The Hindu Business Line : Are my gains too much?

I file my returns offering my income from share trading as capital gains. The share trading is done with actual delivery. My volume of transactions for the financial year 2003-04 was around Rs 80 lakh. My case for the assessment year 2004-05 has been taken up for scrutiny. The Assistant Commissioner of Income Tax tells me that in my case, the transactions in shares should be treated as business income and not as capital gains since the volume of transactions is high. I have informed him that all the transactions are delivery based and routed through my D-Mat account. Is the Assistant Commissioner right in taking such a view? Also, I have all along been offering the income from share transactions only as capital gains. Anonymous

The issue of whether the income from dealing in share should be treated as business income or as capital gains is essentially one that has to be decided on the facts of each case. Several factors such as the volume of trade, the source for investment whether own or borrowed funds, the normal length of holding of shares etc may go into determination of whether the income is to be treated as capital gains or as business income.

Unless all these facts are examined, no conclusion can be arrived at on whether the income is to be assessed as business income or as capital gains. Even where there is actual delivery, the income from dealing in shares can be assessed as business income. While the fact that the income has all along been assessed as capital gains may be a relevant factor, that by itself cannot determine the character of the income in the current year particularly if there is a change in the facts of the current year compared to the earlier years and where the earlier years returns have been accepted without scrutiny.

I own two houses. I use both, treating one house as self-occupied and the other as deemed to be let out. I am a salaried employee. Both the properties were acquired out of borrowed capital.

In respect of the house that is treated as self-occupied, I claim a deduction in respect of interest to the extent of Rs 1,50,000; loss from the property thereby computed at Rs 1,50,000. In respect of the property that is deemed to be let out, the interest exceeds the annual value resulting in a loss. Can losses from both houses be set off against the salary income? Kamlesh Khanchandani

There is no prohibition on the set off of loss from both properties against the salary income. It does not make a difference whether the property is self-occupied or let out or deemed to be let out.

My children are settled in the US. I propose to gift them some money, which I earned as long-term capital gains from sale of shares; I paid securities transaction tax at the time of sale. My children want the amount to be given to them in dollars. What will be the tax implication on the gift? Gopala Rao

There will be no tax implications when you make a gift to your children. You may note that Section 56(1)(v) seeks to bring to tax any sum of money exceeding Rs 50,000 received without consideration by an individual or HUF (Hindu undivided family) from any person, as such recipients income.

This provision, however, excludes a gift received from a relative, and the term `relative' is defined also to include the children of an individual. You may, however, check on the FEMA (Foreign Exchange Management Act, 1999) implications of making such gifts in foreign currency.

I used to file my income-tax returns at place A until last year. This year, I shifted my residence to place B. I have filed my returns for the current year in place B, which is far away from place A. If any of the past years' returns are scrutinised will I have to attend to the same at place A? I have got the address in my PAN card changed. Manohar

It would be advisable for you to make a formal application before the Commissioner of Income Tax of place A to transfer the files to place B where you are filing your returns now.

This would avoid any confusion with regard to the Assessing Officer under whose jurisdiction you fall. A copy of the said letter may be marked to the Commissioner of Income Tax of place B as also to the Assessing Officers of places A and B.

I am employed in a multinational company in India. For the year ended March 31, 2006, I should have filed my tax return before July 31, 2006. I have, however, failed to do so. Since my only source of income is salary and tax has been entirely deducted on the same by my employer, I will have neither a tax payable nor a refund due. If I were to file this return now, will there be any penalty leviable? A. Rao

No penalty will be leviable on you. Penalty under Section 271-F can be levied only where the return is not filed up to the end of the relevant assessment year, that is, up to March 31, 2007.

You may also note that as there is no tax payable in your case, no interest will be leviable. Interest under Section 234A, which is leviable for failure to furnish a return, will only be leviable on the tax on income reduced by the tax deducted at source, which in your case will be nil and, therefore, there will be no interest leviable in your case.

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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