The Hindu Business Line : Time no bar for LTA

To claim tax exemption under Section 10(5) in respect of LTA (leave travel allowance) is it required that I should travel for a stipulated minimum number of days? If I travel by air to Mumbai from Chennai and return the next day, can I claim the exemption under Section 10(5)? Prasad

There is no stipulation in Section 10(5) that your travel should be for a specified minimum period. You can, therefore, claim the exemption even in respect of your travel for one day subject to satisfying the other conditions and within the limits in

Section 10(5).

I have been working in a private limited company on a contract basis, that is, on a daily basis, for the last two-and-half years. My employer deducted tax at source, treating my income as salary. To compute the tax to be deducted, my investments were taken into account. Form 16 has also been issued in respect of the tax deducted at source. Is my employer correct in his treatment of my income? I have not furnished my return for the last three years. In the current year, I have an income of Rs 1.30 lakh. Will I be able to get a refund for the earlier years? What should I do for the current year? Anonymous

The first issue that needs to be addressed is whether you are to be treated as an employee and whether the income taxed is under the head `salary,' particularly in the light of the fact that you are only working on a contract basis and are not a permanent employee.

It needs to be understood that a person will be regarded as an employee even if he is not on the rolls of the employer if the employer exercises direct supervisory control over the concerned person. This view is supported by the decision of the Supreme Court in Ram Prashad v CIT (1972; 86 ITR 122; SC). In all probability you would be treated as an employee as it appears from the facts that you are under the supervisory control of the management of the company; also you have not indicated that you have worked with any other person and so were exclusively with the private limited company. This being so, it appears that tax would have been deducted, which should be equal to the tax payable by you particularly since all deductions have been taken into account in deducting tax at source. You may, therefore, not be able to get any refund for the earlier years. In the current year, you will have to file your return and pay the tax, if any, on your income. It may be advisable for you to file the returns for the earlier year even if there is no tax payable or refund due to you.

I hold equity shares in a private limited company. In case I sell these shares and receive a consideration, how will the capital gains be computed? I have held the shares for more than 12 months. Can the short-term capital losses and long-term capital losses from sale of equity shares through a recognised stock exchange be set off against the long-term capital gains from the sale of shares of the private limited company? Is dividend from the private limited company taxable?

V. S. Rama Rao

The capital gains arising from the sale of shares from the private limited company will be treated as long-term capital gains since you have held them for a period exceeding 12 months. The long-term capital gains will be computed by reducing from the full value of consideration, the indexed cost of acquisition. The indexed cost of acquisition is computed by multiplying the cost inflation index of the financial year of transfer with the cost of acquisition and dividing the result by the cost inflation index of the financial year in which the shares were first held by you. The cost inflation index is notified by the Board for each financial year. Such long-term capital gains will be taxed at 20 per cent (as increased by the appropriate surcharge and additional surcharge). The short-term capital loss incurred by you on sale of shares through a recognised stock exchange can be set off against such long-term capital gain arising from the sale of shares of the private limited company.

You will, however, not be able to set off the long-term capital loss arising from the sale of shares through a recognised stock exchange against the long-term capital gains from the sale of shares of the private limited company.

This would be so since, the long-term capital gains arising from sale of shares through a recognised stock exchange is exempt under Section 10(38) and as a natural corollary it would follow that the loss, if any, would have to be ignored. The dividend from the private limited company will be fully exempt from tax under Section 10(34).This Section does not make any distinction between dividends distributed by a private limited company or a public limited company.

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