wife and whether this will suffice for the claim of exemption would be a debatable issue.

It may also be noted that a view favourable to the assessee has been taken in the matter in Third ITO vs S. Vardharajan (1989 33 TTJ Mad 466). In this case, the Tribunal has taken a view that the benefit of exemption under Section 54 cannot be denied merely because the assessee has reinvested in an asset in the name of his wife.


I booked a flat in April 2003. I have not been handed over possession of the flat until date. I am only paying the pre-EMI interest to the housing finance company.

Under the circumstances, can I get the benefit of exemption under Section 10(13A) in respect of the house rent paid by me? Please note that I stay in a rented house and that I am a salaried employee in receipt of HRA. Will the pre-EMI interest qualify for any tax benefits?

J. Ganguly


You can get a tax benefit on the interest paid by you as also an exemption under Section 10(13A) in respect of the HRA. Pre-construction period interest can be claimed as a deduction in five equal annual instalments beginning from the year in which the purchase or construction is complete. Pre-construction period interest means the interest up to the end of the previous year immediately preceding the previous year in which the purchase or construction is complete.

This may be subject to the ceiling limits specified in Section 24 if the property is self-occupied.

Insofar as the exemption for HRA is concerned the same can be taken for the period in which you are in receipt of the same and also paying rent.

Mail your queries to or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.

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