The Hindu Business Line : Tax calc for a woman assessee

What is my tax liability, and how much should I invest additionally under Section 80C given my gross salary per month of Rs 18,826 and a take-home of around Rs 16,000. I have a LIC policy and my premium is Rs 7,200 per annum.

Mrs Lavina Serrao, email

For income-tax purposes, what matters is the gross salary. I take it that no part of it is tax-exempt, for example, the HRA part is tax-free depending upon how much rent you pay and the place you live in. Without cutting it very fine, let us say your annual income is Rs 2,28,000. Being a lady, the tax-free limit for you is Rs 1,35,000. With Section 80C allowing you a deduction of Rs 1 lakh, subject to you making the specified investments, you can easily bring down your income below the tax-free limit or bring it abreast of it.

It calls for an investment of Rs 93,000 to be precise. I am sure you would be already contributing to a recognised provident fund. Assuming it is Rs 1,500 per month, it translates into an annual contribution of Rs 18,000, which together with the LIC premium of Rs 7,200, leaves you with the need for investing around Rs 68,000 in National Savings Certificates or other avenues specified in Section 80C.

TDS on cancelled bills

I am running Total Computer Solution, a Chennai-based company involved in manpower recruitment. During the financial year 2005-06, I raised ten bills to one of my clients. In that, two bills were cancelled and I did not receive any payment from them. The client issued TDS certificates for the cancelled bills also, for which I did not receive any payment. I am requesting the client to issue a fresh Form 16A for the bills which I received payment for, and not for the cancelled bills. They refused to do that because they have closed the auditing of FY 2005-06. They told that they have paid excess TDS amount and informed me to file my IT return for the FY 2005-06 and get it refunded.

The total bill amount of the cancelled bill comes to Rs 69,394.60 and the TDS amount Rs 3,893 for the two cancelled bills. Please clarify whether income is deemed to be received merely because someone has wrongly deducted tax from what he believes to be income? How can I account for the income of the cancelled bills, which I did not receive any payment for? As a manpower recruitment agency, we are also paying service tax. In spite of repeated request to sort out the issue, they did the deduction in my current bill (FY 2005-06). Is it correct on their part in doing the above? I am not receiving any reply from their end.

P. Ravichandran, Chennai

Since Rule 30 gives as much as two months from the end of the month in which your account was credited to effect payment into the treasury, the mistake could have been easily undone because no one can remain unaware of a cancelled bill for two months. You should have been vigilant at that time and requested your client not to go ahead with the deposit with the government treasury. Was the fact of cancellation communicated much later? In any case, the only remedy you have is to file a return and obtain refund of the excess tax, if any. After all there is no one-to-one relationship between TDS and income — TDS is only an ad hoc payment of tax subject to final determination of tax liability on assessment.

Partners' tax liability

A firm owns immovable property in the main. A building consisting of flats sold to the buyers who have now formed themselves into a society was a part of the property of the firm. The firm now wants to exit completely from the scene by introducing the various flats owners as partners with the existing partners exiting thereafter. But before effecting changes in the composition of the firm, it wants to have the assets revalued and credit the partners' capital account with the increase in the asset values. The consideration for allowing entry to new partners would be determined on the basis of revaluation of the property of the firm. What would be the firm and partners' tax liability?

Arjun Kumbar, email

Amount credited to capital accounts of retiring partners upon revaluation of assets of firm is not liable to capital gains tax as there is no transfer (ITO vs Ramesh M. Shah — 2004 2 SOT 558 Mumbai). Section 45(4), which fastens the firm with tax liability should there be a distribution of assets on dissolution or otherwise, is not attracted when some partners retire and others continue — CIT vs G.K. Enterprises (2003 131 Taxman 181 Mag) and CIT vs Sohrabji Khanna & Co (2003 133 Taxman 112 Mag).

But the Bombay High Court, in CIT vs A. N. Naik Associates (2004 136 Taxman 107), has thought otherwise by roping in retirement also within the scope of Section 45(4) on the basis of the usage of words `dissolution or otherwise' in the section.

Be that as it may, but on the facts of your case it would be difficult to invoke the section even on the basis of the elastic interpretation given to it by the Bombay High Court in A. N. Naik (supra) because there is no distribution of capital assets, with the retiring partners benefiting by book entries alone not represented by any physical distribution. But the Government might seal this escape route, as is its wont on becoming wiser after a series of events frustrating it.

(ASK! Send in your queries to ask@thehindu.co.in.)

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S. Murlidharan

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