The Hindu Business Line : Can my grandma claim exemption?

She invested the proceeds from the sale in capital gains accounts scheme with a nationalised bank before the due date for filing the return of income.

The sale of this property was in January 2006. She has since booked a flat in the joint names of my father and herself.

I would like to know whether the time frame of three years which is available for claiming exemption under Section 54 will be available even where a flat is booked and where the construction is done by a builder as per the agreement of construction with the builder. — Kanchan

Section 54 provides for an exemption on sale of a house property and purchase or construction of another and further places a restriction that the purchase should be within one year before or two years after the date of transfer or that the construction should be completed within three years from the date of transfer.

The issue raised by you is as to whether such acquisition of flat from a flat promoter who enters into an agreement of construction would be treated as a purchase or construction.

It has been held in CIT v Smt Brinda Kumari [2002] 253 ITR 343 (Delhi) that purchase of a flat in such circumstances amounts to construction for the purpose of exemption under Section 54.

Therefore, the three year time frame will apply from the date of transfer in the case given by you.

I purchased 50 shares of BHEL in March 2007. These shares were purchased for Rs 1 lakh.

I was later allotted 50 bonus shares by the company.

I now propose to sell 50 shares out of the 100 shares that I hold and this is likely to fetch me Rs 1 lakh. Kindly let me know whether short-term capital gains will arise on the sale of the shares. — Umaashankar

Apparently the shares that you hold must be in dematerialised form.

In such a case on the sale of shares, the first in first out method is to be followed both for the purpose of reckoning the period of holding and the cost of acquisition of shares.

In your case since the shares acquired at Rs 1 lakh would be in the dematerialised form before the bonus shares are allotted, it may be taken that the shares acquired by you in March 2007 are now being sold.

In such a case, though a capital gain would normally arise and would be treated as short term since the shares have been held for a period not exceeding 12 months, it can be seen that in your case the purchase cost and the sale price would both be Rs 1 lakh and hence there would be no gain.

If, however, the sale price is more than Rs 1 lakh, a short-term capital gain would arise. You may note that the cost of acquisition of bonus shares is to be taken as NIL.

Will fringe benefit tax be applicable on traveling expenses and telephone charges for the assessment year 2007-08? If so, what will be treated as the value of fringe benefit in respect of these expenses? — Preeti

Both travelling and telephone expenses will fall within the ambit of fringe benefit tax for the assessment year 2007-08.

The value of fringe benefit in respect of telephone expenditure would be 20 per cent of the total expense and that of the travelling expenditure will be 5 per cent of the total expense, for the assessment year 2007-08.

A private limited company has taken a premises on rent and the electricity charges are paid by the owner of the premises.

The company, however, reimburses the electricity charges paid by the owner.

Should the company deduct tax at source under Section 194-C on such reimbursement of electricity charges to the owner? — Venugopal

Section 194-C requires tax to be deducted at source on sums paid in pursuance of a contract for work.

From the facts given by you it does not appear that there would be a requirement to deduct tax at source on the reimbursement of the electricity charges since there is no contract for work where the landlord pays the electricity charges and when the same is reimbursed by the company.

I live in Chennai. I purchased a house in my home town of Salem in July 2003 for which I took a loan of Rs 12 lakh from HDFC Ltd.

I have since then been availing of the tax benefits on the principal repayment of the housing loan and also the interest on the housing loan.

I now propose to sell this house at Salem and purchase one at Chennai.

What will be the tax implications on such sale and purchase of another house?

Will the tax benefits that I have claimed in the earlier years in respect of the housing loan be withdrawn in any manner? — Balamurugan

Since you have held the house property for a period exceeding 3 years, the capital gains arising from the sale will be treated as a long term capital gain and you could avail of the exemption under Section 54 on reinvestment in another house property subject to satisfying the conditions in that section.

In so far as the interest on housing loan is concerned, there will be no tax implications on the sale of the house property at Salem.

There will, however, arise tax implications on the sale of the house property in respect of the principal repayment of the housing loan.

You may note that up to assessment year 2005-06 you would have claimed the rebate under Section 88 in respect of the principal repayment of the housing loan and thereafter would have claimed deduction under Section 80-C.

Both these sections provide for a taxability if the house property for which the loan was taken and tax benefit claimed, is transferred within a period of 5 years from the end of the financial year in which possession is taken.

In your case therefore, the rebate that you would have claimed under Section 88 in respect of the principal repayment up to assessment year 2005-06 will become the tax payable in the year of sale and the deduction that you would have claimed under Section 80-C in respect of the principal repayment from assessment year 2006-07 will become the income of the year of sale assuming that you are selling the property within the stipulated period of 5 years from the end of the financial year in which possession of the same was taken.

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