The Hindu Business Line : My returns land up with wife's land cost

I PURCHASED a vacant plot in 1992. The plot was registered in the name of my wife. My wife and I are income-tax assessees. By mistake the cost of acquisition of the plot was accounted in my books as an asset and this has been furnished to the Income-Tax Department. The said plot has now been sold. My wife executed the sale deed, being the registered owner of the plot. In whose name will the capital gains be charged to tax? To claim exemption under Section 54EC, in whose name should the investment be made?

Parameswaran K.

Reply

It is understood that your wife has adequate sources for the investment in the plot and that the investment has been made out of her funds. If this were the case, your wife would be the real owner of the property as well as the registered owner of the property. Thus, the capital gain on the sale of the vacant plot will be assessable only in her hands.

The mere fact that by mistake the cost of the plot was accounted in your books should not make a difference in this regard. The investment in bonds to claim the exemption under Section 54EC should also be made in the name of your wife in such a case. If the funds for investment of the property do not belong to her but to you, the capital gain will be clubbed in your hands and assessed in your hands as a result of Section 64(1) getting attracted. In such a case also, for the claim of exemption under Section 54EC, the investment in bonds should be in your wife's name.

Query

I own a residential house. I propose to sell this house and use the proceeds to purchase a vacant plot. Will the capital gains on the sale of the residential house be eligible for exemption on investment in the vacant plot? Alternatively, if I invest the proceeds in purchasing another house property jointly along with my wife, can I claim exemption in respect of the investment? If I sell shares that I have held for less than 12 months and invest the proceeds in the residential house will an exemption be available?

Ajay Gupta

Reply

If the capital gains on sale of the residential house is used for purchasing a plot which is vacant and if a residential house is constructed on the plot within three years from the date of sale of the residential house already owned, the benefit of exemption under Section 54 can be claimed by you. This is clarified in Circular No. 667 dated October 18, 1993. You can also claim exemption in respect of the investment made by you in a new residential house by way of purchase jointly along with your wife provided the purchase is within two years from the date of sale of the residential house which you already own. The capital gain on sale of the shares held by you for less than 12 months will be a short-term capital gain. You can claim no exemption against such short-term capital gain by investing the proceeds in a residential house.

Query

I have earned some capital gains, which are long term in the previous year 2003-04. These gains have arisen from the sale of shares. I have subsequently, purchased shares of a public limited company through the secondary market. I purchased these shares in order to claim exemption under Section 54ED. I am now told that I cannot get the exemption unless I acquire shares of an IPO of a company. Is this correct? Can I set off the loss arising out of the sale of the units of a mutual fund against gain arising from sale of other long-term assets?

K. Sampath Kumaran

Reply

You cannot claim the exemption under Section 54ED since you have invested in shares in the secondary market. The exemption under this section is available subject to satisfying the following conditions:

The asset transferred is a long-term capital asset;

The shares are listed in a recognised stock exchange in India;

The investment is in equity shares of public companies formed and registered in India or units of a mutual fund specified under Section 10(23D) or the UTI;

The shares or units are not transferred for a period of three years; and

The investment should be made before the expiry of six months from the date of transfer of the capital asset. The section also requires that the investment in shares for the purpose of claiming exemption should be in shares forming part of the issue of such shares for subscription to the public. This would mean that only when the investment is at the time of a public offer made by the company, the exemption would be available.

The long-term capital loss, if any, arising from the sale of units of mutual fund can be set off against your other long-term capital gains.

Query

This has reference to your reply published in these columns on September 12, 2004. You have stated that tax is to be deducted at source on the value of the bill as increased by the service tax charged through the bill, that is, the tax is to be deducted at source on the gross amount, including service tax.

I am of the view that tax needs to be deducted at source only on the net amount of the bill, excluding service tax. I request that this aspect may be clarified.

Sridhar

Reply

It is felt that tax should be deducted on the gross sum including service tax, and not on the net value of the bill excluding service tax. In this connection, it may not be out of place to mention that the Board, through Circular No. 715 dated August 8, 1995, has clarified that Section 194J refers to any sum paid and that, therefore, even reimbursement of actual expenses cannot be deducted out of the bill amount for the purpose of deduction of tax at source.

It may also be noted that the Supreme Court in the context of Section 194C has in Associated Cement Co. Ltd vs CIT (1993 201 ITR 435 SC) held that tax has to be deducted on the gross amount of the bill and not on the value of the bill as reduced by reimbursement of expenses.

(Mail your queries to taxtalk@thehindu.co.in or by post to Tax Talk', Business Line, Kasturi Buildings, 859, Anna Salai, Chennai-600002.)

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