The Hindu Business Line : Easing my brother's fee burden won't ease my tax burden

Can I claim 100 per cent deduction in respect of tuition of Rs 1,65,000 paid by me for my brother? My brother is pursuing BDS in a college in UP and is dependent on me.

Gurpreet

Section 80C allows deduction in respect of tuition fees (excluding any payment towards any development fees or donation or payment of similar nature), whether at the time of admission or thereafter, paid to any university, college, school or other educational institution in India for full-time education of any two children of such individual. In your case, the education is for your brother and, therefore, you will not be able to get the benefit of the deduction under the Act.

Will turnover from intra-day trading in shares be taken for reckoning whether a person is subject to tax audit? Will it be possible for the income derived from such trading to be treated as capital gains?

A. Venkatesan

The income from intra-day trading in shares should normally be reckoned as business income and not capital gains. It will be difficult to canvas a view that such trading in shares should be treated as capital gains. Once the income is assessed as business income, the turnover will also be taken into account for determining whether you would be subject to tax audit under Section 44AB. It may, however, be noted that in day-trading without delivery it is only the net of the selling and buying transactions which should be taken as turnover. This view is supported by the decision of the Mumbai Bench of the Tribunal in ACIT vs Saumil J. Trivedi (ITA No. 3266, Bombay, 1995).

While dealing in shares, what will be the classification of income when transactions are done occasionally and when they are more frequent?

B. B. Jindal

There can be no single test to determine whether the income from dealing in shares is to be taxed as business income or capital gains. It can, however, be said that if there are number of transactions and the volumes are high, the income is more likely be treated as business than as capital gains.

I was carrying on manufacturing activity in my factory premises till the financial year 2004-05, and have been claiming depreciation on the building. The income from the business was assessed as business income. I have discontinued the manufacturing activity and let out the factory premises on rent. Will the rental income be assessed as business income or as income from house property?

Amarjit Kapoor

It may be noted that income from land or building appurtenant thereto will normally be assessed as house property income even if the property is a factory building. If your intention was to discontinue the business in its entirety, the income from letting out the property would be assessed as income from house property. If, on the other hand, your intention was not to discontinue the business but only to let out the property when there was a temporary lull in the business, the income from letting out the factory building can be assessed as income from business. Reference in this connection may be made to the decision in CIT vs Vikram Cotton Mills Ltd (1988 169 ITR 597 SC).

Kindly explain the provisions relating to the treatment of gifts as income. Are gifts from close family members — parents, brothers, sisters, etc. — exempted from inclusion in income?

Ravishankar V. Desai

Section 56(2)(v) deems a sum exceeding Rs 50,000 in the aggregate in a year received without consideration by an individual or HUF from any person as the income of the recipient which is chargeable under the head `income from other sources'.

The section also provides for exclusion from chargeability where the sum of money is received i) from any relative; ii) on the occasion of the marriage of the individual; iii) under a will or by way of inheritance; and iv) in contemplation of death of the payer.

A relative for the purpose means: a) spouse of the individual; b) brother or sister of the individual; c) brother or sister of the spouse of the individual; d) brother or sister of either of the parents of the individual; e) any lenial ascendant or descendant of the individual; f) any lenial ascendant or descendant of the spouse of the individual; g) spouse of the persons referred to in (a) to (f).

It can be seen that if the gift is from any of the aforementioned persons, there will be no charge to tax in the hands of the recipient individual. It may also be noted that a gift in kind will not be covered by Section 56(2)(v) and cannot be taxed under this provision in the hands of the recipient.

This has reference to the reply to the query dated August 27 in these columns, where you stated that Section 94(8), which deals with bonus stripping, will also cover transactions in securities. I am of the view that Section 94(8) only covers transactions in units of mutual funds. Please clarify.

Sharad Hatekar

You are right. Section 94(8) applies only to units and not transactions in shares.

I thank you for pointing out the anomaly in the reply. I had, however, clarified this in these columns on September 3.

I trade in shares over the Internet through ICICI. From October 1, as per SEBI regulations, it has become mandatory to provide PAN (Permanent Account Number).

I am an NRI. Will I have to file my return every year merely because I have obtained PAN even though I may not have taxable income in India?

L. Rajasekar

You will have to file a return in India only if you satisfy the criteria in Section 139(1).

If you do not have any taxable income in India, you need not file a return of income here.

The mere fact that you have obtained PAN will not any way require you to file a return which you are otherwise not required to file.

(Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line, 859/860, Kasturi Buildings, Anna Salai, Chennai 600002.)