In case you reinvest only the capital gains and not the entire net sale consideration, you would get only proportional exemption. To wit, if the sale price of shares — net consideration---is Rs 20 lacs and the cost of shares is Rs 5 lac, the profit is Rs 15 lac. To be entitled to exemption on Rs 15 lac, you have to invest Rs 20 lac--the entire net consideration--in a new house; else the exemption would be proportionate. Suppose, only Rs 15 lac is invested in a new house, the exemption would be only 75% of Rs 15 lac as only 75% of the net consideration has been invested in a house.

Asset sold and bought

A BUSINESS sells its depreciable asset but the very next year acquires a similar asset in all respect from another person. What are the tax consequences?

Nitin Gami, e-mail

Had the very same asset been got back from the same person to whom it was sold, Explanation 4 to Section 43(1) could have been invoked. But even in the situation envisaged by you, Explanation 3 could be invoked to fix the actual cost at the realistic level provided the seller had used this asset at any time. This of course is not possible if the seller happens to be a dealer in such assets.

A knotted query

I AM director of a private limited company. During incorporation I granted interest-free unsecured loans, and loans are being given as and when needed. I had borrowed and repaid all institutional dues. I have no statutory dues pending. Can I pass a resolution in the board meeting for charging interest on these unsecured loans from the date of granting the same, that is, from the date of incorporation. If I can't pass with retrospective effect, can interest be charged for a date subsequent to the board meeting. If it is possible, can I pass journal entries in the books and make payment only when sufficient cash to do so exists. Please clarify.

Kartik Somu, e-mail

Your question is not quite clear. You obviously cannot charge interest in respect of subsisting loans if the contract says that the loan is interest-free. If you recall the loan, you may expose yourself to suit for damages. Besides, the borrower may simply not pay back at once and may insist on repaying in instalments as per the agreement. And don't even think in terms of recovering interest for loans right from the date of incorporation of the company. No one will pay up. Nor can you enforce it.

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