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Monday, Sep 13, 2004

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Columns - For the Asking


Unsure of rebate for premia over a fifth of sum assured

S. Murlidharan

I AM a salaried person. My salary is less than Rs 1.5 lakh. I have paid premia aggregating to Rs 6,528, being more than 20 per cent of the sum assured of Rs 30,000. Will I get tax rebate under Section 88? Will I get exemption when the policy matures after five years?

Ashok A. Bhandage, e-mail

The premia on this policy would qualify for tax rebate up to Rs 6,000 — being 20 per cent of the sum assured. On maturity, I am afraid, you will have to pay tax on the maturity amount, including bonus, as the premia for a year has exceeded 20 per cent of the sum assured.

Business conversion

WHAT are the tax consequences when a sole proprietor converts his business into a company and allots to himself fully paid shares in consideration of such transfer?

Nitin Gami, e-mail

There is exemption from capital gains tax for the former proprietor subject to satisfaction of all the conditions mentioned in Section 47(iv).

The other major favourable consequence is the successor company can carry forward the unabsorbed business loss and unabsorbed depreciation for set off against its own future profits.

For this purpose, such unabsorbed losses shall be deemed to have been incurred in the year of corporotisation of the business. Failure to comply with the conditions set out in Section 47(iv) would result in the successor company picking up the tax bill arising out of grant of these twin tax benefits. One wishes that Section 43(6) had explicitly stated, as it has in other cases of business restructuring such as merger and demerger, that the successor company would be entitled to depreciation only with reference to the WDV in the hands of the proprietor immediately before corporatisation.

In any case the assessing officer (AO) can invoke Explanation 3 to Section 43(1) if he suspects that the purpose of conversion was to claim higher depreciation on the artificially fixed higher actual cost.

Unlimited co.

WHAT is an unlimited company?

Are the provisions of the Companies Act applicable to unlimited companies?

R. M. Subramniam, e-mail

Section 12(2)(c) defines an unlimited company as "a company not having any limit on the liability of its members."

The provisions of the Act apply to such a company mutadis mutandis.

(ASK! Send in your queries on accounting, auditing, corporate law and taxation to ask@thehindu.co.in)

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