The Hindu Business Line : Organic versus inorganic growth

The term used is greenfield project, which means a project started from the scratch by the entrepreneur building it brick by brick, mortar by mortar, so to speak, in a new location. Its close cousin, brownfield project, is expansion in the same premises of the capacity. Both are instances of organic growth. Inorganic growth is like buying readymade shirts or trousers. If an entrepreneur wants to cut down the delay inevitable in an organic growth, he would rather buy into an existing venture though it may be more expensive.

Sometimes inorganic growth is good for the economy as well. This happens when there is a surplus capacity or a glut situation for the product in the economy when a greenfield project would be wasteful for all concerned besides plummeting the profits for the entire industry. In such a situation it makes perfect sense to grow through the inorganic route, the route adopted by the cement majors in this country.
HRA for spouses

My wife and myself have taken a joint housing loan of Rs 43 lakh but have given it on rent because the house is quite far from my wife’s place of work. We both get HRA and are living in a rented house. What are the tax implications on the housing front for us?

Chandra, email

The exemption for HRA according to the prescribed formula would be available to the one who pays the rent. Obviously, the receipt would be issued in favour of the person with whom the lease agreement is signed. In case, you are joint tenants and pay the annual rent in equal proportions, both of you can get exemption on this score, but then obviously it would be considerably watered down for both because both of you are getting full HRA all right but living in a shared household. The deduction under Section 80C for repayment of housing loan would be available to the extent each one of you has paid back the principal portion during the year. The rental income would be taxable in proportion to the respective shares.

In case the house is owned by you jointly with equal shares, the rent, which I presume is the market rent, would be divided equally between you. You would get a 30 per cent standard deduction with reference to your share of rent as also deduction towards your share of the interest paid.

The resultant figure would be taxable as income from house property. If, however, it turns out to be a negative figure, it can be set off against your salary income.
Deduction of joint loans

I recently obtained a housing loan in the joint names of my son who is an NRI. The loan as well as the property is in the joint names. Is the interest as well as principal serviced through EMIs eligible for deductions under Sections 24 and 80C, respectively, to both of us in equal proportion? Repayment is being paid through part of inward remittance received to an account which is in joint names (savings bank account) and from this account the amount is being repaid to the loan account. If the deduction is allowed to both of us, what kind of certificates/proofs need to be obtained from the bankers, that is, separate certificates or one certificate, so 50 per cent can be claimed by each one.

TRV Satyanarayana, Hyderabad

Loans, particularly for housing purposes, commonly taken in joint names face this problem. The bank is not concerned about the source of repayment. All that it is interested in is the repayment of the loan with interest. The receipt or annual statement is, therefore, in respect of the loan and not the one who repaid it. It is therefore bound to be consolidated. It (the bank) simply cannot segregate the total repayment between the two of you. Having said that, I must hasten to add that this does not make your case hopeless.

Should the assessing officer (AO) want to know whether you have indeed paid the 50 per cent of the EMI from your own sources, you should be able to prove this through your income statement and other cogent evidences. However, no part of the evidence except the payment of EMIs would be forthcoming from the bank.
Small and non-performing?

Why does our financial system report the greater part of non-performing assets (NPAs) from the small and medium sector?

C. Gopalakrishna, email

A possible explanation is small and medium enterprises (SMEs) sow the seeds of failure right at the inception due to the fact that they do not enjoy economies of scale so crucial to drive down the prices and stay competitive. Small wonder, they go belly up sooner than later and start defaulting on loan servicing. But then big industries too have their own share of this dubious distinction of not servicing the loan taken. “You borrow in lakhs, you are in trouble with bank and you borrow in crores, the bank is in trouble with you”, has always found resonance in our country where the middle-class borrowers, mainly taking mortgage loans for house construction have shown exemplary compliance record. But the ushering in of the securitisation law has made the lot of banks and financial institutions a lot better.
Cash gift to dad

Can I gift cash to my parents and claim income-tax rebate thereon like on insurance premium, PF contribution etc?

Vanesh K, email

Gift to your father who is your lineal ascendant is not taxable in his hands which, but for this exemption, is taxable if the amount gifted at a time is more than Rs 25,000. Nor is it taxable in your hands. But then you don’t get any rebate or benefit for discharging your filial duties. In other words, you don’t get any tax rebate or benefit for gifting to your parents on a par with the tax benefit your contribution to provident fund, life insurance, etc.
Filing returns

We have a private company whose name was struck off under Section 560 of the Companies Act under the Simplified Exit Scheme 2005. Are we nevertheless required to file income-tax return?

K. G. Arora, New Delhi

Obviously not. It is true all companies are required to file return mandatorily. But this requirement cannot possibly apply to companies that simply don’t exist.
Adjusting excess tax paid

On account of settling issues, I had to refund Rs 18,500 (which I claimed as salary in 1998) to the state treasury this year. Can this amount be adjusted against current year’s salary income for income-tax?

Francis Xavier, email

Under Section 239, refund application should have been made by you within a year of excess payment of tax. But the problem is you were engaged in a protracted dispute, which presumably came to an end only recently. You may therefore apply to the Central Board of Direct Taxes (CBDT) for condoning this delay citing reasons of genuine hardship as contemplated by Section 119.

You cannot adjust the excess tax paid against the current tax liability on your salary. The employer simply does not have this power under Section 192 while deducting tax at source.

S. MURLIDHARAN
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